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 MARCH 30, 1996 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 MAY 13, 1996
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 INDEX PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited): Condensed consolidated balance sheets: March 30, 1996 and September 30, 1995 Consolidated statements of income: Three months and six months ended March 30, 1996 and April 1, 1995 Consolidated statements of cash flows: Six months ended March 30, 1996 and April 1, 1995 Notes to condensed consolidated financial statements--March 30, 1996 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
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 <TABLE> PART I. FINANCIAL INFORMATION PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ITEM 1: FINANCIAL STATEMENTS (UNAUDITED): March 30, 1996 September 30, 1995 <S> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 8,228 $ 11,892 Trade accounts and other receivables, less allowance for doubtful accounts 65,067 60,031 Inventories 129,346 110,404 Deferred income taxes 9,196 9,564 Prepaid expenses 1,624 526 Other current assets 739 953 Total Current Assets 214,200 193,370 Other Assets 19,348 20,918 Property, Plant and Equipment 464,411 442,781 Less accumulated depreciation 171,257 159,465 293,155 283,316 $ 526,703 $ 497,604 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to banks $ 26,000 $ 13,000 Accounts payable 59,880 55,658 Accrued expenses 30,383 31,130 Current maturities of long-term debt 7,121 5,187 Total Current Liabilities 123,384 104,975 Long-Term Debt, less current maturities 202,128 182,988 Deferred Income Taxes 53,143 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 67,167 72,035 Total Stockholders' Equity 147,206 152,074 $ 526,703 $ 497,604 See notes to condensed consolidated financial statements. </TABLE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED MARCH 30, 1996 APRIL 1, 1995 MARCH 30, 1996 APRIL 1, 1995 <S> <C> <C> Net sales $ 272,004 $ 216,830 $ 539,479 $ 443,830 Costs and expenses: Cost of sales 255,957 209,253 502,460 415,488 Selling, general and administrative 12,363 12,239 24,510 24,262 268,320 221,492 526,970 439,750 Operating income (loss) 3,684 (4,662) 12,509 4,080 Other expense (income): Interest expense, net 5,210 4,028 10,331 8,355 Foreign exchange (gain) loss (94) 3,270 1,222 5,615 Miscellaneous, net (329) 1,136 (577) 889 4,787 8,434 10,976 14,859 Income (loss) before income taxes and extraordinary charge (1,103) (13,096) 1,533 (10,779) Income tax (benefit) expense (548) 3,208 2,792 4,969 Net loss before extraordinary charge (555) (16,304) (1,259) (15,748) Extraordinary charge-early repayment of debt, net of tax (2,780) - (2,780) - Net loss $ (3,335) $ (16,304) $ (4,039) $ (15,748) Net loss per common share before extraordinary charge $ (.02) $ (.59) $ (.05) $ (.57) Extraordinary charge per common share $ (.10) $ - $ (.10) $ - Net loss per common share $ (.12) $ (.59) $ (.15) $ (0.57) Dividends per common share $ .015 $ .015 $ .03 $ .03 Weighted average shares outstanding shares outstanding 27,589,250 27,589,250 27,589,250 27,589,250 See Notes to condensed consolidated financial statements. </TABLE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 <TABLE> PILGRIM'S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED MARCH 30, 1996 APRIL 1, 1995 <S> <C> <C> Cash Flows From Operating Activities: Net loss $ (4,039) $ (15,748) Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 14,639 12,738 Gain on property disposals (221) (126) Provision for losses on accounts receivable 206 (2,315) Deferred income tax liability (3,214) 1,791 Extraordinary charge 4,587 - Changes in operating assets and liabilities: Accounts and other receivable (5,242) 10,068 Inventories (18,845) 12,700 Prepaid expenses (1,828) (436) Accounts payable and accrued expenses 3,475 (2,505) Other (186) 983 Net Cash Flows (Used In) Provided By Operating Activities (10,668) 17,150 Investing Activities: Acquisitions of property, plant and equipment (23,937) (14,397) Business acquisitions - (918) Proceeds from property disposals 1,314 193 Other, net 361 (300) Net Cash Used In Investing Activities (22,262) (15,422) Financing Activities: Proceeds from notes payable to banks 56,500 - Re-payments of notes payable to banks (43,500) - Proceeds from long-term debt 50,028 15,030 Payments on long-term debt (29,001) (14,726) Extraordinary charge, cash items (3,920) - Cash dividends paid (828) (828) Cash Provided By (Used In) Financing Activities 29,279 (524) Effect of exchange rate changes on cash and cash equivalents (13) (1,154) (Decrease) Increase in cash and cash equivalents (3,664) 50 Cash and cash equivalents at beginning of year 11,892 11,244 Cash and cash equivalents at end of period $ 8,228 $ 11,294 Supplemental disclosure information: Cash paid during the period for Interest (net of amount capitalized) $ 9,530 $ 8,100 Income Taxes $ 4,014 $ 2,805 See notes to condensed consolidated financial statements. </TABLE>
