SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended DECEMBER 30, 1995 Commission file number 1-9273 PILGRIM'S 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 (Telephone number of principle 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 periods 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 practical date. COMMON STOCK $.01 PAR VALUE---27,589,250 SHARES AS OF FEBRUARY 9, 1996 INDEX PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited): Condensed consolidated balance sheets: December 30, 1995 and September 30, 1995 Consolidated statements of income: Three months ended December 30, 1995 and December 31, 1994 Consolidated statements of cash flows: Three months ended December 30, 1995 and December 31, 1994 Notes to condensed consolidated financial statements--December 30, 1995 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURES
PART I. FINANCIAL INFORMATION PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ITEM 1: FINANCIAL STATEMENTS (UNAUDITED): December 30, 1995 September 30, (UNAUDITED) 1995 (in thousands) ASSETS Current Assets Cash and cash equivalents $ 16,269 $ 11,892 Trade accounts and other receivables, less allowance for doubtful accounts 70,023 60,031 Inventories 101,790 110,404 Deferred income taxes 5,825 9,564 Prepaid expenses 412 526 Other current assets 812 953 Total Current Assets 195,131 193,370 Other Assets 20,535 20,918 Property, Plant and Equipment 453,633 442,781 Less accumulated depreciation 164,687 159,465 288,946 283,316 $ 504,612 $ 497,604 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ 7,000 $ 13,000 Accounts payable 71,589 55,658 Accrued expenses 34,984 31,130 Current maturities of long-term debt 8,574 5,187 Total Current Liabilities 122,147 104,975 Long-Term Debt, less current maturities 177,340 182,988 Deferred Income Taxes 53,328 56,725 Minority Interest in Subsidiary 842 842 Stockholders' Equity: Common stock; $.01 par value 276 276 Additional paid-in capital 79,763 79,763 Retained earnings 70,916 72,035 Total Stockholders' Equity 150,955 152,074 $ 504,612 $ 497,604 See notes to condensed consolidated financial statements. PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) THREE MONTHS ENDED December 30, December 31, 1995 1994 (in thousands, except share and per share data) Net Sales $ 267,475 $ 227,000 Costs and Expenses: Cost of sales 246,503 206,235 Selling, general and administrative 12,147 12,023 258,650 218,258 Operating Income 8,825 8,742 Other Expense (Income): Interest expense, net 5,121 4,327 Foreign exchange loss 1,316 2,345 Miscellaneous, net [248] [247] Income Before Income Taxes 2,636 2,317 Income tax expense 3,340 1,761 Net Income (Loss) $ [704] $ 556 Net income (loss) per common share $ [.03] $ .02 Dividends per common share $ .015 $ .015 Weighted average shares outstanding 27,589,250 27,589,250 See Notes to condensed consolidated financial statements.
PILGRIM'S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED December 30, December 31, 1995 1994 (in thousands) Cash Flows From Operating Activities: Net income (loss) $ [704] $ 556 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 7,131 6,271 Gain on property disposals [112] [69] Provision for doubtful accounts 305 [958] Deferred income taxes 342 722 Changes in operating assets and liabilities: Accounts and other receivable [10,297] 7,694 Inventories 8,712 14,358 Prepaid expenses [495] [515] Accounts payable and accrued expenses 19,785 [2,162] Other [152] 876 Net Cash Flows Provided By Operating Activities: 24,515 26,773 Investing Activities: Acquisitions of property, plant and equipment [12,447] [8,826] Proceeds from property disposals 936 113 Other, net 106 66 Net Cash Used In Investing Activities [11,405] [8,647] Financing Activities: Proceeds from notes payable to banks 6,500 -- Repayments of notes payable to banks [12,500] -- Proceeds from long-term debt 28 30 Payments on long-term debt [2,299] [948] Cash dividends paid [414] [413] Cash Used In Financing Activities [8,685] [1,331] Effect of Exchange Rate Changes on Cash and Cash Equivalents [47] [1,048] Increase in cash and cash equivalents 4,378 15,747 Cash and cash equivalents at beginning of year 11,891 11,244 Cash and cash equivalents at end of period $ 16,269 $ 26,991 Supplemental disclosure information: Cash paid during the period for: Interest (net of amount capitalized) $ 2,398 $ 1,509 Income Taxes $ 1,792 $ 989 See notes to condensed consolidated financial statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 30, 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (Unaudited) ______________________________________________________________________________ NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements 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. Operating results for the period ended December 30, 1995 are not necessarily indicative of the results that may be expected for the year ended September 28, 1996. 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, 1995. 