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 29, 1997 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 7, 1997
INDEX PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited): Condensed consolidated balance sheets: March 29, 1997 and September 28, 1996 Consolidated statements of income (loss): Three months and six months ended March 29, 1997 and March 30, 1996 Consolidated statements of cash flows: Six months ended March 29, 1997 and March 30, 1997 Notes to condensed consolidated financial statements--March 29, 1997 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 ITEM 1: FINANCIAL STATEMENTS : March 29, September 28, 1997 1996 (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 7,717 $ 18,040 Trade accounts and other receivables, less allowance for doubtful accounts 69,256 65,887 Inventories 137,926 136,866 Deferred income taxes 7,001 6,801 Prepaid expenses 744 907 Other current assets 211 757 Total Current Assets 222,855 229,258 Other Assets 21,801 18,827 Property, Plant and Equipment 474,699 466,672 Less accumulated depreciation 187,776 178,035 286,923 288,637 $ 531,579 $ 536,722 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable to banks $ 24,000 $ 27,000 Accounts payable 57,789 71,354 Accrued expenses 32,895 33,599 Current maturities of long-term debt 9,645 8,850 Total Current Liabilities 124,329 140,803 Long-Term Debt, less current maturities 193,546 198,334 Deferred Income Taxes 55,496 53,608 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 77,327 63,096 Total Stockholders' Equity 157,366 143,135 $ 531,579 $ 536,722 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 SIX MONTHS ENDED MARCH 29, 1997 MARCH 30, 1996 MARCH 29, 1997 MARCH 30, 1996 (in thousands, except share and per share data) Net Sales $303,401 $272,004 $601,207 $539,479 Costs and Expenses: Cost of sales 280,316 255,957 547,855 502,460 Selling, general and administrative 13,425 12,363 27,378 24,510 293,741 268,320 575,233 526,970 Operating income 9,660 3,684 25,974 12,509 Other Expense (Income): Interest expense, net 5,284 5,210 10,733 10,331 Foreign exchange loss (gain) 99 (94) 536 1,222 Miscellaneous, net (397) (329) (2,906) (577) 4,986 4,787 8,363 10,976 Income (loss) before income taxes and extraordinary charge 4,674 (1,103) 17,611 1,533 Income tax (benefit) expense (280) (548) 2,552 2,792 Net income (loss) before extraordinary charge 4,954 (555) 15,059 (1,259) Extraordinary charge-early repayment of debt, net of tax - (2,780) - (2,780) Net income (loss) $ 4,954 $ (3,335) $ 15,059 $ (4,039) Net income (loss) per common share before extraordinary charge $ .18 $ (.02) $ .55 $ (.05) Extraordinary charge per common share - (.10) - (.10) Net income (loss) per common share $ .18 $ (.12) $ .55 $ (.15) Dividends per common share $ .015 $ .015 $ .03 $ .03 Weighted average 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) SIX MONTHS ENDED MARCH 29, 1997 MARCH 30, 1996 Cash Flows From Operating Activities: (In thousands) Net income (loss) $ 15,059 $ (4,039) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 14,229 14,639 (Gain) loss on property disposals 46 (221) Provision for doubtful accounts (779) 206 Deferred income taxes 1,689 (3,214) Extraordinary charge - 4,587 Changes in operating assets and liabilities: Accounts and other receivable (5,783) (5,242) Inventories (1,061) (18,845) Prepaid expenses 703 (1,828) Accounts payable and accrued expenses (14, 269) 3,475 Other (162) (186) Cash Flows Provided By (Used In) Operating Activities 9,672 (10,668) Investing Activities: Acquisitions of property, plant and equipment (12,162) (23,937) Proceeds from property disposals 330 1,314 Other, net (258) 36 Net Cash Used In Investing Activities (12,090) (22,262) Financing Activities: Proceeds from notes payable to banks 31,500 56,500 Re-payments of notes payable to banks (34,500) (43,500) Proceeds from long-term debt - 50,028 Payments on long-term debt (4,068) (29,001) Extraordinary charge, cash items - (3,920) Cash dividends paid (828) (828) Cash (Used In) Provided By Financing Activities (7,896) 29,279 Effect of exchange rate changes on cash and cash equivalents (9) (13) (Decrease) Increase in cash and cash equivalents (10,323) (3,664) Cash and cash equivalents at beginning of year 18,040 11,892 Cash and cash equivalents at end of period $ 7,717 $ 8,228 Supplemental disclosure information: Cash paid during the period for Interest (net of amount capitalized) $ 10,961 $ 9,530 Income Taxes $ 1,807 $ 4,014 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. Operating results for the period ended March 29, 1997 are not necessarily indicative of the results that may be expected for the year ended September 27, 1997. 