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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 1, 1994 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)
Registrant's telephone number, including area code: (903) 855-1000
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, Par Value $0.01 New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock, $0.01 par
value, held by non- affiliates of the Registrant as of December 15, 1994,
was $43,597,875. For purposes of the foregoing calculation only, all
directors, executive officers, and 5% beneficial owners have been deemed
affiliates.
27,589,250 shares of the Registrant's common stock, $.01 par value, were
outstanding as of December 15, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for the annual meeting of
stockholders to be held February 1, 1995, are incorporated by reference
into Part III.
PILGRIM'S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Propertiess
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant's Common Stock and Related Security Holder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Item 8. Financial Statements and Supplementary Data (see Index to
Financial Statements and Schedules below)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
Signatures
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Report of Ernst & Young LLP--Independent Auditors
Consolidated Balance Sheets as of October 1, 1994 and October 2, 1993
Consolidated Statements of Income (Loss) for the years ended
October 1, 1994, October 2, 1993 and September 26, 1992
Consolidated Statements of Stockholder's Equity for the years ended
October 1, 1994, October 2, 1993 and September 26, 1992
Consolidated Statements of Cash Flows for the years ended
October 1, 1994, October 2, 1993 and September 26, 1992
Notes to Consolidated Financial Statements
Schedule II - Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees other than Related Parties for the years
ended October 1, 1994, October 2, 1993 and September 26, 1992
Schedule V - Property, Plant and Equipment for the years ended
October 1, 1994, October 2, 1993 and September 26, 1992
Schedule VI - Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment for the years ended October 1,
1994, October 2, 1993 and September 26, 1992
Schedule VIII - Valuation and Qualifying Accounts for the years ended
October 1, 1994, October 2, 1993 and September 26, 1992
Schedule IX - Short-Term Borrowings for the years ended October 1, 1994,
October 2, 1993 and September 26, 1992.
Schedule X - Supplementary Income Information for the years ended
October 1, 1994, October 2, 1993 and September 26, 1992
PART I
Item 1. Business
General
The Company, which was incorporated in Texas in 1968 and
reincorporated in Delaware in 1986, is the successor to a predecessor
partnership founded in 1946 by Lonnie "Bo" Pilgrim and his brother, Aubrey
E. Pilgrim, as a retail feed store. Over the years, the Company grew
through both internal growth and various acquisitions of farming operations
and chicken processors. In addition to domestic growth, the Company
expanded into Mexico through acquisitions beginning in 1988 and subsequent
substantial capital investments.
The Company is a vertically integrated producer of chicken
products, controlling the breeding, hatching and growing of chickens and
the processing, preparation and packaging of its product lines. The
Company is the fifth largest producer of chicken in the United States, with
production and distribution facilities located in Texas, Arkansas, Oklahoma
and Arizona, and the second largest producer of chicken in Mexico, with
production and distribution facilities located in Mexico City and the
states of Coahuila, San Louis Potosi, Queretaro and Hidalgo. The Company
is also a producer of table eggs, animal feeds and ingredients. See Note H
to the Consolidated Financial Statements of the Company for information
concerning revenues, operating profit and identifiable assets attributable
to the Company's U.S. and Mexican operations.
The Company's chicken products consist primarily of (i) prepared
foods, which include portion-controlled breast fillets, tenderloins and
strips, formed nuggets and patties and bone-in chicken parts, which are
generally sold frozen and may be either fully cooked or ready to cook; (ii)
fresh foodservice chicken, which includes whole or cut-up chicken for the
foodservice industry; (iii) prepackaged chicken, which includes various
combinations of chicken parts in trays and fresh whole chickens labeled and
priced ready for the retail grocer's fresh meat counter; and (iv) bulk
packaged chicken parts and whole chicken, which is sold eviscerated in the
U.S. and in both eviscerated and uneviscerated forms in Mexico.
During recent years, the Company's strategy has been to identify
and develop specific, defined markets where it can achieve significant
advantages over competing suppliers. Management believes that this
strategy has enabled the Company to achieve both higher rates of growth and
higher profits than otherwise would have resulted. The Company has
targeted three principal markets: U.S. foodservice, U.S. consumer and
Mexico. The following table sets forth, for the periods since 1990, net
sales attributable to each of the Company's primary markets and net sales
attributable to certain products sold within such market. The table is
based on the Company's internal sales reports and its classification of
product types and customers.
Fiscal Year Ended
September September September October October
29, 1990 28, 1991 26, 1992 2, 1993 1, 1994
(52 Weeks)(52 Weeks)(52 Weeks)(53 Weeks)(52 Weeks)
(in thousands)
Chicken Sales:
U.S. Foodservice:
Prepared foods........... $112,509 $151,661 $178,185 $183,165 $205,224
Fresh Foodservice chicken 118,158 127,303 126,472 149,197 155,294
Total U.S. Foodservice.. 230,667 278,964 304,657 332,362 360,518
U.S. Consumer:
Prepared foods........... 60,069 60,188 85,700 89,822 61,068
Prepackaged chicken..... 122,907 125,897 105,636 100,063 125,133
Bulk-packaged chicken... 95,907 85,323 72,724 77,709 88,437
Total U.S. Consumer.... 278,883 271,408 264,060 267,594 274,638
Mexico:
Bulk-packaged chicken.... 110,632 141,570 160,620 188,754 188,744
Total Chicken Sales..... 620,182 691,942 729,337 788,710 823,900
Sales of Other
Domestic Products........ 100,373 94,709 88,024 99,133 98,709
Total Net Sales......... $720,555 $786,651 $817,361 $887,843 $922,609
United States
The following table sets forth, since fiscal 1990, the percentage
of net U.S. chicken sales attributable to each of the Company's primary
U.S. markets and certain products sold within such markets. The table and
related discussion are based on the Company's internal sales reports and
its classification of product types and customers.
Fiscal Year Ended
September September September October October
29, 1990 28, 1991 26, 1992 2, 1993 1, 1994
(52 Weeks)(52 Weeks)(52 Weeks)(53 Weeks)(52 Weeks)
Foodservice:
Prepared foods ........... 22.1% 27.6% 31.3% 30.5% 32.3%
Fresh Foodservice chicken. 23.2 23.1 22.2 24.9 24.5
Total Foodservice........ 45.3% 50.7% 53.5% 55.4% 56.8%
Consumer:
Prepared foods............ 11.8% 10.9% 15.1% 15.0% 9.6%
Prepackaged chicken....... 24.1 22.9 18.6 16.6 19.7
Bulk-packaged chicken..... 18.8 15.5 12.8 13.0 13.9
Total Consumer........... 54.7% 49.3% 46.5% 44.6% 43.2%
Strategy
Domestic chicken sales can be segmented into two principal markets
- - - foodservice and consumer. The Company's strategy is to (i) focus on the
development of the prepared foods business within each of these two
markets, which is generally characterized by higher growth and more stable
margins than the chicken industry as a whole; and (ii) achieve significant
cost and product advantages over competing suppliers across all market
segments, thereby achieving greater growth in sales and profits than would
otherwise result.
U.S. Foodservice
The majority of the Company's U.S. chicken sales are derived from
products sold to the foodservice market. The foodservice market
principally consists of chain restaurants, institutions and foodservice
distributors located throughout the continental United States, which
purchase chicken products ranging from fully cooked and frozen chicken
nuggets to portion-controlled refrigerated chicken parts. As the second
largest full-line supplier of chicken to the foodservice market, the
Company believes it is well-positioned to be a major supplier to large
customers who require multiple suppliers of chicken products.
Additionally, the Company believes it is well- positioned to meet the needs
of midsized customers who require a primary supplier of chicken products.
Due to its comparatively large size in this market, management believes the
Company has significant competitive advantages in terms of product
capability, production capacity, research and development expertise, and
distribution and marketing experience relative to smaller producers. As a
result of these competitive advantages, the Company's sales to the
foodservice market from fiscal 1990 through fiscal 1994 grew at a compound
annual growth rate of approximately 12%, while, based on industry data, the
Company estimates that total industry dollar sales to the foodservice
market during this period grew at a compound annual growth rate of
approximately 5%. The Company markets two main types of products to the
foodservice market: prepared foods and fresh foodservice chicken.
Prepared Foods: Prepared foods sales to the foodservice market
were $205 million in fiscal 1994 and have increased at a compound annual
growth rate of approximately 16% from fiscal 1990 through fiscal 1994. The
Company's prepared foods products include portion-controlled breast
fillets, tenderloins and strips, formed nuggets and patties and bone-in
chicken parts, which are generally sold frozen and in various stages of
preparation, including blanched, battered, breaded and partially or fully-
cooked. The Company attributes this growth in sales of prepared foods to
the foodservice market to a number of factors:
First, there has been significant growth in the number of
foodservice operators offering chicken on their menus and the number of
chicken items offered;
Second, there is a strong need among larger foodservice companies
for a second supplier upon which they rely to ensure supply, encourage
innovation and new product development and provide price competition due,
in part, to the dominance of the Company's principal competitor in the
prepared foods market. The Company has been successful in its attempt to
become a second supplier to many large foodservice companies because it (i)
is vertically integrated, giving the Company control over raw material
supplies, (ii) has the capability to produce many types of chicken items
and (iii) has established a reputation for dependable quality, service and
technical support;
Third, as a result of the experience and reputation developed with
larger customers, the Company has increasingly become the principal
supplier to midsized foodservice organizations; and
Fourth, the Company's in-house product development group,
responding to the changing needs of the foodservice market, has enabled the
Company to provide foodservice customers with new and improved prepared
foods. Approximately $94 million of the Company's sales to foodservice
customers in 1994 consisted of products which were not sold by the Company
in 1990.
The Company establishes prices for its prepared chicken products
based primarily upon perceived value to the customer, production costs and
prices of competing products. However, many of these products are priced
according to formulas which are based on an underlying commodity market,
and this factor causes some revenue fluctuation correspondingly with such
markets.
Fresh Foodservice Chicken: The Company produces and markets
fresh, refrigerated chicken for sale to domestic quick-service restaurant
chains, delicatessens and other customers. These chickens have the giblets
removed, are usually of specific weight ranges and are usually pre-cut to
customer specifications. By growing and processing to customers
specifications, the Company is able to assist quick service restaurant
chains in controlling costs and maintaining size consistency of chicken
pieces sold to the consumer. Most of these products are sold to
established customers based upon certain weekly market prices reported by
the U.S.D.A., plus a markup, which is dependent upon the customer's
location, volume, product specifications and other factors.
U.S. Consumer
The U.S. consumer market consists primarily of grocery store
chains, retail distributor and wholesale clubs. The Company concentrates
its efforts in this market on sales of prepared foods, branded, prepackaged
chicken and bulk-packaged, whole chicken to grocery chains and retail
distributors in the midwestern, southwestern and western portions of the
United States. This regional marketing focus enables the Company to
capitalize on proximity to the ultimate consumer, both in terms of lower
transportation costs and enhanced product freshness. For a number of years
the Company has invested in both trade and consumer marketing designed to
establish high levels of brand name awareness and consumer preferences
within these markets.
