PILGRIMS PRIDE CORP - Quarter Report: 2005 December (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the quarterly period ended December
31, 2005
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from to
Commission
File number 1-9273
![](https://www.sec.gov/Archives/edgar/data/0000802481/000080248106000023/seclogo.jpg)
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.)
|
|
4845
US Hwy 271 N, Pittsburg, TX
|
75686-0093
|
|
(Address
of principal executive offices)
|
(Zip
code)
|
|
Registrant’s
telephone number, including area code: (903)
434-1000
|
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report.)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x
No ¨
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Rule
12b-2 of the Exchange Act). Yes x
No
¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨
No
x
Number
of
shares outstanding of the issuer’s common stock, as of January 25, 2006, was
66,555,733.
2
INDEX
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
|
||
PART
I. FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements (Unaudited)
|
|
December
31, 2005 and October 1, 2005
|
||
Three
months ended December 31, 2005 and January 1, 2005
|
||
Three
months ended December 31, 2005 and January 1, 2005
|
||
Item
2.
|
||
Item
3.
|
||
Item
4.
|
||
PART
II. OTHER INFORMATION
|
||
Item
1.
|
||
Item
6.
|
||
3
PART
I. FINANCIAL INFORMATION
|
|||||||
Item
1. Financial Statements
|
|||||||
Pilgrim's
Pride Corporation
|
|||||||
Consolidated
Balance Sheets
|
|||||||
(Unaudited)
|
|||||||
December
31, 2005
|
October
1, 2005
|
||||||
(In
thousands, except share and per share data)
|
|||||||
Assets
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
130,276
|
$
|
132,567
|
|||
Investment in available for sale securities |
40,000
|
-- | |||||
Trade accounts and other receivables, less allowance for doubtful
accounts
|
290,268
|
288,528
|
|||||
Inventories
|
561,751
|
527,329
|
|||||
Current
deferred income taxes
|
25,107
|
25,107
|
|||||
Other
current assets
|
29,116
|
25,884
|
|||||
Total
Current Assets
|
1,076,518
|
999,415
|
|||||
Investment
in Available for Sale Securities
|
268,975
|
304,593
|
|||||
Other
Assets
|
50,664
|
53,798
|
|||||
Property,
Plant and Equipment:
|
|||||||
Land
|
53,000
|
51,887
|
|||||
Buildings,
machinery and equipment
|
1,633,028
|
1,612,739
|
|||||
Autos
and trucks
|
56,133
|
55,202
|
|||||
Construction-in-progress
|
74,436
|
58,942
|
|||||
1,816,597
|
1,778,770
|
||||||
Less
accumulated depreciation
|
(649,635
|
)
|
(624,673
|
)
|
|||
1,166,962
|
1,154,097
|
||||||
$
|
2,563,119
|
$
|
2,511,903
|
||||
Liabilities
and Stockholders’ Equity
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable
|
$
|
303,957
|
$
|
281,909
|
|||
Accrued
expenses
|
367,867
|
288,106
|
|||||
Income
taxes payable
|
18,030
|
16,196
|
|||||
Current
maturities of long-term debt
|
8,658
|
8,603
|
|||||
Total
Current Liabilities
|
698,512
|
594,814
|
|||||
Long-Term
Debt, Less Current Maturities
|
508,516
|
518,863
|
|||||
Deferred
Income Taxes
|
173,232
|
173,232
|
|||||
Minority
Interest in Subsidiary
|
1,729
|
1,396
|
|||||
Commitments
and Contingencies
|
|
||||||
Stockholders’
Equity:
|
|||||||
Preferred
stock, $.01 par value, 5,000,000 authorized shares; none
issued
|
--
|
--
|
|||||
Common
stock - $.01 par value, 160,000,000 authorized shares; 66,826,833
issued
|
668
|
668
|
|||||
Additional
paid-in capital
|
471,344
|
471,344
|
|||||
Retained
earnings
|
711,149
|
753,527
|
|||||
Accumulated
other comprehensive loss
|
(463
|
)
|
(373
|
)
|
|||
Less
treasury stock, 271,100 shares
|
(1,568
|
)
|
(1,568
|
)
|
|||
Total
Stockholders’ Equity
|
1,181,130
|
1,223,598
|
|||||
$
|
2,563,119
|
$
|
2,511,903
|
See
notes to consolidated financial
statements.
|
4
Pilgrim’s
Pride Corporation and Subsidiaries
(Unaudited)
|
|||||||
Three
Months Ended
|
|||||||
December
31, 2005
|
January
1, 2005
|
||||||
(in
thousands, except share and per share data)
|
|||||||
Net
Sales
|
$
|
1,343,812
|
$
|
1,368,247
|
|||
Costs
and Expenses:
|
|||||||
Cost
of sales
|
1,225,412
|
1,207,129
|
|||||
Gross Profit
|
118,400
|
161,118
|
|||||
Selling,
general and administrative
|
72,202
|
70,103
|
|||||
1,297,614
|
1,277,232
|
||||||
Operating
income
|
46,198
|
91,015
|
|||||
Other
Expenses (Income):
|
|||||||
Interest
expense
|
12,394
|
13,167
|
|||||
Interest
income
|
(3,946
|
)
|
(943
|
)
|
|||
Foreign
exchange gain
|
(620
|
)
|
(103
|
)
|
|||
Miscellaneous,
net
|
1,730
|
(1,015
|
)
|
||||
9,558
|
11,106
|
||||||
Income
Before Income Taxes
|
36,640
|
79,909
|
|||||
Income
Tax Expense
|
10,962
|
31,400
|
|||||
Net
Income
|
$
|
25,678
|
$
|
48,509
|
|||
Net
income per common share- basic and diluted
|
$
|
0.39
|
$
|
0.73
|
|||
Dividends
declared per common share
|
$
|
1.0225
|
$
|
0.0150
|
|||
Weighted
average shares outstanding
|
66,555,733
|
66,555,733
|
|||||
See
notes to consolidated financial
statements.
