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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 29, 2003
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 principal executive offices)
Not Applicable
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
27,589,250 shares of the Registrant's Class B Common Stock, $.01 par value,
were outstanding as of April 28, 2003.
13,523,429 shares of the Registrant's Class A Common Stock, $.01 par value,
were outstanding as of April 28, 2003.
INDEX
PILGRIM'S PRIDE CORORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Consolidated balance sheets
March 29, 2003 and September 28, 2002
Consolidated income statements
Three months and six months ended March 29, 2003 and
March 30, 2002
Consolidated statements of cash flows
Six months ended March 29, 2003 and March 30, 2002
Notes to consolidated financial statements as of March 29, 2003
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3.Quantitative and Qualitative Disclosures about Market Risk
Item 4.Controls and Procedures
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Item 4.Submission of Matters to a Vote of Security Holders
Item 6.Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Pilgrim's Pride Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 29, 2003 September 28, 2002
ASSETS (in thousands except share data)
CURRENT ASSETS:
Cash and cash equivalents $ 14,397 $ 14,913
Trade accounts and other receivables,
less allowance for doubtful accounts 110,086 85,347
Inventories 345,355 326,792
Other current assets 17,960 16,866
Total Current Assets 487,798 443,918
OTHER ASSETS 24,219 21,940
PROPERTY, PLANT AND EQUIPMENT
Land 38,253 38,718
Buildings, machinery and equipment 1,058,690 1,039,581
Autos and trucks 54,407 54,609
Construction-in-progress 29,454 30,433
1,180,804 1,163,341
Less accumulated depreciation 433,710 401,309
747,094 762,032
$1,259,111 $1,227,890
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $140,387 $163,892
Accrued expenses 79,359 84,618
Current deferred income tax 12,888 12,888
Current maturities of long-term debt 4,272 3,483
Total Current Liabilities 236,906 264,881
LONG-TERM DEBT, LESS CURRENT MATURITIES 491,825 450,161
DEFERRED INCOME TAXES 123,742 116,911
MINORITY INTEREST IN SUBSIDIARY 1,309 1,613
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 5,000,000 shares;
none issued -- --
Common stock - Class A, $.01 par value,
authorized 100,000,000 shares;
13,794,529 issued and outstanding 138 138
Common stock - Class B, $.01 par value,
authorized 60,000,000 shares;
27,589,250 issued and outstanding 276 276
Additional paid-in capital 79,625 79,625
Retained earnings 326,910 314,626
Accumulated other comprehensive (loss)
income (52) 1,227
Less treasury stock, 271,100 shares (1,568) (1,568)
Total Stockholders' Equity 405,329 394,324
$1,259,111 $1,227,890
See notes to consolidated financial statements.
Pilgrim's Pride Corporation and Subsidiaries
Consolidated Income Statements
(Unaudited)
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
(in thousands, except share and per share data)
Net Sales $ 630,592 $ 600,753 $1,257,997 $1,256,783
Costs and Expenses:
Cost of sales 604,919 572,122 1,204,325 1,170,288
Non-recurring recoveries (11,313) -- (25,700) -
Selling, general and
administrative 35,576 33,003 67,621 67,537
629,183 605,125 1,246,246 1,237,825
Operating income (loss) 1,410 (4,372) 11,751 18,958
Other Expense (Income):
Interest expense, net 9,942 7,262 19,418 15,835
Foreign exchange (gain) loss 217 (360) (132) (895)
Miscellaneous, net (26,896) 873 (28,662) 486
(16,737) 7,775 (9,376) 15,426
Income (loss) before
income taxes 18,146 (12,147) 21,127 3,532
Income tax (benefit) expense 7,381 (13,399) 7,606 (10,711)
Net income $ 10,765 $ 1,252 $ 13,521 $ 14,243
Net income per common share
- - basic and diluted $ 0.26 $ 0.03 $ 0.33 $ 0.35
Dividends per common share $ 0.015 $ 0.015 $ 0.030 $ 0.030
Weighted average shares
outstanding 41,112,679 41,112,679 41,112,679 41,112,679
See notes to consolidated financial statements.
Pilgrim's Pride Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
March 29, 2003 March 30, 2002
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,521 $ 14,243
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 35,312 35,045
Loss (gain) on property disposals (132) 109
Deferred income taxes 9,804 (12,974)
Changes in operating assets and liabilities:
Accounts and other receivables (24,739) 12,319
Inventories (18,563) (8,222)
Prepaid expenses and other current
assets (1,094) 1,473
Accounts payable and accrued
expenses (28,764) (19,383)
Other (1,345) 452
Cash Provided By (Used In)
Operating Activities (16,000) 23,062
INVESTING ACTIVITIES:
Acquisitions of property, plant and equipment (25,024) (32,231)
Proceeds from property disposals 292 199
Other, net (589) (645)
Net Cash Used In Investing
Activities (25,321) (32,677)
FINANCING ACTIVITIES:
Proceeds from notes payable to banks 206,000 128,500
Repayments of notes payable to banks (206,000) (73,500)
Proceeds from long-term debt 108,133 28,850
Payments on long-term debt (65,681) (85,436)
Cash dividends paid (1,237) (1,238)
Cash Provided (Used In) By
Financing Activities 41,215 (2,824)
Effect of exchange rate changes on cash and cash
equivalents (410) 172
Decrease in cash and cash equivalents (516) (12,267)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,913 20,916
CASH AND CASH EQUIVALENTS AT END OF PERIO $ 14,397 $ 8,649
SUPPLEMENTAL DISCLOSURE INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) $ 19,038 $ 18,364
Income taxes $ 1,343 $ 1,302
See notes to consolidated financial statements.
PILGRIM'S PRIDE CORPORATION AND SUBSIDIARIES
March 29, 2003
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Pilgrim's Pride
Corporation ("Pilgrim's" or the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States ("U.S.") 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, 2003 are not necessarily indicative of the results that may be
expected for the year ended September 27, 2003. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Pilgrim's Annual Report on Form 10-K for the fiscal year ended September 28,
2002.
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.
Non-recurring recoveries, which is a component of gross profit and operating
income, include reimbursements received from the U.S. federal government under
a relief plan related to the avian influenza outbreak in The Commonwealth of
Virginia ("Virginia") on March 12, 2002 in the amount of $1.8 million and $16.1
million for the second quarter and the first six months ended March 29, 2003,
respectively, and proceeds received from litigation initiated by the Company in
antitrust lawsuits alleging a world-wide conspiracy to control production
capacity and raise prices of vitamins and methionine in the amount of $9.5
million and $9.6 million for the second quarter and the first six months ended
March 29, 2003, respectively. Proceeds recovered by the Company as successor to
WLR Foods are recorded as a component of "Other Expense (Income); Miscellaneous,
Net". See Note F - Contingencies below.
The following table presents the impact of avian influenza federal
compensation, and the vitamin and the methionine litigation settlements on
non-recurring recoveries and miscellaneous, net:
Three Months Ended Six Months Ended
March 29, 2003 March 29, 2003
Non- Miscellaneous Non- Miscellaneous
(million) Recurring Net Total Recurring Net Total
Avian Influenza $ 1.8 $ -- $ 1.8 $16.1 $ -- $16.1
Vitamin 1.4 21.1 22.5 1.5 22.4 23.9
Methionine 8.1 5.6 13.7 8.1 5.6 13.7
Total $11.3 $26.7 $38.0 $25.7 $28.0 $53.7
The assets and liabilities of the foreign subsidiaries are translated at end-
of-period exchange rates, except for any non-monetary assets, which are
translated at equivalent dollar costs at dates of acquisition using historical
rates. Operations of foreign subsidiaries are translated at average exchange
rates in effect during the period.
Total comprehensive was $10.8 million and $2.6 million for the quarters and
$12.2 million, $14.5 million for the six months ended March 29, 2003 and March
30, 2002, respectively.
NOTE B-ACCOUNTS RECEIVABLE
On June 26, 1998 the Company entered into an Asset Sale Agreement to sell up to
$60 million of accounts receivable, which expires in June of 2003. In
connection with the Asset Sale Agreement, the Company sells, on a revolving
basis, certain of its trade receivables (the "Pooled Receivables") to a special
purpose corporation wholly owned by the Company, which in turn sells a
percentage ownership interest to third parties. At March 29, 2003 and
September 28, 2002, an interest in these Pooled Receivables of $57.6 million
and $58.5 million, respectively, had been sold to third parties and is
reflected as a reduction to accounts receivable during each period. The
Company will likely use its revolving/term borrowing facility to provide this
liquidity if the facility is not replaced. These transactions have been
recorded as sales in accordance with Financial Accounting Standards Board
("FASB") Statement No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. The gross proceeds resulting from
the sale are included in cash flows from operating activities in the
Consolidated Statements of Cash Flows. Losses on these sales were immaterial.
Also included in accounts receivable at March 29, 2003, were $16.6 million in
net insurance receivables from direct costs associated with the fall 2002
turkey deli meat product recall, which are recoverable under our product recall
insurance policy.