Prepared Foods: The Company sells consumer-prepared foods to
grocery store chains primarily located in the midwestern, southwestern and
western portions of the U.S. and, until January 1994, to wholesale clubs
located throughout the continental U.S. The wholesale club industry is
characterized by a limited number of large national operators, each tending
to purchase particular products from a limited number of suppliers. During
1994 the wholesale club industry consolidated significantly with the
acquisition of Pace Membership Warehouse by Sam's Club and the merger of
Price Club and Costco Wholesale Club. As a result of these consolidations,
in January 1994 the Company lost a substantial portion of its wholesale
club business; however, it was able to direct this prepared foods capacity
to other lines of business with better overall gross margins and a more
diversified customer base.
Prepackaged Chicken: The Company's prepackaged products include
various combinations of fresh whole chickens and chicken parts in trays,
labeled and priced ready for the retail grocer's fresh meat counter.
The Company utilizes numerous marketing techniques, including
advertising, to develop and strengthen trade and consumer awareness and
increase brand loyalty for its Pilgrim's Pride products. The Company's
founder, Lonnie "Bo" Pilgrim, is the featured spokesman in the Company's
television and radio commercials and a trademark cameo of a person in a
Pilgrim's hat appears on all of the Company's branded products. As a
result of this marketing strategy, the Company has established a well-known
brand name in certain southwestern metropolitan markets, including the
Dallas/Fort Worth area where, according to a market research company, the
Company's brand name was recognized by 96% of grocery shoppers in an aided
brand recall study conducted in 1994. Management believes that its branded
products command a price premium in certain southwestern markets, which the
Company believes can be attributed to its efforts to achieve brand
awareness. The Company also maintains an active program to identify
consumer preferences primarily by testing new product ideas, packaging
designs and methods through taste panels and focus groups located in key
geographic markets.
Bulk-Packaged Chicken: The Company sells bulk whole chickens and
cut-up parts primarily to retail grocers and food distributors in the
United States. In recent years, the Company has de-emphasized its
marketing of bulk-packaged chicken in the United States in favor of more
value-added products. Historically, sales of the Company's bulk-packaged,
whole chicken have been characterized by lower prices and greater price
volatility than the Company's more value-added product lines. In the
United States, prices of these products are negotiated daily or weekly and
are generally lower than market prices quoted by the U.S.D.A.
A significant portion of the Company's sales to the foodservice
market and to the U.S. consumer market is governed by agreements with
customers that provide for the pricing methods and volume of products to be
purchased. The Company believes its practices with respect to sales to the
foodservice market and the U.S. consumer market are generally consistent
with those of its competitors.
Mexico
Strategy
In Mexico, the Company has made capital investments in advanced
production technology, transferred experienced management personnel and
utilized proven domestic production techniques in order to be a low cost
producer of chicken. At the same time, the Company has directed its
marketing efforts toward more value added chicken products. Management
believes that this strategy has resulted in increased market share and
higher profit margins relative to other Mexican chicken producers and has
positioned the Company to participate in any growth in chicken demand which
may occur in the future. Recent demand growth in Mexico is evidenced by
the increase in per capita consumption of chicken in Mexico, from
approximately 24 pounds in 1982 to approximately 38 pounds in 1994,
according to an industry source.
Background: The Mexican market is one of the Company's fastest
growing markets and represented approximately 20% of the Company's net
sales in fiscal 1994. The Company entered the Mexican market in 1981 when
it began selling eggs on a limited basis. Recognizing favorable
demographic trends and improving economic conditions in Mexico, the Company
began exploring opportunities to produce and market chicken in Mexico. In
fiscal 1988, the Company acquired four vertically integrated poultry
production operations in Mexico for approximately $15.1 million. Since
such acquisitions and through fiscal 1994, the Company has made capital
expenditures in Mexico totaling $106 million to expand and improve such
operations. The Company believes its facilities are among the most
technologically advanced in Mexico. As a result of these expenditures, the
Company has increased weekly production in its Mexico operations by over
300%. The Company believes that it is one of the lowest cost producers of
chicken in Mexico. The Company continues to explore its business
alternatives in the Mexican market, including possible acquisitions or the
expansion of its existing operations.
Products: During the last three years, the Company's Mexico
operation has dramatically increased its value added sales of chicken
products, which should provide higher, more stable margins. Although
changing now, the market for chicken products in Mexico is less developed
than in the United States with sales attributed to fewer, more basic
products.
Markets: The Company sells its Mexican chicken products primarily
to large wholesalers and, to a lesser extent, to retailers through its own
distribution network, which includes several warehouse facilities located
throughout Central Mexico. The Company's customer base in Mexico covers a
broad geographic area from Mexico City, the capital of Mexico with a
population estimated to be over 20 million, to Saltillo, the capital of the
State of Coahuila, about 500 miles north of Mexico City, and from Tampico
on the Gulf of Mexico to Acapulco on the Pacific, which region includes the
cities of San Luis Potosi and Queretaro, capitals of the states of the same
name.
Competition
The chicken industry is highly competitive and certain of the
Company's competitors have greater financial and marketing resources than
the Company. In the United States and Mexico, the Company competes
principally with other vertically integrated chicken companies. In
general, the competitive factors in the domestic chicken industry include
price, product quality, brand identification, breadth of product line and
customer service. Competitive factors vary by major market. In the
foodservice market, competition is based on consistent quality, product
development, service and price. In the domestic consumer market,
management believes that product quality, brand awareness and customer
service are the primary bases of competition. In Mexico, where product
differentiation is limited, price and product quality are the most critical
competitive factors.
Other Activities
The Company markets fresh eggs under the Pilgrim's Pride brand
name as well as private labels in various sizes of cartons and flats to
domestic retail grocery and institutional foodservice customers located
primarily in Texas. The Company has a housing capacity for approximately
2.3 million commercial egg laying hens which can produce approximately 41
million dozen eggs annually. Domestic egg prices are determined weekly
based upon reported market prices. The domestic egg industry has been
consolidating over the last few years with the 20 largest producers
accounting for approximately 65% of the total number of egg laying hens in
service during 1994. The Company competes with other domestic egg
producers, primarily on the basis of product quality, reliability, price
and customer service. According to an industry publication, the Company is
the twenty-fourth largest producer of eggs in the United States.
In fiscal 1994, the Company exported a small percentage of its
domestically produced poultry products, primarily to Asian, Middle Eastern
and European countries. While current activity in these markets
contributes only a small percentage of sales, if export market conditions
become more favorable, management believes the Company is well-positioned
to increase sales to foreign countries.
The Company has regional distribution centers located in
Arlington, El Paso, Mt. Pleasant and San Antonio, Texas; Phoenix and
Tucson, Arizona; and Oklahoma City, Oklahoma that distribute the Company's
poultry products along with certain non-poultry products purchased from
third parties to quick service restaurants. The Company's non-poultry
distribution business is conducted primarily as an accommodation to these
customers.
The Company also converts chicken by-products into protein
products primarily for sale to manufacturers of pet foods. In addition,
the Company produces and sells livestock feeds at its feed mill and farm
supply store in Pittsburg, Texas, to dairy farmers and livestock producers
in northeastern Texas.
Regulation
The chicken industry is subject to government regulation,
particularly in the health and environmental areas. The Company's domestic
poultry processing facilities are subject to on-site examination,
inspection and regulation by the U.S.D.A. The F.D.A. inspects the
production of the Company's domestic feed mills. The Company's Mexican
food processing facilities and feed mills are subject to on-site
examination, inspection and regulation by a Mexican governmental agency
which performs functions similar to those performed by the U.S.D.A. and
F.D.A. Since commencement of operations by the Company's predecessor in
1946, compliance with applicable regulations has not had a material adverse
effect upon the Company's earnings or competitive position and such
compliance is not anticipated to have a materially adverse effect in the
future. Management believes that the Company is in substantial compliance
with all applicable laws and regulations relating to the operations of its
facilities.
The Company anticipates increased regulation by the U.S.D.A.
concerning food safety, as well as by the F.D.A. concerning the use of
medications in feed. Although the Company does not anticipate any such
regulation having a material adverse effect upon the Company, no assurances
can be given to that effect.
Employees and Labor Relations
As of December 15, 1994, the Company employed approximately 7,200
persons in the U.S. and 3,100 persons in Mexico. Approximately 650
employees at the Company's Lufkin, Texas facility are members of a
collective bargaining unit represented by Local 540 of the United Food and
Commercial Workers Union (the "UFCW"). None of the Company's other
domestic employees have union representation. The Company has operated the
Lufkin facility since its purchase in 1986 without a collective bargaining
agreement. Since February 1993, the Company has been negotiating with the
UFCW to reach a collective bargaining agreement. On May 24 and 25, 1993,
the Company experienced a UFCW-initiated work stoppage involving
approximately 200 employees at the Lufkin facility. By May 26, 1993,
substantially all of the employees had returned to work. On June 22, 1993,
negotiations with the UFCW reached an impasse, and the Company implemented
the terms of the last contract offer. The National Labor Relations Board
has been asked to rule regarding the status of the impasse, but as of this
filing, no ruling has been made. Unless and until a collective bargaining
agreement is reached, there may be further work disruptions at this
facility. However, because of the adequate labor supply in the Lufkin area
and the Company's ability to shift portions of its production to other
facilities, the Company does not believe that additional work disruptions,
if any, will have a material adverse effect on the Company's operations or
financial condition. In Mexico, most of the Company's hourly employees
are covered by collective bargaining agreements as most employees are in
Mexico. Except as described above, the Company has not experienced any
work stoppages, and management believes that relations with the Company's
employees are satisfactory.
Executive Officers of the Registrant
As of December 15, 1994, the following were the Executive Officers
of the Company. Officers are elected annually by the Board of Directors to
serve at the pleasure of the Board of Directors.
Executive Officers of the Company Age Positions
Lonnie "Bo" Pilgrim 66 Chief Executive Officer
Lindy M. "Buddy" Pilgrim 40 President and
Chief Operating Officer
Clifford E. Butler 52 Chief Financial Officer,
Secretary and Treasurer
David Van Hoose 52 President, Mexican Operations
Robert L. Hendrix 58 Executive Vice President
Operations
Terry Berkenbile 44 Senior Vice President
Sales & Marketing,
Retail and Fresh Products
Richard A. Cogdill 34 Senior Vice President
Corporate Controller
Ray Gameson 46 Senior Vice President
Human Resources
O.B. Goolsby, Jr. 47 Senior Vice President
Prepared Foods
Michael D. Martin 40 Senior Vice President
DeQueen, Arkansas Complex
James J. Miner, Ph.D. 66 Senior Vice President
Technical Services
Michael J. Murray 36 Senior Vice President
Sales & Marketing, Prepared Foods
Robert N. Palm 50 Senior Vice President,
Lufkin, Texas Complex
Mr. L. A. Pilgrim has served as Chairman of the Board and Chief Executive
Officer since the organization of the Company in 1968. Prior to the
incorporation of the Company, Mr. Pilgrim was a partner in the Company's
predecessor partnership business founded in 1945.
Mr. L. M. Pilgrim has been employed by the Company as President and Chief
Operating Officer since March 1994, and was elected a Director on March 8,
1993. He was previously President of U.S. Operations and Sales & Marketing
from April 1993 to March 1994. Up to October 1990, Mr. Pilgrim was
employed by the Company for 12 years in marketing and 9 years in
operations. From October 1990 to April 1993, he was President of Integrity
Management Services, Inc., as consulting firm to the poultry industry. He
is a nephew of Lonnie "Bo" Pilgrim.