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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. The balance sheet at September 30, 1995, has been derived from the audited financial statements at the date. Operating results for the period ended March 30, 1996 are not necessarily indicative of that 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 March 30, 1996 and April 1, 1995 are based on the weighted average shares outstanding for the periods.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 NOTE C--INVENTORIES Inventories consist of the following: <TABLE> MARCH 30, 1996 SEPTEMBER 30, 1995 (in thousands) <S> <C> <C> Live broilers and hens $ 61,180 $ 55,353 Feed, eggs and other 40,806 32,087 Finished poultry products 27,360 22,964 $ 129,346 $ 110,404 </TABLE> NOTE D--IMPACT OF MEXICAN PESO DEVALUATION Included in results of operations for the three and six months ended March 30, 1996 are foreign exchange gains (losses) of $.1 million and ($1.2) million, respectively, and $3.3 million and $5.6 million for three and six months ended April 1, 1995, respectively. These gains (losses) result from the appreciation (devaluation) of the Mexican peso against the U.S. dollar. Also, for the period ended April 1, 1995, the carrying value of inventories was adjusted to end-of-period exchange rates as was necessary to record inventories at the lower of cost or market. These adjustments are presented in the March 30, 1996 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 effect on cash and cash equivalents has been separately stated in the Consolidated Statement of Cash Flows. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Mexican Peso Devaluation. NOTE E--EARLY REPAYMENT OF DEBT On February 16, 1996 the Company completed a refinancing of two issues of Senior Secured debt of $22.0 million and $3.4 million with interest rates of 10.49% and 9.55%, respectively, payable to an insurance company maturing on September 21, 2002 and October 1, 1998, respectively, by borrowing $50 million pursuant to a new 10-year term loan bearing interest at 7.21% payable in 120 fixed monthly installments of $455,305 beginning on April 1, 1996 and a final balloon payment of $22.9 million due on February 28, 2006. The additional proceeds from this refinancing was used primarily to finance expansions of the Company's domestic production facilities. The extraordinary charges of $2.8 million, net of $1.8 million tax benefit, is the result of the early repayment of the above mentioned debt obligations.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 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. <TABLE> Percentage of Net Sales Percentage of Net Sales THREE MONTHS ENDED SIX MONTHS ENDED MARCH 30, 1996 APRIL 1, 1995 MARCH 30, 1996 APRIL 1, 1995 <S> <C> <C> <C> <C> Net sales 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 94.1% 96.5% 93.1% 93.6% Gross profit 5.9% 3.5% 6.7% 6.4% Selling, general and administrative 4.5% 5.6% 4.5% 5.5% Operating income (loss) 1.4% (2.2%) 2.3% .9% Interest expense 1.9% 1.9% 1.9% 1.9% Income (loss) before income taxes and extraordinary charge (.4%) (6.0%) .3% (2.4%) Extraordinary charge-early repayment of debt, net of tax 1.0% - .5% - Net Income (loss) (1.2%) (7.5%) (.7%) (3.5%) </TABLE> SECOND QUARTER 1996, COMPARED TO SECOND QUARTER 1995 Consolidated net sales were $272.0 million for the second quarter of fiscal 1996, an increase of $55.2 million, or 25.5%, over the second quarter of fiscal 1995. The increase in consolidated net sales resulted from a $27.7 million increase in Mexican chicken sales to $56.3 million, a $16.4 million increase in domestic chicken sales to $180.2 million, and an $11.1 million increase in sales of other domestic products to $35.5 million. The increase in Mexican chicken sales was primarily due to a 58.2% increase in total revenue per dressed pound produced and by a 24.5% increase in dressed pounds produced resulting primarily from the July 5, 1995 acquisition of five chicken companies located near Queretaro, Mexico. The increase in domestic chicken sales was primarily due to a 5.8% increase in the dressed pounds produced and a 4.0% increase in total revenue per dressed pound produced. The increase in sales to other domestic products was primarily the result of higher sales prices for commercial eggs and increased sales of the Company's poultry by- products group. Increased revenues per dressed pound produced both domestically and in Mexico were primarily the result of higher sales prices. Consolidated cost of sales was $256.0 million in the second quarter of fiscal 1996, an increase of $46.7 million, or 22.3%, over the second quarter of fiscal 1995. The increase primarily resulted from a $35.5 million increase in cost of sales of domestic operations, and a $11.2 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $35.5 million was due to a 42.3% increase in feed ingredient costs, a 5.8% increase in dressed pounds produced and increased production of higher margin products in prepared foods. 