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 28, 1996. 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 March 29, 1997 and March 30, 1996 are based on the weighted average shares outstanding for the periods. NOTE C--INVENTORIES Inventories consist of the following:MARCH 29, 1997 SEPTEMBER 28, 1996 (in thousands) Live chickens and hens $ 64,632 $ 66,248 Feed, eggs and other 38,208 39,804 Finished chicken products 35,086 30,814 $ 137,926 $ 136,866 NOTE D-SUBSEQUENT EVENTS On April 15, 1997 the Company secured an additional $35 million in secured term borrowing capacity from an existing lender at rates of 2.0% over LIBOR, with monthly principal and interest payments, maturing on February 28, 2006. As of May 9, 1997 $20 million has been borrowed on such facility, with the additional $15 million remaining available until April 1, 1999.
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 <S> <C> <C> <C> <C> THREE MONTHS ENDED SIX MONTHS ENDED MARCH 29, 1997 MARCH 30, 1996 MARCH 29,1997 MARCH 30, 1996 Net sales 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 92.4% 94.1% 91.1% 93.1% Gross profit 7.6% 5.9% 8.9% 6.9% Selling, general and administrative 4.4% 4.5% 4.6% 4.5% Operating income 3.2% 1.4% 4.3% 2.3% Interest expense 1.7% 1.9% 1.8% 1.9% Income (loss) before income taxes and extraordinary charge 1.5% (.4%) 2.9% .3% Extraordinary charge-early repayment of debt, net of tax - (1.0%) - .5% Net Income (loss) 1.6% (1.2%) 2.5% (.7%) </TABLE> SECOND QUARTER 1997, COMPARED TO SECOND QUARTER 1996 Consolidated net sales were $303.4 million for the second quarter of fiscal 1997, an increase of $31.4 million, or 11.5%, over the second quarter of fiscal 1996. The increase in consolidated net sales resulted from a $23.9 million increase in domestic chicken sales to $204.1 million, a $4.9 million increase in Mexican chicken sales to $61.2 million and a $2.6 million increase of sales of other domestic products to $38.1 million. The increase in domestic chicken sales was primarily due to a 8.9% increase in dressed pounds produced and a 4.0% increase in total revenue per dressed pound produced. The increase in Mexican chicken sales was primarily due to a 8.6% increase in total revenue per dressed pound. The increase in sales of other domestic products was primarily the result of 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 as well as generally improved economic conditions in Mexico compared to the prior year. Consolidated cost of sales was $280.3 million in the second quarter of fiscal 1997, an increase of $24.4 million, or 9.5%, over the second quarter of fiscal 1996. The increase primarily resulted from a $24.1 million increase in cost of sales of domestic operations, and a $.3 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $24.1 million was due to a 8.9% increase in dressed pounds produced and increased production of higher cost and margin products in prepared foods offset by lower feed ingredient cost experienced in the period compared to the prior year. Cost of sales in the Mexican operations stayed relatively stable increasing only $.3 million. Gross profit as a percentage of sales increased to 7.6% in the second quarter of fiscal 1997 from 5.9% in the second quarter of fiscal 1996. The increased gross profit resulted mainly from higher sales prices as mentioned above and significantly higher margins in Mexico. Consolidated selling, general and administrative expenses were $13.4 million in the second quarter of fiscal 1997, and $12.4 million in fiscal 1996. Consolidated selling, general and administrative expenses as a percentage of sales decreased slightly in the second quarter of fiscal 1997 to 4.4% compared to 4.5% in the second quarter of fiscal 1996 due to higher net sales and the effect of economies of scale. Consolidated operating income was $9.7 million