|
5
Pilgrim’s
Pride Corporation and Subsidiaries
(Unaudited)
|
||||||||||
Three
Months Ended
|
||||||||||
December
31, 2005
|
January
1, 2005
|
|||||||||
(in thousands)
|
||||||||||
Cash
Flows From Operating Activities:
|
||||||||||
Net
income
|
$
|
25,678
|
$
|
48,509
|
||||||
Adjustments
to reconcile net income to cash provided by operating
activities
|
||||||||||
Depreciation
and amortization
|
30,348
|
30,065
|
||||||||
Loss
on property disposals
|
1,096
|
1,875
|
||||||||
Deferred
income taxes
|
--
|
831
|
||||||||
Changes
in operating assets and liabilities
|
||||||||||
Accounts
and other receivables
|
1,417
|
48,144
|
||||||||
Inventories
|
(34,422
|
)
|
51,948
|
|||||||
Other
current assets
|
(3,231
|
)
|
(9,487
|
)
|
||||||
Accounts
payable and accrued expenses
|
37,085
|
(4,305
|
)
|
|||||||
Other
|
(1,905
|
)
|
(143
|
)
|
||||||
Cash
provided by operating activities
|
56,066
|
167,437
|
||||||||
Investing
Activities:
|
||||||||||
Acquisitions
of property, plant and equipment
|
(43,866
|
)
|
(24,160
|
)
|
||||||
Purchases
of investment securities
|
(2,500
|
)
|
--
|
|||||||
Proceeds
from property disposals
|
731
|
781
|
||||||||
Other,
net
|
(1,026
|
)
|
92
|
|||||||
Cash
used for investing activities
|
(46,661
|
)
|
(23,287
|
)
|
||||||
Financing
Activities:
|
||||||||||
Payments
on long-term debt
|
(10,291
|
)
|
(10,239
|
)
|
||||||
Cash
dividends paid
|
(1,498
|
)
|
(998
|
)
|
||||||
Cash
used for financing activities
|
(11,789
|
)
|
(11,237
|
)
|
||||||
Effect
of exchange rate changes on cash and cash equivalents
|
93
|
20
|
||||||||
Increase
(decrease) in cash and cash equivalents
|
(2,291
|
) |
132,933
|
|||||||
Cash
and cash equivalents at beginning of year
|
132,567
|
38,165
|
||||||||
Cash
and Cash Equivalents at End of Period
|
$
|
130,276
|
$
|
171,098
|
||||||
|
||||||||||
See
notes to consolidated financial
statements.
|
6
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
NOTE
A—BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of Pilgrim’s Pride
Corporation (referred to herein as “Pilgrim’s,” “the Company,” “we,” “us,” “our”
or similar terms) have been prepared in accordance with accounting principles
generally accepted in the United States (“U.S.”) for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation
S-X of the U.S. Securities and Exchange Commission. Accordingly, they
do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of
management, all adjustments (consisting of normal and recurring adjustments
unless otherwise disclosed) considered necessary for a fair presentation
have
been included. Operating results for the period ended December 31, 2005
are not
necessarily indicative of the results that may be expected for the year
ending
September 30, 2006. For further information, refer to the consolidated
financial
statements and footnotes thereto included in Pilgrim’s Annual Report on Form
10-K for the fiscal year ended October 1, 2005.
The
consolidated financial statements include the accounts of Pilgrim’s and its
wholly and majority owned subsidiaries. Significant intercompany accounts
and
transactions have been eliminated.
The
assets and liabilities of the foreign subsidiaries are translated at
end-of-period exchange rates, except for any non-monetary assets, which
are
translated at equivalent dollar costs at dates of acquisition using historical
rates. Operations of foreign subsidiaries are translated at average exchange
rates in effect during the period.
Total
comprehensive income was $25.6 million and $48.5 million for the three
months
ended December 31, 2005 and January 1, 2005, respectively.
On
November 30, 2005, the Company declared a special dividend of $1.00
per share
with a record date of December 30, 2005, and payable on January 13,
2006. As a
result, $66.6 million was recorded as a component of accrued expenses
as of
December 31, 2005.
In
December 2005, the Company reclassified $40.0 million of investments
in
available for sale securities from long term to short term in anticipation
of
its January 13, 2006 payment of the special $1.00 cash dividend declared
by the
Board of Directors in 2005. The investments were subsequently sold
on January
13, 2006 to pay the special dividend.
7
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
NOTE
B—INVENTORIES
December
31,
|
October
1,
|
||||||
(In
thousands)
|
2005
|
2005
|
|||||
Chicken:
|
|||||||
Live
chicken and hens
|
$
|
194,984
|
$
|
196,406
|
|||
Feed
and eggs
|
133,394
|
114,091
|
|||||
Finished
chicken products
|
198,115
|
164,412
|
|||||
526,493
|
474,909
|
||||||
Turkey:
|
|||||||
Live
turkey and hens
|
$
|
7,091
|
$
|
7,209
|
|||
Feed
and eggs
|
2,663
|
4,924
|
|||||
Finished
turkey products
|
7,309
|
23,072
|
|||||
17,063
|
35,205
|
||||||
Other
Products:
|
|||||||
Commercial
feed, table eggs, and retail farm store
|
$
|
5,239
|
$
|
4,866
|
|||
Distribution
inventories (other than chicken & turkey products)
|
12,956
|
12,349
|
|||||
18,195
|
17,215
|
||||||
Total
Inventories
|
$
|
561,751
|
$
|
527,329
|
NOTE
C—INCOME TAXES
The
Company’s effective tax rate in fiscal 2006 is expected to be lower than
applicable statutory tax rates primarily due to the existence of tax
exempt
income and certain deductions related to qualified manufacturing
activities.
As
of
December 31, 2005, certain Mexican subsidiaries of the Company
did not meet the
Simplified Regime requirements of Mexico tax law. The Company’s Mexico
subsidiaries file and pay income taxes based on the calendar year.
These
companies which paid tax at a reduced rate in previous years under
the
Simplified Regime will file and pay income taxes for the calendar
year ending
December 31, 2005, under the General Regime of the Mexico tax law
at the full
statutory rate. The Company has evaluated the effect of certain
Mexico
subsidiaries no longer qualifying for the Simplified Regime on
its effective tax
rate being applied to current operations and deferred taxes and
recorded the
impact of this change during the first quarter ended December 31,
2005. This
amount was not material.
NOTE
D—RELATED PARTY TRANSACTIONS
Lonnie
“Bo” Pilgrim, the Chairman and, through certain related entities, the major
stockholder of the Company (collectively, the “major stockholder”), owns an egg
laying and a chicken growing operation. In addition, at certain times
during the
year, the major stockholder purchases from the Company live chickens
and hens
and certain feed inventories during the grow-out process and then contracts
with
the Company to resell the birds at maturity using a market-based formula,
with
price subject to a ceiling price calculated at his cost plus two percent.
Purchases made by the Company under this agreement resulted in an operating
margin to the major stockholder of $4,539 and $525,728 during the quarters
ended
December 31, 2005 and January 1, 2005, respectively, on gross amounts
paid by
the Company to the major stockholder as described below in “Live chicken
purchases and other payments to major stockholder.”
8
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Transactions
with related parties are summarized as follows:
Three
Months Ended
|
|||||||
|
December
31, 2005
|
January
1, 2005
|
|||||
(in
thousands)
|
|||||||
Lease
payments on commercial egg property
|
$
|
188
|
$
|
188
|
|||
Chick,
feed and other sales to major stockholder, including
advances
|
$
|
220
|
$
|
51,873
|
|||
Live
chicken purchases and other payments to major stockholder
|
$
|
465
|
$
|
21,396
|
|||
Loan
guaranty fees
|
$
|
410
|
$
|
446
|
|||
Lease
payments and operating expenses on airplane
|
$
|
131
|
$
|
140
|
NOTE
E—COMMITMENTS and CONTINGENCIES
At
December 31, 2005, the Company had $32.0 million in letters of credit
outstanding relating to normal business transactions.
