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 29, 2001 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 22, 2002. 13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value, were outstanding as of January 22, 2002.
<TABLE> <CAPTION> INDEX PILGRIM'S PRIDE CORORATION AND SUBSIDIARIES <S> <C> <C> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets December 29, 2001 and September 29, 2001 Consolidated statements of income Three months ended December 29, 2001 and December 30, 2000 Consolidated statements of cash flows Three months ended December 29, 2001 and December 30, 2000 Notes to consolidated financial statements December 29, 2001 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 Consolidated Balance Sheets (Unaudited) December 29, 2001 September 29, 2001 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) <S> <C> <C> <C> <C> ASSETS CURRENT ASSETS: Cash and cash equivalents $14,398 $ 20,916 Trade accounts and other receivables, less allowance for doubtful accounts 92,211 95,022 Inventories 260,140 314,400 Other current assets 13,998 12,934 Total Current Assets 380,747 443,272 OTHER ASSETS 19,999 20,067 PROPERTY, PLANT AND EQUIPMENT Land 36,350 36,350 Buildings, machinery and equipment 935,108 929,922 Autos and trucks 53,349 53,264 Construction-in-progress 83,002 71,427 1,107,809 1,090,963 Less accumulated depreciation 355,117 338,607 752,692 752,356 $1,153,438 $1,215,695 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $143,236 $151,265 Accrued expenses 88,974 83,558 Current maturities of long-term debt 5,177 5,099 Total Current Liabilities 237,387 239,922 LONG-TERM DEBT, LESS CURRENT MATURITIES 396,945 467,242 DEFERRED INCOME TAXES 126,573 126,710 MINORITY INTEREST IN SUBSIDIARY 889 889 COMMITMENTS AND CONTINGENCIES -- -- 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; 13,794,529 issued and outstanding 138 138 Common stock - Class B, $.01 par value, authorized 60,000,000 shares; 27,589,250 issued and outstanding 276 276 Additional paid-in capital 79,625 79,625 Retained earnings 315,128 302,758 Accumulated other comprehensive loss (1,955) (297) Less treasury stock, 271,100 shares (1,568) (1,568) Total Stockholders' Equity 391,644 380,932 $1,153,438 $1,215,695 See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Pilgrim's Pride Corporation and Subsidiaries Consolidated Income Statements (Unaudited) THREE MONTHS ENDED DECEMBER 29, 2001 DECEMBER 30, 2000 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) <S> <C> <C> <C> <C> NET SALES $656,030 $386,032 COSTS AND EXPENSES: Cost of sales 598,165 338,866 Selling, general and administrative 34,535 23,955 632,700 362,821 Operating income 23,330 23,211 OTHER EXPENSE (INCOME): Interest expense, net 8,573 4,140 Foreign exchange (gain)loss (535) 121 Miscellaneous, net (387) (122) 7,651 4,139 INCOME BEFORE INCOME TAXES 15,679 19,072 INCOME TAX EXPENSE 2,688 6,335 NET INCOME $ 12,991 $ 12,737 NET INCOME PER COMMON SHARE - BASIC AND DILUTED $ 0.32 $ 0.31 DIVIDENDS DECLARED PER COMMON SHARE $ 0.015 $ 0.015 WEIGHTED AVERAGE SHARES OUTSTANDING 41,112,679 41,112,679 See notes to consolidated financial statements. </TABLE>
<TABLE> <CAPTION> Pilgrim's Pride Corporation and Subsidiaries Consolidated Statements of Cash Flow (Unaudited) THREE MONTHS ENDED DECEMBER 29, 2001 DECEMBER 30, 2002 (IN THOUSANDS) <S> <C> <C> <C> <C> Cash Flows From Operating Activities: Net income $12,991 $12,737 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 17,399 8,668 Loss (Gain) on property disposals 32 (8) Provision for doubtful accounts 128 173 Deferred income taxes (138) 3,991 Changes in operating assets and liabilities: Accounts and other receivables 2,683 (14,174) Inventories 54,260 14,025 Prepaid expenses (1,064) (925) Accounts payable and accrued expenses (2,613) (8,363) Other (1,905) (124) Cash Provided By Operating Activities 81,773 16,000 INVESTING ACTIVITIES: Acquisitions of property, plant and equipment (17,333) (32,607) Proceeds from property disposals 84 56 Other, net (278) (620) Net Cash Used In Investing Activities (17,527) (33,171) FINANCING ACTIVITIES: Proceeds from notes payable to banks 18,500 70,000 Repayments of notes payable to banks (18,500) (60,500) Proceeds from long-term debt 10,223 10,701 Payments on long-term debt (80,441) (19,144) Cash dividends