NOTE C-INVENTORIES
Inventories consist of the following:
March 29, 2003 September 28, 2002
(in thousands)
Chicken:
Live chicken and hens $103,051 $106,450
Feed, eggs and other 70,682 57,854
Finished chicken products 76,989 73,494
250,722 237,798
Turkey:
Live turkey and hens 32,123 29,140
Feed, eggs and other 13,377 12,871
Finished turkey products 49,133 46,983
94,634 88,994
Total Inventories $345,355 $326,792
NOTE D-LONG TERM DEBT
At March 29, 2003, the Company maintained $130.0 million in revolving credit
facilities, $30.0 million of which relates to our Mexico operations, and $400.0
million in a secured revolving/term borrowing facility. The $400.0 million
revolving/term borrowing facility provides for borrowing availability until
November 15, 2004 and provides for $285.0 million commitments maturing November
16, 2010 and $115.0 million of commitments maturing November 16, 2007.
Borrowings under this facility are split pro rata between the commitments
maturing November 16, 2010 and the commitments maturing November 16, 2007, as
they occur. The credit facilities provide for interest at rates ranging from
LIBOR plus five-eights percent to LIBOR plus two and three-quarters percent
depending upon the Company's total debt to capitalization ratio. Interest
rates on debt outstanding under these facilities at March 29, 2003 ranged from
LIBOR plus one and three-quarter percent to LIBOR plus two percent. These
facilities are secured by inventory and fixed assets. The $30.0 million
facility in Mexico is secured by Mexico's accounts receivable, inventories and
certain fixed assets. Borrowings against these facilities are subject to the
availability of collateral and no material adverse change provisions. During
the six months ended March 29, 2003, the Company borrowed approximately $54.8
million on a net basis under its revolving/term borrowing facilities and repaid
$12.6 million in peso denominated debt from our revolving credit facility in
Mexico. At March 29, 2003, $113.6 million was available under the
revolving credit facilities, including $30.0 million in Mexico and $167.0
million was available under the revolving/term borrowing facility. Annual
maturities of long-term debt for the remainder of fiscal 2003 and for the
following four fiscal years are: 2003 -- $1.2 million; 2004 -- $2.7 million;
2005 -- $13.5 million; 2006 -- $13.7 million; and 2007 -- $12.9 million.
NOTE E-RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns an egg laying and a chicken growing
operation. In addition, at certain times during the year the major stockholder
purchases from the Company live chickens and hens and certain feed inventories
during the grow-out process and then contracts with the Company to resell the
birds at maturity, determined on a market based formula price subject to a
ceiling price calculated at his cost plus 2%. Purchases made by the Company
under this agreement resulted in a net operating profit to the major
stockholder of $120,600 and $157,100 during the quarters, and $329,600 and
$560,100 for the six months ended March 29, 2003 and March 30, 2002,
respectively.
Transactions with related parties are summarized as follows:
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
(in thousands)
Contract egg grower fees
to major stockholder -- -- -- 8
Lease payments on commercial
egg property 188 188 376 376
Chick, feed and other sales to
major stockholder 3,803 6,950 47,461 44,060
Live chicken purchases from
major stockholder 36,686 23,623 47,326 44,173
Loan guaranty fees 805 633 1,769 1,239
Lease payments on airplane 99 99 198 198
NOTE F-CONTINGENCIES
In August of 2000, four of our current and/or former employees filed the case
of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United States District
Court for the Northern District of West Virginia, claiming we violated
requirements of the Fair Labor Standards Act. The suit alleged that the
Company failed to pay employees for all hours worked. The suit generally
alleged that (1) employees should be paid for time spent to put on, take off,
and clean certain personal gear at the beginning and end of their shifts and
breaks and (2) the use of a master time card or production "line" time fails to
pay employees for all time actually worked. Plaintiffs seek to recover unpaid
wages plus liquidated damages and legal fees. Approximately 150 consents to
join as plaintiffs were filed with the court by current and/or former
employees. No trial date has been set. The court has conditionally approved
class certification for hourly production employees in second processing for
processing plants in our Eastern Division. To date, only limited discovery has
been performed. Neither the likelihood of an unfavorable outcome nor the
amount of ultimate liability, if any, with respect to this case can be
determined at this time. We do not expect this matter, individually or
collectively, to have a material impact on our financial position, operations
or liquidity.
On August 20, 1999, the former WLR Foods brought legal action as a plaintiff in
an antitrust lawsuit filed in the U.S. District Court in Washington D.C.
alleging a world-wide conspiracy by approximately 34 named defendants to
control production capacity and raise prices of common vitamins such as A, B-4,
C, and E. The Company joined this lawsuit with respect to vitamin purchases
not included in the Company's previous settlement with the named defendants as
a member of a class action lawsuit settled in fiscal 2000. The Company,
individually and as successor to WLR Foods in this suit, received $23.9 million
and $22.5 million in the six months and the second quarter ended March 29,
2003, respectively, in partial settlement of its claims, $22.4 million and
$21.1 million in the first six months and second quarter ended March 29, 2003,
respectively, of which was recorded by the Company as a component of "Other
Expense (Income): Miscellaneous, Net" and $1.5 million and $1.4 million in the
first six months and second quarter of fiscal 2003, respectively, of which was
recorded by the Company as a component of "Non-recurring recoveries". To
date, claims related to approximately 80% of the WLR Foods affected vitamin
purchases have been settled by or on behalf of the former WLR Foods, which
settlements have resulted in payments to the Company and the former WLR Foods
of $32.0 million. No assurances can be made regarding the likelihood or timing
of future settlements or whether or not future recoveries, if any, on the
remaining 20% of the vitamin purchases covered by the suit will be
proportionally less than, equal to or greater than these previous recovery
amounts.
On June 7, 2001, the Company brought legal action as a plaintiff in an
antitrust lawsuit filed in the U.S. District Court in San Francisco alleging a
world-wide conspiracy by defendant suppliers and producers of methionine to
control production capacity and raise prices of methionine. The Company
estimates that it was overcharged by approximately $50.0 million, which
includes purchases made by the former WLR Foods, in connection with the alleged
conspiracy. The Company, individually and as successor to WLR Foods in this
suit, received $13.7 million in the second quarter ended March 29, 2003 in
partial settlement of its claims, $5.6 million of which was recorded by the
Company as a component of "Other Expense (Income): Miscellaneous, Net" and
$8.1 million of which was recorded by the Company as a component of "Non-
recurring recoveries". Additionally, subsequent to the end of the second
quarter ended March 29, 2003, the Company received additional partial
settlements of $17.2 million under this suit. This amount will be reported by
the Company in its third quarter of fiscal 2003, $7.0 million of which will be
reported as a component of "Other Expense (Income): Miscellaneous, Net" and
$10.2 million of which will be reported as "Non-recurring recoveries". To
date, claims related to approximately 100% of the purchases have been settled
by the Company and the Company does not anticipate any further recoveries under
this suit.
On July 1, 2002, three individuals, on behalf of themselves and a putative
class of chicken growers, filed their original class action complaint against
us in the United States District Court for the Eastern District of Texas,
Texarkana Division. The case is styled "Cody Wheeler, et al. vs. Pilgrim's
Pride Corporation". The complaint alleges that the Company violated the
Packers and Stockyards Act (7 U.S.C. Section 192) and breached fiduciary duties
allegedly owed to the plaintiff growers. The plaintiffs also brought
individual actions under the Packers and Stockyards Act alleging common law
fraud, negligence, breach of fiduciary duties and breach of contract. On July
29, 2002, we filed our Motion to Dismiss under Rules 12(b)(1), 12(b)(6) and
9(b). Upon the filing of the motion, the plaintiffs entered into an agreement
to stay any certification of the class pending the outcome of the trial of the
three plaintiffs Cody Wheeler, Don Davis, and Davey Williams. On March 14,
2003, the court entered an order dismissing plaintiffs' claims of breach of
fiduciary duty and negligence. The plaintiffs also dropped the charges of
fraud prior to the entering of the order by the court. We also filed a Motion
to Transfer Venue on August 19, 2002, and the plaintiffs have filed a Motion
for Preliminary Injunction to prohibit any alleged retaliation against the
growers. The court denied our Motion to Transfer Venue on March 14, 2003, and
the case will remain in the Eastern District of Texas, Texarkana Division. The
court also denied the plaintiffs' Motion for Preliminary Injuction on March 3,
2003. Discovery is in the initial phases in this case. We intend to defend
vigorously both certification of the case as a class action should we not
prevail in the trial of the three plaintiffs and questions concerning ultimate
liability and damages, if any. Neither the likelihood of an unfavorable
outcome nor the amount of ultimate liability, if any, with respect to this case
can be determined at this time. The Company does not expect this matter to
have a material impact on our financial position, operations or liquidity.
In October 2002 a limited number of USDA samples from the Company's Franconia,
Pennsylvania plant tested positive for Listeria. As a result, we voluntarily
recalled all cooked deli products produced at the plant from May 1, 2002
through October 11, 2002. No illnesses associated with the Listeria strain in
a Northeastern outbreak have been linked to any of our products and no products
of the Company have tested positive for the outbreak strain. We carried
insurance designed to cover the direct recall related expenses and certain
aspects of the related business interruption caused by the recall, and subject
to the insurer's reservation of rights, we have received a $4.0 million advance
payment from our insurer with respect to the product recall claim. As of March
29, 2003, we had recorded $21.1 million, less the deductible amount of $0.5
million and the $4.0 million advance payment from our insurer, in recall
related expenses as a component of "Current Assets - Trade and Other Accounts
Receivable", which we believe to be covered by insurance. The Company believes
that the recall and its direct effects will not have a material impact on our
financial position, results of operations, or liquidity after considering
available insurance coverage. However, there will be differences between the
accounting periods in which certain recall effects are realized and when
insurance recoveries are received, and there can be no assurances as to our
ability to re-establish the products and sales affected by the recall or that
such insurance will in fact adequately protect us from liability and expenses
we incur in connection with the recall.