In
October 2002, a limited number of USDA environmental samples from our
Franconia,
Pennsylvania plant tested positive for Listeria. As a result, we voluntarily
recalled all cooked deli products produced at the plant from May 1,
2002 through
October 11, 2002. No illnesses associated with the Listeria strain
in a
Northeastern outbreak have been linked to any of our products and none
of our
products have tested positive for the outbreak strain. However, in
connection
with this recall, we have been named as a defendant in a number of
lawsuits
brought by individuals generally alleging injuries resulting from contracting
Listeria monocytogenes. We believe that we have meritorious defenses
to these
claims and intend to assert vigorous defenses to the litigation. After
considering our available insurance coverage, we do not expect these
cases to
have a material impact on our financial position, operations or
liquidity.
We
are
subject to various other legal proceedings and claims which arise in
the
ordinary course of our 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
F—BUSINESS SEGMENTS
We
operate in three reportable business segments as (1) a producer and
seller of
chicken products, (2) a producer and seller of turkey products and
(3) other
products. In previous years, our presented segments included chicken
and other
and turkey. After fully integrating the former ConAgra chicken division
into our
operations during fiscal 2004 and early fiscal 2005, we changed our
segment
presentation to separate our non-chicken and non-turkey operations
into a
separate category consistent with management’s evaluation of operating results
and decisions with respect to the allocation of resources. See
Item
7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in our Annual Report on Form 10-K for the fiscal year ended October
1, 2005.
The
following table presents certain information regarding our
segments:
9
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
|
|
Three
Months
Ended
|
|||||
|
|
|
December
31,
2005
|
January
1, 2005(a
|
)
|
||
(In
thousands)
|
|||||||
Net
Sales to Customers:
|
|||||||
Chicken:
|
|||||||
United
States
|
$
|
1,034,166
|
$
|
1,034,838
|
|||
Mexico
|
92,403
|
96,937
|
|||||
Sub-total
|
1,126,569
|
1,131,775
|
|||||
Turkey
|
61,904
|
79,774
|
|||||
Other
Products:
|
|||||||
United
States
|
153,530
|
155,047
|
|||||
Mexico
|
1,809
|
1,651
|
|||||
Sub-total
|
155,339
|
156,698
|
|||||
Total
|
1,343,812
|
1,368,247
|
|||||
Operating
Income (Loss):
|
|||||||
Chicken:
|
|||||||
United
States
|
$
|
53,862
|
$
|
88,607
|
|||
Mexico
|
(7,070
|
)
|
5,182
|
||||
Sub-total
|
46,792
|
93,789
|
|||||
Turkey
|
(5,642
|
)
|
(4,765
|
)
|
|||
Other
Products:
|
|||||||
United
States
|
4,590
|
1,549
|
|||||
Mexico
|
458
|
442
|
|||||
Sub-total
|
5,048
|
1,991
|
|||||
Total
|
$
|
46,198
|
$
|
91,015
|
|||
Depreciation
and Amortization:(b)
|
|||||||
Chicken:
|
|||||||
United
States
|
$
|
25,560
|
$
|
24,806
|
|||
Mexico
|
2,594
|
3,086
|
|||||
Sub-total
|
28,154
|
27,892
|
|||||
Turkey
|
781
|
767
|
|||||
Other
Products:
|
|||||||
United
States
|
1,377
|
1,359
|
|||||
Mexico
|
36
|
47
|
|||||
Sub-total
|
1,413
|
1,406
|
|||||
Total
|
$
|
30,348
|
$
|
30,065
|
(a)
|
Certain
historical amounts have been reclassified to conform to current
year
presentation.
|
(b)
|
Includes
amortization of capitalized financing costs of approximately
$0.6 million
for each of the three month periods ending December 31, 2005
and January
1, 2005, respectively.
|
10
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Description
of the Company
The
Company is the second largest chicken producer in the United States
and Mexico,
the largest in Puerto Rico and has one of the best known brand
names in the
poultry industry. In the U.S., we produce both prepared and fresh
chicken and
turkey while in Mexico and Puerto Rico, we exclusively produce
fresh chicken.
Through vertical integration we control the breeding, hatching
and growing of
chickens. We operate in three business segments and two geographical
areas.
Executive
Summary
Net
income for the first fiscal quarter of 2006 is down $22.8 million,
or 47.1%,
from the first fiscal quarter of 2005. This decrease is primarily
driven
by:
§ |
Increased
cost of sales due to increased energy costs, higher freight
delivery costs
and higher soybean meal costs. Between the two periods,
feed ingredient
costs rose in the U.S. 3.6% and in Mexico 9.0% due primarily
to freight
and soybean meal prices.
|
§ |
Selling
prices in Mexico dropped sharply due to an oversupply
situation which
occured during the quarter. Selling prices were off 13.1% from the
prior year period.
|
§ |
Our
average chicken selling prices in the U.S. were up 2.1% over the same
period last year due to a favorable product mix but total
pounds
sold were down an equal 2.1%. Although overall sales are flat,
decreased sales and selling prices for export products
because of market
disruptions caused by avian influenza scares in other
parts of the world
compounded by shipping disruptions created during the
recent hurricane
season have affected the selling prices for chicken parts
in the U.S. and
overseas.
|
Business
Environment
Profitability
in the poultry industry is materially affected by the commodity prices
of feed
ingredients, chicken and turkey, which are determined by supply and
demand
factors. As a result, the chicken and turkey industries are subject
to cyclical
earnings fluctuations. Cyclical earnings fluctuations can be mitigated
somewhat
by:
-
Business strategy;
-
Product
mix;
-
Sales
and marketing plans; and
-
Operating efficiencies.
In
an
effort to reduce price volatility and to generate higher, more consistent
profit
margins, we have concentrated on the production and marketing of prepared
foods
products. Prepared foods products generally have higher profit margins
than our
other products. Also, the production and sale in the U.S. of prepared
foods
products reduces the impact of the costs of feed ingredients on our
profitability. Feed ingredient purchases are the single largest component
of our
cost of sales, representing approximately 26% of our consolidated cost
11
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
of
sales
in the first three months of fiscal 2006. The production of feed
ingredients is
positively or negatively affected primarily by weather patterns throughout
the
world, the global level of supply inventories and demand for feed
ingredients,
and the agricultural policies of the U.S. and foreign governments.
As further
processing is performed, feed ingredient costs become a decreasing
percentage of
a product’s total production cost, thereby reducing their impact on our
profitability. Products sold in this form enable us to charge a premium,
reduce
the impact of feed ingredient costs on our profitability and improve
and
stabilize our profit margins.
As
a
significant portion of the U.S. poultry production is exported, the
commodity
prices of chicken and turkey can be, and in recent periods have been,
adversely
affected by disruptions in poultry export markets. Recent disruptions
include
the effects focus and concern over avian influenza has had on international
demand for poultry products and having to reroute products in transit
to
locations other than those intended as these concerns materialize.
Disruptions
are also often caused by restrictions on imports of U.S.-produced
poultry
products imposed by foreign governments for a variety of reasons,
including the
protection of their domestic poultry producers and allegations of
consumer
health issues. For example, Russia and Japan have restricted the
importation of
U.S.-produced poultry for both of these reasons in recent periods.
In July 2003,
the U.S. and Mexico entered into a safeguard agreement with regard
to imports
into Mexico of chicken leg quarters from the U.S. Under this agreement,
a tariff
rate for chicken leg quarters of 98.8% of the sales price was established.