Mr. Butler has been employed by the Company since 1969. He has been a
Director of the Company since 1969, was named Senior Vice President of
Finance in 1973, and became Chief Financial Officer and Vice Chairman of
the Board in July 1983.
Mr. Van Hoose has been President of Mexican Operations since April 1993.
He was previously Senior Vice President, Director General, Mexican
Operations since August 1990. Mr. Van Hoose was employed by Pilgrim's
Pride in September 1988 as Senior Vice President, Texas Processing. Prior
to that, Mr. Van Hoose was employed by Cargill, Inc., as General Manager of
one of its chicken operations.
Mr. Hendrix has been Executive Vice President, Operations, of the Company
since March 1994. Prior to that he served as Senior Vice President, NETEX
Processing from August 1992 to March 1994 and as President and Chief of
Complex Operations from July 1983 to March 1992. He became Senior Vice
President in September 1981 when Pilgrim's Pride acquired Mountaire
Corporation of DeQueen, Arkansas, and, prior thereto, he was Vice President
of Mountaire Corporation.
Mr. Berkenbile was named Senior Vice President, Sales & Marketing, Retail
and Fresh Products in July 1994. Prior to that he was Vice President,
Sales & Marketing, Retail and Fresh Products since May 1993. From February
1991 to April 1993 Mr. Berkenbile was Director Retail Sales & Marketing at
Hudson Foods. Prior to February 1991, Mr. Berkenbile was Director Plant
Sales at Pilgrim's Pride.
Mr. Cogdill has been Senior Vice President, Corporate Controller, since
August 1992. He was previously Vice President, Corporate Controller since
October 1991. Prior to that he was a Senior Manager with Ernst & Young.
He is a Certified Public Accountant.
Mr. Gameson has been Senior Vice President of Human Resources since October
1994. He previously served as Vice President of Human Resources since
August, 1993. From December 1991 to July 1993, he was employed by
Townsends, Inc. and served as Complex Human Resource, Manager. Prior to
that he was employed by the Company as Complex Human Resource, Manager, at
its Mt. Pleasant, Texas location.
Mr. Martin has been Senior Vice President, DeQueen, Arkansas Complex
Manager, of the Company since April 1993. He previously served as Plant
Manager at the Company's Lufkin, Texas operations and Vice President,
Processing, at the Company's Mt. Pleasant, Texas, operations from September
1981 to April 1993. Prior to that he was employed by Mountaire Corporation
of DeQueen, Arkansas, until it was acquired by the Company in 1981.
Dr. Miner, Ph.D., has been Senior Vice President, Technical Services, since
April 1994. He has been employed by the Company and its predecessor
partnership since 1966 and previously served as Senior Vice President
responsible for live production and feed nutrition. He has been a Director
since the incorporation of the Company in 1968.
Mr. Murray has been Senior Vice President, Sales & Marketing, Prepared
Foods since October 1994. He previously served as Vice President of Sales
and Marketing, Food Service since August 1993. From 1990 to July 1993, he
was employed by Cargill, Inc. Prior to that, from March 1987 to 1990 he
was employed by Pilgrim's Pride in a sales and marketing position and prior
thereto, he was employed by Tyson Foods, Inc.
Mr. Palm has been Senior Vice President, Lufkin, Texas, Complex Manager of
the Company, since 1985 and was previously employed by Plus-Tex Poultry,
Inc., a company acquired by Pilgrim's Pride in 1985.
Item 2. Properties
Production and Facilities
Breeding and Hatching
The Company supplies all of its domestic chicks by producing its
own hatching eggs from domestic breeder flocks owned by the Company,
approximately 38% of which are maintained on 38 Company-operated breeder
farms. The Company currently owns or contracts for approximately 6.4
million square feet of breeder housing on approximately 178 breeder farms.
In Mexico, all of the Company's breeder flocks are maintained on Company-
owned farms.
The Company owns six hatcheries in the Unites States, located in
Nacogdoches and Pittsburg, Texas, and DeQueen and Nashville, Arkansas,
where eggs are incubated and hatched in a process requiring 21 days. Once
hatched, the day-old chicks are inspected and vaccinated against common
poultry diseases and transported by Company vehicles to grow-out farms.
The Company's six domestic hatcheries have an aggregate production capacity
of approximately 6.3 million chicks per week. In Mexico, the Company owns
four hatcheries, which have an aggregate production capacity of
approximately 1.9 million chicks per week.
Grow-out
The Company places its domestically grown chicks on approximately
929 grow-out farms located in Texas and Arkansas. These farms provide the
Company with approximately 43 million square feet of growing facilities.
The Company operates 32 grow-out farms which account for approximately 10%
of its total annual domestic chicken capacity. The Company also places
chicks with farms owned by affiliates of the Company under grow-out
contracts. The remaining chicks are placed with independent farms under
grow-out contracts. Under such grow-out contracts, the farmers provide the
facilities, utilities and labor. The Company supplies the chicks, the feed
and all veterinary and technical services. Contract grow-out farmers are
paid based on live weight under an incentive arrangement. In Mexico, the
Company owns approximately 58% of its grow-out farms and contracts with
independent farmers for the balance of its production. Arrangements with
independent farmers in Mexico are similar to the Company's arrangements
with contractors in the United States.
Feed Mills
An important factor in the production of chicken is the rate at
which feed is converted into body weight. The Company purchases feed
ingredients on the open market. The primary feed ingredients include corn,
milo and soybean meal, which historically have been the largest component
of the Company's total production cost. The quality and composition of the
feed is critical to the conversion rate, and accordingly, the Company
formulates and produces its own feed. Domestically, the Company operates
four feed mills located in Nacogdoches and Pittsburg, Texas and Nashville
and Hope, Arkansas. The Company currently has annual domestic feed
requirements of approximately 1.6 million tons and the capacity to produce
approximately 1.9 million tons. The Company owns three feed mills in
Mexico which produce all of the requirements of its Mexican operations.
Mexican feed requirements are approximately .5 million tons with a capacity
to produce approximately .6 million tons. In fiscal 1994, approximately
49% of the grain used was imported from the United States. However, this
percentage fluctuates based on the availability and cost of local grain
supplies.
Feed grains are commodities subject to volatile price changes
caused by weather, size of harvest, transportation and storage costs and
the agricultural policies of the United States and foreign governments.
Although the Company can and sometimes does purchase grain in forward
markets, it cannot eliminate the potential adverse effect of grain price
increases.
Processing
Once the chickens reach processing weight, they are transported in
the Company's trucks to the Company's processing plants. These plants
utilize modern, highly automated equipment to process and package the
chickens. The Company periodically reviews possible application of new
processing technologies in order to enhance productivity and reduce costs.
The Company's five domestic processing plants, two of which are located in
Mt. Pleasant, Texas, and the remainder of which are located in Dallas and
Lufkin, Texas, and DeQueen, Arkansas, have the capacity, under present
U.S.D.A. inspection procedures, to produce approximately 1 billion pounds
of dressed chicken annually. The Company's three processing plants located
in Mexico, which perform fewer processing functions than the Company's U.S.
facilities, have the capacity to process approximately 340 million pounds
of dressed chicken annually.
Prepared Foods Plant
The Company's prepared foods plant in Mt. Pleasant, Texas, was
constructed in 1986 and expanded in 1987. This facility has deboning
lines, marination systems, batter/breading systems, fryers, ovens, both
mechanical and cryogenic freezers, a variety of packaging systems and cold
storage. This plant is currently operating at the equivalent of two shifts
a day for five and one- half days a week. If necessary, the Company could
add additional shifts during the remaining days of the week.
Egg Production
The Company produces eggs at three farms near Pittsburg, Texas.
One farm is owned by the Company, while two farms are operated under
contract by an entity owned by a major stockholder of the Company. The
eggs are cleaned, sized, graded and packaged for shipment at processing
facilities located on the egg farms. The farms have a housing capacity for
approximately 2.3 million producing hens and are currently housing
approximately 1.9 million hens.
Other Facilities and Information
The Company operates a rendering plant located in Mt. Pleasant,
Texas, that currently processes by-products from approximately 1.6 million
chickens daily into protein products, which are used in the manufacture of
chicken and livestock feed and pet foods. The Company operates a feed
supply store in Pittsburg, Texas, from which it sells various bulk and
sacked livestock feed products. The Company owns an office building in
Pittsburg, Texas, which houses its executive offices, and an office
building in Mexico City, which houses the Company's Mexican marketing
offices. The Company also owns approximately 16,500 acres of farmland
previously used in the Company's non-poultry farming operations. The
Company is currently in the process of disposing of such land and related
assets.
Substantially all of the Company's property, plant and equipment
is pledged as collateral on its secured debt.
Item 3. Legal Proceedings
From time to time the Company is named as a defendant or co-
defendant in lawsuits arising in the course of its business. The Company
does not believe that such pending lawsuits will have a material adverse
impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
NOT APPLICABLE
Part II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
Quarterly Stock Prices and Dividends
High and low sales prices and dividends were:
Prices Prices
1994 1993 Dividends
Quarter High Low High Low 1994 1993
First 8 1/4 6 5/8 $7 $5 3/8 $.015 $. --
Second 9 1/4 6 5/8 9 1/2 6 1/4 .015 . --
Third 9 6 3/8 9 1/8 7 1/2 .015 .015
Fourth 9 5/8 7 1/4 8 5/8 7 .015 .015
Pursuant to an agreement with some of the Company's secured
lenders, dividends were suspended until the completion of the refinancing
plans. Dividends were reinstated for the quarter ended July 3, 1993.
The Company's stock is traded on the New York Stock Exchange
(ticker symbol CHX). The Company estimates there were approximately 12,500
holders (including individual participants in security position listings)
of the Company's common stock as of December 15, 1994.
S E L E C T E D F I N A N C I A L D A T A
Pilgrim's Pride Corporation and Subsidiaries
Years Ended
1994 1993(a) 1992(b) 1991 1990 1989
(in thousands, except per share data)
OPERATING RESULTS SUMMARY:
Net sales $922,609(c) $887,843 $817,361(c) $786,651 $720,555 $661,077
Gross margin 110,827 106,036(d) 32,802(d) 75,567 74,190 83,356
Operating
income (loss) 59,955 56,102 (13,475) 31,039 33,379 47,014
Income (loss)
before income
taxes and
extraordinary
charge 42,448 32,838 (33,712) 12,235 20,463 31,027
Income tax
expense
(benefit) 11,390 10,543 (4,048) (59) 4,826 10,745
Income (loss)
before
extraordinary
charge 31,058 22,295 (29,664) 12,294 15,637 20,282
Extraordinary
charge -
early repayment
of debt,
net of tax - (1,286) - - - -
Net income
(loss) 31,058 21,009 (29,664) 12,294 15,637 20,282
Per common share data:
Income (loss
before
extraordinary
charge $ 1.1 $ 0.81 $ (1.24) $ 0.54 $ 0.69 $ 0.90
Extraordinary
charge -
early repayment
of debt - (0.05) - - - -
Net income
(loss) 1.13 0.76 (1.24) 0.54 0.69 0.90
Cash dividends 0.06 0.03 0.06 0.06 0.06 0.06
Book value(e) 5.86 4.80 4.06 4.97 4.49 3.86
BALANCE SHEET SUMMARY:
Working
capital $ 99,724 $ 72,688 $ 11,227 $ 44,882 $ 54,161 $ 60,313
Total assets 438,683 422,846 434,566 428,090 379,694 291,102
Short-term
debt 4,493 25,643 86,424 44,756 30,351 9,528
Long-term
debt, less
current
maturities 152,631 159,554 131,534 175,776 154,277 109,412
Total
stockholders'
equity 161,696 132,293 112,112 112,353 101,414 87,132
KEY INDICATORS (As a percent of sales):
Gross Margin 12.0% 11.9%(d) 4.0%(d) 9.6% 10.3% 12.6%
Selling,
general and
administrative
expenses 5.5% 5.6%(d) 5.7%(d) 5.7% 5.7% 5.5%
Operating income
(loss) 6.5% 6.3% (1.6)% 3.9% 4.6% 7.1%
Net interest
expense 2.1% 2.9% 2.8% 2.5% 2.3% 2.7%
Net income (loss) 3.4% 2.4% (3.6)% 1.6% 2.2% 3.1%
(a) 1993 had 53 weeks.