As a result of the recall, on November 4, 2002, an individual who allegedly
consumed our meat products filed a putative class action lawsuit in the
Philadelphia County Court of Common Pleas in the Commonwealth of Pennsylvania.
Plaintiff allegedly contracted Listeriosis. The case was styled "Frank
Niemtzow, individually and on behalf of all others similarly situated v.
Pilgrim's Pride Corporation and Wampler Foods, Inc." The complaint sought
recovery on behalf of a putative class of all persons that purchased and/or
consumed meat products manufactured at the Company's Franconia, Pennsylvania
facility between May 1, 2002 and October 11, 2002, who have suffered an injury.
This class represents all individuals who have suffered Listeriosis and
symptoms of Listeriosis and other medical injuries. Plaintiff also sought to
represent a putative class of all persons that purchased and/or consumed meat
products manufactured at the Company's Franconia, Pennsylvania facility between
May 1, 2002 and October 11, 2002, who have not suffered any personal injury.
The complaint sought compensatory and punitive damages under theories of
negligence, alleged violation of the Pennsylvania Unfair Trade Practices Act
and Consumer Protection Law, strict liability in tort, and unjust enrichment.
On December 6, 2002, the Company filed its Petition for Removal to Federal
court transferring this matter to the United States District Court for the
Eastern District of Pennsylvania. Plaintiff filed a Motion to Remand to State
court on January 6, 2003. In addition, on January 13, 2003, the Company filed
its Motion to Dismiss the plaintiff's class action complaint. On March 25,
2003, plaintiffs voluntarily dismissed the lawsuit. .
On April 17, 2003, the Company learned that a product liability lawsuit,
"Lawese Drayton, Individually and as Personal Representative of the Estate of
Raymond Drayton, deceased, Plaintiff, v. Pilgrim's Pride Corporation, Jack
Lambersky Poultry Company, Inc DBA JL Foods Co, Inc., Defendants", had been
filed against it in the United States District Court for the Eastern
District of Pennsylvania, on April 15, 2003. It is the Company's
understanding that this case relates to the recall. However, the Company
has not been served with a summons or a copy of the complaint in that matter.
Therefore, it would be premature to speculate on either the allegations
being made or any Company response thereto and neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability, if any, with
respect to this case can be determined at this time.
On March 12, 2002 an outbreak of low-pathogenic avian influenza, a disease
contagious to turkey, chicken and other birds, was discovered in Virginia. As
a result we destroyed a significant amount of poultry affected as a result of
the virus. No new flocks have tested positive for the presence of avian
influenza in Virginia since July 2, 2002 and the Company believes that the
outbreak has been contained. We currently believe there will be little or no
effect on future operations from the outbreak. On June 19, 2002, U.S.
Secretary of Agriculture Ann Veneman proposed to the Office of Management and
Budget that the U.S. Department of Agriculture cover one-half of the total
estimated economic loss suffered by the poultry industry and independent
growers in Virginia due to the avian influenza outbreak. Secretary Veneman also
recommended that the government of Virginia cover the remaining portion. On
November 4, 2002 the Department of Agriculture made public their estimate of
total federal compensation at $51.0 million, with growers projected to be
compensated $13.9 million and owners projected to be compensated $37.1 million.
We received $1.8 million and $16.1 million in federal compensation in the
second quarter and first six months ending March 29, 2003, respectively, which
was recorded as "Non-recurring recoveries". Based on the recovery amounts
received to date, we estimate that approximately 68% of the projected $51.0
million has been distributed by the U.S. federal government. No additional
future recoveries have been recorded, although the National Turkey Federation
and the National Chicken Council are in discussions with the USDA regarding
distribution of the shortfall between the anticipated compensation and the
amounts distributed to date. No assurance can be given as to the amount of
further federal compensation that we may receive or that any state agencies
will provide any economic assistance to the poultry growers and producers
affected by the avian influenza outbreak in Virginia. In the event that state
agencies do decide to grant economic assistance to the affected poultry growers
and producers, it is impossible at this time to estimate how the state agencies
would allocate any such assistance between affected poultry growers and
producers whose flocks were destroyed by the virus.
The Company is subject to various other legal proceedings and claims, which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
The Company is a party to many routine contracts in which it provides general
indemnities in the normal course of business to third parties for various
risks. The Company has not recorded a liability for any of these indemnities,
as the likelihood of payment in each case is considered remote. These
indemnities are discussed in the following paragraphs.
The Company's loan agreements generally obligate the Company to reimburse the
applicable lender for incremental increased costs due to a change in law that
imposes (i) any reserve or special deposit requirement against assets of,
deposits with, or credit extended by such lender related to the loan, (ii) any
tax, duty, or other charge with respect to the loan (except standard income
tax) or (iii) capital adequacy requirements. In addition, some of the
Company's loan agreements typically contain a withholding tax provision that
requires the Company to pay additional amounts to the applicable lender or
other financing party, generally if withholding taxes are imposed on such
lender or other financing party as a result of a change in the applicable tax
law. These increased cost and withholding tax provisions continue for the
entire term of the applicable transaction, and there is no limitation on the
maximum additional amounts the Company could be obligated to pay under such
provisions. Any failure to pay amounts due under such provisions generally
would trigger an event of default, and, in a secured financing transaction,
would entitle the lender to foreclose upon the collateral to realize the amount
due.
The Company also maintains operating leases for various types of equipment,
some of which contain residual value guarantees for the market value for assets
at the end of the term of the lease. The terms of the lease maturities range
from one to seven years. The maximum potential amount of the residual value
guarantees is approximately $8.1 million; however, the actual amount is based
on an undeterminable recoverable amount based on the fair market value of the
underlying leased assets. The likelihood of payments under these guarantees is
not considered to be probable and accordingly, no liabilities have been
recorded and the Company historically has not experienced significant payments
under similar residual guarantees in the past.
NOTE G - BUSINESS SEGMENTS
The Company operates in two reportable business segments as (1) a producer of
chicken and other products and (2) a producer of turkey products.
The Company's chicken and other products segment primarily includes sales of
chicken products the Company produces and purchases for resale in the United
States and Mexico, and also includes table eggs, feed and other items. The
Company's chicken and other products segment conducts separate operations in
the United States and Mexico and is reported as two separate geographical
areas. The Company's turkey segment includes sales of turkey products produced
in our turkey operation acquired from WLR Foods, whose operations are
exclusively in the United States.
Inter-area sales and inter-segment sales, which are not material, are accounted
for at prices comparable to normal trade customer sales. Corporate assets and
expenses are included with chicken and other products.
The following table presents certain information regarding the Company's
segments:
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
(in thousands)
Net Sales to Customers:
Chicken and Other Products:
United States $ 475,294 $ 449,564 $ 913,851 $ 897,627
Mexico 92,891 80,376 187,360 171,292
Sub-total 568,185 529,940 1,101,211 1,068,919
Turkey 62,407 70,813 156,786 187,864
Total $ 630,592 $ 600,753 $ 1,257,997 $ 1,256,783
Operating Income (Loss):
Chicken and Other Products:
United States $ 1,628 $ 4,971 $ 5,635 $ 14,328
Mexico 3,872 (513) 10,086 7,957
Sub-total 5,500 4,458 15,721 22,285
Turkey (15,403) (8,830) (29,670) (3,327)
Sub-total ( 9,903) (4,372) (13,949) 18,958
Non-recurring recoveries(1)11,313 -- 25,700 --
Total $ 1,410 $ (4,372) $ 11,751 $ 18,958
Depreciation and Amortization
Chicken and Other Products:
United States $ 12,942 $ 12,552 $ 25,488 $ 23,344
Mexico 2,917 3,377 6,067 6,794
Sub-total 15,859 15,929 31,555 30,138
Turkey 1,943 1,717 3,757 4,907
Total $ 17,802 $ 17,646 $ 35,312 $ 35,045
(1) Non-recurring recoveries include reimbursements received from the U.S.
federal government under a relief plan related to avian influenza of $1.8
million for the quarter and $16.1 million for the six-month period ending
March 29, 2003, along with proceeds received from litigation initiated by the
Company in antitrust lawsuits related to vitamins and methionine of $9.5
million in the quarter and $9.6 million for the six-month period ending
March 29, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Profitability in the poultry industry is materially affected by the commodity
prices of feed ingredients, chicken and turkey, which are determined by supply
and demand factors. As a result, the chicken and turkey industries are subject
to cyclical earnings fluctuations. Cyclical earnings fluctuations can be
mitigated somewhat by:
- Business strategy;
- Product mix;
- Sales and marketing plans; and
- Operating efficiencies.