paid (621) (621) Cash (Used In) Provided By Financing Activities (70,839) 436 Effect of exchange rate changes on cash and cash equivalents 75 (48) Decrease in cash and cash equivalents (6,518) (16,783) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 20,916 28,060 CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,398 $11,277 SUPPLEMENTAL DISCLOSURE INFORMATION: Cash paid during the period for: Interest (net of amount capitalized) $ 4,148 $ 1,661 Income taxes 178 517 See notes to consolidated financial statements. </TABLE> NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A-BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Pilgrim's Pride Corporation ("Pilgrim's" or "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period ended December 29, 2001 are not necessarily indicative of the results that may be expected for the year ended September 28, 2002. 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 29, 2001. 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. Effective January 1, 2002, the Mexican Congress passed the Mexico Tax Reform (the "Reform"), which eliminated the previous tax exemption under Simplified Regime for the Company's Mexico subsidiaries. The Reform will require that the Company's Mexico subsidiaries calculate and pay taxes under a new special regime of the Mexico Income Tax Laws beginning January 1, 2002, subject to transitional provisions. The Company is evaluating the effect of the changes to the Mexico tax law, which will likely be reflected in the second quarter results and are not expected to have a material effect on the Company cash flows or financial position. Total comprehensive income for the three months ending December 29, 2001 and December 30, 2000 was $11.3 million and $12.7 million, respectively. On January 27, 2001, we acquired WLR Foods, Inc. (formerly Nasdaq: WLRF) for approximately $239.5 million and the assumption of approximately $45.5 million of indebtedness. The purchase price and refinancing were provided by borrowings on the Company's existing secured term borrowing facility and revolving credit facility. WLR operations have been included since the acquisition on January 27, 2001. The acquisition is being accounted for under the purchase method of accounting and the purchase price, which is still preliminary, has been allocated based on the estimated fair value of assets and liabilities. The following table represents pro forma financial information as if the acquisition of WLR had occurred as of the first day of each period presented. Certain reclassifications have been made to the WLR historical financial statements to conform to the presentation used by Pilgrim's. <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 29, 2001 DECEMBER 30, 2000 (in thousands) HISTORICAL PRO FORMA <S> <C> <C> <C> <C> Net Sales $656,030 $601,396 Operating Income 23,330 29,798 Interest Expense, Net 8,573 10,900 Income Before Tax 15,679 18,896 Net Income 12,991 12,629 Depreciation and Amortization 17,399 16,397 Net Income Per Common Share - Basic and Diluted $ 0.32 $ 0.31 </TABLE> NOTE B-ACCOUNTS RECEIVABLE On June 26, 1998 the Company entered into an Asset Sale Agreement to sell up to $60 million of accounts receivable. In connection with the Asset Sale 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 29, 2001 and September 29, 2001, an interest in these Pooled Receivables of $60.0 million and $58.5 million, respectively, 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. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. The increase in pooled receivable sales from September 29, 2001, is 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 29, 2001 SEPTEMBER 29, 2001 (IN THOUSANDS) <S> <C> <C> <C> <C> Chicken: Live chicken and hens $ 65,337 $ 97,073 Feed, eggs and other 78,326 77,970 Finished chicken products 61,317 70,493 204,980 245,536 Turkey: Live turkey and hens 32,353 30,694 Feed, eggs and other 3,329 3,906 Finished turkey products 19,478 34,264 55,160 68,864 Total Inventory $260,140 $314,400 </TABLE> NOTE D-LONG TERM DEBT At December 29, 2001, the Company maintained $130.0 million in revolving credit facilities and $400.0 million in secured revolving/term borrowing facility. The $400.0 million revolving/term borrowing facility provides for $285.0 million