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 or increase and sales prices do not correspondingly increase, future results will continue to be negatively impacted. The Company anticipates that higher corn prices will continue at least through the forth fiscal quarter. The $11.2 million cost of sales increase in Mexican operations was primarily due to a 24.5% increase in dressed pounds produced and a 2.0% increase in average costs of sales per dressed pound. See Impact of Mexican Peso Devaluation discussed below. Gross profit as a percentage of sales increased to 5.9% in the second quarter of fiscal 1996 from 3.5% in the second quarter of 1995. The increased gross profit resulted mainly from improved performance in the Company's Mexican operation and the U.S. dollar exchange rate of the Mexican peso being relatively stable during the second quarter of fiscal 1996 compared to the significant devaluation experienced during the same period of the prior year. Consolidated selling, general and administrative expenses were $12.4 million for the second quarter of fiscal 1996, an increase of $.1 million, or 1.0%, when compared to the second quarter of fiscal 1995. Consolidated selling, general and administrative expenses as a percentage of sales decreased in the second quarter of fiscal 1996 to 4.5% compared to 5.6% in the second quarter of fiscal 1995 due to higher sales volume with consolidated selling, general and administrative expenses remaining relatively stable. Consolidated operating income was $3.7 million for the second quarter of fiscal 1996 an increase of $8.3 million, when compared to the second quarter of fiscal 1995 resulting primarily from improved results in the Company's Mexico operation as discussed above. Consolidated net interest expense was $5.2 million in the second quarter of fiscal 1996 an increase of $1.2 million, or 29.3%, when compared to the second 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 second quarter of fiscal 1995. Consolidated income tax benefit in the second quarter of fiscal 1996 was $.5 million compared to an expense of $3.2 million in the second quarter of fiscal 1995. The extraordinary charge-early repayment of debt in the amount of $2.8 million, net of tax, was incurred while refinancing certain debt at a lower interest rate, which should result in long term interest expense reductions. See Note E to the Condensed Consolidated Financial Statements. SIX MONTHS ENDED MARCH 30, 1996, COMPARED TO SIX MONTHS ENDED APRIL 1, 1995 Consolidated net sales were $539.5 million for the first six months of fiscal 1996, an increase of $95.7 million, or 21.6%, over the first six months of fiscal 1995. The increase in consolidated net sales resulted from a $42.1 million increase in domestic chicken sales to $362.1 million, a $34.0 million increase in Mexican chicken sales to $108.5 million, and a $19.6 million increase in sales of other domestic products to $68.8 million. The increase in domestic chicken sales was primarily due to a 6.6% increase in total revenue per dressed pound produced and a 6.1% increase in the dressed pounds produced. The increase in Mexican chicken sales was primarily due to a 35.2% increase in dressed pounds produced resulting primarily from the July 5, 1995 acquisition of five chicken companies located near Queretaro, Mexico and by a 7.7% increase in total revenue per dressed pound produced. The increase in sales of other domestic products was primarily the result of higher sales prices for the Company's commercial eggs and increased sales of the Company's poultry by- products group. Increased revenues per dressed pound produced both domestically and in Mexico were primarily the result of higher sales prices. Consolidated cost of sales was $502.5 million in the first six months of fiscal 1996, an increase of $87.0 million, or 20.9%, over the first six months of fiscal 1995. The increase primarily resulted from a $65.3 million increase in cost of sales of domestic operations, and a $21.7 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $65.3 million was due to a 36.3% increase in feed ingredient costs, a 6.1% increase in dressed pounds produced, and increased production of higher margin products in prepared foods. 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 or increase and sales prices do not correspondingly increase, future results will continue to be negatively impacted. The Company anticipates that higher corn prices will continue at least through the forth fiscal quarter. The $21.7 million cost of sales increase in Mexican operations was primarily due to a 35.2% increase in dressed pounds produced offset partially by a 7.1% decrease in average costs of sales per dressed pound resulting primarily from the effects of the devaluation of the Mexican peso. See Impact of Mexican Peso Devaluation discussed below. Gross profit as a percentage of sales increased to 6.9% in the first six months of fiscal 1996 from 6.4% in the first six months of 1995. The increased gross profit resulted from improved performance in the Company's Mexican operation and the Mexican peso devaluation having a lesser negative