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 JUNE 29, 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 AUGUST 12, 1996
INDEX PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited): Condensed consolidated balance sheets: June 29, 1996 and September 30, 1995 Consolidated statements of income: Three months and nine months ended June 29, 1996 and July 1, 1995 Consolidated statements of cash flows: Nine months ended June 29, 1996 and July 1, 1995 Notes to condensed consolidated financial statements--June 29, 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
<TABLE> <CAPTION> PART I. FINANCIAL INFORMATION <S> <C> <C> PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ITEM 1: FINANCIAL STATEMENTS (UNAUDITED): June 29, 1996 September 30, 1995 (in thousands) ASSET Current Assets: Cash and cash equivalents $ 7,809 $ 11,892 Trade accounts and other receivables, less allowance for doubtful accounts 63,704 60,031 Inventories 140,403 110,404 Deferred income taxes 10,359 9,564 Prepaid expenses 1,369 526 Other current assets 725 953 Total Current assets 224,369 193,370 19,150 20,918 466,680 442,781 Less accumulated depreciation 177,941 159,465 288,739 283,316 $ 532,258 $ 497,604 Notes payable to banks $ 27,000 $ 13,000 Accounts payable 60,071 55,658 Accrued expenses 35,790 31,130 Current maturities of long-term debt 7,872 5,187 Total Current Liabilities 130,733 104,975 199,817 182,988 53,067 56,725 842 842 Common stock; $.01 par value 276 276 Additional paid-in capital 79,763 79,763 Retained earnings 67,760 72,035 Total Stockholders' Equity 147,799 152,074 $ 532,258 $ 497,604 See notes to condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> <S> <C> <C> <C> <C> PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (Unaudited) Three Months Ended Nine Months Ended June 29, July 1, June 29, July 1, 1996 1995 1996 1995 (in thousands, except share and per share data) Net sales $ 294,339 $ 230,297 $ 833,818 $ 674,127 Costs and expenses: Cost of sales 276,955 206,471 779,415 621,959 Selling, general and administrative 11,930 11,983 36,440 36,245 288,885 218,454 815,855 658,204 Operating income 5,454 11,843 17,963 15,923 Other expense (income): Interest expense, net 5,526 4,359 15,857 12,714 Foreign exchange (gain) loss (59) (177) 1,163 5,438 Miscellaneous, net (600) (761) (1,177) 128 4,867 3,421 15,843 18,280 Income (loss) before income taxes and extraordinary charge 587 8,422 2,120 (2,357) Income tax (benefit) expense (420) 2,279 2,372 7,248 Net loss before extraordinary charge 1,007 6,143 (252) (9,605) Extraordinary charge-early repayment of debt,net of tax - - (2,780) - Net income (loss) $ 1,007 $ 6,143 $ (3,032) $ (9,605) Net income (loss) per common share before extraordinary charge $ 0.04 $ 0.22 $ (0.01) $ (0.35) Extraordinary charge per common share - - (0.10) - Net income (loss) per common share $ 0.04 $ 0.22 $ (0.11) $ (0.35) Dividends per common share $ 0.015 $ 0.015 $ 0.045 $ 0.045 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>
<TABLE> <CAPTION> <S> <C> <C> PILGRIM'S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended June 29, 1996 July 1, 1995 (in thousands) Cash Flows From Operating Activities: Net loss $ (3,032) $ (9,605) Adjustments to reconcile net income to cash Provided by operating activities: Depreciation and amortization 21,993 19,160 Gain on property disposals (262) (191) Provision for losses on accounts receivable 669 - Deferred income tax liability (4,453) 3,446 Extraordinary charge 4,587 - Changes in operating assets and liabilities: Accounts and other receivable (4,342) 3,435 Inventories (28,368) (2,711) Prepaid expenses and other current assets (1,033) 222 Accounts payable and accrued expenses 9,073 12,025 Other (171) 11 Net Cash Flows (Used In) Provided By Operating (5,339) 25,792 Activities Investing Activities: Acquisitions of property, plant and equipment (28,655) (25,011) Business acquisitions - (918) Proceeds from property disposals 1,378 304 Other, net 294 (481) Net Cash Used In Investing Activities (26,983) (26,106) Financing Activities: Proceeds from notes payable to banks 70,500 - Repayments on notes payable to banks (56,500) - Proceeds from long-term debt 50,029 15,030 Payments on long-term debt (30,600) (15,216) Extraordinary charge, cash items (3,920) - Cash dividends paid (1,241) (1,242) Cash Provided By (Used In) Financing Activities 28,268 (1,428) Effect of exchange rate