(b) During 1992, the Company changed the fiscal year-end of its
Mexican subsidiaries from August to September to coincide with that of
its domestic operations. 1992 operating results included the operations
of the Mexican subsidiaries for the twelve months ended September 26,
1992. Operating results for the Mexican subsidiaries during the month of
September, 1991 have been reflected as a direct addition to stockholders'
equity. (See Note A to the Consolidated Financial Statements.)
(c) Excluded from net sales in 1994 and 1992 is approximately $.7
million and $2.2 million, respectively, of business interruption
insurance proceeds resulting from a fire at the Company's prepared foods
plant in Mt. Pleasant, Texas. (See Note I to the Consolidated Financial
Statements.)
(d) Reflects reclassification of certain expenses from selling,
general and administrative to cost of sales of $4.2 million and $1.8
million in 1993 and 1992, respectively. (See Note A to the Consolidated
Financial Statements).
(e) Amounts are based on end-of-period shares of common stock
outstanding.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
General
The profitability of the chicken industry is affected by market
prices of chicken and of feed grains, both of which may fluctuate
significantly and exhibit cyclical characteristics. In an effort to reduce
price volatility and to generate higher, more consistent profit margins,
the Company has concentrated on the production and marketing of prepared
food products, which generally have higher margins than the Company's other
products. This concentration has resulted in an increase in sales of
prepared food products as a percentage of total domestic net sales from
28.3% in fiscal 1990 to 39.0% in fiscal 1993. Management believes that
sales of prepared food products will become a larger component of its
total chicken sales, and, accordingly, changes in market prices for chicken
and feed costs should have less impact on profitability.
RESULTS OF OPERATIONS
Fiscal 1994 Compared to Fiscal 1993:
The Company's accounting cycle resulted in 52 weeks of operations
in fiscal 1994 and 53 weeks in fiscal 1993.
Consolidated net sales were $922.6 million for fiscal 1994, an
increase of $34.8 million, or 3.9%, over fiscal 1993. The increase in
consolidated net sales resulted from a $35.2 million increase in domestic
chicken sales to $635.2 million, partially offset by a $.4 million
decrease in sales of other domestic products to $98.7 million. Mexican
chicken sales remained constant at $188.7 million. The increase in
domestic chicken sales was primarily due to a 3.9% increase in the total
revenue per dressed pound produced and a 1.9% increase in dressed pounds
produced. The constant Mexican chicken sales resulted from a 2.4% increase
in dressed pounds produced offset by a 2.3% decrease in the total revenue
per dressed pound produced.
Consolidated cost of sales was $812.5 million in fiscal 1994, an
increase of $30.7 million, or 3.9%, over fiscal 1993. The increase
primarily resulted from a $35.9 million increase in cost of sales of
domestic operations offset by a $5.2 million decrease in the cost of sales
from Mexican operations.
The cost of sales increase in domestic operations of $35.9 million
was primarily due to a 5.7% increase in feed ingredient cost and a 1.9%
increase in dressed pounds produced.
The cost of sales decrease in Mexican operations of $5.2 million
was primarily the result of a decrease in the average cost of sales per
dressed pound produced, offset by a 2.4% increase in dressed pounds
produced. The decrease in the average cost of sales per dressed pound
produced when compared to the same period in 1993 was due to lower live
production costs due to increased efficiencies.
Gross profit as a percentage of sales increased to 12.0% in fiscal
1994 from 11.9% in fiscal 1993. The improved gross profit resulted
primarily from increased gross profit in the Company's domestic chicken
operations resulting primarily from increased total revenue per dressed
pound. The increase in gross profit as a percentage of sales in Mexican
chicken operations resulted from a decrease in the average cost of sales
per dressed pound produced, resulting from reduced live production costs.
Consolidated selling, general and administrative expenses were
$50.9 million for fiscal 1994, an increase of $0.9 million, or 1.9%, when
compared to fiscal 1993. Consolidated selling, general and administrative
expenses as a percentage of sales decreased in fiscal 1994 to 5.5% from
5.6% in fiscal 1993.
Consolidated operating income for fiscal 1994 was $60.0 million
compared to $56.1 million in fiscal 1993. The increase was due primarily
to higher margins in domestic and Mexican chicken operations as described
previously.
Consolidated net interest expense was $19.2 million in fiscal
1994, a decrease of $6.5 million, or 25.5%, when compared to fiscal 1993.
This decrease was due to a reduction of fees and expenses incurred for
refinancing and lower amounts of outstanding debt when compared to fiscal
1993.
Fiscal 1993 Compared to Fiscal 1992:
The Company's accounting cycle resulted in 53 weeks of operations
in fiscal 1993 compared to 52 weeks in fiscal 1992.
Consolidated net sales were $887.8 million for fiscal 1993, an
increase of $70.5 million or 8.6%, over fiscal 1992. The increase in
consolidated net sales resulted from a $31.2 million increase in domestic
chicken sales to $600.0 million, a $28.2 million increase in Mexican
chicken sales to $188.7 million and a $11.1 million increase in sales of
other domestic products to $99.1 million. The increase in domestic chicken
sales was primarily due to a 4.9% increase in dressed pounds produced and a
.6% increase in the total revenue per dressed pound produced. The increase
in Mexican chicken sales resulted from a 6.8% increase in dressed pounds
produced and a 10.1% increase in the total revenue per dressed pound
produced.
Consolidated cost of sales was $781.8 million in fiscal 1993, a
decrease of $5.0 million, or .6% over fiscal 1992. The decrease primarily
resulted from an $8.8 million decrease in cost of sales of domestic
operations offset by a $5.7 million increase in the cost of sales from
Mexican operations.
The cost of sales decrease in domestic operations of $8.8 million,
occurring while dressed pounds produced increased 4.9%, was due primarily
to reduced live production cost, improved efficiencies, lower feed cost and
elimination of cost of sales resulting from the cessation of non-poultry
farming operations. While average feed costs were lower in fiscal 1993
than the previous year, since the third quarter of fiscal 1993, feed costs
have increased primarily attributable to flooding which occurred during the
summer of 1993 in the Midwestern United States. Due to the commodity
nature of feed there can be no assurance as to future feed costs.
The cost of sales increase in Mexican operations of $5.7 million
was primarily the result of a 6.8% increase in dressed pounds produced
offset by a decrease in the average cost of sales per dressed pound
produced. The decrease in the average cost of sales per dressed pound
produced when compared to the same period in 1992, was due to decreased feed
prices and reduced production costs resulting from improved performance
levels which are a result of capital expenditures made by the Company in
1990 and 1991.
Gross profit as a percentage of sales increased to 11.9% in fiscal
1993 from 4.0% in fiscal 1992. The improved gross profit resulted
primarily from increased gross profit in the Company's domestic chicken
operations resulting primarily from improved results in live production,
improved efficiencies and decreased feed costs. The improved gross profit
also results from significant improvement in gross profit on other domestic
products including the elimination of the negative gross profit experienced
in the same period of fiscal 1992 upon the cessation of non-poultry farming
operations, and improved margins in the Company's commercial egg
operations. The increase in gross profit as a percentage of sales in
Mexican chicken operations resulted from a 10.1% increase in total revenue
per dressed pound produced and a decrease in the average cost of sales per
dressed pound produced, resulting from decreased feed prices and reduced
production costs.
Consolidated selling, general and administrative expenses were
$49.9 million for fiscal 1993, an increase of $3.7 million, or 7.9%, when
compared to fiscal 1992. The increase was not significantly attributable
to any individual expense category with the exception of accrued retirement
and bonuses which are dependent upon consolidated profits. Consolidated
selling, general and administrative expenses as a percentage of sales
decreased in fiscal 1993 to 5.6% compared to 5.7% in fiscal 1992.
Consolidated operating income for fiscal 1993 was $56.1 million
compared to an operating loss of $13.5 million in fiscal 1992. The
increase was due primarily to higher margins in all areas of the Company's
operations as described previously.
Consolidated net interest expense was $25.7 million in fiscal
1993, an increase of $3.2 million, or 14.3% when compared to fiscal 1992.
The increase was primarily due to higher rates on short-term borrowings due
to the renegotiation of revolving credit agreements with lenders occurring
in the third quarter of fiscal 1992 and the amortization of issue costs on
interim financing agreements.
Liquidity and Capital Resources:
The Company's liquidity improved from the previous year-end due to
record net income. The Company's working capital increased to $99.7
million ($93.3 million, excluding current deferred income taxes recorded in
connection with the adoption of FAS 109) from $72.7 million at the prior
year-end. The current ratio increased to 2.34 to 1 (2.25 to 1, excluding
current deferred income taxes recorded in connection with the adoption of
FAS 109) from 1.77 to 1 at the prior year-end. Stockholder's equity for
the Company increased to $161.7 million from $132.3 million at the prior
year-end. The Company also reduced the ratio of total debt to
capitalization from 58.3% at the prior year-end to 49.3%. The Company
maintains a $75 million revolving credit facility maturing in May 1997 with
unused lines of credit of $61.7 million available at November 15, 1994. In
July 1994, the Company secured $10 million in stand-by long-term financing
from an existing lender, secured by existing collateral. The facility is
available through June 20, 1995 and the Company expects to renew the
facility annually unless drawn upon.
Trade accounts and other accounts receivable at October 1, 1994,
were $53.3 million, a $6.3 million decrease from the 1993 fiscal year-end
balance. This 10.6% decrease was due primarily to a decrease in the
amounts of insurance claims receivable at year end 1994. See Note I to the
Consolidated Financial Statements.
Inventories were $100.7 million at October 1, 1994, a $9.0 million
increase from October 2, 1993. This 9.8% increase was primarily due to
increased production which requires higher inventories and higher feed
costs which are included in live broiler and hens and feed, eggs and other
inventories until such time as they are sold.
Deferred tax assets recorded in accordance with FAS 109 were $14.4
million as of October 1, 1994, a $4.7 million decrease from October 2,
1993. The Company believes that all remaining deferred tax assets will be
realized through the reversal of existing temporary differences and
anticipated future taxable earnings.
Other current assets were $1.2 million at October 1, 1994, a 87.3%
decrease from October 2, 1993, due primarily to the reclassification of
assets held for sale, principally farmland which had previously been used
in the Company's non-poultry farming operation, to other assets. The
reclassification was made upon conclusion that liquidation of these assets
is not likely to occur within the next fiscal year.