and $115.0 million of 10 year and 7 year commitments, respectively. Borrowings under these facilities are split pro rata between the 10 year and 7 year maturities as they occur. The credit facilities provide for interest at rates ranging from LIBOR plus five-eights 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 29, 2001 ranged from LIBOR plus one and one-quarter percent to LIBOR plus two and one-quarter percent. These facilities are secured by inventory and fixed assets or are unsecured. At December 29, 2001, $84.3 million was available under the revolving credit facility and $294.0 million was available under the term borrowing facility. Annual maturities of long-term debt for the remainder of fiscal 2002 and for the five years subsequent to December 29, 2001 are: 2002 -- $3.9 million; 2003 -- $6.4 million; 2004 -- $11.8 million; 2005 -- $11.5 million; and 2006 -- $50.6 million. NOTE E-RELATED PARTY TRANSACTIONS The major stockholder of the Company owns an egg laying and a chicken growing operation. <TABLE> <CAPTION> Transactions with related parties are summarized as follows: THREE MONTHS ENDED DECEMBER 29, 2001 DECEMBER 30, 2000 (IN THOUSANDS) <S> <C> <C> <C> <C> Contract egg grower fees to major stockholder $ -- $ 1,248 Lease payment to major stockholder 188 -- Chick, feed and other sales to major stockholder 37,107 30,770 Live chicken purchases from major stockholder 20,550 13,446 </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 agreement. The lease term runs for ten years with a monthly lease payment of $62,500. 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. The Company had accounts receivable of approximately $0.1 million at December 29, 2001, from related parties, including its major stockholder. NOTE F-CONTINGENCIES In January of 1998, seventeen of our current and/or former employees 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 Pilgrim's Pride violated requirements of the Fair Labor Standards Act. The suit alleged Pilgrim's Pride failed to pay employees for all hours worked. The suit generally alleged that (1) 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 (2) the use of a master time card or production "line" time fails to pay employees for all time actually worked. Plaintiffs sought to recover unpaid wages plus liquidated damages and legal fees. Approximately 1,700 consents to join as plaintiffs were filed with the court by current and/or former employees. During the week of March 5, 2001, the case was tried in the Federal Court of the Eastern District of Texas, Lufkin, Texas. The Company prevailed at the trial with a judgment issued by the judge, which found no evidence presented to support the plaintiffs' allegations. The plaintiffs have filed an appeal in the Fifth Circuit Court of Appeals to reverse the judge's decision. The plaintiff's brief was submitted to the court on November 5, 2001. Pilgrim's Pride's response to the plaintiff's brief to the Fifth Circuit Court of Appeals was submitted on December 5, 2001. Appellants filed a short reply brief. The National Chicken Council has filed an Amicus Curiae brief in support of our position on this appeal, which was accepted by the court. 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 our financial position, operations or liquidity. Substantially similar suits have been filed against four other integrated poultry companies, including WLR Foods, one of which resulted in a federal judge dismissing most of the plaintiffs' claims in that action with facts similar to our case. In August of 2000, four of our current and/or former employees filed the case of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United States District Court for the Northern District of West Virginia, claiming we violated requirements of the Fair Labor Standards Act. The suit generally makes the same allegations as Anderson v. Pilgrim's Pride discussed above. Plaintiffs seek to recover unpaid wages plus liquidated damages and legal fees. Approximately 150 consents to join as plaintiffs were filed with the court by current and/or former employees. No trial date has been set. To date, only limited discovery has been performed. 