This
tariff rate was reduced on January 1, 2006 to 39.5% and is scheduled
to be
reduced in each of the following two years in equal increments so
that the final
tariff rate at January 1, 2008 will be zero. The tariff was imposed
due to
concerns that the duty-free importation of such products as provided
by the
North American Free Trade Agreement would injure Mexico’s poultry industry. As
such tariffs are reduced, we expect greater amounts of chicken to
be imported
into Mexico from the U.S., which could negatively affect the profitability
of
Mexican chicken producers and positively affect the profitability
of U.S.
exporters of chicken to Mexico. Although this could have a negative
impact on
our Mexican chicken operations, we believe that this will be mitigated
by the
close proximity of our U.S. operations to the Mexico border. We have
the largest
U.S. production and distribution capacities near the Mexican border,
which gives
us a strategic advantage to capitalize on exports of U.S. chicken
to Mexico.
Because these disruptions in poultry export markets are often political,
no
assurances can be given as to when the existing disruptions will
be alleviated
or that new ones will not arise.
Business
Segments
We
operate in three reportable business segments as (1) a producer and
seller of
chicken products, (2) a producer and seller of turkey products and
(3) other
products. In previous years, our presented segments included chicken
and other
and turkey. After fully integrating the former ConAgra chicken division
into our
operations during fiscal 2004 and early fiscal 2005, we changed our
segment
presentation to separate our non-chicken and non-turkey operations
into a
separate category consistent with management’s evaluation of operating results
and decisions with respect to the allocation of resources. See
Item
7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in our Annual Report on Form 10-K for the fiscal year ended October
1, 2005.
The
following table presents certain information regarding our
segments:
12
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
|
|
Three
Months
Ended
|
|||||
|
December
31, 2005
|
January
1, 2005(a
|
)
|
||||
|
(In thousands) | ||||||
Net
Sales to Customers:
|
|||||||
Chicken:
|
|||||||
United
States
|
$
|
1,034,166
|
$
|
1,034,838
|
|||
Mexico
|
92,403
|
96,937
|
|||||
Sub-total
|
1,126,569
|
1,131,775
|
|||||
Turkey
|
61,904
|
79,774
|
|||||
Other
Products:
|
|||||||
United
States
|
153,530
|
155,047
|
|||||
Mexico
|
1,809
|
1,651
|
|||||
Sub-total
|
155,339
|
156,698
|
|||||
Total
|
1,343,812
|
1,368,247
|
|||||
Operating
Income (Loss):
|
|||||||
Chicken:
|
|||||||
United
States
|
$
|
53,862
|
$
|
88,607
|
|||
Mexico
|
(7,070
|
)
|
5,182
|
||||
Sub-total
|
46,792
|
93,789
|
|||||
Turkey
|
(5,642
|
)
|
(4,765
|
)
|
|||
Other
Products:
|
|||||||
United
States
|
4,590
|
1,549
|
|||||
Mexico
|
458
|
442
|
|||||
Sub-total
|
5048
|
1,991
|
|||||
Total
|
$
|
46,198
|
$
|
91,015
|
|||
Depreciation
and Amortization:(b)
|
|||||||
Chicken:
|
|||||||
United
States
|
$
|
25,560
|
$
|
24,806
|
|||
Mexico
|
2,594
|
3,086
|
|||||
Sub-total
|
28,154
|
27,892
|
|||||
Turkey
|
781
|
767
|
|||||
Other
Products:
|
|||||||
United
States
|
1,377
|
1,359
|
|||||
Mexico
|
36
|
47
|
|||||
Sub-total
|
1,413
|
1,406
|
|||||
Total
|
$
|
30,348
|
$
|
30,065
|
(a)
|
Certain
historical amounts have been reclassified to conform to current
year
presentation.
|
(b)
|
Includes
amortization of capitalized financing costs of approximately
$0.6 million
for each of the three month periods ending December 31, 2005
and January
1, 2005, respectively.
|
13
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
The
following table presents certain items as a percentage of net sales
for the
periods indicated:
|
December
31, 2005
|
January
1, 2005
|
|||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
|||
Cost
and Expenses
|
|||||||
Cost
of sales
|
91.2
|
88.2
|
|||||
Gross
profit
|
8.8
|
11.8
|
|||||
Selling, general and administrative expense
|
5.4
|
5.1
|
|||||
Operating
income
|
3.4
|
6.7
|
|||||
Interest
expense
|
0.9
|
1.0
|
|||||
Interest
income
|
(0.3
|
)
|
(0.1
|
)
|
|||
Income
before income taxes
|
2.7
|
5.8
|
|||||
Net
income
|
1.9
|
3.5
|
|||||
Results
of Operations
Fiscal
First Quarter 2006 Compared to Fiscal First Quarter 2005
Net
Sales. Net
Sales
for the first quarter of fiscal 2006 decreased $24.4 million, or 1.8%,
over the
first quarter of fiscal 2005. The following table provides additional
information regarding net sales (in millions):
|
Fiscal
Quarter Ended
|
Change
from
First
Quarter Ended
|
|||||||||||
|
December
31,
|
January
1,
|
Percentage
|
||||||||||
Source
|
2005
|
2005
|
Change
|
||||||||||
Chicken-
|
|||||||||||||
United States
|
$
|
1,034.2
|
$
|
(0.7
|
)
|
(0.1
|
)%
|
(a
|
)
|
||||
Mexico
|
92.4
|
(4.5
|
)
|
(4.7
|
)%
|
(b
|
)
|
||||||
$
|
1,126.6
|
$
|
(5.2
|
)
|
(0.5
|
)%
|
|||||||
Turkey
|
$
|
61.9
|
$
|
(17.9
|
)
|
(22.4
|
)%
|
(c
|
)
|
||||
1,188.5
|
(23.1
|
)
|
|||||||||||
Other
Products-
|
|||||||||||||
United
States
|
$
|
153.5
|
$
|
(1.5
|
)
|
(1.0
|
)%
|
||||||
Mexico
|
1.8
|
0.2
|
|
9.6
|
%
|
||||||||
$
|
155.3
|
$
|
(1.3
|
)
|
(0.9
|
)%
|
(d
|
)
|
|||||
$
|
1,343.8
|
$
|
(24.4
|
)
|
(1.8
|
)%
|
14
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
(a)
|
U.S.
chicken sales were consistent between periods, with a 2.1%
reduction in
pounds sold during the first quarter ended December 31, 2005 as
compared to the prior year quarter being substantially
offset by a 2.1%
increase in revenue per pound sold over the same
periods.
|
(b)
|
Mexico
chicken sales declined 4.7% in the current quarter, with
a 13.1% reduction
in revenue per dressed pound produced during the first
quarter ended
December 31, 2005 as compared to the prior year quarter
being offset
somewhat by a 9.6% increase in pounds produced over the
same
periods.
|
(c)
|
U.S.
turkey sales were comparably lower in the current quarter,
due primarily
to the 2004 restructuring of our turkey operations in Hinton,
VA., from
which remaining inventories were sold during fiscal 2005's
first quarter
ended January 1, 2005.
|
(d)
|
Net
sales of other products declined in the current quarter,
due primarily to
lower realized sales prices for protein and feed products
offset by a 16%
increase in the average sales prices for table
eggs.
|
15
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Gross
Profit.