In an effort to reduce price volatility and to generate higher, more consistent
profit margins, we have concentrated on the production and marketing of
prepared foods products. Prepared foods products generally have higher profit
margins than our other products. Also, the production and sale in the U.S. of
prepared foods products reduces the impact of the costs of feed ingredients on
our profitability. Feed ingredient purchases are the single largest component
of our cost of goods sold, representing approximately 30% of our cost of goods
sold in fiscal 2002. The production of feed ingredients is positively or
negatively affected primarily by weather patterns throughout the world, the
global level of supply inventories, demand for feed ingredients and the
agricultural policies of the United States and foreign governments. As further
processing is performed, feed ingredient costs become a decreasing percentage
of a product's total production costs, thereby reducing their impact on our
profitability. Products sold in this form enable us to charge a premium,
reduce the impact of feed ingredient costs on our profitability and improve and
stabilize our profit margins.
As a significant portion of U.S. poultry production is exported, the commodity
prices of chicken and turkey can be, and in recent periods have been, adversely
affected by disruptions in poultry export markets. These disruptions are often
caused by restrictions on imports of U.S.-produced poultry products imposed by
foreign governments for a variety of reasons, including, to protect their
domestic poultry producers and for alleged consumer health reasons. For
example, Russia and Japan have restricted the importation of U.S.-produced
poultry for both of these reasons in recent periods and Mexico initiated a ban
on the importation of all uncooked poultry produced in a seven-state area in
the Western U.S., including Texas, because of the recent outbreak of
Newcastle's Disease in the Western U.S., and seeks a tariff level, starting at
98% of the sales price of imported chicken leg quarters and declining
approximately 20% per year for five years, because of concerns that the duty-
free importation of such products as provided by the North American Free Trade
Agreement would injure the Mexico poultry industry. Because these disruptions
in poultry export markets are often political, no assurances can be given as to
when the existing disruptions will be alleviated or that new ones will not
arise.
The following table presents certain information regarding our segments:
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
(in thousands)
Net Sales to Customers:
Chicken and Other Products:
United States $ 475,294 $ 449,564 $ 913,851 $ 897,627
Mexico 92,891 80,376 187,360 171,292
Sub-total 568,185 529,940 1,101,211 1,068,919
Turkey 62,407 70,813 156,786 187,864
Total $ 630,592 $ 600,753 $ 1,257,997 $ 1,256,783
Operating Income (Loss):
Chicken and Other Products:
United States $ 1,628 $ 4,971 $ 5,635 $ 14,328
Mexico 3,872 (513) 10,086 7,957
Sub-total 5,500 4,458 15,721 22,285
Turkey (15,403) (8,830) (29,670) (3,327)
Sub-total ( 9,903) (4,372) (13,949) 18,958
Non-recurring recoveries(1)11,313 -- 25,700 --
Total $ 1,410 $ (4,372) $ 11,751 $ 18,958
Depreciation and Amortization
Chicken and Other Products:
United States $ 12,942 $ 12,552 $ 25,488 $ 23,344
Mexico 2,917 3,377 6,067 6,794
Sub-total 15,859 15,929 31,555 30,138
Turkey 1,943 1,717 3,757 4,907
Total $ 17,802 $ 17,646 $ 35,312 $ 35,045
(1) Non-recurring recoveries include reimbursements received from the U.S.
federal government under a relief plan related to avian influenza of $1.8
million for the quarter and $16.1 million for the six-month period ending
March 29, 2003, along with proceeds received from litigation initiated by the
Company in antitrust lawsuits related to vitamins and methionine of $9.5
million in the quarter and $9.6 million for the six-month period ending
March 29, 2003.
The following table presents certain items as a percentage of net sales for the
periods indicated.
Percentage of Net Sales
Three Months Ended Six Months Ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
(in thousands)
Net Sales 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of sales 95.9 95.2 95.7 93.3
Non-recurring recoveries (1.8) - (2.0) -
Gross profit 5.9 4.8 6.3 6.7
Selling, general and
administrative 5.6 5.5 5.4 5.4
Operating Income (Loss) 0.3 (0.7) 0.9 1.5
Interest Expense 1.6 1.2 1.5 1.3
Other Expense (Income) (2.7) 1.3 (0.7) 1.2
Income (Loss) before
Income Taxes 2.9 (2.0) 1.7 0.3
Net Income (Loss) 1.7 0.2 1.1 1.1
RESULTS OF OPERATIONS
Our Eastern Division has been affected by two significant unexpected
challenges. First, on March 12, 2002 an outbreak of low-pathogenic avian
influenza, a disease contagious to turkey, chicken and other birds, was
discovered in Virginia. Ignoring the federal compensation described below, we
estimate that our operating income was negatively impacted by approximately
$4.3 million and $7.3 million for the fiscal quarter and the six-month period
ended March 29, 2003, respectively, due to the continuing negative impact of
the avian influenza. We currently believe there will be little or no effect on
future operations from the outbreak. As of March 29, 2003, poultry growers and
producers have destroyed approximately 4.7 million head of poultry affected as
a result of the virus. Turkeys represent approximately 70% of the destroyed
poultry, with chickens representing approximately 30%. Approximately one-half
of the turkeys and approximately three-quarters of the chickens destroyed by
the poultry industry in Virginia belonged to the Company. No new flocks have
tested positive for the presence of avian influenza in Virginia since July 2,
2002. On June 19, 2002, U.S. Secretary of Agriculture Ann Veneman proposed to
the Office of Management and Budget that the U.S. Department of Agriculture
cover one-half of the total estimated economic loss suffered by the poultry
industry and independent growers in Virginia due to the avian influenza
outbreak. Secretary Veneman also recommended that the government of Virginia
cover the remaining portion. On November 4, 2002, the Department of
Agriculture made public their estimate of total federal compensation at $51.0
million, with growers projected to be compensated $13.9 million and owners
being compensated $37.1 million. We received $1.8 million and $16.1 million in
federal compensation in the second quarter and for the first six months of
fiscal 2003, respectively, which has been classified as "Non-recurring
recoveries". Based on the recovery amounts received to date, we estimate that
68% of the projected $51.0 million has been distributed by the U.S. federal
government. No additional future recoveries have been recorded, although the
National Turkey Federation and the National Chicken Council are in discussions
with the USDA regarding distribution of the shortfall between the anticipated
compensation and the amounts distributed to date. No assurance can be given as
to the amount of further federal compensation that we may receive or that any
state agencies will provide any economic assistance to the poultry growers and
producers affected by the avian influenza outbreak in Virginia. In the event
that state agencies do decide to grant economic assistance to the affected
poultry growers and producers, it is impossible at this time to estimate how
the state agencies would allocate any such assistance between affected poultry
growers and producers whose flocks were destroyed by the virus.
The second challenge faced by our Eastern Division was that in October 2002 a
limited number of USDA samples from the Company's Franconia, Pennsylvania plant
tested positive for Listeria. As a result, the Company voluntarily recalled
all cooked deli products produced at the plant from May 1, 2002 through October
11, 2002. No illnesses associated with the Listeria strain in a Northeastern
outbreak have been linked to any of our products and no products of the Company
have tested positive for the outbreak strain. We carried insurance designed to
cover the direct recall related expenses and certain aspects of the related
business interruption caused by the recall, and subject to the insurer's
reservation of rights, we have received a $4.0 million advance payment from our
insurer with respect to the product recall claim. As of March 29, 2003, we had
recorded $21.1 million, less the deductible amount of $0.5 million and the $4.0
million advance payment from our insurer, in recall related expenses as a
component of "Current Assets - Trade and Other Accounts Receivable", which we
believe to be covered by insurance. Additionally, we estimate that the sales
at the Franconia, Pennsylvania plant were negatively affected by approximately
$27.0 million and $54.0 million during the quarter and the first six months
ended March 29, 2003, respectively, and we estimate that operating margins were
negatively affected by $5.0 to $10.0 million and $10.0 to $20.0 million for the
quarter and the first six months ended March 29, 2003, respectively. The
Company believes that the recall and its direct effects will not have a
material impact on our financial position, results of operations or liquidity
after considering available insurance coverage. However, there will be
differences between the accounting periods in which certain recall effects are
realized and when insurance recoveries are received, and there can be no
assurances as to our ability to re-establish the products and sales affected by
the recall or that such insurance will in fact adequately protect us from
liability and expenses we incur in connection with the recall. Further,
although we have maintained product recall insurance in recent periods, in
recent years the availability of this type of insurance to the food industry
has been limited and at times not available. We have been seeking quotes and
have obtained preliminary quotes from insurers regarding an insurance policy
that would cover any product recall that may arise in calendar 2003. However,
to date we have not obtained an insurance policy that would cover any product
recall that may arise in calendar 2003 and there can be no assurance as to when
or if we will be successful in obtaining such a policy on acceptable terms.