changes on cash and cash (29) (189) equivalents Decrease in cash and cash equivalents (4,083) (1,931) Cash and cash equivalents at beginning of year 11,892 11,244 Cash and cash equivalents at end of period $ 7,809 $ 9,313 Supplemental disclosure information: Cash paid during the period for Interest (net of amount capitalized) $ 12,229 $ 9,755 Income Taxes $ 4,844 $ 3,683 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 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 that date. Operating results for the period ended June 29, 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. NOTE B--NET INCOME PER COMMON SHARE Earnings per share for the periods ended June 29, 1996 and July 1, 1995 are based on the weighted average shares outstanding for the periods.
NOTE C--INVENTORIES Inventories consist of the following: JUNE 29, 1996 SEPTEMBER 30, 1995 (in thousands) Live broilers and hens $ 68,491 $ 55,353 Feed, eggs and other 47,377 32,087 Finished poultry products 24,535 22,964 $ 140,403 $ 110,404 NOTE D--IMPACT OF MEXICAN PESO DEVALUATION Included in results of operations for the three and nine months ended June 29, 1996 are foreign exchange (gains) losses of $(.1) million and $1.2 million, respectively, compared with $(.2) million and $5.4 million for three and nine months ended July 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 July 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. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Impact of Mexican Peso Devaluation. NOTE E--EARLY REPAYMENT OF DEBT AND REVOLVING CREDIT EXTENSION AND MODIFICATION 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 charge of $2.8 million, net of $1.8 million tax benefit, is the result of the early repayment of the above mentioned debt obligations.
On June 6, 1996 the Company completed an extension and amendment of its credit facility with various banks. The amendment increased the facility from $75 million to $100 million at interest rates of approximately one and three quarter percent above LIBOR and extended the facility's term to May 31, 1999. Inventories and trade accounts receivable of the Company are pledged as collateral on this facility.
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 Percentage of Net Sales THREE MONTHS ENDED NINE MONTHS ENDED JUNE 29, 1996 JULY 1, 1995 JUNE 29, 1996 JULY 1, 1995 Net sales 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 94.1% 89.7% 93.5% 92.3% Gross profit 5.9% 10.3% 6.5% 7.7% Selling, general and administrative 4.1% 5.2% 4.4% 5.4% Operating income (loss) 1.9% 5.1% 2.2% 2.4% Interest expense 1.9% 1.9% 1.9% 1.9% Income (loss) before income taxes and extraordinary charge .2% 3.7% .3% (.4)% Net Income (loss) .3% 2.7% (.4%) (1.4)% THIRD QUARTER 1996, COMPARED TO THIRD QUARTER 1995 Consolidated net sales were $294.3 million for the third quarter of fiscal 1996, an increase of $64.0 million, or 27.8%, over the third quarter of fiscal 1995. The increase in consolidated net sales resulted from a $27.4 million increase in domestic chicken sales to $198.8 million, a $26.9 million increase in Mexican chicken sales to $61.4 million and a $9.7 million increase in sales of other domestic products to $34.1 million. The increase in domestic chicken sales was primarily due to a 12.5% increase in total revenue per dressed pound produced and 3.1% increase in dressed pounds produced. The increase in Mexican chicken sales was primarily due to 39.3% increase in dressed pounds produced and by a 28.0% increase in total revenue per dressed pound produced. The increase in dressed pounds produced resulted primarily from the July 5, 1995 acquisition of five chicken companies located near Queretaro, Mexico. The increase in sales to other domestic products was primarily the result of increased sales of the Company's poultry by-products group and higher sales prices for table eggs. Increased revenues per dressed pound produced both domestically and in Mexico were primarily the result of higher sales prices caused primarily by the chicken markets adjusting to the higher feed ingredient cost. Consolidated cost of sales was $277.0 million in the third quarter of fiscal 1996, an increase of $70.5 million, or 34.1%, over the third quarter of fiscal 1995. The increase primarily resulted from a $43.3 million increase in cost of sales of domestic operations, and a $27.2 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $43.3 