Gross
profit decreased $42.7 million, or 26.5%, in the first quarter of fiscal
2006
compared to the first quarter of fiscal 2005.
The
following table provides gross profit information (in millions):
Quarter
|
|
|
Change
From
|
|
|
|
|
|
Percentage
of
|
|
|
Percentage
|
|
|
|
|
|||
|
|
|
Ended
|
|
|
Quarter
Ended
|
|
|
|
|
|
Net
Sales
|
|
|
of
Net Sales
|
|
|
|
|
|
|
|
December
31,
|
|
|
January
1,
|
|
|
Percentage
|
|
|
First
Quarter
|
|
|
First
Quarter
|
||||
Components
|
2005
|
|
|
2005
|
|
|
Change
|
|
|
Fiscal
2006
|
|
|
Fiscal
2005
|
||||||
Net
sales
|
$
|
1,343.8
|
$
|
(24.4
|
)
|
(1.8
|
)%
|
100.0
|
%
|
100.0
|
%
|
||||||||
Cost
of sales
|
1,225.4
|
18.3
|
1.5
|
%
|
91.2
|
% |
88.2
|
% |
(a
|
)
|
|||||||||
Gross
profit
|
$
|
118.4
|
$
|
(42.7
|
)
|
(26.5
|
)%
|
8.8
|
%
|
11.8
|
%
|
(b
|
)
|
||||||
(a)
|
Cost
of sales increased $34.6 million due primarily to increased
energy costs
and transportation costs created by fuel cost increases
along with an
increase in the cost of soybean meal. These increases were
offset by a
$16.3 million decrease in the cost of sales in the turkey
division due to
reduced sales. Included in cost of sales was a charge of
$2.5 million to
reduce the value of certain packaging and supplies associated
with the
Company’s decision to cease production of certain products at its
Franconia, Pennsylvania turkey cooking facility. In connection
with this
decision, on March 3, 2006 approximately 300 employees
will be terminated.
No material charges associated with these decisions are
expected to be
recorded in future periods.
|
(b)
|
Gross
profit decreased $42.7 million primarily due to a combination
of lower
selling prices in Mexico, the impact of export sales in
the U.S. and
increased energy, freight and soybean meal costs in the
U.S. and
Mexico.
|
16
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Operating
Income.
Operating income for the first quarter of fiscal 2006 decreased $44.8
million,
or 49.2%, when compared to the first quarter of fiscal 2005.
The
following tables provide operating income information (millions):
|
Change
from
|
|||||||||
|
Quarter
Ended
|
|
Quarter
Ended
|
|||||||
December
31,
|
January
1,
|
Percentage
|
||||||||
Source
|
2005
|
2005
|
Change
|
|||||||
Chicken-
|
||||||||||
United
States
|
$
|
53.9
|
$
|
(34.7
|
)
|
(39.2
|
)%
|
|||
Mexico
|
(7.1
|
)
|
(12.3
|
)
|
(236.4
|
)%
|
||||
$
|
46.8
|
$
|
(47.0
|
)
|
(50.1
|
)%
|
||||
Turkey
|
$
|
(5.6
|
)
|
$
|
(0.8
|
)
|
(18.4
|
)%
|
||
Other
Products-
|
||||||||||
United
States
|
$
|
4.6
|
$
|
3.0
|
196.3
|
%
|
||||
Mexico
|
0.4
|
--
|
--
|
%
|
||||||
$
|
5.0
|
$
|
3.0
|
196.3
|
%
|
|||||
Operating
Income
|
$
|
46.2
|
$
|
(44.8
|
)
|
(49.2
|
)%
|
|
Change
from
|
Percentage
|
Percentage
|
||||||||||||||||
|
Quarter
Ended
|
Quarter
Ended
|
of
Net Sales
|
|
|
of
Net Sales
|
|||||||||||||
December
31,
|
January
1,
|
Percentage
|
|
|
First
Quarter
|
|
|
First
Quarter
|
|||||||||||
Components
|
2005
|
2005
|
Change
|
|
|
Fiscal
2006
|
|
|
Fiscal
2005
|
||||||||||
Gross
profit
|
$
|
118.4
|
$
|
(42.7
|
)
|
(26.5
|
)%
|
8.8
|
%
|
11.8
|
%
|
||||||||
Selling,
general and administrative expense
|
72.2
|
2.1
|
3.0
|
%
|
5.4
|
% |
5.1
|
% |
(a
|
)
|
|||||||||
Operating
income
|
$
|
46.2
|
$
|
(44.8
|
)
|
(49.2
|
)%
|
3.4
|
%
|
6.7
|
% |
(b
|
)
|
(a)
|
Increase
is primarily due to costs associated with increased prepared
foods sales,
increased professional assistance in upgrading and enhancing
our operating
and reporting systems and various donations associated with
disaster
relief around the world.
|
(b)
|
Decrease
in operating income is primarily due to the items discussed
above under
gross profit and by increased selling, general and administrative
expenses
discussed above.
|
Interest
Expense. Interest
expense decreased 6.1% to $12.4 million in the first quarter of fiscal
2006,
when compared to $13.2 million for the first quarter of fiscal 2005,
due
primarily to lower average debt in the current quarter. As a percentage
of
sales, interest expense in the first quarter of fiscal 2006 decreased
to 0.9%
from 1.0% in the first quarter of fiscal 2005.
Interest
Income.
Interest
income increased from $0.9 million in the first quarter of fiscal 2005
to $3.9
million in the first quarter of fiscal 2006 due to investments purchased
with
excess cash flow from fiscal 2005 operations. As a percentage of sales,
interest
income in the first quarter of fiscal 2006 increased to 0.3% from 0.1%
in the
first quarter of fiscal 2005.
17
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Miscellaneous,
Net.
Consolidated miscellaneous, net expense (income), which increased $2.7
million
to $1.7 million, consisted mainly of loses on thedisposal of miscellaneous
assets versus the same quarter prior year when we recorded various
recoveries in
our Mexico operations.
Income
Tax Expense.
Consolidated income tax expense in the first quarter of fiscal 2006 was
$11.0
million, compared to an income tax expense of $31.4 million in the first
quarter
of fiscal 2005. This decrease in consolidated income tax expense was
primarily
due to lower income before income taxes both in the U.S. and Mexico. The
decrease in the Company’s effective income tax rate during the current quarter
as compared to the prior year quarter is due primarily to an increase
in tax
exempt interest income and additional tax deductions for qualified manufacturing
activities.