Fiscal Second Quarter 2003 Compared to Fiscal Second Quarter 2002
Consolidated Net Sales. Consolidated net sales were $630.6 million for the
second quarter of fiscal 2003, an increase of $29.8 million, or 5.0%, from the
second quarter of fiscal 2002. The increase in consolidated net sales resulted
from a $23.9 million increase in U.S. chicken sales to $422.5 million, a $14.6
million increase in Mexico chicken sales to $90.2 million and a $1.2 million
increase in sales of other products to $55.4 million, offset partially by an
$8.4 million decrease in turkey sales to $62.4 million. The increase in U.S.
chicken sales was primarily due to a 6.0% increase in total revenue per dressed
pound produced, caused in part by a 10.9% increase in sales of higher priced
and margin white meat products from the Company's prepared foods division and
by a 0.4% increase in dressed pounds produced, and by lower prices for U.S.
commodity chicken, primarily dark meat items. The $14.6 million increase
in Mexico chicken sales was primarily due to a 20.5% increase in dressed pounds
produced offset partially by a 1.1% decrease in average revenue per
dressed pound produced. The $1.2 million increase in sales of other
products was primarily due to increased sales in the Company's poultry-by-
products and commercial eggs divisions. The $8.4 million decrease in turkey
sales was due primarily to the impact of the recall of turkey deli meat
products and the continuing effects of last year's avian influenza outbreak
discussed above.
Cost of Sales. Consolidated cost of sales was $604.9 million in the second
quarter of fiscal 2003, an increase of $32.8 million, or 5.7%, when compared to
the second quarter of fiscal 2002. The U.S. operations had an increase in cost
of sales of $25.0 million and the cost of sales incurred by Mexico operations
increased by $7.8 million.
The $25.0 million cost of sales increase in the U.S. operations was primarily
due to a 6.2% increase in average cost of chicken sales per dressed
pound produced, primarily resulting from a 10.9% increase in higher cost
prepared foods products, higher feed ingredients and energy costs, and a 0.4%
increase in chicken dressed pounds produced, partially offset by a $1.0 million
decrease in cost of sales related to turkey reduced sales volume.
The $7.8 million cost of sales increase in our Mexico operations was primarily
due to a 20.5% increase in dressed pounds produced, higher feed ingredient
costs and production of a higher cost, more value added product mix compared to
the same period of the prior year.
Non-recurring recoveries. Non-recurring recoveries of $11.3 million consisted
of $1.8 million in avian influenza recovery and $9.5 million of methionine and
vitamin litigation settlements. See Note F of the Notes to Consolidated
Financial Statements.
Gross Profit. Gross profit was $37.0 million for the second quarter of fiscal
2003, an increase of $8.4 million, or 29.2% from the same period last year, due
primarily to non-recurring recoveries of $11.3 million and increased net sales
in the Company's prepared foods division, Mexico and other sales, partially
offset by the negative effects of the turkey deli meat recall, the continuing
effects of last year's avian influenza outbreak in our Eastern Division, lower
prices for U.S. commodity chicken, primarily dark meat items, and increased
feed and energy costs.
Gross profit as a percentage of sales increased to 5.9% in the second quarter
of fiscal 2003, from 4.8% in the second quarter of fiscal 2002, primarily due
to non-recurring recoveries of $11.3 million, increased net sales in the
Company's prepared foods division, Mexico and other sales, partially offset by
lower sales volume and prices in our Turkey Division and lower prices for
U.S. commodity chicken, primarily dark meat items, increased operating
expenses incurred in connection with the turkey deli meat recall, the
continuing effects of last year's avian influenza outbreak in our Eastern
Division, and higher feed and energy costs.
Selling, General and Administrative Expenses. Consolidated selling, general
and administrative expenses were $35.6 million in the second quarter of fiscal
2003 and $33.0 million in the second quarter of fiscal 2002. The $2.6 million
increase was due to higher costs associated with increased sales. As a
percentage of sales, consolidated selling, general and administrative expenses
remained relatively stable in the second quarter of fiscal 2003 at 5.6%, when
compared to 5.5% in the second quarter of fiscal 2002.
Operating Income. Consolidated operating income was $1.4 million for the second
quarter of fiscal 2003, increasing by approximately $5.8 million when compared
to the second quarter of fiscal 2002, primarily due to non-recurring recoveries
of $11.3 million and increased net sales in the Company's prepared foods
division, Mexico and other sales, partially offset by lower sales volume and
prices in our Turkey Division and lower prices for U.S. commodity chicken,
primarily dark meat items, increased operating expenses incurred in connection
with the turkey deli meat recall, the continuing effects of last year's avian
influenza outbreak in our Eastern Division, and higher feed and energy costs.
Interest Expense. Consolidated net interest expense increased 36.9% to $9.9
million in the second quarter of fiscal 2003, when compared to $7.3 million for
the second quarter of fiscal 2002, due primarily to higher average outstanding
debt balances experienced in the quarter.
Miscellaneous, Net. Consolidated miscellaneous, net expense (income) decreased
$27.8 million to ($26.9) million, primarily due to $26.6 million of methionine
and vitamin litigation settlements. See Note F of the Notes to Consolidated
Financial Statements.
Income Tax Expense. Consolidated income tax expense in the second quarter of
fiscal 2003 was $7.4 million, compared to an income tax benefit of $13.4
million in the second quarter of fiscal 2002. This increase in consolidated
income tax expense was primarily caused by higher pretax earnings in the second
quarter of fiscal 2003, and the second quarter of fiscal 2002 tax benefit of
$9.7 million resulting from changes in Mexico tax laws. The Company has
approximately $7.6 million in valuation allowances, primarily covering net
operating loss carryforwards of its Mexican operations. The Company continues
to explore strategies it might employ to mitigate the amount of net operating
losses that would expire unutilized. The effectiveness of these strategies on
the level of valuation allowane is evaluated when factors warrant, but at
least annually and generally in the 4th quarter. Changes in the valuation
allowance will be reflected as an adjustment to income tax expense.
First Six Months of Fiscal 2003 Compared to First Six Months of Fiscal 2002
Consolidated Net Sales. Consolidated net sales were $1,258.0 million for the
first six months of fiscal 2003, remaining relatively stable with a slight
increase of $1.2 million, or 0.1%, from the first six months of fiscal 2002.
Although sales were relatively stable, the components that make up sales varied
significantly between the periods. The increase in consolidated net sales
resulted from a $16.1 million increase in Mexico chicken sales to $178.3
million, an $8.2 million increase in U.S. chicken sales to $812.5 million, and
an $8.7 million increase in sales of other products to $110.3 million offset
partially by a $31.1 million decrease in turkey sales to $156.8 million. The
increase in U.S. chicken sales was primarily due to a 1.6% increase in dressed
pounds produced and an 8.3% increase in sales of higher priced prepared foods
products, partially offset by a 0.6% decrease in total revenue per dressed
pound produced, partially due to lower prices for U.S. commodity chicken,
primarily dark meat items. The $16.1 million increase in Mexico chicken sales
was primarily due to a 9.7% increase in dressed pounds produced and by a 0.2%
increase in average revenue per dressed pound sold. The $8.7 million increase
in sales of other products was due to increased sales of the Company's poultry-
by-products and commercial eggs divisions.
The $31.1 million decrease in turkey sales was due primarily to the impact of
the recall of turkey deli meat products and the continuing effects of last
year's avian influenza outbreak discussed above, including the one month shut
down of the Company's Franconia turkey plant, offset partially by increases in
fresh commodity turkey sales.
Cost of Sales. Consolidated cost of sales was $1,204.3 million in the first
six months of fiscal 2003, an increase of $34.0 million, or 2.9%, when compared
to the first six months of fiscal 2002. The U.S. operations had an increase in
cost of sales of $19.6 million and the cost of sales incurred by the Mexico
operations increased by $14.4 million.
The $19.6 million cost of sales increase in the U.S. operations was primarily
due to increased production of higher cost chicken prepared foods products and
higher feed and energy costs offset by a $5.0 million decrease in cost of sales
related to turkey reduced sales volume.
The $14.4 million cost of sales increase in our Mexico operations was primarily
due a 9.7% increase in dressed pounds produced, higher feed ingredient costs
and production of a higher cost, more value added product mix compared to the
same period of the prior year.
Non-recurring recoveries. Non-recurring recoveries of $25.7 million consisted
of $9.6 million in avian influenza recovery and $16.1 million of the methionine
and vitamin litigation settlements.
Gross Profit. Gross profit was $79.4 million for the first six months of
fiscal 2003, a decrease of $7.1 million, or 8.2%, from the same period last
year, due primarily to the negative effects of the turkey deli meat recall, the
continuing effects of last year's avian influenza outbreak in our Eastern
Division, higher feed and energy costs, and lower prices for U.S. commodity
chicken, primarily dark meat items, partially offset by $25.7 million in non-
recurring recoveries.
Gross profit as a percentage of sales decreased to 6.3% in the first six months
of fiscal 2003, from 6.9% in the first six months of fiscal 2002, primarily due
to increased operating expenses incurred in connection with the turkey deli
meat recall, the continuing effects of last year's avian influenza outbreak in
our Eastern Division, higher feed and energy costs, and lower prices for U.S.
commodity chicken, primarily dark meat items, partially offset by $25.7 million
in non-recurring recoveries.
Selling, General and Administrative Expenses. Consolidated selling, general
and administrative expenses were $67.6 million in the first six months of
fiscal 2003 and $67.5 million in the first six months of fiscal 2002. As a
percentage of sales, consolidated selling, general and administrative expenses
remained stable at 5.4% in the first six months of fiscal 2003, when compared
to the first six months of fiscal 2002.