Capital expenditures for fiscal 1994 were $25.6 million primarily
for additional production facilities and other projects designed to improve
efficiencies and the routine replacement of equipment. The Company's
capital budget for fiscal 1995 provides for capital expenditures of
approximately $29 million, which the Company anticipates will be used to
improve efficiencies. The Company expects to finance its 1995 capital
expenditures with available operating cash flow and leases.
Cash flows provided by (used in) operating activities were $60.7
million, $45.0 million and $(1.6) million in fiscal 1994, 1993 and 1992,
respectively. The increase in cash flows provided by operating activities
from fiscal 1993 to fiscal 1994 and fiscal 1992 to fiscal 1993 resulted
primarily from increased net income in both fiscal 1994 and fiscal 1993.
Cash provided by (used in) financing activities was $(30.3)
million, $(40.3) million and $25.1 million in fiscal 1994, 1993 and 1992,
respectively. The cash provided by (used in) financing activities
primarily reflects the proceeds from the sales of stock in fiscal 1992 and
debt retirements in fiscal 1994, 1993 and 1992.
The Company's deferred income taxes have resulted primarily from
the Company's change from the cash method of accounting to the accrual
method of accounting for taxable periods beginning after July 2, 1988. The
Company's deferred income taxes arising from such change in method of
accounting will continue to be deferred as long as (i) at least 50% of the
voting stock and at least 50% of all other classes of stock of the Company
continue to be owned by the Lonnie "Bo" Pilgrim family and (ii) the
Company's net sales from its agricultural operation in a taxable year equal
or exceed the Company's net sales from such operations in its taxable year
ending July 2, 1988. Failure of the first requirement will cause all of
the deferred taxes attributable to the change in accounting method to be
due. Failure of the second requirement will cause a portion of such
deferred taxes to be due based upon the amount of the relative decline in
net sales from the agricultural operations. The family of Lonnie "Bo"
Pilgrim currently owns approximately 65.1% of the stock of the company.
However, a sufficient amount of that stock is pledged to secure obligations
to third parties such that foreclosure on that pledged stock by such third
parties could result in the failure to satisfy one of the conditions to the
continuation of the deferral of such deferred taxes. Management believes
that likelihood of the (i) Pilgrim family ownership falling below 50%, or
(ii) gross receipts from agricultural activities falling below the 1988
level, is remote.
Impact of Inflation:
Due to moderate inflation and the Company's rapid inventory
turnover rate, the results of operations have not been adversely affected
by inflation during the past three-year period.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements together with the report of
independent auditors, and financial statement schedules are included on
pages 34 through 51 of this document. Financial statement schedules other
than those included herein have been omitted because the required
information is contained in the consolidated financial statements or
related notes, or such information is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
NOT APPLICABLE
PART III
Item 10. Directors and Executive Officers of Registrant
Reference is made to "Election of Directors" on pages 3 through 5
of Registrant's Proxy Statement for its 1994 Annual Meeting of
Stockholders, which section is incorporated herein by reference.
Reference is made to "Compliance with Section 16(a) of the
Exchange Act" on page 9 of Registrant's Proxy Statement for its 1994 Annual
Meeting of Stockholders, which section is incorporated herein by reference.
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Information responsive to Items 11, 12 and 13 is incorporated by
reference from sections entitled "Security Ownership", "Election of
Directors", "Executive Compensation", and "Certain Transactions" of the
Registrant's Proxy Statement for its 1994 Annual Meeting of Stockholders.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8- K
(a) (1) The financial statements listed in the accompanying index
to financial statements and schedules are filed as part of this report.
(2) The schedules listed in the accompanying index to
financial statements and schedules are filed as part of this report.
(3) Exhibits
2.1 Agreement and Plan of Reorganization dated September 15, 1986, by
and among Pilgrim's Pride Corporation, A Texas corporation; Pilgrim's Pride
Corporation, a Delaware corporation; and Doris Pilgrim Julian, Aubrey Hal
Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie "Bo" Pilgrim,
Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim
(incorporated by reference from Exhibit 2.1 to the Company's Registration
Statement on Form S-1 (No. 33-8805) effective November 14, 1986).
3.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 of the Company's Registration Statement on Form
S-1 (No. 33-8805) effective November 14, 1986).
3.2 By-Laws of the Company (incorporated by reference from Exhibit 3.2
to the Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
4.1 Certificate of Incorporation of the Company (incorporated by
reference from Exhibit 3.1 of the Company's Registration Statement on Form
S-1 (No. 33-8805) effective November 14, 1986).
4.2 By-Laws of the Company (incorporated by reference from Exhibit 3.2
of the Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
4.3 Indenture dated as of May 1, 1988, between the Company and Mtrust
Corporation National Association relating to the Company's 14 1/4% Senior
Notes Due 1995 (incorporated by reference from Exhibit 4.1 of the Company's
Registration Statement on Form S-1 (No. 33- 21057) effective May 2, 1988).
4.4 First Supplemental Indenture dated as of October 4, 1990, between
the Company and Ameritrust Texas, N.A. supplementing the Indenture dated as
of May 1, 1988, between the Company and Mtrust Corporation National
Association relating to the Company's 14 1/4% Senior Notes Due 1995
(incorporated by reference from Exhibit 4.4 of the Company's Form 8 filed
on July 1, 1992).
4.5 Form of 14 1/4% Senior Note Due 1995 (incorporated by reference
from Exhibit 4.2 of the Company's Registration Statement on Form S-1 (No.
33-21057) effective May 2, 1988).
4.6 Specimen Certificate for shares of Common Stock, Par value $.01
per share, of the Company (incorporated by reference from Exhibit 4.6 of
the Company's Form 8 filed on July 1, 1992).
4.7 Form of Indenture between the Company and Ameritrust Texas
National Association relating to the Company's 10 7/8% Senior Subordinated
Notes Due 2003 (incorporated by reference from Exhibit 4.6 of the Company's
Registration Statement on Form S-1 (No. 33-59626) filed on March 16, 1993).
4.8 Form of 10 7/8% Senior Subordinated Note Due 2003 (incorporated by
reference from Exhibit 4.8 of the Company's Registration Statement on Form
S-1 (No. 33-61160) filed on June 16, 1993).
10.1 Pilgrim Industries, Inc., Profit Sharing Retirement Plan, restated
as of July 1, 1987 (incorporated by reference from Exhibit 10.1 of the
Company's Form 8 filed on July 1, 1992).
10.2 Bonus Plan of the Company (incorporated by reference from Exhibit
10.2 to the Company's Registration Statement on Form S-1 (No. 33- 8805)
effective November 14, 1986).
10.3 Aircraft Lease dated November 15, 1984, by and between L.A.
Pilgrim d/b/a B.P. Leasing Company and the Company (incorporated by
reference from Exhibit 10.5 to the Company's Registration Statement on Form
S-1 (No. 33-8805) effective November 14, 1986).
10.4 Broiler Grower Contract dated November 11, 1985, between the
Company and Lonnie "Bo" Pilgrim (Farm #30) (incorporated by reference from
Exhibit 10.9 to the Company's Registration Statement on Form S-1 (No.
33-8805) effective November 14, 1986).
10.5 Broiler Growing Agreements dated October 28, 1985, between the
Company and Monty K. Henderson d/b/a Central Farms and Lone Oak Farms
(incorporated by reference from Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (No. 33-8805) effective November 14, 1986).
10.6 Broiler Growing Agreement dated March 27, 1986, between the
Company and Clifford E. Butler (incorporated by reference from Exhibit
10.12 to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
10.7 Broiler Grower Contract dated July 10, 1990 between the Company
and James J. Miner d/b/a/ BJM Farms (incorporated by reference from Exhibit
10.7 of the Company's Form 8 filed on July 1, 1992).
10.8 Commercial Egg Grower Contract dated July 1, 1986, between the
Company and Pilgrim Poultry, Ltd. (incorporated by reference from exhibit
10.14 to the Company's Registration Statement on Form S-1 (No. 33-8805)
effective November 14, 1986).
10.9 Agreement dated November 28, 1978, by and between the Company and
Pilgrim Poultry, Ltd. (incorporated by reference from Exhibit 10.15 to the
Company's Registration Statement on Form S-1 (No. 33- 8805) effective
November 14, 1986).
10.10 Agreement between the Company and its Principal Shareholders dated
October 2, 1974, as amended July 1, 1979 (incorporated by reference from
Exhibit 10.19 to the Company's Registration Statement on Form S-1 (No.
33-8805) effective November 14, 1986).
10.11 Note Purchase Agreement dated as of October 1, 1986, by and
between the Company and Aetna Life Insurance Company with related
Collateral Trust Indenture, as amended by First Supplemental Indenture
dated as of November 1, 1986, and by letter dated September 29, 1987, Texas
Mortgage, Arkansas Mortgage, Guarantee Agreement, as amended by First
Amendment to Guarantee Agreement dated June 9, 1987, and Cash Pledge
Agreement (incorporated by reference from Exhibit 10.21 of the Company's
Registration Statement on Form S-1 (No. 33-21057) effective May 2, 1988).
10.12 Letter Agreement dated April 26, 1988, by and among Aetna Life
Insurance Company, The Aetna Casualty and Surety Company, The Connecticut
Bank and Trust Company and the Company and Letter Agreement dated April 26,
1988, by and among Bank of America National Trust and Savings Association,
The Connecticut Bank and Trust Company and the Company amending Note
Purchase Agreement dated as of October 1, 1986 (incorporated by reference
from Exhibit 10.36 of the Company's Registration Statement on Form S-1 (No.
33-21057) effective May 2, 1988).
10.13 Note Purchase Agreement dated as of September 21, 1990, by and
among the Company, Aetna Life Insurance Company and Bank of America
National Trust and Savings Association (incorporated by reference from
Exhibit 10.20 of the Company's Form 8 filed on July 1, 1992).
10.14 Amended and Restated Collateral Trust Indenture dated as of
September 21, 1990, by and between the Company and State Street Bank and
Trust Company of Connecticut, N.A. with related Notes, Modification
Agreements and First Amendment to Guaranty (incorporated by reference from
Exhibit 10.21 of the Company's Form 8 filed on July 1, 1992).
10.15 Supplemental Indenture and Waiver dated as of December 9, 1991, by
and between the Company and State Street Bank and Trust Company of
Connecticut, N.A. with related Notes, Modification Agreements and First
Amendment to Guaranty, Amended and Restated Collateral Trust Indenture
dated as of September 20, 1990 (incorporated by reference from Exhibit
10.24 of the Company's Form 10-K for the year ended September 26, 1992).
10.16 Loan Agreement dated as of August 1, 1988, by and between the
Company and Angelina and Neches River Authority Industrial Development
Corporation, with related Reimbursement and Credit Agreement (incorporated
by reference from Exhibit 10.22 of the Company's Form 8 filed on July 1,
1992).
10.17 Indenture of Trust dated as of August 1, 1988, related to Loan
Agreement by and between the Company and Angelina and Neches River
Authority Industrial Development Corporation, with related Bond,
Irrevocable Letter of Credit, Deed of Trust, Security Agreement, Assignment
of Rents and Financing Statement (incorporated by reference from Exhibit
10.23 of the Company's Form 8 filed on July 1, 1992).
10.18 Assumption Agreement by and between the Company, Lonnie "Bo"
Pilgrim and RepublicBank Lufkin, as trustee, dated June 14, 1985
(incorporated by reference from Exhibit 10.31 to the Company's Registration
Statement on Form S-1 (No. 33-8805) effective November 14, 1986).