for the second quarter of fiscal 1997, an increase of $6.0 million when compared to the second quarter of fiscal 1996, resulting primarily from higher margins experienced in the Mexican operations. Consolidated net interest expense was $5.3 million in the second quarter of fiscal 1997, an increase of $.07 million, or 1.4%, when compared to the second quarter of fiscal 1996. This increase was due to slightly higher interest rates offset by lower outstanding debt levels when compared to the second quarter of fiscal 1996. Consolidated income tax benefit in the second quarter of fiscal 1997 was $.3 million compared to benefit of $.5 million in the second quarter of fiscal 1996. SIX MONTHS ENDED MARCH 29, 1997, COMPARED TO SIX MONTHS ENDED MARCH 30, 1996 Consolidated net sales were $601.2 million for the first six months of fiscal 1997, an increase of $61.7 million, or 11.4%, over the first six months of fiscal 1996. The increase in consolidated net sales resulted from a $35.1 million increase in domestic chicken sales to $397.3 million, a $18.9 million increase in Mexican chicken sales to $127.4 million and a $7.7 million increase of sales of other domestic products to $76.5 million. The increase in domestic chicken sales was primarily due to a 7.5% increase in dressed pounds produced and a 2.1% increase in total revenue per dressed pound produced. The increase in Mexican chicken sales was primarily due to a 28.3% increase in total revenue per dressed pound offset slightly by a 8.5% decrease in dressed pounds produced. 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 average prices for commercial eggs for the period. Increased revenues per dressed pound produced both domestically and in Mexico were primarily the result of higher sales prices as well as generally improved economic conditions in Mexico compared to the prior year. Consolidated cost of sales was $547.9 million in the first six months of fiscal 1997, an increase of $45.4 million, or 9.0%, over the first six months of fiscal 1996. The increase primarily resulted from a $41.5 million increase in cost of sales of domestic operations, and a $3.9 million increase in the cost of sales in Mexican operations. The cost of sales increase in domestic operations of $41.5 million was due to a 7.5% increase in dressed pounds produced and increased production of higher cost and margin products in prepared foods offset partially by lower feed ingredient costs experienced during the period. The $3.9 million cost of sales increase in Mexican operations was primarily due to a 13.3% increase in average costs of sales per pound offset partially by an 8.5% decrease in dressed pounds produced. The increase in average costs of sales per pound was primarily the result of increased production of higher value and cost products. Gross profit as a percentage of sales increased to 8.9% in the first six months of fiscal 1997 from 6.9% in the first six months of fiscal 1996. The increased gross profit resulted mainly from higher sales prices as mentioned above and significantly higher margins in Mexico. Consolidated selling, general and administrative expenses were $27.4 million in the first six months of fiscal 1997, and $24.5 million in fiscal 1996. Consolidated selling, general and administrative expenses as a percentage of sales increased slightly in the first six months of fiscal 1997 to 4.6% compared to 4.5% in the first six months of fiscal 1996. Consolidated operating income was $26.0 million for the first six months of fiscal 1997, an increase of $13.5 million when compared to the first six months of fiscal 1996, resulting primarily from higher margins experienced in the Mexican operations. Consolidated net interest expense was $10.7 million in the first six months of fiscal 1997, an increase of $.4 million, or 3.9%, when compared to the first six months of fiscal 1996. This increase was due to slightly higher interest rates and higher average outstanding debt amounts when compared to the first six months of fiscal 1996. Consolidated miscellaneous, net a component of AOther Expense (Income)@ was $2.9 million in the first six months of fiscal 1997, includes a $2.2 million final settlement of claims resulting from the January 8, 1992 fire at the Company's