Liquidity
and Capital Resources
The
following table presents our available sources of liquidity as of December
31,
2005. See our Annual Report on Form 10-K for the fiscal year ended October
1,
2005 for a detailed description of each facility discussed below.
|
Facility
|
Available
|
|
Amount
|
|||||||||
Source
of Liquidity
|
Amount
|
Borrowing
|
Outstanding
|
Available
|
|||||||||
(in
millions)
|
|||||||||||||
Cash
and cash equivalents
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
170.3
|
|||||
Investments
in available for sale
securities - short-term
|
-- | -- | -- | 40.0 | |||||||||
Investments
in available for sale securities - long-term
|
-- | -- | -- | 269.0 | |||||||||
Debt
Facilities:
|
|||||||||||||
Revolving
credit facilities
|
168.0
|
136.0
|
--
|
136.0
|
|||||||||
Revolving/term
facility
|
500.0
|
500.0
|
--
|
500.0
|
|||||||||
Receivables
purchase
|
|||||||||||||
agreement
|
125.0
|
125.0
|
--
|
125.0
|
|||||||||
Total
available
|
$
|
1,200..3
|
In
December 2005, the Company reclassified $40.0 million of investments
in
available for sale securities from long term to short term in anticipation
of
its January 13, 2006 payment of the special $1.00 cash dividend declared
by the
Board of Directors in 2005. The investments were subsequently sold
on January
13, 2006. .
At
December 31, 2005, our working capital decreased $26.6
million to $378.0 million and our current ratio decreased to 1.54 to 1,
compared with working capital of $404.6 million and a current ratio of
1.68 to 1
at October 1, 2005, primarily due to the working capital changes discussed
below.
18
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Trade
accounts and other receivables were $290.3 million at December 31,
2005,
compared to $288.5 million at October 1, 2005, an increase of $1.8
million or
0.6%.
Inventories
were $561.8 million at December 31, 2005, compared to $527.3 million
at October
1, 2005. The $34.5 million, or 6.5%, increase in inventories was
primarily due
to export disruptions relating and concern over avian influenza
outside of North
America and having to reroute products in transit to locations
other than those
intended as these concerns materialized, causing export inventories
to build.
Accounts
payable increased $22.1 million, or 7.8%, to $304.0 million at December
31,
2005, compared to $281.9 million at October 1, 2005.
Accrued
liabilities increased $79.8 million or 27.7% to $367.9 million at December
31,
2005, compared to $288.1 million at October 1, 2005. The primary increase
is the
accrual of the special $1.00 per share dividend payable January 13,
2006.
Capital
expenditures of $43.9 million for the three months ended December 31,
2005 were
primarily incurred to improve efficiencies, expand capacity, reduce
costs and
for the routine replacement of equipment. Capital expenditures of $24.2
million
for the three months ended January 1, 2005 were primarily incurred
to improve
efficiencies, reduce costs and for the routine replacement of equipment.
We
anticipate spending approximately $180.0 million to $200.0 million
in fiscal
2006 to improve efficiencies, expand capacities and for the routine
replacement
of equipment. We expect to finance such expenditures with current cash,
available operating cash flows and existing revolving/term and revolving
credit
facilities.
Cash
flows provided by operating activities were $56.1 million and
$167.4 million for the three months ended December 31, 2005 and January
1, 2005,
respectively. The decrease in cash flows provided by operating activities
for
the first three months of fiscal 2006, when compared to the first
three months
of fiscal 2005, was due primarily to decreased profitability, changes
in the
amounts due our major shareholder as discussed in Note D-Related
Party
Transactions to the consolidated financial statements that totaled
$37.0 million
at January 1, 2005 with nothing due at December 31, 2005, and changes
in working
capital items.
Cash
flows used for financing activities were ($11.8) million and ($11.2)
million for
the three months ended December 31, 2005 and January 1, 2005,
respectively.
We
are a
party to many routine contracts in which we provide general indemnities
in the
normal course of business to third parties for various risks. We have
not
recorded a liability for any of these indemnities, as the likelihood
of payment
in each case is considered remote.
Feed
Ingredients
We
purchase certain commodities, primarily corn and soybean meal. As a
result, our
earnings are affected by changes in the price and availability of such
feed
ingredients. As market
19
PILGRIM'S PRIDE CORPORATION
December 31, 2005
conditions
dictate, we will from time to time lock-in future feed ingredient prices
using
various hedging techniques, including forward purchase agreements with
suppliers
and futures contracts. We do not use such financial instruments for
trading
purposes and are not a party to any leveraged derivatives. Market risk
is
estimated as a hypothetical 10% increase in the weighted-average cost
of our
primary feed ingredients as of December 31, 2005. Based on our feed
consumption
during the three months ended December 31, 2005, such an increase would
have
resulted in an increase to cost of sales of approximately $31.6 million,
excluding the impact of any hedging in that period.
Foreign
Currency
Our
earnings are affected by foreign exchange rate fluctuations related
to the
Mexico peso net monetary position of our Mexico subsidiaries. We manage
this
exposure primarily by attempting to minimize our Mexico peso net monetary
position, but from time to time, we have considered executing hedges
to help
minimize this exposure. Such instruments, however, have historically not
been economically feasible. We are also exposed to the effect of potential
exchange rate fluctuations to the extent that amounts are repatriated
from
Mexico to the United States. However, we currently anticipate that
the cash
flows of our Mexico subsidiaries will continue to be reinvested in
our Mexico
operations. In addition, the Mexico peso exchange rate can directly
and
indirectly impact our results of operations and financial position
in several
ways, including potential economic recession in Mexico resulting from
a devalued
peso. The impact on our financial position and results of operations
resulting
from a hypothetical change in the exchange rate between the U.S. dollar
and the
Mexico peso cannot be reasonably estimated. Foreign currency exchange
gains and
losses, representing the change in the U.S. dollar value of the net
monetary
assets of our Mexico subsidiaries denominated in Mexico pesos, was
a gain of
$0.6 million in the first three months of fiscal 2006 compared to a
gain of $0.1
million for the first three months of fiscal 2005. On December 31,
2005, the
Mexico peso closed at 10.78 to 1 U.S. dollar, compared to 10.77 at
October 1,
2005. No assurance can be given as to how future movements in the peso
could
affect our future earnings.
There
have been no material changes from the information provided
in Item 7A of our Annual Report on Form 10-K for the fiscal year
ended October
1, 2005, other than as described above.
Forward
Looking Statements
Statements
of our intentions, beliefs, expectations or predictions
for the future, denoted by the words "anticipate," "believe," "estimate,"
"expect," "project," "imply," "intend," "foresee" and similar expressions,
are
forward-looking statements that reflect our current views about
future events
and are subject to risks, uncertainties and assumptions. Such risks,
uncertainties and assumptions include the following:
· |
Matters
affecting the poultry industry generally, including
fluctuations in the
commodity prices of feed ingredients, chicken and
turkey;
|
· |
Additional
outbreaks of avian influenza or other diseases, either
in our own flocks
or elsewhere, affecting our ability to conduct our
operations and/or
demand for our poultry products;
|
· |
Contamination
of our products, which has recently and can in the
future lead to product
liability claims and product
recalls;
|
20
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
· |
Exposure
to risks related to product liability, product recalls, property
damage
and injuries to persons, for which insurance coverage is
expensive,
limited and potentially inadequate;
|
· |
Changes
in laws or regulations affecting our operations or the application
thereof;
|
· |
Competitive
factors and pricing pressures or the loss of one or more
of our largest
customers;
|
· |
Currency
exchange rate fluctuations, trade barriers, exchange controls,
expropriation and other risks associated with foreign
operations;
|
· |
Management
of our cash resources, particularly in light of our leverage,
and
restrictions imposed by and as a result of, our leverage;
and
|
· |
The
impact of uncertainties of litigation as well as other risks
described
herein and under “Risk Factors” in our Annual Report on Form 10-K filed
with the Securities and Exchange
Commission.
|
Actual
results could differ materially from those projected in these forward-looking
statements as a result of these factors, among others, many of which
are beyond
our control.
