PILGRIMS PRIDE CORP - Quarter Report: 2005 April (Form 10-Q)

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 April 2, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending October 1, 2005. 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 2, 2004.

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 $56.7 million and $33.0 million for the three months and $105.2 million and $43.2 million for the six months ended April 2, 2005 and April 3, 2004, respectively.

Certain reclassifications have been made to prior periods to conform to current presentations.

On November 23, 2003, we completed the purchase of all the outstanding stock of the corporations represented as the ConAgra Foods, Inc. (“ConAgra”) chicken division (“ConAgra chicken division”). The acquired business has been included in our results of operations since the date of the acquisition. The purchase price was $632.5 million and was paid with a combination of cash, the assumption of $16 million of debt and issuing to ConAgra 25,443,054 shares of our common stock valued at $14.05 per share.

The following unaudited pro forma financial information has been presented as if the acquisition of the ConAgra chicken division had occurred as of the beginning of fiscal 2004.

Pro Forma Financial Information:

Six Months Ended
(In thousands except for share and per share data)		April 3, 2004 (27 Weeks)
Net sales		$	2,890,067
Depreciation and amortization		$	66,043
Operating income		$	117,833
Interest expense, net		$	30,339
Income before taxes		$	88,470
Net income		$	57,695
Net income per common share		$	0.87
Weighted average shares outstanding			66,555,733

In March 2005, the Company, through arbitration, settled litigation related to a breach of contract that occurred in a prior year. The settlement resulted in a non-recurring gain of $11.7 million being recognized during the second quarter which was subsequently collected on April 22, 2005. It has been recorded in other receivables and miscellaneous, net in the second quarter of fiscal 2005.

Inventories consist of the following:					April 2, 2005			October 2, 2004
		(in thousands)
Chicken:
Live chicken and hens					$	194,669		$	207,129
Feed, eggs and other						140,985			118,939
Finished chicken products						187,592			218,563
					$	523,246		$	544,631
Turkey:
Live turkey and hens					$	7,227		$	8,306
Feed, eggs and other						6,523			6,017
Finished turkey products						34,654			51,043
						48,404			65,366
Total Inventories					$	571,650		$	609,997

As of April 2, 2005, we had $168.0 million in revolving credit facilities, after the expiration of our Mexico revolving credit facility in December 2004, and $500.0 million in a secured revolving/term borrowing facility. There were no borrowings under the $500.0 million revolving/term borrowing facility at April 2, 2005 and $500.0 million was available under this facility. Under the $168.0 million revolving credit facilities, $125.5 million was available for borrowing at April 2, 2005.

Interest expense net, represents interest expense net of interest income and capitalized interest. Total interest expense was $11.2 million and $13.9 million for the three-month periods ended April 3, 2005 and April 2, 2004, and $25.4 million and $26.8 million for the six-month periods ended April 3, 2005, and April 2, 2004, respectively.

Under the new tax legislation, the American Jobs Creation Act of 2004, corporations are allowed to distribute some or all of the permanently reinvested earnings in foreign subsidiaries as cash dividends and elect to receive a dividends received deduction for U.S. income tax purposes equal to 85% of such dividend, with certain restrictions. The dividends received deduction effectively taxes these dividends at 5.25% for U.S. income tax purposes. The new tax legislation can be applied by the Company in either Fiscal 2005 or Fiscal 2006, but such deduction may be received in only one of those years. The Company has not provided any deferred income taxes on the undistributed earnings of its Mexico subsidiaries based upon its determination that such earnings will be indefinitely reinvested. As of October 2, 2004, the cumulative undistributed earnings of these subsidiaries were approximately $230.0 million. The Company has not completed its evaluation of what actions, if any, will be taken as a result of the American Jobs Creation Act of 2004. In addition, the distribution of earnings from Mexico to the U.S. could result in additional taxes being paid under Mexican law. The Company expects to complete its evaluation during 2005.