million was due to a 53.5% increase in feed ingredient costs, a 3.1% increase in dressed pounds produced and increased production of higher cost and margin products in prepared foods. Since year end, feed ingredient costs increased substantially due to lower crop yields in the 1995 harvest season. In July 1996, feed ingredient prices have stabilized and dropped slightly due to favorable crop harvest reports and growing conditions in the Midwest, however, the Company anticipates that feed ingredient prices will remain above 1995 levels at least through the fourth fiscal quarter. The $27.2 million cost of sales increase in Mexican operations was primarily due to a 38.8% increase in average costs of sales per pound and a 39.3% increase in dressed pounds produced. The increase in average costs of sales per pound was primarily the result of a 50.2% increase in feed ingredient costs resulting from the above discussed reasons. Gross profit as a percentage of sales decreased to 5.9% in the third quarter of fiscal 1996 from 10.3% in the third quarter of 1995. The decreased gross profit resulted mainly from increased costs of sales due to higher feed ingredient prices experienced in fiscal 1996 third quarter partially offset from improved results from the Company's Mexican operations. Consolidated selling, general and administrative expenses remained basically flat at $11.9 million for both the third quarter of fiscal 1996 and fiscal 1995. Consolidated selling, general and administrative expenses as a percentage of sales decreased in the third quarter of fiscal 1996 to 4.1% compared to 5.2% in the third quarter of fiscal 1995 due to higher sales volume with consolidated selling, general and administrative expenses remaining relatively stable. Consolidated operating income was $5.5 million for the third quarter of fiscal 1996 a decrease of $6.4 million, when compared to the third quarter of fiscal 1995 resulting primarily from higher feed ingredient prices. Consolidated net interest expense was $5.5 million in the third quarter of fiscal 1996 an increase of $1.2 million, or 26.8%, when compared to the third 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 third quarter of fiscal 1995. NINE MONTHS ENDED JUNE 29, 1996, COMPARED TO NINE MONTHS ENDED JULY 1, 1995 Consolidated net sales were $833.8 million for the first nine months of fiscal 1996, an increase of $159.7 million, or 23.7%, over the first nine months of fiscal 1995. The increase in consolidated net sales resulted from a $69.4 million increase in domestic chicken sales to $561.0 million, a $61.0 million increase in Mexican chicken sales to $169.9 million and a $29.3 million increase in sales of other domestic products to $102.9 million. The increase in domestic chicken sales was primarily due to an 8.6% increase in total revenue per dressed pound produced and 5.1% increase in dressed pounds produced. The increase in Mexican chicken sales was primarily due to 36.5% increase in dressed pounds produced and by a 14.3% increase in total revenue per dressed pound. The increase in dressed pounds produced resulted primarily from the July 5, 1995 acquisition of five chicken companies located near Queretaro, Mexico. The increase in sales of other domestic products was primarily the result of increased sales of the Company's poultry by-products group and higher sales prices for table eggs. Increased revenues per dressed pound produced both domestically and in Mexico were primarily the result of higher sales prices caused by the chicken markets adjusting to higher feed ingredient cost. Consolidated cost of sales was $779.4 million in the first nine months of fiscal 1996, an increase of $157.5 million, or 25.3%, over the first nine months of fiscal 1995. The increase primarily resulted from a $108.6 million increase in cost of sales of domestic operations, and a $48.9 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $108.6 million was due to a 42.4% increase in feed ingredient costs, a 5.1% increase in dressed pounds produced and increased production of higher margin products in prepared foods. Since year end, feed ingredient costs increased substantially due to lower crop yields in the 1995 harvest season. In July 1996 feed ingredient prices have stabilized and dropped slightly due to favorable crop harvest reports and growing conditions in the Midwest, however, the Company anticipates