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. We do not expect this matter, individually or collectively, to have a material impact on our financial position, operations or liquidity. NOTE G - BUSINESS SEGMENTS Since the acquisition of WLR Foods on January 27, 2001, the Company operates in two reportable business segments as (1) a producer of chicken and other products and (2) a producer of turkey products. The Company's chicken and other products segment primarily includes sales of chicken products the Company produces and purchases for resale in the United States and Mexico, and also includes table eggs and feed. The Company's chicken and other products segment conducts separate operations in the United States and Mexico and is reported as two separate geographical areas. The Company's turkey segment includes sales of turkey products produced in our turkey operation recently acquired from WLR Foods, whose operations are exclusively in the United States. Inter-area sales and inter-segment sales, which are not material, are accounted for at prices comparable to normal trade customer sales. Corporate assets and expenses are included with chicken and other products. PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 29,2001 <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 29, 2001 DECEMBER 30, 2000 (IN THOUSANDS) <S> <C> <C> <C> <C> Net Sales to Customers: Chicken and Other Products: United States $ 448,063 $ 307,552 Mexico 90,916 78,480 Sub-total 538,979 386,032 Turkey 117,051 -- Total $ 656,030 $ 386,032 OPERATING INCOME: Chicken and Other Products: United States $ 9,356 $ 20,631 Mexico 8,471 2,580 Sub-total 17,827 23,211 Turkey 5,503 -- Total $ 23,330 $ 23,211 DEPRECIATION AND AMORTIZATION: Chicken and Other Products: United States $ 10,792 $ 5,889 Mexico 3,417 2,779 Sub-total 14,209 8,668 Turkey 3,190 -- Total $ 17,399 $ 8,668 </TABLE> ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Also, the production and sale in the U.S. of prepared foods 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 30.1% of our cost of goods sold in fiscal 2001. 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's total production costs, thereby reducing their impact on our profitability. 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. The following table presents certain information regarding our segments: <TABLE> <CAPTION> THREE MONTHS ENDED DECEMBER 29, 2001 DECEMBER 30, 2000 (IN THOUSANDS) <S> <C> <C> <C> <C> Net Sales to Customers: Chicken and Other Products: United States $448,063 $307,552 Mexico 90,916 78,480 Sub-total 538,979 386,032 Turkey 117,051 -- Total $656,030 $386,032 OPERATING INCOME: Chicken and Other Products: United States $ 9,356 $ 20,631 Mexico 8,471 2,580 Sub-total 17,827 23,211 Turkey 5,503 -- Total $ 23,330 $ 23,211 DEPRECIATION AND AMORTIZATION: Chicken and Other Products: United States $ 10,792 $ 5,889 Mexico 3,417 2,779 Sub-total 14,209 8,668 Turkey 3,190 -- Total $ 17,399 $ 8,668 </TABLE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 29,2001 The following table presents certain items as a percentage of net sales for the periods indicated. <TABLE> <CAPTION> Percentage of Net Sales THREE MONTHS ENDED DECEMBER29, 2001 DECEMBER 30, 2000 (IN THOUSANDS) <S> <C> <C> <C> <C> Net Sales 100.0 % 100.0 % Costs and Expenses: Cost of sales 91.2 87.8 Gross profit 8.8 12.2 Selling, general and administrative 5.3 6.2 Operating Income 3.6 6.0 Interest Expense 1.3 1.1 Income Before Income Taxes 2.4 4.9 Net Income 2.0 3.3 </TABLE> RESULTS OF OPERATIONS FISCAL FIRST QUARTER 2002 COMPARED TO FISCAL FIRST QUARTER 2001 On January 27, 2001, we completed the acquisition of WLR Foods, a vertically integrated producer of chicken and turkey products located in the eastern United States. Accordingly, the former WLR Foods operations are included in our results for the first quarter ended December 29, 2001 and not in the quarter ended December 30, 2000. CONSOLIDATED NET SALES. Consolidated net sales were $656.0 million for the first quarter of fiscal 2002, an increase of $270.0 million, or 69.9%, from the first quarter of fiscal 2001. The increase in consolidated net sales resulted from a $136.4 million increase in U.S. chicken sales to $402.2 million, a $117.1 million increase in turkey sales, a $12.4 million increase in Mexico chicken sales to $90.9 million and a $4.1 million increase in sales of other U.S. products to $45.8 