 

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 $469,640 and $392,400 during the quarters, and $995,369 and $1,035,500 during the six months ended April 2, 2005 and April 3, 2004, respectively, on gross amounts paid by the Company to the major stockholder as described below in “Live chicken purchases from major stockholder.”

Transactions with related parties are summarized as follows:

		Three Months Ended						Six Months Ended
		April 2, 2005			April 3, 2004			April 2, 2005			April 3, 2004
		(in thousands)
Lease payments on commercial egg property		$	188		$	188		$	376		$	376
Chick, feed and other sales to major stockholder, including advances		$	--		$	4,560		$	50,486		$	52,594
Live chicken purchases and other payments to major stockholder		$	20,104		$	25,098		$	53,062		$	53,424
Loan guaranty fees		$	451		$	883		$	897		$	1,485
Lease payments and operating expenses on airplane		$	135		$	122		$	276		$	257

 

 

At April 2, 2005, the Company had $42.5 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 twelve 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.

We operate in two reportable business segments as a producer of chicken and other products and a producer of turkey products.

Our chicken and other products segment primarily includes sales of chicken products and by-products we produce and purchase for resale in the United States, including Puerto Rico, and in Mexico. This segment also includes the sale of table eggs, feed and other items. Our chicken and other products segment conducts separate operations in the U.S. and Puerto Rico and in Mexico and is reported as two separate geographical areas. Substantially all of the assets and operations of the ConAgra chicken division have been included in our U.S. chicken and other products segment since the date of acquisition.

Our turkey segment includes sales of turkey products produced in our turkey operations, and operates exclusively in the U.S.

Inter-area sales and inter-segment sales, which are not material, are accounted for at prices comparable to normal trade customer sales. Certain expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. portions of the segments based on number of employees.

 

The following table presents certain information regarding our segments (in thousands):

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. Feed ingredient purchases are the single largest component of our cost of goods sold, representing approximately 25% of our cost of goods sold in the first six months of fiscal year 2005. The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories, demand for feed ingredients and the agricultural policies of the United States and foreign governments. As further processing is performed, feed ingredient costs become a decreasing percentage of a product’s total production costs. Products sold in this form enable us to charge a premium, reduce the impact of feed ingredient costs on our profitability and improve and stabilize our profit margins.

As a significant portion of U.S. poultry production is exported, the commodity prices of chicken and turkey can be, and in recent periods have been, adversely affected by disruptions in poultry export markets. These disruptions are often caused by restrictions on imports of U.S.-produced poultry products imposed by foreign governments for a variety of reasons, including the protection of their domestic poultry producers and allegations of consumer health issues. For example, Russia, China, Japan and Mexico have restricted the importation of U.S.-produced poultry for these reasons in recent periods. 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. In July 2003, the United States and Mexico entered into a safeguard agreement with regard to imports into Mexico of chicken leg quarters from the United States. Under this agreement, an initial tariff rate for chicken leg quarters of 98.8% on the sales prices was established. This tariff rate was reduced on January 1, 2005 to 59.3% and is to be reduced in each of the following three 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 United States, which could negatively affect the profitability of Mexico chicken producers and positively affect the profitability of U.S. exporters of chicken to Mexico. Although this could have a negative impact on our Mexico chicken operations, we believe that this will be mitigated somewhat by the close proximity of our U.S. operations to the Mexico border and our extensive distribution network in Mexico. We believe we have one of the largest U.S. production and distribution capacities near the Mexico border, which gives us a strategic advantage to capitalize on exports of U.S. chicken to Mexico.

The following table presents certain information regarding our segments (in thousands):

 

(a)	The acquisition of the ConAgra chicken division has been accounted for as a purchase, and the results of operations for this acquisition have been included in our consolidated results of operations since November 23, 2003, the acquisition date.
(b)	Includes our Puerto Rico operations.
(c)	Included in the three months and six months ended April 2, 2005 are $4.4 million in additional proceeds from the final resolution of our 2004 turkey restructuring activities.
(d)	Includes amortization of capitalized financing costs of approximately $0.6 million and $0.5 million for the three month periods and $1.2 million and $1.0 million for the six month periods ending April 2, 2005 and April 3, 2004, respectively.