that feed ingredient prices will remain above 1995 levels at least through the fourth quarter. The $48.9 million cost of sales increase in Mexican operations was primarily due to a 36.5% increase in dressed pounds produced and a 4.8% increase in average costs of sales per pound. The increase in average costs of sales per pound was primarily the result of a 28.1% increase in feed ingredient costs resulting from the above discussed reasons. Gross profit as a percentage of sales decreased to 6.5% in the first nine months of fiscal 1996 from 7.7% in the first nine months of 1995. The decreased gross profit resulted mainly from increased costs of sales due to higher feed ingredient prices experienced in fiscal 1996 first nine months partially offset from improved results from the Company's Mexican operations. Consolidated selling, general and administrative expenses were $36.4 million for the first nine months of fiscal 1996, an increase of $.2 million when compared to the first nine months of fiscal 1995. Consolidated selling, general and administrative expenses as a percentage of sales decreased in the first nine months of fiscal 1996 to 4.4% compared to 5.4% in the first nine months of fiscal 1995 due to higher sales volume with consolidated selling, general and administrative expenses remaining relatively stable. Consolidated operating income was $18.0 million for the first nine months of fiscal 1996, an increase of $2.0 million, when compared to the first nine months of fiscal 1995 resulting primarily from improved results from the Company's Mexico operation. Consolidated net interest expense was $15.9 million in the first nine months of fiscal 1996 an increase of $3.1 million, or 24.7%, when compared to the first nine 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 nine months of fiscal 1995. Consolidated income tax expense in the first nine months of fiscal 1996 was $2.4 million compared to a expense of $7.2 million in the first nine months 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.
LIQUIDITY AND CAPITAL RESOURCES Liquidity in first nine 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 June 29, 1996 increased to $93.6 million from $88.4 million at September 30, 1995, though the current ratio at June 29, 1996 decreased to 1.72 to 1 from 1.84 to 1 at September 30, 1995 and the Company's stockholders' equity decreased to $147.8 million at June 29, 1996 from $152.1 million at September 30, 1995. Total debt to capitalization increased to 61.4% at June 29, 1996 from 56.9% at September 30, 1995. The Company maintains $110 million in revolving credit facilities with available unused lines of credit of $67.3 million at August 13, 1996. Trade accounts and other receivables were $63.7 million at June 29, 1996, a $3.7 million increase from September 30, 1995. The 6.1% increase was due primarily to increased consolidated sales. Allowances for doubtful accounts, as a percentage of trade accounts and notes receivable were 6.5% at June 29, 1996 compared to 6.7% at September 30, 1995. Inventories were $140.4 million at June 29, 1996, an increase of $30.0 million from September 30, 1995. This 27.2% 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 $60.1 million at June 29, 1996, a 7.9% increase from September 30, 1995, due primarily to higher production levels and feed ingredient cost. Capital expenditures for the first nine months of fiscal 1996 were $28.7 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 $35 million for capital expenditures in fiscal year 1996 and expects to finance such expenditures with available operating cash flows, leases and long-term financing.
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 August 12, 1996 the Mexican peso closed at 7.49 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.
PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10.43 Fourth Amendment to Secured Credit Agreement dated June 6, 1996 to the Secured Credit Agreement dated May 27, 1993, by and among the Company and Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale Nederlanden Bank N.V., Boatman's First National Bank of Kansas City and Wells Fargo Bank Texas, N.A., successor to First Interstate Bank of Texas, N.A. 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 8/13/96 Clifford E. Butler Vice Chairman of the Board, Chief Financial Officer and Secretary and Treasurer in his respective capacity as such