impact on the current periods gross profit than on the gross profit of the same period in the prior year. Consolidated selling, general and administrative expenses were $24.5 million for the first six months of fiscal 1996, an increase of $.2 million, or 1.0%, when compared to the first six months of fiscal 1995. Consolidated selling, general and administrative expenses as a percentage of sales decreased in the first six months of fiscal 1996 to 4.5% compared to 5.5% in the first six months of fiscal 1995 due to higher sales with consolidating selling, general and administrative expenses remaining relatively stable. Consolidated operating income was $12.5 million for the first six months of fiscal 1996 an increase of $8.4 million, when compared to the first six months of fiscal 1995 resulting primarily from improved results in the Company's Mexico operations as discussed above. Consolidated net interest expense was $10.3 million in the first six months of fiscal 1996 an increase of $2.0 million, or 23.7%, when compared to the first six months 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 six months of fiscal 1995. Consolidated income tax expense in the first six months of fiscal 1996 decreased to 2.8 million compared to $5.0 million in the first six months of fiscal 1995. The decrease in income tax expense resulted from lower domestic profits for the period when compared to the same period in the prior year. The extraordinary charge-early repayment of debt in the amount of $2.8 million, net of tax, was incurred while refinancing certain debt at a lower interest rate, which should result in long term interest expense reductions. See Note E to the Condensed Consolidated Financial Statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 LIQUIDITY AND CAPITAL RESOURCES Liquidity in first six months of fiscal 1996 remained strong. However, operating losses in Mexico resulting primarily from the Mexican peso devaluation and higher feed ingredient costs affected most financial ratios negatively. The Company's working capital at March 30, 1996 increased to $90.8 million from $88.4 million at September 30, 1995. The current ratio at March 30, 1996 decreased to 1.74 to 1 from 1.84 to 1 at September 30, 1995 and the Company's stockholders' equity decreased to $147.2 million at March 30, 1996 from $152.1 million at September 30, 1995. Total debt to capitalization increased to 61.5% at March 30, 1996 from 56.9% at September 30, 1995. The Company maintains $85 million in revolving credit facilities with available unused lines of credit of $49.8 million at May 9, 1996. Trade accounts and other receivables were $65.1 million at March 30, 1996, a $5.0 million increase from September 30, 1995. The 8.4% increase was due primarily to increased consolidated sales. Allowances for doubtful accounts, as a percentage of trade accounts and notes receivable were 5.7% at March 30, 1996 compared to 6.7% at September 30, 1995. Inventories were $129.3 million at March 30, 1996, an increase of $18.9 million from September 30, 1995. This 17.2% increase was due primarily to the higher feed ingredient costs affecting the carrying value of feed on hand and feed cost in the live birds and finished products. Accounts payable were $59.9 million at March 30, 1996, a 7.6% increase from September 30, 1995, due primarily to higher production levels and feed ingredient. Capital expenditures for the first six months of fiscal 1996 were $23.9 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 $42.0 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 closed a $50 million long-term financing arrangement in the second fiscal quarter which was used to finance some of the above mentioned capital expenditures and to refinance certain existing long-term debt at a lower interest rate. See Note E to the Condensed Consolidated Financial Statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 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 May 9, 1996 the Mexican peso closed at 7.47 to 1 U.S. dollar. No assurance can be given as to the future valuation of the Mexican peso and 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." 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. The statements contained in this filing which are not historical facts, such as future feed costs, sales prices, capital expenditures, and movements in the exchange rate between the U.S. dollar and the Mexican peso are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Among the factors that could cause actual results to differ materially are competitive pressures, crop yields, the strength of the U.S. and Mexican economies, and the demand for Pilgrim's Pride products in the marketplace.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES March 30, 1996 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 six months ended April 1, 1995. 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 5/10/96 Clifford E. Butler Vice Chairman of the Board, Chief Financial Officer and Secretary and Treasurer in his respective capacity as such