 

The following table presents certain items as a percentage of net sales for the periods indicated:

		Percentage of Net Sales
		Three Months Ended						Six Months Ended
		April 2, 2005			April 3, 2004			April 2, 2005			April 3, 2004
Net Sales			100.0	%		100.0	%		100.0	%		100.0	%
Costs and Expenses:
Cost of sales			88.5	%		91.1	%		88.6	%		91.7	%
Gross profit			11.5	%		8.9	%		11.4	%		8.3	%
Selling, general and administrative			5.0	%		4.5	%		4.9	%		4.5	%
Operating Income			6.5	%		4.4	%		6.5	%		3.8	%
Interest Expense, net			0.7	%		1.0	%		0.8	%		1.1	%
Income before Income Taxes			6.6	%		3.4	%		6.2	%		2.7	%
Net Income			4.1	%		2.4	%		3.8	%		1.8	%

The change in our results of operations for the first six months of fiscal 2005 as compared to the same period in fiscal 2004 is impacted by the effect of the November 23, 2003, purchase of all the outstanding stock of the corporations represented as ConAgra Foods, Inc. (“ConAgra”) chicken division (“ConAgra chicken division”). We sometimes refer to this acquisition as “the fiscal 2004 acquisition.” The acquired business has been included in our results of operations for only 19 of the 27 weeks in the first six months of fiscal 2004.

Our first six months of fiscal 2005 included 26 weeks versus the first six months of fiscal 2004, which included 27 weeks, resulting in a decrease in each of the categories discussed in our results of operations by approximately 3.7%, as compared to the corresponding period in the preceding year. As this change impacted all the Income Statement categories in a reasonably consistent manner, no separate discussion of this factor is included in our results of operations discussion, unless the impact of the applicable category varied from the increase described above.

Net Sales. Net Sales for the second quarter of fiscal 2005 decreased $9.6 million, or (0.7)%, over the second quarter of fiscal 2004. The following table provides additional information regarding net sales (in millions):

		Fiscal Quarter Ended			Change from Fiscal Quarter Ended
		April 2,			April 3,			Percentage
Source		2005			2004			Change
Chicken and other products:
United States-
Chicken		$	1,090.8		$	22.6			2.1	%		(a	)
Other products			148.1			(18.7	)		(11.2	)%		(b	)
		$	1,238.9		$	3.9			0.0	%
Mexico-
Chicken		$	90.9		$	1.9			2.1	%		(c	)
Other products			8.2			1.4			20.6	%		(d	)
		$	99.1		$	3.3			3.4	%
Turkey		$	37.3		$	(16.8	)		(31.1	)%		(e	)
		$	1,375.3		$	(9.6	)		(0.7	)%

(a)	U.S. chicken sales increased primarily due to a 3.4% increase in pounds produced partially offset by a 1.2% decrease in net revenue per pound produced.
(b)	U.S. sales of other products decreased primarily due to lower selling prices for certain chicken by-products, commercial eggs and wholesale feed.
(c)	Mexico chicken sales increased primarily due to a 5.3% increase in net revenue per pound, offset partially by a 3.0% decline in pounds produced.
(d)	The increase in Mexico sales of other products was primarily due to increased sales of certain chicken by-products.
(e)	The decrease in turkey sales was due to a decrease in turkey production created by the restructuring of the turkey division in fiscal 2004 as described in our Annual Report on Form 10-K for the fiscal year ended October 2, 2004, offset somewhat by a change in sales mix away from commodity products which also resulted from the restructuring.

Gross Profit. Gross profit increased $35.1 million, or 28.4%, in the second quarter of fiscal 2005 compared to the second quarter of fiscal 2004.