Operating Income. Consolidated operating income was $11.8 million for the first
six months of fiscal 2003, decreasing by approximately $7.2 million when
compared to the first six months of fiscal 2002, primarily due to increased
operating expenses incurred in connection with the turkey deli meat recall, the
continuing effects of last year's avian influenza outbreak in our Eastern
Division, higher feed and energy costs and lower prices for U.S. commodity
chicken, primarily dark meat items, partially offset by $25.7 million in non-
recurring recoveries.
Interest Expense. Consolidated net interest expense increased 22.6% to $19.4
million in the first six months of fiscal 2003, when compared to $15.8 million
for the first six months of fiscal 2002, due primarily to higher average
outstanding debt balances.
Miscellaneous, Net. Consolidated miscellaneous, net expense (income) decreased
$29.1 million to ($25.7) million, primarily due to $28.0 million of methonine
and vitamin litigation settlements. See Note F of the Notes to Consolidated
Financial Statements.
Income Tax Expense. Consolidated income tax expense in the first six months of
fiscal 2003 was $7.6 million, compared to an income tax benefit of $10.7 in
the first six months of fiscal 2002. This increase in consolidated income tax
expense was primarily caused by higher pretax earnings in the first six months
of fiscal 2003, and the second quarter fiscal 2002 tax benefit of $9.7 million
resulting from changes in Mexico tax laws. The Company has approximately $7.6
million in valuation allowances, primarily covering net operating loss
carryforwards of its Mexican operations. The Company continues to explore
strategies it might employ to mitigate the amount of net operating losses that
would expire unutilized. The effectiveness of these strategies on the level of
valuation allowane is evaluated when factors warrant, but at least annually
and generally in the 4th quarter. Changes in the valuation allowance will be
reflected as an adjustment to income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
We maintain $130.0 million in revolving credit facilities, $30.0 million of
which is related to our Mexico operations, and $400.0 million in a secured
revolving/term borrowing facility and subject to certain limitations
including availability of collateral. The $400.0 million revolving/term
borrowing facility provides for borrowing availability until November 15,
2004 and provides for $285.0 million commitments maturing November 16, 2010
and $115.0 million of commitments maturing November 16, 2007. Borrowings
under this facility are split pro rata between the commitments maturing
November 16, 2010 and the commitments maturing November 16, 2007, as
they occur. The credit facilities provide for interest at rates ranging from
LIBOR plus five-eighths percent to LIBOR plus two and three-quarters percent,
depending upon our total debt to capitalization ratio. Interest rates on
debt outstanding under these facilities as of March 29, 2003, ranged from LIBOR
plus one and three-quarters percent to LIBOR plus two percent. These
facilities are secured by inventory and fixed assets. The $30.0 million
facility in Mexico is secured by Mexico's accounts receivable, inventories
and certain fixed assets. Borrowings against these facilities are
subject to the availability of collateral and no material adverse change
provisions.
During the six months ended March 29, 2003, the Company borrowed
approximately $54.8 million on a net basis under its revolving/term borrowing
facilities and we repaid $12.6 million in peso denominated debt from our
revolving credit facility in Mexico. At March 29, 2003, $113.6 million was
available under the revolving credit facilities including $30.0 million in
Mexico and $167.0 million was available under the revolving/term borrowing
facility.
On June 26, 1998, we entered into an Asset Sale Agreement to sell up to $60
million of accounts receivable, which agreement expires in June 2003. In
connection with the Asset Sale Agreement, we sell, on a revolving basis,
certain of our trade receivables (the "Pooled Receivables") to a special
purpose corporation wholly owned by us, which in turn sells a percentage
ownership interest to third parties. At March 29, 2003 and September 28, 2002,
an interest in these Pooled Receivables of $57.6 and $58.5 million,
respectively, had been sold to third parties and is reflected as a reduction in
accounts receivable during each period. The Company will likely use its
revolving/term borrowing facility to provide this liquidity if this facility is
not replaced. These transactions have been recorded as sales in accordance
with FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. The gross proceeds
resulting from the sale are included in cash flows from operating activities in
our consolidated statements of cash flows. Losses on these sales were
immaterial.
On June 29, 1999, the Camp County Industrial Development Corporation issued
$25.0 million of variable-rate environmental facilities revenue bonds supported
by letters of credit obtained by the Company. We may draw from these proceeds
over the construction period for new sewage and solid waste disposal facilities
at a poultry by-products plant to be built in Camp County, Texas. We are not
required to borrow the full amount of the proceeds from the bonds. All amounts
borrowed from these funds will be due in 2029. The amounts that we borrow will
be reflected as debt when received from the Camp County Industrial Development
Corporation. The interest rates on amounts borrowed will closely follow the
tax-exempt commercial paper rates. Presently, there are no borrowings
outstanding under the bonds.
Obligations under long-term debt and non-cancelable operating leases at March
29, 2003 are as follows (in millions):
Payments Due By Period
Less than After
Contractual Obligations Total 1 year 1-3 years 4-5 years 5 years
Long-term Debt(a) $496.1 $1.3 $29.9 $25.3 $439.6
Guarantee Fees 13.7 1.0 5.4 3.0 4.3
Operating Leases 113.6 13.8 59.4 21.5 18.9
Total $623.4 $16.1 $94.7 $49.8 $462.8
(a) Excludes $16.4 million in letters of credit outstanding related to normal
business transactions.
At March 29, 2003, our working capital increased to $250.9 million and our
current ratio increased to 2.06 to 1, compared with working capital of $179.0
million and a current ratio of 1.68 to 1 at September 28, 2002, primarily due
to the working capital changes discussed below.
Trade accounts and other receivables were $110.1 million at March 29, 2003,
compared to $85.3 million at September 28, 2002. The $24.8 million, or 29.1%,
increase in trade accounts and other receivables was primarily due to the
inclusion of $16.6 million in net insurance receivables related to the turkey
deli meat recall and normal seasonal variations offset partially by
improvements in collection efficiencies. Trade accounts and other receivables
at the end of the first six months of fiscal 2003 and at the end of fiscal
2002, reflect the sale of $57.6 million and $58.5 million, respectively, of
receivables pursuant to the Asset Sale Agreement described above.
Inventories were $345.4 million at March 29, 2003, compared to $326.8 million
at September 28, 2002. The $18.6 million, or 5.7%, increase in inventories was
primarily due to increased finished product inventories and to higher live, hen
and feed inventories resulting from seasonal variations in sales of chicken.
Accounts payable and accrued expenses decreased $28.8 million to $219.7 million
at March 29, 2003, compared to $248.5 million at September 28, 2002, primarily
due to normal seasonal variations.
Capital expenditures of $25.0 million and $32.2 million for the six months
ended March 29, 2003 and March 30, 2002, respectively, were primarily incurred
to acquire and expand certain facilities, improve efficiencies, reduce costs
and for the routine replacement of equipment. We anticipate spending
approximately $65.0 million to $75.0 million in fiscal 2003 to improve
efficiencies and for the routine replacement of equipment. We expect to finance
such expenditures with available operating cash flows and existing
revolving/term and revolving credit facilities.
Cash flows (used in) provided by operating activities were $(16.0) million and
$23.1 million for the six months ended March 29, 2003 and March 30, 2002,
respectively. The decrease in cash flows provided by operating activities for
the first six months of fiscal 2003, when compared to the first six months of
fiscal 2002, was due to higher accounts receivable and inventories and lower
accounts payable as described above.
Cash flows provided by (used in) financing activities were $41.2 million and
$(2.8) million for the six months ended March 28, 2003 and March 30, 2002,
respectively. The increase in cash provided by financing activities for the
first six months of fiscal 2003, when compared to the first six months of
fiscal 2002, primarily reflects the higher net borrowings on long-term
financing and debt retirement amounts in the prior year.
The Company is a party to many routine contracts in which it provides general
indemnities in the normal course of business to third parties for various
risks. The Company has not recorded a liability for any of these indemnities,
as the likelihood of payment in each case is considered remote. These
indemnities are discussed in the following paragraphs.
The Company's loan agreements generally obligate the Company to reimburse the
applicable lender for incremental increased costs due to a change in law that
imposes (i) any reserve or special deposit requirement against assets of,
deposits with, or credit extended by such lender related to the loan, (ii) any
tax, duty, or other charge with respect to the loan (except standard income
tax) or (iii) capital adequacy requirements. In addition, some of the
Company's loan agreements contain a withholding tax provision that requires the
Company to pay additional amounts to the applicable lender or other financing
party, generally if withholding taxes are imposed on such lender or other
financing party as a result of a change in the applicable tax law. These
increased cost and withholding tax provisions continue for the entire term of
the applicable transaction, and there is no limitation on the maximum
additional amounts the Company could be obligated to pay under such provisions.
Any failure to pay amounts due under such provisions generally would trigger an
event of default, and, in a secured financing transaction, would entitle the
lender to foreclose upon the collateral to realize the amount due.