prepared foods plant in Mt. Pleasant, Texas. Consolidated income tax expense in the first six months of fiscal 1997 decreased to $2.5 million compared to expense of $2.8 million in the first six months of fiscal 1996. The lower consolidated income tax expense in contrast to higher consolidated income, resulted from increased Mexican earnings which are not currently subject to income taxes. LIQUIDITY AND CAPITAL RESOURCES Strong profits improved liquidity and financial ratios in the fiscal first six months of 1997. The Company's working capital increased to $98.5 million at March 29, 1997 compared to $88.5 million at September 28, 1996, the current ratio at March 29, 1997 improved to 1.79 to 1 compared to 1.63 to 1 at September 28, 1996 and the Company's stockholder=s equity increased to $157.4 million from $143.1 million at September 28, 1996. Total debt to capitalization decreased to 59.1% at March 29, 1997 compared to 62.1% at September 28, 1996. The Company maintains $110 million in revolving credit facilities with available unused lines of credit of $72 million at May 8, 1997. Trade accounts and other receivables were $69.3 million at March 29, 1997, a $3.4 million increase from September 28, 1996. The 5.1% increase was due primarily to increased consolidated sales. Allowances for doubtful accounts, as a percentage of trade accounts and notes receivable were 4.6% at March 29, 1997 compared to 5.7% at September 28, 1996. Inventories were $137.9 million at March 29, 1997, a increase of $1.1 million from September 28, 1996, due primarily to higher finished poultry products inventories offset partially by the reduction of feed costs in inventories. Accounts payable were $57.8 million at March 29, 1997, a 19.0% decrease from September 28, 1996, due primarily to the reduction in cost of feed ingredients. Capital expenditures for the six months ended March 29, 1997 were $12.2 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 $55 million for capital expenditures in fiscal year 1997 and expects to finance such expenditures with available operating cash flows and long-term financing. On April 15, 1997 the Company completed its acquisition of certain chicken producing assets of Green Acre Foods, Inc., an integrated chicken producer located in the Nacogdoches area of East Texas. The additional production from the acquired facilities will help fulfill additional demand from the Company's prepared foods customers. On April 15, 1997 the Company secured an additional $35 million in secured term borrowing capacity from an existing lender at rates of 2.0% over LIBOR, with monthly principal and interest payments, maturing on February 28, 2006. As of May 9, 1997 $20 million has been borrowed on such facility, with the additional $15 million remaining available until April 1, 1999. PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 3.3 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation, a Delaware Corporation, effective December 4, 1996. 4.9 Amended and Restated Corporate Bylaws of Pilgrim's Pride Corporation, a Delaware Corporation, effective December 4, 1996. 10.46 Note Purchase Agreement dated April 14, 1997 by and between John Hancock MutualLife Insurance Company and Signature 1A (Cayman), Ltd. and Pilgrim's Pride Corporation, a Delaware Corporation. 10.47 Agreement between Pilgrim's Pride Corporation and Certain Shareholders dated November 28, 1996. 10.48 Aircraft Lease Extension Agreement between B.P. Leasing Co., (L. A. Pilgrim, Individually) and Pilgrim's Pride Corporation, (formerly Pilgrim Industries, Inc.) effective November 15, 1992. 10.49 Broiler Grower Contract dated May 6, 1997 between Pilgrim's Pride Corporation and Lonnie "Bo" Pilgrim (Farm 30). 10.50 Commercial Egg Grower Contract dated May 7, 1997 between Pilgrim's Pride Corporation and Pilgrim Poultry, G. P. 10.51 Agreement dated October 15, 1996 between Pilgrim's Pride Corporation and Pilgrim Poultry, G.P. 10.52 Heavy Breeder Contract dated May 7, 1997 between Pilgrim's Pride Corporation and Lonnie "Bo" Pilgrim (Farm 44, 45 & 46). 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 MAY 7, 1997 Richard A. Cogdill Executive Vice President and Chief Financial Officer and Secretary and Treasurer in his respective capacity as such