10.19 Stock Purchase Agreement dated September 15, 1986, among the
Company, Doris Pilgrim Julian, Aubrey Hal Pilgrim, Paulette Pilgrim Rolston
and Evanne Pilgrim (incorporated by reference from Exhibit 2.2 to the
Company's Registration Statement on Form S-1 (No. 33-8805) effective
November 14, 1986).
10.20 Amendment No. 1 to Stock Purchase Agreement, dated as of October
31, 1986, among the Company, Doris Pilgrim Julian, Aubrey Hal Pilgrim,
Paulette Pilgrim Rolston and Evanne Pilgrim (incorporated by reference from
Exhibit 2.3 to the Company's Registration Statement on Form S-1 (No.
33-8805) effective November 14, 1986).
10.21 Limited Partnership Interest Purchase Agreement dated September
15, 1986, by and between the Company and Doris Pilgrim Julian (incorporated
by reference from Exhibit 2.5 to the Company's Registration Statement on
Form S-1 (No. 33-8805) effective November 14, 1986).
10.22 Employee Stock Investment Plan of the Company (incorporated by
reference from Exhibit 10.28 of the Company's Registration Statement on
Form S-1 (No. 33-21057) effective May 2, 1988).
10.23 Promissory Note dated February 1, 1988, by and between the Company
and John Hancock Mutual Life Insurance Company with related Deed of Trust,
Assignment of Rents and Security Agreement and Mortgage and Guaranty of
Note and Mortgage (incorporated by reference from Exhibit 10.29 of the
Company's Registration Statement on Form S-1 (No. 33-21057) effective May
2, 1988).
10.24 Letter from John Hancock Mutual Life Insurance Company dated April
25, 1988, amending Deed of Trust, Assignment of Rents and Security
Agreement dated February 1, 1988 (incorporated by reference from Exhibit
10.35 of the Company's Registration Statement on Form S-1 (No. 33-21057)
effective May 2, 1988).
10.25 Promissory Note dated April 25, 1991, by and between the Company
and John Hancock Mutual Life Insurance Company, with related Modification
Agreement and Guaranty of Note and Mortgage (incorporated by reference from
Exhibit 10.31 of the Company's Form 8 filed on July 1, 1992).
10.26 Stock Purchase Agreement dated May 12, 1992, between the Company
and Archer Daniels Midland Company (incorporated by reference from Exhibit
10.45 of the Company's Form 10-K for the year ended September 26, 1992).
10.27 Promissory Note dated September 21, 1988, by and between the
Company and Charles Schreiner Bank, with related Warranty Deed with
Vendor's Lien and Deed of Trust and Security Agreement (incorporated by
reference from Exhibit 10.40 of the Company's Form 8 filed on July 1,
1992).
10.28 Promissory Note dated November 1, 1988, by and between the Company
and The Connecticut Mutual Life Insurance Company, with related Deed of
Trust (incorporated by reference from Exhibit 10.41 of the Company's Form 8
filed on July 1, 1992).
10.29 Promissory Note dated September 20, 1990, by and between the
Company and Hibernia National Bank of Texas (incorporated by reference from
Exhibit 10.42 of the Company's Form 8 filed on July 1, 1992).
10.30 Loan Agreement dated October 16, 1990, by and among the Company,
Lonnie "Bo" Pilgrim and North Texas Production Credit Association, with
related Variable Rate Term Promissory Note and Deed of Trust (incorporated
by reference from Exhibit 10.43 of the Company's Form 8 filed on July 1,
1992).
10.31 Secured Credit Agreement dated May 27, 1993, by and among the
Company and Harris Trust and Savings Bank, and FBS AG Credit, Inc.,
Internationale Nederlanden Bank, N.V., Boatmen's First National Bank of
Kansas City, and First Interstate Bank of Texas, N.A. (incorporated by
reference from Exhibit 10.31 of the Company's Registration Statement on
Form S-1 (No. 33-61160) filed on June 16, 1993).
10.32 Loan and Security Agreement dated as of June 3, 1993, by and among
the Company, the banks party thereto and Creditanstalt-Bankverein, as agent
(incorporated by reference from Exhibit 10.32 of the Company's Registration
Statement on Form S-1 (No. 33-61160) filed on June 16, 1993).
10.33 First Amendment to Secured Credit Agreement dated June 30, 1994 to
the Secured Credit Agreement dated May 27, 1993, by and among the Company
and Harris Trust and Savings Bank, and FBS AG Credit, Inc., Internationale
Nederlanden Bank N.V., Boatman's First National Bank of Kansas City and
First Interstate Bank of Texas, N.A.
10.34 Amended and Restated Loan and Security Agreement date July 29,
1994, by and among the Company, the banks party thereto and
Creditanstalt-Bankverein, as agent.
10.35 Supplemental Indenture dated October 2, 1994, by and between the
Company and State Street Bank and Trust Company of Connecticut, N.A., and
Guarantee Agreement, as amended by Second Amendment to Guarantee Agreement
dated October 2, 1994.
22. Subsidiaries of Registrant.*
23. Consent of Ernst & Young LLP.*
27. Financial Data Statement.
* Filed herewith
Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K promulgated
by the Securities and Exchange Commission, the Company has not filed as
exhibits certain other instruments defining the rights of holders of long-
term debt of the Company which instruments do not pertain to indebtedness
in excess of 10% of the total assets of the Company. The Company hereby
agrees to furnish copies of such instruments to the Securities and Exchange
Commission upon request.
(b) Reports on Form 8-K
NOT APPLICABLE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the issuer has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 16th day
of December 1994.
PILGRIM'S PRIDE CORPORATION
By: _________________________
Clifford E. Butler
Vice Chairman of the Board and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
Signature Title Date
________________________ Chairman of the Board 12/16/94
Lonnie "Bo" Pilgrim of Directors and Chief
Executive Officer
(Principal Executive
Officer)
_______________________ Vice Chairman of the 12/16/94
Clifford E. Butler Board of Directors,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
________________________ President and 12/16/94
Lindy M. "Buddy" Pilgrim Chief Operating Officer and
Director
_______________________ Executive Vice President 12/16/94
Robert L. Hendrix Operations and
Director
_______________________ Senior Vice President 12/16/94
James J. Miner Technical Services and
Director
_______________________ Vice President and 12/16/94
Lonnie Ken Pilgrim Director
_______________________ Director 12/16/94
Robert E. Hilgenfeld
_______________________ Director 12/16/94
Vance C. Miller
_______________________ Director 12/16/94
James J. Vetter, Jr.
_______________________ Director 12/16/94
Donald L. Wass
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Pilgrim's Pride Corporation
We have audited the accompanying consolidated balance sheets of Pilgrim's
Pride Corporation and subsidiaries as of October 1, 1994, and October 2,
1993, and the related consolidated statements of income (loss),
stockholders' equity and cash flows for each of the three years in the
period ended October 1, 1994. Our audits also included the financial
statement schedules listed on the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Pilgrim's Pride Corporation and subsidiaries at October 1,
1994, and October 2, 1993, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended
October 1, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information
set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto Street
Dallas, Texas 75201
November 15, 1994
C O N S O L I D A T E D B A L A N C E S H E E T S
Pilgrim's Pride Corporation and Subsidiaries
October 1, 1994 October 2, 1993
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,244,000 $ 4,526,000
Trade accounts and other
receivables, less allowance
for doubtfulaccounts 53,264,000 59,608,000
Inventories 100,749,000 91,794,000
Deferred income taxes 6,459,000 -
Prepaid expenses 1,280,000 1,260,000
Other current assets 1,249,000 9,843,000
TOTAL CURRENT ASSETS 174,245,000 167,031,000
OTHER ASSETS 20,891,000 13,114,000
PROPERTY, PLANT AND EQUIPMENT
Land 15,153,000 14,824,000
Buildings, machinery and equipment 332,289,000 317,657,000
Autos and trucks 27,457,000 25,877,000
Construction-in-progress 4,853,000 7,863,000
379,752,000 366,221,000
Less accumulated depreciation and
amortization 136,205,000 123,520,000
243,547,000 242,701,000
$ 438,683,000 $ 422,846,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ - $ 12,000,000
Accounts payable 38,675,000 38,330,000
Accrued expenses 31,353,000 30,370,000
Current maturities of long-term debt 4,493,000 13,643,000
TOTAL CURRENT LIABILITIES 74,521,000 94,343,000
LONG-TERM DEBT, less current maturities 152,631,000 159,554,000
DEFERRED INCOME TAXES 49,835,000 36,656,000
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value,
authorized 5,000,000 shares; none issued - -
Common stock, $.01 par value, authorized
45,000,000 shares; 27,589,250 issued and
outstanding in 1994 and 1993 276,000 276,000
Additional paid-in capital 79,763,000 79,763,000
Retained earnings 81,657,000 52,254,000
TOTAL STOCKHOLDERS' EQUITY 161,696,000 132,293,000
COMMITMENTS AND CONTINGENCIES - -
$ 438,683,00 $ 422,846,000
See notes to consolidated financial statements.
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E (L O S S)
Pilgrim's Pride Corporation and Subsidiaries
Years Ended
October October September
1, 1994 2, 1993 26, 1992
(52 weeks) (53 weeks) (52 weeks)
Net sales $922,609,000 $887,843,000 $817,361,000
Business interruption
insurance 731,000 - 2,225,000
923,340,000 887,843,000 819,586,000
Costs and expenses:
Cost of sales 812,513,000 781,807,000 786,784,000
Selling, general and
administrative 50,872,000 49,934,000 46,277,000
863,385,000 831,741,000 833,061,000
OPERATING INCOME (LOSS) 59,955,000 56,102,000 (13,475,000)
Other expenses (income):
Interest expense, net 19,173,000 25,719,000 22,502,000
Miscellaneous, net (1,666,000) (2,455,000) (2,265,000)
Total other expenses, net 17,507,000 23,264,000 20,237,000
Income (loss) before income
taxes and extraordinary
charge 42,448,000 32,838,000 (33,712,000)
Income tax expense
(benefit) 11,390,000 10,543,000 (4,048,000)
Net income (loss) before
extraordinary charge 31,058,000 22,295,000 (29,664,000)
Extraordinary charge-early
repayment of debt, net
of tax - (1,286,000) -
NET INCOME (LOSS) $ 31,058,000 $ 21,009,000 $(29,664,000)
Net income (loss) per
common share before
extraordinary charge $ 1.1 $ 0.81 $ (1.24)
Extraordinary charge
per common share - (0.05) -
Net income (loss) per
common share $ 1.1 $ 0.76 $ (1.24)
See notes to consolidated financial statements.