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 and 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. The translation adjustments are reflected in the Consolidated Statements of Income (Loss). NOTE B--NET INCOME PER COMMON SHARE Earnings per share for the periods ended December 30, 1995 and December 31, 1994 are based on the weighted average shares outstanding for the periods. NOTE C--INVENTORIES Inventories consist of the following: DECEMBER 30, 1995 SEPTEMBER 30, 1995 (in thousands) Live broilers and hens $ 44,815 $ 55,353 Feed, eggs and other 35,509 32,087 Finished poultry products 21,466 22,964 $ 101,790 $ 110,404 NOTE D--IMPACT OF MEXICAN PESO DEVALUATION Included in results of operations for the period ended December 30, 1995 and December 31, 1994 is a $1.3 million and $2.3 million, respectively, foreign exchange loss resulting from the devaluation of the Mexican peso against the U.S. dollar. Also included in cost of sales is a $2.0 million lower of cost or market adjustment to inventories in Mexico at December 31, 1994 resulting from the affect of such devaluation on operations. These adjustments are presented in the Condensed Consolidated Balance Sheet and Consolidated Statement of Cash Flows as components of the specific line items affected with the exception that the exchange rate effects on cash and cash equivalents has been separately stated on the Consolidated Statement of Cash Flows. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Mexico Peso Devaluation.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 30, 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - Continued ______________________________________________________________________________ ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________________________________________________________________________________ The following table presents certain items as a percentage of net sales for the periods indicated. Percentage of Net Sales THREE MONTHS ENDED December 30, December 31, 1995 1994 Net sales 100.0% 100.0% Costs and expenses: Cost of sales 92.2% 90.9% Gross profit 7.8% 9.1% Selling, general and administrative 4.5% 5.3% Operating Income 3.3% 3.9% Interest expense 1.9% 1.9% Income before income taxes 1.0% 1.0% Net Income (Loss) (0.3%) 0.2% FIRST QUARTER 1995, COMPARED TO FIRST QUARTER 1996 Consolidated net sales were $267.5 million for the first quarter of fiscal 1996, an increase of $40.5 million, or 17.8%, over the first quarter of fiscal 1995. The increase in consolidated net sales resulted from a $25.7 million increase in domestic chicken sales to $181.9 million, an $8.5 million increase in sales of other domestic products to $33.4 million and by a $6.3 million increase in Mexican chicken sales to $52.2 million. The increase in domestic chicken sales was primarily due to a 9.2% increase in total revenue per dressed pound produced and a 6.7% increase in the dressed pounds produced. The increase in Mexican chicken sales was primarily due to a 46.1% increase in dressed pounds produced resulting primarily from the July 5, 1995 acquisition of five chicken companies located near Queretaro, Mexico, offset by a 22.2% decrease in total revenue per dressed pound produced caused primarily by the devaluation of the Mexican peso which began in December 1994. Consolidated cost of sales was $246.5 million in the first quarter of fiscal 1996, an increase of $40.3 million, or 19.5%, over the first quarter of fiscal 1995. The increase primarily resulted from a $29.8 million increase in cost of sales of domestic operations, and a $10.5 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $29.8 million was due primarily to a 6.7% increase in dressed pounds produced, increased production of higher margin products in prepared foods and a 30.6% increase in feed ingredient costs. Since year end, feed costs have increased substantially due to lower crop yields in the 1995 harvest season and if feed costs remain at their current level and sales prices do not correspondingly increase, future results will be negatively impacted. The $10.5 million cost of sales increase in Mexican operations was primarily due to a 46.1% increase in dressed pounds produced offset partially by a 14.8% decrease in average costs of sales per dressed pound resulting from the devaluation of the Mexican peso. See Impact of Mexican Peso Devaluation discussed below. Gross profit as a percentage of sales decreased to 7.8% in the first quarter of fiscal 1996 from 9.1% in the first quarter of 1995. The decreased gross profit resulted mainly from the Company's Mexican operation and was primarily the result of the Mexican peso devaluation having a greater effect on selling prices than costs of sales, due primarily to the dollar based characteristics of grain prices, which is a major component of costs of goods sold. Consolidated selling, general and administrative expenses were $12.1 million for the first quarter of fiscal 1996, an increase of $.1 million, or 1.0%, when compared to the first quarter of fiscal 1995. Consolidated selling, general and administrative expenses as a percentage of sales decreased in the first quarter of fiscal 1996 to 4.5% compared to 5.3% in the first quarter of fiscal 1995. Consolidated operating income was $8.8 million for the first quarter of fiscal 1996 a slight increase of $.1 million, or .1%, when compared to the first quarter of 1995. Consolidated net interest expense was $5.1 million in the first quarter of fiscal 1996 an increase of $.8 million, or 18.3%, when compared to the first quarter of fiscal 1995. This increase was due to higher outstanding debt levels resulting primarily from the prior year acquisitions in Mexico, offset slightly by lower interest rates when compared to the first quarter of fiscal 1995. Consolidated income tax expense as a percentage of income before income taxes increased in the first quarter of fiscal 1996 to 126.7% compared to 76.0% in the first quarter of fiscal 1995. The