In
making
these statements, we are not undertaking, and specifically decline to undertake,
any obligation to address or update each or any factor in future filings
or
communications regarding our business or results, and we are not undertaking
to
address how any of these factors may have caused changes to information
contained in previous filings or communications. Although we have attempted
to
list comprehensively these important cautionary risk factors, we must caution
investors and others that other factors may in the future prove to be important
and affecting our business or results of operations.
21
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
An
evaluation was performed under the supervision and with the participation
of the
Company's management, including the Chairman, Chief Executive Officer and
Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of the end of the period
covered
by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company's
management, including the Chairman, Chief Executive Officer and Chief Financial
Officer, concluded that the Company's disclosure controls and procedures
were
effective as of the end of the period covered by this Quarterly Report on
Form
10-Q to provide reasonable assurance that information required to be disclosed
by the Company in the reports that it files or submits under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time period specified in the SEC rules and
forms.
In
connection with the evaluation described above the Company’s management,
including the Chairman, Chief Executive Officer and Chief Financial Officer,
identified no change in the Company's internal control over financial reporting
that occurred during the Company’s fiscal quarter ended December 31, 2005, and
that has materially affected, or is reasonably likely to materially affect,
the
Company’s internal controls over financial reporting.
22
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Item
1. Legal Proceedings
On
July
1, 2002, three individuals, on behalf of themselves and a putative class
of
chicken growers, filed their original class action complaint against us in
the
United States District Court for the Eastern District of Texas, Texarkana
Division, styled “Cody Wheeler, et al. vs. Pilgrim’s Pride Corporation.” The
complaint alleges that we violated the Packers and Stockyards Act (7 U.S.C.
Section 192) and breached fiduciary duties allegedly owed to the plaintiff
growers. The plaintiffs also brought individual actions under the Packers
and
Stockyards Act alleging common law fraud, negligence, breach of fiduciary
duties
and breach of contract. On September 30, 2005, plaintiffs amended their lawsuit
to join Tyson Foods, Inc. as a co-defendant. Two additional former chicken
growers were also added as plaintiffs to the lawsuit. This amendment, which
occurred 38 months after the lawsuit’s initial filing, contends that the Company
and Tyson are involved in a conspiracy to violate federal antitrust laws.
Plaintiffs’ initial allegations, although still contained in the amended
lawsuit, are no longer the sole focus of the case. On January 3, 2006, the
Court
entered an Order severing Plaintiffs’ Packers and Stockyards Act and antitrust
claims. The Court ordered that Plaintiffs Wheeler, Davis and Williams may
proceed with their Packers and Stockyards Act claims as set forth in Plaintiffs’
Third Amended Complaint. The Court also ordered that Plaintiffs Wheeler,
Davis,
Williams, Grounds and Ward may proceed with their respective antitrust claims
asserted against us and Tyson in a separate cause of action. The Company
intends
to defend vigorously both certification of the case as a class action and
plaintiffs’ individual claims. We do not expect this matter to have a material
impact on our financial position, operations or liquidity.
In
October 2002, a limited number of USDA environmental samples from our Franconia,
Pennsylvania plant tested positive for Listeria. As a result, we voluntarily
recalled all cooked deli products produced at the plant from May 1, 2002
through
October 11, 2002. No illnesses have been linked to any of our recalled products,
and none of such products have tested positive for the strain of Listeria
associated with an outbreak in the Northeastern U.S. that occurred during
the
summer of 2002. However, following this recall, a number of demands and cases
have been made and filed alleging injuries purportedly arising from the
consumption of products produced at this facility. These include: “Lawese
Drayton, Individually and as Personal Representative of the Estate of Raymond
Drayton, deceased, Plaintiff, v. Pilgrim’s Pride Corporation, Jack Lambersky
Poultry Company, Inc. d/b/a JL Foods Co, Inc., Defendants,” which was filed
against us in the United States District Court for the Eastern District of
Pennsylvania on April 15, 2003; “Laron Harvey, by his mother and natural
guardian, Shakandra Hampton, and Shakandra Hampton in her own right v. Pilgrim’s
Pride Corporation and Jack Lambersky Poultry Company, Inc.,” which was filed in
the Pennsylvania Court of Common Pleas on May 5, 2003, and has since been
removed to the U.S. District Court of the Eastern District of Pennsylvania
in
Philadelphia; “Ryan and Dana Patterson v. Pilgrim’s Pride Corporation and Jack
Lambersky Poultry Company, et al” which was filed in the Superior Court of New
Jersey, Law Division, Passaic County, on August 12, 2003; “Jamar Clarke, an
infant under the age of fourteen (14) years, by his mother and natural guardian,
Wanda Multrie Clarke, and Wanda Multrie Clarke, individually v. Pilgrim’s Pride
Corporation d/b/a Wampler Foods, Inc., H. Schrier and Co., Inc., Board of
Education of the City of New York and Public School 251” which was filed in the
Supreme Court of the State of New York, County of Queens, on August 1, 2003;
“Peter Roselle, as Administrator and Prosequendum for the Heirs-at-Law of
Louis
P.
Roselle, deceased; and Executor of the Estate of Louis P.
23
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Roselle,
deceased, and individually v. Pilgrim’s Pride Corporation, Wampler Foods, Inc.,
Jack Lambersky Poultry Company, Inc., d.b.a. J.L. Foods Co. Inc.” which was
filed in the Superior Court of New Jersey, Law Division, Union County, on
June
14, 2004; “Jody Levonchuk, administratrix of the Estate of Joseph Cusato v.
Pilgrim’s Pride Corporation and Jack Lambersky Poultry Company” which was filed
in the U.S. District Court for the Eastern District of Pennsylvania, on July
28,
2004; Nancy Cirigliano and Scott Fischer v. Pilgrim’s Pride Corporation and Jack
Lambersky Poultry Company, et al,” which was filed in the Superior Court of New
Jersey, Union County, on August 10, 2004; “Dennis Wysocki, as the Administrator
of the Estate of Matthew Tyler Wysocki, deceased, and Dennis Wysocki and
Karen
Wysocki, individually v. Pilgrim’s Pride Corporation and Jack Lambersky Poultry
Company, et al,” which was filed in the Supreme Court of the State of New York,
County of New York, on July 30, 2004; “Randi Carden v. Pilgrim’s Pride
Corporation and Jack Lambersky Poultry Company, et al,” which was filed in the
Superior Court of New Jersey, Camden County, on August 10, 2004; and “Roberta
Napolitano, as Trustee of the Bankruptcy Estate of Burke Caren Kantrow v.