The Company also maintains operating leases for various types of equipment,
some of which contain residual value guarantees for the market value for assets
at the end of the term of the lease. The terms of the lease maturities range
from one to seven years. The maximum potential amount of the residual value
guarantees is approximately $8.1 million, however, the actual amount is based
on an undeterminable recoverable amount based on the fair market value of the
underlying leased assets. The likelihood of payments under these guarantees is
not considered to be probable and accordingly, no liabilities have been
recorded and the Company historically has not experienced significant payments
under similar residual guarantees in the past.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FEED INGREDIENTS
We purchase certain commodities, primarily corn and soybean meal. As a result,
our earnings are affected by changes in the price and availability of such feed
ingredients. As market conditions dictate, we will from time to time lock-in
future feed ingredient prices using various hedging techniques, including
forward purchase agreements with suppliers and futures contracts. We do not use
such financial instruments for trading purposes and are not a party to any
leveraged derivatives. Market risk is estimated as a hypothetical 10% increase
in the weighted-average cost of our primary feed ingredients as of March 29,
2003. Based on our feed consumption during the first six months of fiscal
2003, such an increase would have resulted in an increase to cost of sales of
approximately $34.0 million, excluding the impact of any hedging in that
period.
FOREIGN CURRENCY
Our earnings are affected by foreign exchange rate fluctuations related to the
Mexican peso net monetary position of our Mexico subsidiaries. We manage this
exposure primarily by attempting to minimize our Mexican peso net monetary
position, but from time to time we have also considered executing hedges to
help minimize this exposure. Such instruments, however, have historically not
been economically feasible. We are also exposed to the effect of potential
exchange rate fluctuations to the extent that amounts are repatriated from
Mexico to the United States. However, we currently anticipate that the cash
flows of our Mexico subsidiaries will continue to be reinvested in our Mexico
operations. In addition, the Mexican peso exchange rate can directly and
indirectly impact our results of operations and financial position in several
ways, including potential economic recession in Mexico resulting from a
devalued peso. The impact on our financial position and results of operations
resulting from a hypothetical change in the exchange rate between the U.S.
dollar and the Mexican peso cannot be reasonably estimated. Foreign currency
exchange gains and losses, representing the change in the U.S. dollar value of
the net monetary assets of our Mexico subsidiaries denominated in Mexican
pesos, was a gain of $0.1 million in the first six months of fiscal 2003
compared to a gain of $0.9 million for the first six months of fiscal 2002. On
April 25, 2003, the Mexican peso closed at 10.39 to 1 U.S. dollar, compared to
10.02 at September 28, 2002. No assurance can be given as to how future
movements in the peso could affect our future earnings.
There have been no material changes from the information provided in Item 7A of
the Company's Annual Report on Form 10-K for the fiscal year ended September
28, 2002, other than described above.
FORWARD LOOKING STATEMENTS
Statements of our intentions, beliefs, expectations or predictions for the
future, denoted by the words "anticipate", "believe", "estimate", "expect",
"project", "imply", "intend", "foresee" and similar expressions, are forward-
looking statements that reflect our current views about future events and are
subject to risks, uncertainties and assumptions. Such risks, uncertainties and
assumptions include the following:
- - Matters affecting the poultry industry generally, including
fluctuations in the commodity prices of feed ingredients, chicken and
turkey;
- - Disease outbreaks affecting the production performance and/or
marketability of the Company's poultry products;
- - Contamination of our products, which has recently and can in the future
lead to product liability claims and product recalls;
- - Exposure to risks related to product liability, product recalls,
property damage and injuries to persons, for which insurance coverage is
expensive, limited and potentially inadequate;
- - Management of our cash resources, particularly in light of our
substantial leverage;
- - Restrictions imposed by, and as a result of, our substantial leverage;
- - Currency exchange rate fluctuations, trade barriers, exchange controls,
expropriation and other risks associated with foreign operations;
- - Changes in laws or regulations affecting our operations, as well as
competitive factors and pricing pressures;
- - Inability to effectively integrate WLR Foods or realize the associated
cost savings and operating synergies currently anticipated; and
- - The impact of uncertainties of litigation as well as other risks
described herein and under "Risk Factors" in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
Actual results could differ materially from those projected in these forward-
looking statements as a result of these factors, among others, many of which
are beyond our control.
In making these statements, we are not undertaking, and specifically decline to
undertake, any obligation to address or update each or any factor in future
filings or communications regarding our business or results, and we are not
undertaking to address how any of these factors may have caused changes to
information contained in previous filings or communications. Though we have
attempted to list comprehensively these important cautionary risk factors, we
wish to caution investors and others that other factors may in the future prove
to be important in affecting our business or results of operations.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Company's management, including the Chairman (the Company's
Principal Executive Officer), and Chief Financial Officer ("CFO"), of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures within 90 days of the filing date of this Quarterly Report on
Form 10-Q. Based on that evaluation, the Company's management, including the
Chairman and CFO, concluded that the Company's disclosure controls and
procedures were effective. There have been no significant changes in the
Company's internal controls or in other factors that could significantly
affect these internal controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In August of 2000, four of our current and/or former employees filed the case
of "Betty Kennell, et al. v. Wampler Foods, Inc." in the United States District
Court for the Northern District of West Virginia, claiming we violated
requirements of the Fair Labor Standards Act. The suit alleged that the
Company failed to pay employees for all hours worked. The suit generally
alleged that (1) employees should be paid for time spent to put on, take off,
and clean certain personal gear at the beginning and end of their shifts and
breaks and (2) the use of a master time card or production "line" time fails to
pay employees for all time actually worked. Plaintiffs seek to recover unpaid
wages plus liquidated damages and legal fees. Approximately 150 consents to
join as plaintiffs were filed with the court by current and/or former
employees. No trial date has been set. The court has conditionally approved
class certification for hourly production employees in second processing for
processing plants in our Eastern Division. To date, only limited discovery has
been performed. Neither the likelihood of an unfavorable outcome nor the
amount of ultimate liability, if any, with respect to this case can be
determined at this time. We do not expect this matter, individually or
collectively, to have a material impact on our financial position, operations
or liquidity.
On August 20, 1999, the former WLR Foods brought legal action as a plaintiff in
an antitrust lawsuit filed in the U.S. District Court in Washington D.C.
alleging a world-wide conspiracy by approximately 34 named defendants to
control production capacity and raise prices of common vitamins such as A, B-4,
C, and E. The Company joined this lawsuit with respect to vitamin purchases
not included in the Company's previous settlement with the named defendants as
a member of a class action lawsuit settled in fiscal 2000. The Company,
individually and as successor to WLR Foods in this suit, received $23.9 million
and $22.5 million in the first six months and the second quarter ended March
29, 2003, respectively, in partial settlement of its claims, $22.4 million and
$21.1 million in the first six months and second quarter ended March 29, 2003,
respectively, of which was recorded by the Company as a component of "Other
Expense (Income): Miscellaneous, Net" and $1.5 million and $1.4 million in the
first six months and second quarter of fiscal 2003, respectively, of which was
recorded by the Company as a component of "Non-recurring recoveries". To date,
claims related to approximately 80% of the WLR Foods affected vitamin purchases
have been settled by or on behalf of the former WLR Foods, which settlements
have resulted in payments to the Company and the former WLR Foods of $32.0
million. No assurances can be made regarding the likelihood or timing of
future settlements or whether or not future recoveries, if any, on the
remaining 20% of the vitamin purchases covered by the suit will be
proportionally less than, equal to or greater than these previous recovery
amounts.
On June 7, 2001, the Company brought legal action as a plaintiff in an
antitrust lawsuit filed in the U.S. District Court in San Francisco alleging a
world-wide conspiracy by defendant suppliers and producers of methionine to
control production capacity and raise prices of methionine. The Company
estimates that it was overcharged by approximately $50.0 million, which
includes purchases made by the former WLR Foods, in connection with the alleged
conspiracy. The Company, individually and as successor to WLR Foods in this
suit, received $13.7 million in the second quarter ended March 29, 2003 in
partial settlement of its claims, $5.6 million of which was recorded by the
Company as a component of "Other Expense (Income): Miscellaneous, Net" and
$8.1 million of which was recorded by the Company as a component of "Non-
recurring recoveries". Additionally, subsequent to the end of the second
quarter ended March 29, 2003, the Company received additional partial
settlements of $17.2 million under this suit. This amount will be reported
by the Company in its third quarter of fiscal 2003, $7.0 million of which
will be reported as a component of "Other Expense (Income): Miscellaneous, Net"
and $10.2 million of which will be reported as "Non-recurring recoveries". To
date, claims related to approximately 100% of the purchases have been settled
by the Company and the Company does not anticipate any further recoveries under
this suit.