million. The increase in U.S. chicken sales was primarily due to a 55.8% increase in dressed pounds produced, which resulted primarily from the acquisition of WLR Foods, offset partially by a 2.9% decrease in total revenue per dressed pound produced. The increase in turkey sales was due to the acquisition of WLR Foods. The $12.4 million increase in Mexico chicken sales was primarily due to an 8.6% increase in average revenue per dressed pound produced and by 6.7% increase in dressed pounds produced. The $4.1 million increase in sales of other U.S. products to $45.8 million was primarily due to the acquisition of WLR Foods. COST OF SALES. Consolidated cost of sales were $598.2 million in the first quarter of fiscal 2002, an increase of $259.3 million, or 76.5%, compared to the first quarter of fiscal 2001. The U.S. operations accounted for $254.4 million of the increase in the cost of sales and our Mexico operations accounted for $4.9 million of the increase. The cost of sales increase in our U.S. operations of $254.4 million was due primarily to the acquisition of WLR Foods, $105.7 million of which related to the turkey operations. The increase in cost of sales of chicken products also resulted from increased production of higher cost prepared foods products. The $4.9 million cost of sales increase in our Mexico operations was primarily due to a 6.7% increase in dressed pounds produced. GROSS PROFIT. Gross profit was $57.9 million for the first quarter of fiscal 2002, an increase of $10.7 million, or 22.7%, over the same period last year, due primarily to the acquisition of WLR Foods. Gross profit as a percentage of sales decreased to 8.8% in the first quarter of fiscal 2002, from 12.2% in the first quarter of fiscal 2001 due primarily to lower commodity chicken sales prices experienced in our Eastern Division. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general and administrative expenses were $34.5 million in the first quarter of fiscal 2002 and $24.0 million in the first quarter of fiscal 2001. The $10.5 million increase was due primarily to the acquisition of WLR Foods. Consolidated selling, general and administrative expenses as a percentage of sales decreased in the first quarter of fiscal 2002 to 5.3%, compared to 6.2% in the first quarter of fiscal 2001, due primarily to synergies resulting from the WLR Foods acquisition. OPERATING INCOME. Consolidated operating income remained relatively stable at $23.3 million for the first quarter of fiscal 2002, increasing by approximately $0.1 million, when compared to the first quarter of fiscal 2001. INTEREST EXPENSE. Consolidated net interest expense increased 107.1% to $8.6 million in the first quarter of fiscal 2002, when compared to $4.1 million for the first quarter of fiscal 2001, due to higher outstanding balances incurred for the acquisition of WLR Foods. INCOME TAX EXPENSE. Consolidated income tax expense in the first quarter of fiscal 2002 decreased to $2.7 million compared to $6.3 million in the first quarter of fiscal 2001. This decrease resulted from lower U.S. pre- tax earnings in the first quarter of fiscal 2002 than in the first quarter of fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES WE MAINTAIN $130.0 MILLION IN REVOLVING CREDIT FACILITIES AND $400.0 MILLION IN A SECURED REVOLVING/TERM BORROWING FACILITY. THE $400.0 MILLION REVOLVING/TERM BORROWING FACILITY PROVIDES FOR $285.0 MILLION AND $115.0 MILLION OF 10-YEAR AND 7-YEAR COMMITMENTS, RESPECTIVELY. BORROWINGS UNDER THIS FACILITY ARE SPLIT PRO RATA BETWEEN THE 10-YEAR AND 7-YEAR MATURITIES AS THEY OCCUR. 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 OUR TOTAL DEBT TO CAPITALIZATION RATIO. INTEREST RATES ON DEBT OUTSTANDING UNDER THESE FACILITIES AS OF DECEMBER 29, 2001 RANGED FROM LIBOR PLUS ONE AND ONE-QUARTER PERCENT TO LIBOR PLUS TWO AND ONE-QUARTER PERCENT. THESE FACILITIES ARE SECURED BY INVENTORY AND FIXED ASSETS. AT DECEMBER 29, 2001, $84.3 MILLION WAS AVAILABLE UNDER THE REVOLVING CREDIT FACILITIES AND $294.0 MILLION WAS AVAILABLE UNDER THE REVOLVING/TERM BORROWING FACILITY. ANNUAL MATURITIES OF LONG-TERM DEBT FOR THE REMAINDER OF FISCAL 2002 AND FOR THE FIVE YEARS SUBSEQUENT TO DECEMBER 29, 2001 ARE: 2002--$3.9 MILLION; 2003--$6.4 MILLION; 2004--$11.8 MILLION; 2005--$11.5 MILLION; AND 