high effective tax rate is due to the Company having positive taxable income in the United States offset by losses in Mexico which result in no current tax benefit under current Mexican tax laws. LIQUIDITY AND CAPITAL RESOURCES Liquidity in first quarter 1996 remained strong. However, operating losses in Mexico resulting primarily from the Mexican peso devaluation affected most financial ratios. The Company's working capital at December 30, 1995 decreased to $73.0 million from $88.4 million at September 30, 1995. The current ratio at December 30, 1995 decreased to 1.60 to 1 from 1.84 to 1 at September 30, 1995 and the Company's stockholder's equity slightly decreased to $151.0 million at December 30, 1995 million from $152.1 million at September 30, 1995. The Company reduced its ratio of total debt to capitalization to 56.1% at December 30, 1995 from 56.9% at September 30, 1995. The Company maintains a $75 million revolving credit facility and obtained a $10 million revolving credit facility in Mexico on January 31, 1996, with available unused lines of credit of $32.8 million and $10 million, respectively, at February 9, 1994. Trade accounts and other receivables were $70.0 million at December 30, 1995, a $10.0 million increase from September 30, 1995. The 16.6% increase was due primarily to increased domestic sales offset partially by the effects of the Mexican peso devaluation. Allowances for doubtful accounts, which primarily relate to receivables in Mexico, as a percentage of trade accounts and notes receivable were 5.4% at December 30, 1995 compared to 6.7% at September 30, 1995. Inventories were $101.8 million at December 30, 1995, a decrease of $8.6 million decrease from September 30, 1995. This 7.8% decrease was due to reductions in finished poultry products due to increased sales, seasonal variations in sales of poultry and feed products to the Company's principal stockholder, and the effects on Mexican inventories resulting from the peso devaluation. Accounts payable were $71.6 million at December 30, 1995, a 28.6% increase from September 30, 1995, due primarily to higher production levels, feed ingredient costs and construction-in progress from September 30, 1995. Capital expenditures for the first three months of 1995 were $12.4 million and were primarily incurred to expand production capacities domestically, improve efficiencies, reduce costs and for the routine replacement of equipment. The Company anticipates that it will spend approximately $45.0 million for capital expenditures in fiscal year 1996 and expects to finance such expenditures with available operating cash flows, leases and long-term financing. The Company expects to close a $50 million long-term financing arrangement in the second fiscal quarter which will be used to finance the above mentioned capital expenditures and to refinance certain existing long-term debt.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 30, 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - Continued ______________________________________________________________________________ IMPACT OF MEXICAN PESO DEVALUATION In December 1994, the Mexican government changed its policy of defending the peso against the U.S. dollar and allowed it to float freely on the currency markets. These events resulted in the Mexican peso exchange rate declining from 3.39 to 1 U.S. dollar at October 1, 1994 to a low of 7.91 at November 15, 1995. On February 8, 1996 the Mexican peso closed at 7.45 to 1 U.S. dollar. No assurance can be given as to the future valuation of the Mexican peso and its resulting impact on the Company's operation. Further movement in the Mexican peso could affect future earnings positively or negatively. Adjustments resulting from changes in currency exchange rates on net monetary assets are reflected in the Consolidated Statements of Income (Loss). Classification of the effects in the Consolidated Statements of Income (Loss) is dependent upon the nature of the underlying asset and, in general, exchange rate effects on net monetary assets are reflected as "Other expenses (income) - Foreign exchange (gain) loss." During the quarters ended December 30, 1995 and December 31, 1994, the peso's devaluation resulted in foreign exchange losses of $1.3 million and $2.3 million, respectively, on net monetary assets. OTHER In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF." SFAS No. 121 establishes accounting standards for the impairment of long-lived assets to be held and used and for long-lived assets to be disposed of. SFAS No. 121 is scheduled to become mandatory for the Company's 1997 fiscal year. The Company has not determined the effect of adopting SFAS No. 121. There will be no cash flow impact from this accounting change. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the three months ended December 30, 1995.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 30, 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - Continued ______________________________________________________________________________ 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 Date 02/09/96 Clifford E. Butler Vice Chairman of the Board, Chief Financial Officer and Secretary and Treasurer in his respective capacity as such
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES December 30, 1995 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT (Unaudited) - Continued ______________________________________________________________________________