On July 1, 2002, three individuals, on behalf of themselves and a putative
class of chicken growers, filed their original class action complaint against
us in the United States District Court for the Eastern District of Texas,
Texarkana Division. The case is styled "Cody Wheeler, et al. vs. Pilgrim's
Pride Corporation". The complaint alleges that the Company violated the
Packers and Stockyards Act (7 U.S.C. Section 192) and breached fiduciary duties
allegedly owed to the plaintiff growers. The plaintiffs also brought
individual actions under the Packers and Stockyards Act alleging common law
fraud, negligence, breach of fiduciary duties and breach of contract. On July
29, 2002, we filed our Motion to Dismiss under Rules 12(b)(1), 12(b)(6) and
9(b). Upon the filing of the motion, the plaintiffs entered into an agreement
to stay any certification of the class pending the outcome of the trial of the
three plaintiffs Cody Wheeler, Don Davis, and Davey Williams. On March 14,
2003, the court entered an order dismissing plaintiffs' claims of breach of
fiduciary duty and negligence. The plaintiffs also dropped the charges of
fraud prior to the entering of the order by the court. We also filed a Motion
to Transfer Venue on August 19, 2002, and the plaintiffs have filed a Motion
for Preliminary Injunction to prohibit any alleged retaliation against the
growers. The court denied our Motion to Transfer Venue on March 14, 2003, and
the case will remain in the Eastern District of Texas, Texarkana Division. The
court also denied the plaintiffs' Motion for Preliminary Injuction on March 3,
2003. Discovery is in the initial phases in this case. We intend to defend
vigorously both certification of the case as a class action should we not
prevail in the trial of the three plaintiffs and questions concerning ultimate
liability and damages, if any. Neither the likelihood of an unfavorable
outcome nor the amount of ultimate liability, if any, with respect to this case
can be determined at this time. We do not expect this matter to have a
material impact on our financial position, operations or liquidity.
In October 2002 a limited number of USDA samples from the Company's Franconia,
Pennsylvania plant tested positive for Listeria. As a result, we voluntarily
recalled all cooked deli products produced at the plant from May 1, 2002
through October 11, 2002. No illnesses associated with the Listeria strain in
a Northeastern outbreak have been linked to any of our products and no products
of the Company have tested positive for the outbreak strain. We carried
insurance designed to cover the direct recall related expenses and certain
aspects of the related business interruption caused by the recall, and subject
to the insurer's reservation of rights, we have received a $4.0 million advance
payment from our insurer with respect to the product recall claim. As of March
29, 2003, we had recorded $21.1 million, less the deductible amount of $0.5
million and the $4.0 million advance payment from our insurer, in recall
related expenses as a component of "Current Assets - Trade and Other Accounts
Receivable", which we believe to be covered by insurance. The Company believes
that the recall and its direct effects will not have a material impact on our
financial position, results of operations, or liquidity after considering
available insurance coverage. However, there will be differences between the
accounting periods in which certain recall effects are realized and when
insurance recoveries are received, and there can be no assurances as to our
ability to re-establish the products and sales affected by the recall or that
such insurance will in fact adequately protect us from liability and expenses
we incur in connection with the recall. Further, although we have maintained
product recall insurance in recent periods, in recent years the availability of
this type of insurance to the food industry has been limited and at times not
available. We have been seeking quotes, and have obtained preliminary quotes
from insurers regarding an insurance policy that would cover any product recall
that may arise in calendar 2003. However, to date we have not obtained an
insurance policy that would cover any product recall that may arise in calendar
2003 and there can be no assurance as to when or if we will be successful in
obtaining such a policy on acceptable terms.
As a result of the recall, on November 4, 2002, an individual who allegedly
consumed our meat products filed a putative class action lawsuit in the
Philadelphia County Court of Common Pleas in the Commonwealth of Pennsylvania.
Plaintiff allegedly contracted Listeriosis. The case was styled "Frank
Niemtzow, individually and on behalf of all others similarly situated v.
Pilgrim's Pride Corporation and Wampler Foods, Inc." The complaint sought
recovery on behalf of a putative class of all persons that purchased and/or
consumed meat products manufactured at the Company's Franconia, Pennsylvania
facility between May 1, 2002 and October 11, 2002, who have suffered an injury.
This class represents all individuals who have suffered Listeriosis and
symptoms of Listeriosis and other medical injuries. Plaintiff also sought to
represent a putative class of all persons that purchased and/or consumed meat
products manufactured at the Company's Franconia, Pennsylvania facility between
May 1, 2002 and October 11, 2002, who have not suffered any personal injury.
The complaint sought compensatory and punitive damages under theories of
negligence, alleged violation of the Pennsylvania Unfair Trade Practices Act
and Consumer Protection Law, strict liability in tort, and unjust enrichment.
On December 6, 2002, the Company filed its Petition for Removal to Federal
court transferring this matter to the United States District Court for the
Eastern District of Pennsylvania. Plaintiff filed a Motion to Remand to State
court on January 6, 2003. In addition, on January 13, 2003, the Company filed
its Motion to Dismiss the plaintiff's class action complaint. On March 25,
2003, plaintiffs voluntarily dismissed the lawsuit.
On April 17, 2003, the Company learned that a product liability lawsuit,
"Lawese Drayton, Individually and as Personal Representative of the Estate of
Raymond Drayton, deceased, Plaintiff, v. Pilgrim's Pride Corporation, Jack
Lambersky Poultry Company, Inc DBA JL Foods Co, Inc., Defendants", had been
filed against it in the United States District Court for the Eastern
District of Pennsylvania, on April 15, 2003. It is the Company's
understanding that this case relates to the recall. However, the Company
has not been served with a summons or a copy of the complaint in that matter.
Therefore, it would be premature to speculate on either the allegations
being made or any Company response thereto and neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability, if any, with
respect to this case can be determined at this time.
The Company is subject to various other legal proceedings and claims, which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pilgrim's Pride Corporation held its Annual Meeting of Shareholders on January
29, 2003. The meeting was held to elect the Board of Directors for the ensuing
year; to appoint Ernst & Young LLP as the Company's independent auditors for
the fiscal year ending September 29, 2003; and to transact such other business
as was properly brought before the meeting. There were 12,335,507 Class A
shares and 26,479,675 Class B shares represented with one vote per share for
Class A shares (12,335,507 votes in the aggregate) and twenty votes per share
for Class B shares (529,593,500 votes in the aggregate). With regard to the
election of Directors for the ensuing year, the following votes were cast:
Nominee For Withheld
Lonnie "Bo" Pilgrim
Class A 12,449,173 336,842
Class B 465,855,448 35,644,005
Clifford E. Butler
Class A 12,556,640 220,374
Class B 480,414,827 21,084,626
O.B. Goolsby
Class A 12,565,648 220,366
Class B 480,419,008 21,080,445
Richard A. Cogdill
Class A 12,565,605 220,409
Class B 480,412,219 21,087,235
Lonnie Ken Pilgrim
Class A 12,445,340 340,674
Class B 465,854,821 35,644,632
Charles L. Black
Class A 12,706,572 79,442
Class B 499,229,970 2,269,483
S. Key Coker
Class A 12,709,748 76,266
Class B 499,230,767 2,268,687
Vance C. Miller, Sr.
Class A 12,709,076 76,938
Class B 499,211,029 2,288,425
James G. Vetter, Jr.
Class A 12,709,572 76,442
Class B 499,229,970 2,269,483
Donald L. Wass, Ph.D.
Class A 12,709,573 76,441
Class B 499,230,767 2,268,687
All Directors were elected by the above results.
With regard to ratifying the appointment of Ernst & Young LLP as the Company's
independent auditors for fiscal 2003, the following votes were cast:
For Against Abstained
Class A 12,697,954 87,620 440
Class B 498,524,006 2,964,624 10,823
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibit Number
a.1 Certification of the Chairman of the Board and Principal Executive
Officer of Pilgrim's Pride Corporation
a.2 Certification of the Chief Financial Officer of Pilgrim's Pride
Corporation
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on January 15, 2003, to
report certain supplemental historical financial information regarding net
sales by primary market line.
The Company filed a current report on Form 8-K on April 16, 2003, to report
certain supplemental historical financial information regarding net sales by
primary market line.
The Company filed a current report on Form 8-K on April 24, 2003, to furnish
certain financial statements as well as exhibits pursuant to "Item 12. Results
of Operations and Financial Condition", in accordance with SEC Release No. 33-
8216.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PILGRIM'S PRIDE CORPORATION
/s/ Richard A. Cogdill
Date: April 28, 2003 Richard A. Cogdill
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
CERTIFICATIONS
I, Lonnie "Bo" Pilgrim, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pilgrim's Pride
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 28, 2003 /s/ Lonnie "Bo" Pilgrim
Lonnie "Bo" Pilgrim
Chairman of the Board
Principal Executive Officer
CERTIFICATIONS
I, Richard A. Cogdill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pilgrim's Pride
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 28, 2003
/s/ Richard A. Cogdill
Richard A. Cogdill
Chief Financial Officer
Exhibit Index
Exhibit No.
99.1 Certification of the Chairman of the Board and Principal Executive
Officer of Pilgrim's Pride Corporation.
99.2 Certification of the Chief Financial Officer of Pilgrim's Pride
Corporation.
EXHIBIT 99.1
PILGRIM'S PRIDE CORPORATION
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of Pilgrim's Pride Corporation (the "Company") does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended March 29, 2003 (the
"Form 10-Q") of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, and information
contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: April 28, 2003
/s/ Lonnie "Bo" Pilgrim
Lonnie "Bo" Pilgrim
Chairman of the Board
Principal Executive Officer
EXHIBIT 99.2
PILGRIM'S PRIDE CORPORATION
CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (A) AND (B) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES
CODE)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and
(b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of Pilgrim's Pride Corporation (the "Company") does hereby
certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended March 29, 2003 (the
"Form 10-Q") of the Company fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, and information
contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: April 28, 2003
/s/ Richard A. Cogdill
Richard A. Cogdill
Chief Financial Officer