2006--$50.6 MILLION. ON JUNE 26, 1998, WE ENTERED INTO AN ASSET SALE AGREEMENT TO SELL UP TO $60 MILLION OF ACCOUNTS RECEIVABLE. IN CONNECTION WITH THE ASSET SALE AGREEMENT, WE SELL, ON A REVOLVING BASIS, CERTAIN OF OUR TRADE RECEIVABLES (THE "POOLED RECEIVABLES") TO A SPECIAL PURPOSE CORPORATION WHOLLY OWNED BY US, WHICH IN TURN SELLS A PERCENTAGE OWNERSHIP INTEREST TO THIRD PARTIES. AT DECEMBER 29, 2001 AND SEPTEMBER 29, 2001, AN INTEREST IN THESE POOLED RECEIVABLES OF $60.0 MILLION AND $58.5 MILLION, RESPECTIVELY, HAD BEEN SOLD TO THIRD PARTIES AND IS REFLECTED AS A REDUCTION IN ACCOUNTS RECEIVABLE. THESE TRANSACTIONS HAVE BEEN RECORDED AS SALES IN ACCORDANCE WITH FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 140, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. THE INCREASE IN POOLED RECEIVABLE SALES FROM SEPTEMBER 29, 2001, IS INCLUDED IN CASH FLOWS FROM OPERATING ACTIVITIES IN OUR CONSOLIDATED STATEMENTS OF CASH FLOWS. LOSSES ON THESE SALES WERE IMMATERIAL. ON JUNE 29, 1999, THE CAMP COUNTY INDUSTRIAL DEVELOPMENT CORPORATION ISSUED $25.0 MILLION OF VARIABLE-RATE ENVIRONMENTAL FACILITIES REVENUE BONDS SUPPORTED BY LETTERS OF CREDIT OBTAINED BY PILGRIM'S PRIDE. WE MAY DRAW FROM THESE PROCEEDS OVER THE CONSTRUCTION PERIOD FOR NEW SEWAGE AND SOLID WASTE DISPOSAL FACILITIES AT A POULTRY BY-PRODUCTS PLANT TO BE BUILT IN CAMP COUNTY, TEXAS. WE ARE NOT REQUIRED TO BORROW THE FULL AMOUNT OF THE PROCEEDS FROM THE BONDS. ALL AMOUNTS BORROWED FROM THESE FUNDS WILL BE DUE IN 2029. THE AMOUNTS THAT WE BORROW WILL BE REFLECTED AS DEBT WHEN RECEIVED FROM THE CAMP COUNTY INDUSTRIAL DEVELOPMENT CORPORATION. THE INTEREST RATES ON AMOUNTS BORROWED WILL CLOSELY FOLLOW THE TAX-EXEMPT COMMERCIAL PAPER RATES. PRESENTLY, THERE ARE NO BORROWINGS OUTSTANDING UNDER THE BONDS. AT DECEMBER 29, 2001, OUR WORKING CAPITAL DECREASED TO $143.4 MILLION AND OUR CURRENT RATIO DECREASED TO 1.60 TO 1, COMPARED WITH WORKING CAPITAL OF $203.5 MILLION AND A CURRENT RATIO OF 1.85 TO 1 AT SEPTEMBER 29, 2001, PRIMARILY DUE TO LOWER INVENTORIES FROM NORMAL SEASONAL VARIATIONS. TRADE ACCOUNTS AND OTHER RECEIVABLES WERE $92.2 MILLION AT DECEMBER 29, 2001, COMPARED TO $95.0 MILLION AT SEPTEMBER 29, 2001. THE 3.0% DECREASE IN TRADE ACCOUNTS AND OTHER RECEIVABLES WAS PRIMARILY DUE TO NORMAL SEASONAL VARIATIONS. EXCLUDING THE SALE OF RECEIVABLES, TRADE ACCOUNTS AND OTHER RECEIVABLES WOULD HAVE DECREASED SLIGHTLY TO $152.2 MILLION AT THE END OF THE FIRST QUARTER OF FISCAL 2002 FROM $153.5 MILLION AT THE END OF FISCAL 2001. INVENTORIES WERE $260.1 MILLION AT DECEMBER 29, 2001, COMPARED TO $314.4 MILLION AT SEPTEMBER 29, 2001. THE $54.3 MILLION, OR 17.3%, DECREASE IN INVENTORIES WAS PRIMARILY DUE TO NORMAL SEASONAL SALES OF OUR TURKEY DIVISION WHICH LOWERS TURKEY FINISHED PRODUCT INVENTORIES AND TO LOWER LIVE CHICKEN AND HEN INVENTORIES RESULTING FROM SEASONAL VARIATIONS IN SALES OF CHICKEN AND FEED PRODUCTS TO THE COMPANY'S PRINCIPAL STOCKHOLDER. ACCOUNTS PAYABLE AND ACCRUED EXPENSES REMAINED RELATIVELY STABLE AT $232.2 MILLION AT DECEMBER 29, 2001, COMPARED TO $234.8 MILLION AT SEPTEMBER 29, 2001. CAPITAL EXPENDITURES OF $17.3 MILLION AND $32.6 MILLION, FOR THE THREE MONTHS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000, RESPECTIVELY, WERE INCURRED PRIMARILY TO ACQUIRE AND EXPAND CERTAIN FACILITIES, IMPROVE EFFICIENCIES, REDUCE COSTS AND FOR THE ROUTINE REPLACEMENT OF EQUIPMENT. WE ANTICIPATE SPENDING APPROXIMATELY $65.0 MILLION IN FISCAL 2002 TO IMPROVE EFFICIENCIES AND FOR THE ROUTINE REPLACEMENT OF EQUIPMENT. WE EXPECT TO FINANCE SUCH EXPENDITURES WITH AVAILABLE OPERATING CASH FLOWS AND EXISTING CREDIT FACILITIES. CASH FLOWS PROVIDED BY OPERATING ACTIVITIES WERE $81.8 MILLION AND $16.0 MILLION FOR THE THREE MONTHS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000, RESPECTIVELY. THE INCREASE IN CASH FLOWS PROVIDED BY OPERATING ACTIVITIES IN THE FIRST QUARTER OF FISCAL 2002 COMPARED TO THE FIRST QUARTER OF FISCAL 2001, WAS PRIMARILY DUE TO A DECREASE IN INVENTORIES FROM SEASONAL SALES OF OUR TURKEY DIVISION AND SEASONAL VARIATIONS IN SALES OF CHICKEN AND FEED PRODUCTS TO THE COMPANY'S PRINCIPAL STOCKHOLDER. CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES WERE ($70.8) MILLION AND $0.4 MILLION FOR THE THREE MONTH PERIODS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000, RESPECTIVELY. THE CASH USED IN FINANCING ACTIVITIES PRIMARILY REFLECTS THE NET PROCEEDS (PAYMENTS) ON NOTES PAYABLE AND LONG- TERM FINANCING AND DEBT RETIREMENT. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the provided in Item 7a of the Company's Annual Report on Form 10-K for the year ended September 29, 2001, except interest rate risk. With the significant reduction in debt, a 25 basis point increase rate would increase interest expense by $66,500 for the first quarter of fiscal 2002. NEW ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS" (SFAS NO. 144). SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and provides new rules for classifying assets held for sale. The adoption of this standard is not expected to have a material effect on the Company. 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; * Management of our cash resources, particularly in light of our substantial leverage; * Restrictions imposed by, and as a result of, our substantial 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; * Inability to effectively integrate WLR Foods or realize the associated cost savings and operating synergies currently anticipated; and * The impact of uncertainties of litigation as well as other risks described in our filings 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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In January of 1998, seventeen of our current and/or former employees 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 Pilgrim's Pride violated requirements of the Fair Labor Standards Act. The suit alleged Pilgrim's Pride failed to pay employees for all hours worked. The suit generally alleged that (1) 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 (2) the use of a master time card or production "line" time fails to pay employees for all time actually worked. Plaintiffs sought to recover unpaid wages plus liquidated damages and legal fees. Approximately 1,700 consents to join as plaintiffs were filed with the court by current and/or former employees. During the week of March 5, 2001, the case was tried in the Federal Court of the Eastern District of Texas, Lufkin, Texas. The Company prevailed at the trial with a judgment issued by the judge, which found no evidence presented to support the plaintiffs' allegations. The plaintiffs have filed an appeal in the Fifth Circuit Court of Appeals to reverse the judge's decision. The plaintiff's brief was submitted to the court on November 5, 2001. Pilgrim's Pride's response to the plaintiff's brief to the Fifth Circuit Court of Appeals was submitted on December 5, 2001. Appellants filed a short reply brief. The National Chicken Council has filed an Amicus Curiae brief in support of our position on this appeal, which was accepted by the court. 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 our financial position, operations or liquidity. Substantially similar suits have been filed against four other integrated poultry companies, including WLR Foods, one of which resulted in a federal judge dismissing most of the plaintiffs' claims in that action with facts similar to our case. In August of 2000, four of our current and/or former employees filed the case of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United States District Court for the Northern District of West Virginia, claiming we violated requirements of the Fair Labor Standards Act. The suit generally makes the same allegations as Anderson v. Pilgrim's Pride discussed above. Plaintiffs seek to recover unpaid wages plus liquidated damages and legal fees. Approximately 150 consents to join as plaintiffs were filed with the court by current and/or former employees. No trial date has been set. To date, only limited discovery has been performed. 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. We do not expect this matter, individually or collectively, to have a material impact on our financial position, operations or liquidity. 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 (a) Exhibit Number None (b) Reports on Form 8-K 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 1/22/2002 Richard A. Cogdill Executive Vice President, Chief Financial Officer, Secretary and Treasurer in his respective capacity as such