C O N S O L I D A T E D S T A T E M E N T S O F
S T O C K H O L D E R S ' E Q U I T Y
Pilgrim's Pride Corporation and Subsidiaries
Number Additional
of Common Paid-in Retained
Shares Stock Capital Earnings Total
Balance at
September
28, 1991 22,589,250 $226,000 $49,890,000 $62,237,000 $112,353,000
Net income
for the month
ended
September
28, 1991,
excluded
below due
to the
change in
fiscal
year-end
of Mexican
subsidiaries - - - 931,000 931,000
Net loss for year - - - (29,664,000) (29,664,000)
Common stock
issued 5,000,000 50,000 29,873,000 - 29,923,000
Cash
dividends
declared
($0.06 per
share) - - - (1,431,000) (1,431,000)
Balance at
September
26, 1992 27,589,250 276,000 79,763,000 32,073,000 112,112,000
Net income
for year - - - 21,009,000 21,009,000
Cash dividends
declared ($0.03
per share) - - - (828,000) (828,000)
Balance at
October
2, 1993 27,589,250 276,000 79,763,000 52,254,000 132,293,000
Net income
for year - - - 31,058,000 31,058,000
Cash dividends
declared
($0.06 per share) - - - (1,655,000) (1,655,000)
Balance at
October
1, 1994 27,589,250 $ 276,000 $79,763,000 $81,657,000 $161,696,000
See notes to consolidated financial statements.
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
Pilgrim's Pride Corporation and Subsidiaries
Years Ended
October October September
1, 1994 2, 1993 26, 1992
(52 weeks) (53 weeks) (52 weeks)
Cash Flows From Operating Activities:
Net income (loss) $ 31,058,000 $ 21,009,000 $ (29,664,000)
Adjustments to
reconcile net income
(loss) to cash
provided by (used in)
operating activities:
Depreciation and
amortization 25,177,000 26,034,000 24,090,000
Gain on property
disposals (608,000) (2,187,000) (620,000)
Provision for
doubtful accounts 2,666,000 2,124,000 1,045,000
Deferred income taxes 6,720,000 5,028,000 (5,382,000)
Extraordinary charge - 1,904,000 -
Net income for the
month ended
September 28, 1991
excluded above due
to the change in
fiscal year of
Mexican subsidiaries - - 931,000
Changes in operating
assets and liabilities:
Accounts and other
receivables 3,412,000 (6,555,000) (9,720,000)
Inventories (8,955,000) (2,366,000) 7,807,000
Prepaid expenses (459,000) 4,175,000 (4,416,000)
Accounts payable and
accrued expenses 1,742,000 (4,168,000) 14,598,000
Other (89,000) (28,000) (242,000)
Net Cash Flows Provided
by (Used In) Operating
Activities 60,664,000 44,970,000 (1,573,000)
Investing Activities:
Acquisitions of
property, plant and
equipment (25,547,000) (15,201,000) (18,043,000)
Proceeds from
property disposal 2,103,000 2,977,000 3,766,000
Other assets (128,000) 713,000 (536,000)
Net Cash Used in
Investing Activities (23,572,000) (11,511,000) (14,813,000)
Financing Activities:
Proceeds from notes
payable to banks 7,000,000 28,419,000 163,629,000
Repayments on notes
payable to banks (19,000,000) (81,398,000) (156,150,000)
Proceeds from
long-term debt 31,000 126,468,000 -
Payments on
long-term debt (16,253,000) (106,302,000) (11,502,000)
Cost of refinancing
debt - (5,510,000) -
Extraordinary charge,
cash items - (1,188,000) -
Proceeds from leasing
transaction - - 565,000
Net proceeds from
sale of stock - - 29,923,000
Cash dividends paid (2,069,000) (828,000) (1,355,000)
Cash (Used in)
Provided by
Financing Activities (30,291,000) (40,339,000) 25,110,000
Effect of exchange
rate changes on cash
and cash equivalents (83,000) (144,000) (49,000)
Increase (decrease) in
cash and cash
equivalents 6,718,000 (7,024,000) 8,675,000
Cash and cash
equivalents at
beginning of year 4,526,000 11,550,000 2,875,000
Cash and cash
equivalents at
end of year $11,244,000 $ 4,526,000 $11,550,000
Supplemental disclosure information:
Cash paid during the year for:
Interest (net of
amount capitalized) $19,572,000 $23,015,000 $22,507,000
Income taxes $ 7,108,000 $ 3,688,000 $ 1,455,000
See notes to consolidated financial statements.
N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S T A T E M E N T S
Pilgrim's Pride Corporation and Subsidiaries
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Pilgrim's Pride Corporation and its wholly owned subsid
iaries (the "Company"). Significant intercompany accounts and transactions
have been eliminated.
The financial statements of the Company's Mexican subsidiaries are
remeasured as if the U.S. dollar were the functional currency. According
ly, assets and liabilities of the Mexican subsidiaries are translated at
end-of-period exchange rates, except for non current assets which are
translated at equivalent dollar costs at dates of acquisition using
historical rates. Operations are translated at average exchange rates in
effect during the period. Translation (gains) losses for 1994, 1993 and
1992 of $(257,000), $243,000, and $736,000, respectively, are included in
the statements of income as components of "Costs and expenses - Selling,
general and administrative" in the Consolidated Statement of Income (Loss).
During the fourth quarter of fiscal 1994, the Company reclassified certain
expenses of its Mexican subsidiaries to conform to the classification in
the United States. The effect of this change was to decrease selling,
general and administrative expense and increase cost of sales by
$4,177,000 and $1,844,000 in 1993 and 1992, respectively.
During the fourth quarter of fiscal 1992, the Company changed the fiscal
year-end for its Mexican subsidiaries from August 31 to a 52-53 week year-
end coinciding with the fiscal year of its domestic operations.
Accordingly, the fiscal 1992 Consolidated Statement of Loss includes the
operations of the Company's Mexican subsidiaries for the twelve-month period
ended September 26, 1992. Operating results for the Company's Mexican
subsidiaries during the month of September 1991 have been reflected as a
direct addition to stockholders' equity. If this change in the Company's
Mexican subsidiaries' fiscal year-end had not occurred, operating loss, net
loss, and net loss per common share for the fiscal year ended September 26,
1992, would have been $(8,760,000), $(24,683,000) and $(1.03), respect
ively. The effect of the change on the remaining components of the
Consolidated Statement of Loss was not significant.
Cash Equivalents: The Company considers highly liquid investments with a
maturity of 3 months or less when purchased to be cash equivalents.
Accounts Receivable: The Company does not believe it has significant
concentrations of credit risk. Credit evaluations are performed on all
significant customers and updated as circumstances dictate. The Company
generally does not require collateral. Allowances for doubtful accounts
were $ 5,906,000 and $3,240,000 in 1994 and 1993, respectively.
Inventories: Live poultry inventories of broilers are stated at the lower
of cost or market and hens at the lower of cost, less accumulated amorti
zation or market. The costs associated with hens are accumulated up to the
production stage and amortized over the productive lives using the
straight-line method. Finished poultry products, feed, eggs and other
inventories are stated at the lower of cost (first-in, first-out method) or
market. Under certain circumstances, the Company hedges purchases of its
major feed ingredients using futures contracts to minimize the risk of
adverse price fluctuations. Gains and losses on the hedge transactions are
deferred and recognized as a component of cost of sales when products are
sold.
Other Assets/Other Current Assets: Other assets includes approximately
$8.9 million of non poultry farming assets, primarily farmland, held for
sale. These assets, previously classified as other current assets in the
October 2, 1993 Consolidated Balance Sheet, were reclassified upon
the conclusion that their liquidation is not likely to occur within the
next fiscal year. Related debt on these assets has also been reclassified.
Property, Plant and Equipment: Property, plant and equipment is stated on
the basis of cost. For financial reporting purposes, depreciation is
computed using the straight-line method over the estimated useful lives of
these assets. Depreciation expense was $23.7 million, $23.4 million and
$23.1 million in 1994, 1993 and 1992, respectively.
Net Income (Loss) per Common Share: Net income (loss) per share is based
on the weighted average shares of common stock outstanding during the year.
The weighted average number of shares outstanding was 27,589,250 in 1994
and 1993 and 23,880,459 in 1992.
NOTE B - INVENTORIES
Inventories consist of the following:
October 1, 1994 October 2,1993
Live broilers and hens $ 47,743,000 $ 44,417,000
Feed, eggs and other 22,529,000 25,473,000
Finished poultry products 30,477,000 21,904,000
$ 100,749,000 $ 91,794,000
NOTE C - NOTES PAYABLE AND LONG-TERM DEBT
The Company maintains a $75 million credit facility with various banks
providing short-term lines of credit at interest rates of approximately one
and one-eighth percent above LIBOR and, at October 1, 1994, availability
under these lines totaled $63.9 million. Inventories and trade accounts
receivable of the Company are pledged as collateral on this facility. The
fair value of the Company's long-term debt was estimated using quoted
market prices, where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analysis using
current market rates for similar types of borrowings. For certain debt
instruments recently issued or modified, including the credit facility,
the Company believes that their carrying amounts approximate fair value at
October 1, 1994 and October 2, 1993.
The table below sets forth maturities on long-term debt during the next
five years.
Year Amount
1995 $ 4,493,000
1996 7,595,000
1997 11,068,000
1998 8,480,000
1999 8,137,000
During 1993, the Company retired certain debt prior to their scheduled
maturities. These repayments resulted in an extraordinary charge of $1.3
million, net of $.6 million tax benefit.
In July 1994, the Company secured $10 million in stand-by long-term
financing from an existing lender, secured by existing collateral. The
facility is available through June 20, 1995 and the Company expects to
renew the facility annually unless drawn upon.
The Company is required, by certain provisions of its debt agreements, to
maintain minimum levels of working capital and net worth, to limit
dividends to a maximum of $1.7 million per year, to maintain various fixed
charge, leverage, current and debt-to-equity ratios, and to limit annual
capital expenditures to 115% of the prior year's depreciation and
amortization expense.
Total interest during 1994, 1993 and 1992 was $20,109,000, $26,415,000 and
$23,115,000, respectively. Interest related to new construction
capitalized in 1994, 1993 and 1992 was $525,000, $220,000 and $456,000,
respectively.
Long-term debt and the related fair values consist of the following:
October 1, 1994 October 2, 1993
Carrying Fair Carrying Fair
Amounts Value Amounts Value
Senior subordinated
notes due August 1,
2003, interest at
10 % (effective
rate of 11 %)
payable in semi-
annual installments,
less discount of
$1,330,000 and
$1,480,000 in 1994
and 1993,
respectively $ 98,670,000 $ 96,824,000 $ 98,520,000 $ 98,520,000
Notes payable to
bank, interest
at LIBOR plus
1.8% and 2.5%
in 1994 and 1993,
respectively,
principal
payments of
$700,000 in
quarterly
installments
including
interest plus
one final balloon
payment at maturity
on June 1, 2000 15,400,000 15,400,000 23,800,000 23,800,000
Senior secured debt
payable to an
insurance company
at 10.49%, payable
in equal annual
installments
beginning
October 5, 1996
through September
21, 2002 22,000,000 23,293,000 22,000,000 24,549,000
Note payable to an
insurance company
at 10.78%, payable
in equal monthly
installments
including
interest through
March 1, 1998 8,633,000 8,909,000 11,485,000 12,170,000
Senior secured
debt payable to
an insurance
company, interest
at 9.55%, payable
in equal annual
installments
through October
1, 1998 4,440,000 4,458,000 5,520,000 5,696,000
Note payable to
an insurance
company at 10.35%,
payable in equal
monthly
installments plus
interest through
May 1, 2001 3,544,000 3,683,000 4,220,000 4,568,000
Other notes
payable 4,437,000 4,925,000 7,652,000 7,652,000
157,124,000 157,492,000 173,197,000 176,955,000
Less current
maturities 4,493,000 13,643,000
$152,631,000 $159,554,000
Substantially all of the Company's property, plant and equipment is pledged
as collateral on its long-term debt.