Pilgrim’s Pride Corporation, Wampler Foods, Inc. and Jack Lambersky Poultry
Company, d/b/a J. L. Foods, Inc.” which was filed in the Superior Court of
Connecticut, New Haven, on June 16, 2005. On August 20, 2004, the Estate
of
Frank Niemtzow refiled his individual action from the previously filed and
voluntarily dismissed class action suit. Neither the likelihood of an
unfavorable outcome nor the amount of ultimate liability with respect to
these
cases can be determined at this time. These cases are in various stages of
litigation, and we believe we have meritorious defenses to each of the claims,
which we intend to vigorously defend. After considering our available insurance
coverage, we do not expect any of these matters to have a material impact
on our
financial position, operations or liquidity.
On
December 31, 2003, we were served with a purported class action complaint
styled
“Angela Goodwin, Gloria Willis, Johnny Gill, Greg Hamilton, Nathan Robinson,
Eddie Gusby, Pat Curry, Persons Similarly Situated v. ConAgra Poultry Company
and Pilgrim’s Pride, Incorporated” in the United States District Court, Western
District of Arkansas, El Dorado Division, alleging racial and age discrimination
at one of the facilities we acquired from ConAgra. Two of the named plaintiffs,
Greg Hamilton and Gloria Willis, were voluntarily dismissed from this action.
We
believe we have meritorious defenses to the class certification as well as
the
individual claims and we intend to vigorously oppose class certification
and
defend these claims. The ultimate liability with respect to these claims
cannot
be determined at this time; however, we do not expect this matter to have
a
material impact on our financial position, operations or liquidity.
We
are
subject to various other legal proceedings and claims, which arise in the
ordinary course of our business. In the opinion of management, the amount
of
ultimate liability with respect to these actions will not materially affect
our
financial position or results of operations.
24
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated by reference
from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the
fiscal year ended October 2, 2004 filed on November 24,
2004.)
|
|
3.2
|
Amended
and Restated Corporate Bylaws of the Company (incorporated by reference
from Exhibit 4.4 of the Company’s Registration Statement on Form S-8 (No.
333-111929) filed on January 15, 2004).
|
|
10.1
|
Broiler Production
Agreement dated effective November 15, 2005 between Pilgrim's Pride
Corporation and Lonnie "Bo" Pilgrim (incorporated by reference
from
Exhibit 99.1 of the Company’s Current Report on Form 8-K dated November
10, 2005).
|
|
10.2
|
First
Amendment to Third Amended and Restated Credit Agreement dated
November
25, 2005 between Pilgrim's Pride Corporation, Harris N.A., and
the other
lenders party thereto (incorporated by reference from Exhibit 1.1
of the
Company’s Current Report on Form 8-K dated December 5,
2005).
|
|
10.3
|
Second
Amendment to Credit Agreement dated November 28, 2005 between Pilgrim’s
Pride Corporation, CoBank, ACB, and certain syndication parties
thereto
(incorporated by reference from Exhibit 1.2 of the Company’s Current
Report on Form 8-K dated December 5, 2005).
|
|
10.4
|
Amended
and Restated Pilgrim's Pride Corporation 2005 Deferred Compensation
Plan
(incorporated by reference from Exhibit 10.1 of the Company’s Current
Report on Form 8-K dated January 6, 2006).
|
|
10.5
|
Vendor
Service Agreement dated effective December 28, 2005 between Pilgrim's
Pride Corporation and Pat Pilgrim (incorporated by reference from
Exhibit
10.2 of the Company’s Current Report on Form 8-K dated January 6,
2006).
|
|
10.6
|
Transportation
Agreement dated effective December 28, 2005 between Pilgrim's Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit
10.3
of the Company’s Current Report on Form 8-K dated January 6,
2006).
|
|
10.7
|
Ground
Lease Agreement dated effective January 4, 2006 between Pilgrim's
Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit
10.4
of the Company’s Current Report on Form 8-K dated January 6,
2006).
|
|
12.1
|
Statement
regarding Computation of Ratios.*
|
|
31.1
|
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
|
31.3
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
|
32.1
|
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation
pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation
pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.3
|
Certification
of Chief Financial Officer of Pilgrim's Pride Corporation pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
*
Filed herewith
|
25
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PILGRIM’S
PRIDE CORPORATION
|
|||
/s/
Richard A. Cogdill
|
|||
Date:
|
January 25,
2006
|
Richard
A. Cogdill
|
|
Chief
Financial Officer,
|
|||
Secretary
and Treasurer
|
|||
(Principal
Financial Officer, Chief
Accounting Officer and Authorized
Signatory)
|
|||
|
26
PILGRIM'S
PRIDE CORPORATION
December
31, 2005
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated by reference
from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the
fiscal year ended October 2, 2004 filed on November 24,
2004.)
|
|
3.2
|
Amended
and Restated Corporate Bylaws of the Company (incorporated by reference
from Exhibit 4.4 of the Company’s Registration Statement on Form S-8 (No.
333-111929) filed on January 15, 2004).
|
|
10.1
|
Broiler Production
Agreement dated effective November 15, 2005 between Pilgrim's Pride
Corporation and Lonnie "Bo" Pilgrim (incorporated by reference
from
Exhibit 99.1 of the Company’s Current Report on Form 8-K dated November
10, 2005).
|
|
10.2
|
First
Amendment to Third Amended and Restated Credit Agreement dated
November
25, 2005 between Pilgrim's Pride Corporation, Harris N.A., and
the other
lenders party thereto (incorporated by reference from Exhibit 1.1
of the
Company’s Current Report on Form 8-K dated December 5,
2005).
|
|
10.3
|
Second
Amendment to Credit Agreement dated November 28, 2005 between Pilgrim’s
Pride Corporation, CoBank, ACB, and certain syndication parties
thereto
(incorporated by reference from Exhibit 1.2 of the Company’s Current
Report on Form 8-K dated December 5, 2005).
|
|
10.4
|
Amended
and Restated Pilgrim's Pride Corporation 2005 Deferred Compensation
Plan
(incorporated by reference from Exhibit 10.1 of the Company’s Current
Report on Form 8-K dated January 6, 2006).
|
|
10.5
|
Vendor
Service Agreement dated effective December 28, 2005 between Pilgrim's
Pride Corporation and Pat Pilgrim (incorporated by reference from
Exhibit
10.2 of the Company’s Current Report on Form 8-K dated January 6,
2006).
|
|
10.6
|
Transportation
Agreement dated effective December 28, 2005 between Pilgrim's Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit
10.3
of the Company’s Current Report on Form 8-K dated January 6,
2006).
|
|
10.7
|
Ground
Lease Agreement dated effective January 4, 2006 between Pilgrim's
Pride
Corporation and Pat Pilgrim (incorporated by reference from Exhibit
10.4
of the Company’s Current Report on Form 8-K dated January 6,
2006).
|
|
Statement
regarding Computation of Ratios.*
|
||
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
||
Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
|
||
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
||
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation
pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation
pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
Certification
of Chief Financial Officer of Pilgrim's Pride Corporation pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
||
*
Filed herewith
|
27