NOTE D - INCOME TAXES
Income (loss) before income taxes after allocation of certain expenses to
foreign operations for 1994, 1993 and 1992 was $33,852,000, $30,816,000 and
($16,273,000), respectively, for domestic operations, and $8,596,000,
$2,022,000 and ($17,439,000), respectively, for foreign operations.
Provisions (benefits) for income taxes are based on pretax financial
statement income. The major components of the deferred tax liability are
related to the Company's prior use of the cash method of accounting for tax
purposes and differences in book and tax basis of depreciable assets.
The components of income tax expense (benefit) are set forth below:
Years Ended
October October September
1, 1994 2, 1993 26, 1992
Current:
Federal $ 4,573,000 $ 2,993,000 $ (49,000)
Foreign 423,000 2,775,000 1,892,000
Other (326,000) (253,000) (509,000)
4,670,000 5,515,000 1,334,000
Deferred:
Reinstatement (reversal) of deferred
taxes through utilization
(application) of net operating
losses 6,589,000 6,210,000 (5,971,000)
Accelerated tax depreciation 1,002,000 1,130,000 1,082,000
Effect of U.S. tax rate change on
temporary differences - 1,000,000 -
Expenses deductible in a different
year for tax and financial reporting
purposes (580,000) (1,782,000) -
Reversal of deferred foreign income
taxes upon Mexican tax law and
restructuring changes - (1,110,000) -
Other, net (291,000) (420,000) (493,000)
6,720,000 5,028,000 5,382,000)
$11,390,000 $10,543,000 (4,048,000)
The following is a reconciliation between the statutory U.S. federal income
tax rate and the Company's effective income tax rate:
Years Ended
October October September
1, 1994 2, 1993 26, 1992
Federal income tax rate 35.0% 34.8% (34.0)%
State tax rate, net 2.3 2.2 -
Reversal of deferred foreign
income taxes upon Mexican law and
restructuring changes - (3.4) -
Effect of U.S. tax rate change on
temporary differences - 3.0 -
Benefit of (prior) current year
losses not recognized - (5.3) 5.0
Difference in U.S. statutory tax
rate and Mexican effective tax rate (10.7) (2.5) 16.5
Other, net 0.2 3.3 0.5
26.8% 32.1% (12.0)%
Effective October 3, 1993, the Company adopted the provisions of FAS
Statement No. 109, "Accounting for Income Taxes." As permitted under the
new rules, prior years' financial statements have not been restated. The
cumulative effect of adopting FAS Statement No. 109 as of October 3, 1993
and the impact of the adoption on the reported net income amounts for 1994
was not material.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
Years Ended
October 1, 1994 October 2,1993
Deferred tax liabilities:
Tax over book depreciation $ 24,006,000 $ 23,004,000
Prior use of cash accounting 33,290,000 32,758,000
Other 516,000 -
Total deferred tax liabilities 57,812,000 55,762,000
Deferred tax assets:
AMT credit carryforward 6,629,000 3,967,000
General business credit carryforward 1,344,000 2,462,000
Net operating loss carryforward - 6,589,000
Other 6,463,000 6,088,000
Total deferred tax asset 14,436,000 19,106,000
Net deferred tax liabilities $ 43,376,000 $ 36,656,000
Pursuant to a restructuring of activities completed by the Company's
Mexican subsidiaries on January 1, 1993 approximately $1.1 million of
deferred taxes previously provided on earnings of the Company's
nonagricultural Mexican subsidiaries was reversed as a credit to income tax
expense in fiscal 1993. This restructuring, along with further
restructuring of activities completed on January 1, 1994, allowed
previously nonagricultural Mexican operations to be combined with existing
agricultural operations and, as such, qualify for taxability as
agricultural operations, which are currently not subject to taxes in
Mexico. The current provision for foreign income taxes in 1994 is the
result of taxes at certain of the Company's nonagricultural Mexican
subsidiaries which were subject to income taxes prior to the restructurings
or, absent earnings, an asset based minimum tax. The Company has not
provided any U.S. deferred federal income taxes on the undistributed
earnings of its Mexican subsidiaries based upon its determination that such
earnings will be indefinitely reinvested. As of October 1, 1994, the
cumulative undistributed earnings of these subsidiaries were approximately
$49,484,000. If such earnings were not considered indefinitely reinvested,
deferred federal and foreign income taxes would have been provided, after
consideration of estimated foreign tax credits. (Included in this amount
would be foreign taxes resulting from earnings of the Mexican agricultural
subsidiaries which would be due upon distribution of such earnings to the
U.S.). However, determination of the amount of deferred federal and
foreign income taxes is not practicable.
As of October 1, 1994, approximately $6,629,000 of alternative minimum tax
credits and $1,193,000 of targeted jobs credits were available to offset
future taxable income. The targeted jobs credits expire in years ending in
2001 through 2009. All credits have been reflected in the financial
statements as a reduction of deferred taxes. As these credits are utilized
for tax purposes, deferred taxes will be reinstated.
NOTE E - SAVINGS PLAN
The Company maintains a Section 401(k) Salary Deferral Plan (the "Plan").
Under the Plan, eligible domestic employees may voluntarily contribute a
percentage of their compensation. The Plan provides for a contribution of
up to four percent of compensation subject to an overall Company
contribution limit of five percent of income before taxes.
Under the plan outlined above, the Company's expenses were $2,636,000,
$1,074,000 and $831,000 in 1994, 1993 and 1992, respectively.
NOTE F - RELATED PARTY TRANSACTIONS
The major stockholder of the Company owns a broiler and egg operation.
Transactions with related entities are summarized as follows:
Years Ended
October October September
1, 1994 2, 1993 26, 1992
Contract egg grower fees to
major stockholder $ 5,137,000 $ 4,739,000 $ 4,326,000
Chick, feed and other sales
to major stockholder 9,373,000 8,298,000 15,146,000
Broiler purchases from
major stockholder 9,346,000 8,275,000 15,075,000
Purchases of feed
ingredients from Archer
Daniels Midland Company -
(See Note J) 56,499,000 37,757,000 51,549,000
The Company leases an airplane from its major stockholder under an
operating lease agreement. The terms of the lease agreement require
monthly payments of $33,000 plus operating expenses. Lease expense was
$396,000 for each of the years 1994, 1993 and 1992. Operating expenses
were $213,000 in 1994 and $108,000 in 1993 and 1992.
Expenses incurred for the guarantee of certain debt by stockholders were
$526,000, $1,192,000 and $1,632,000 in 1994, 1993 and 1992, respectively.
During 1992, the Company acquired real estate from its profit sharing plan
for approximately $574,000. The acquisition price was determined by an
independent appraisal and was approved by the Audit Committee of the Board
of Directors of the Company.
NOTE G - COMMITMENTS AND CONTINGENCIES
The Consolidated Statements of Income (Loss) included rental expense for
operating leases of approximately $10,058,000, $9,320,000 and $8,734,000
in 1994, 1993 and 1992, respectively. The Company's future minimum lease
commitments under noncancelable operating leases are as follows:
Year Amount
1995 $ 8,597,000
1996 6,316,000
1997 4,745,000
1998 4,146,000
1999 3,200,000
Thereafter 7,278,000
The estimated costs to complete construction-in-progress at various
locations at October 1, 1994, are approximately $4,419,000.
At October 1, 1994, the Company had $11,055,000 letters of credit
outstanding relating to normal business transactions.
The Company is subject to various 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.
NOTE H - BUSINESS SEGMENTS
The Company operates in a single business segment as a producer of
agricultural products and conducts separate operations in the United States
and Mexico.
Interarea sales, which are not material, are accounted for at prices
comparable to normal trade customer sales. Identifiable assets by
geographic area are those assets that are used in the Company's operation
in each area.
Information about the Company's operations in these geographic areas is as
follows:
Years Ended
October October September
1, 1994 2, 1993 26, 1992
52 Weeks 53 Weeks 52 Weeks
Sales to unaffiliated customers:
United States $733,865,000 $699,089,000 $656,741,000
Mexico 188,744,000 188,754,000 160,620,000
$922,609,000 $887,843,000 $817,361,000
Operating profit (loss):
United States $ 46,421,000 $ 46,471,000 $ (1,565,000)
Mexico 13,534,000 9,631,000 (11,910,000)
$ 59,955,000 $ 56,102,000 $(13,475,000)
Identifiable assets:
United States $302,911,000 $288,761,000 $297,369,000
Mexico 135,772,000 134,085,000 137,197,000
$438,683,000 $422,846,000 $434,566,000
NOTE I - INSURANCE CLAIMS
The Company's Lufkin, Texas poultry processing production was shifted to
several of the Company's other processing facilities due to a fire that
occurred on July 26, 1993. Insurance claims covering this loss were
settled in 1994. Proceeds collected or estimated to be collected under the
property insurance claim exceeded the book value of the property destroyed,
resulting in a gain of approximately $.7 million and $1.9 million in fiscal
1994 and 1993, respectively; such gains are included as components of
"Other expenses (income) -Miscellaneous, net" in the fiscal 1994 and 1993
Consolidated Statements of Income.
The Company's prepared foods plant in Mt. Pleasant, Texas experienced a
temporary shutdown of the plant caused by a fire which occurred on January
8, 1992. Insurance claims covering this loss were settled in 1994. The
Company recorded approximately $.7 million and $2.2 million in fiscal 1994
and 1992, respectively, for amounts collected or expected to be collected
under the business interruption insurance claim. Proceeds collected under
the property insurance exceeded the book value of the property damaged by
$.8 million; such gain is included as a component of "Other expenses
(income) - Miscellaneous, net" in the fiscal 1992 Consolidated Statement of
Loss.
NOTE J - SALE OF COMMON STOCK
On May 12, 1992 the Company entered into a stock purchase agreement to sell
5,000,000 shares of its previously unissued but authorized common stock at
a purchase price of $6.00 per share to Archer Daniels Midland Company
("ADM"), a processor and merchandiser of agricultural products and a
supplier of several products to the Company. The stock purchase agreement
was closed on June 25, 1992 and proceeds from the sale of common stock to ADM
were applied immediately to repay notes payable to banks.
The 1992 net loss per common share computed on a supplemental basis, as if
the sale of common stock to ADM had occurred at the beginning of 1992 is
$1.03.
The stock purchase agreement also contains a "no-loss guarantee" issued by
the Company's major stockholder to ADM. Under the guarantee, ADM is
indemnified against loss and guaranteed a market rate return on their
investment through July 8, 1995. The guarantee is secured by 6,670,000
shares of Company stock owned by the Company's major stockholder.
NOTE K - QUARTERLY RESULTS - (Unaudited)
Year Ended October 1, 1994
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
(13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
Net sales $221,851,000 $223,167,000 $238,302,000 $239,289,000 $922,609,000
Business
Interruption
Insurance(a) - - - 731,000 731,000
Gross
profit(b) 29,354,000 24,684,000 28,675,000 28,114,000 110,827,000
Operating
income 16,508,000 12,632,000 15,322,000 15,493,000 59,955,000
Net income 8,421,000 7,920,000 7,196,000 7,521,000(c)31,058,000
Per share:
Net income(d) 0.31 0.29 0.26 0.27 1.13
Cash dividends 0.015 0.015 0.015 0.015 0.060
Market price:
High 8 1/4 9 1/4 9 9 5/8