The following table provides gross profit information (in millions):

		Quarter			Change From
		Ended			Quarter Ended									Percentage of			Percentage
		April 2,						April 3,			Percentage			Net Sales			of Net Sales
Components		2005						2004			Change			Fiscal 2005			Fiscal 2004
Net sales		$	1,375.3					$	(9.6	)		(0.7	)%		100.0	%		100.0	%
Cost of sales			1,216.8						(44.7	)		(3.5	)%		88.5			91.1			(a	)
Gross profit		$	158.5					$	35.1			28.4	%		11.5	%		8.9	%		(b	)

(a)	U.S. operations cost of sales decreased $39.5 million primarily due to a 23.6% decrease in the per pound cost of feed ingredients, partially offset by a 3.4% increase in pounds produced. Mexico operations cost of sales decreased $5.2 million primarily due to a 24.9% decrease in the per pound cost of feed ingredients and a 3.0% decrease in pounds produced.
(b)	U.S. gross profit increased $26.7 million due primarily to a 23.6% reduction in the per pound cost of chicken feed ingredients and a $3.6 million improvement in our turkey operations. Mexico operations gross profit increased $8.4 million due primarily to a 24.9% reduction in the per pound cost of feed ingredients and a 5.3% increase in net revenue per pound produced, offset partially by a 3.0% decrease in pounds produced.

Operating Income. Operating income for the second quarter of fiscal 2005 increased $27.5 million when compared to the second quarter of fiscal 2004.

					Change from
		Quarter Ended			Quarter Ended						Percentage			Percentage
		April 2,			April 3,			Percentage			of Net Sales			of Net Sales
Components		2005			2004			Change			Fiscal 2005			Fiscal 2004
Gross profit		$	158.5		$	35.1			28.4	%		11.5	%		8.9	%
Selling, general and administrative expense			69.5			7.6			12.3	%		5.0			4.5			(a	)
Operating income		$	89.0		$	27.5			44.7	%		6.5	%		4.4			(b	)

(a)	Selling, general and administrative expenses increased due to increased sales of prepared foods and due to profit based retirement and compensation plans.
(b)	Increase in operating income is due to the items discussed above under gross profit, offset by increases in selling, general and administrative expenses discussed above.

Interest Expense. Consolidated net interest expense decreased 31.1% to $9.3 million in the second quarter of fiscal 2005, when compared to $13.5 million for the second quarter of fiscal 2004, due primarily to lower average debt in the current quarter. As a percentage of sales, interest expense in the second quarter of fiscal 2005 decreased to 0.7% from 1.0% in the second quarter of fiscal 2004.

Miscellaneous, Net. Consolidated miscellaneous, net expense (income) which increased ($12.0) million to ($10.7) million, consisted mainly of a non-recurring gain of $11.7 million associated with a litigation settlement reached. See Note C to the consolidated financial statements included elsewhere herein.

Income Tax Expense. Consolidated income tax expense in the second quarter of fiscal 2005 was $34.2 million, compared to an income tax expense of $13.6 million in the second quarter of fiscal 2004. This increase in consolidated income tax expense was primarily caused by higher pretax earnings in the U.S. for the second quarter of fiscal 2005 and an increase in the effective tax rate in Mexico due primarily to a tax benefit being recorded on our Mexico operations in the second quarter of fiscal 2004.

Net Sales. Net Sales for the first six months of fiscal 2005 increased $314.3 million, or 12.9%, over the first six months of fiscal 2004. The following table provides additional information regarding net sales (in millions):

		First Six Months Ended			Change from First Six Months Ended
		April 2,			April 3,			Percentage
Source		2005			2004			Change
Chicken and other products:
United States-
Chicken		$	2,115.3		$	303.1			16.7	%		(a	)
Other products			313.6			33.3			11.9	%		(b	)
		$	2,428.9		$	336.4			16.1	%
Mexico-
Chicken		$	187.8		$	9.9			5.6	%		(c	)
Other products			9.8			(1.7	)		(14.8	)%		(d	)
		$	197.6		$	8.2			4.3	%
Turkey		$	117.1		$	(30.3	)		(20.6	)%		(e	)
		$	2,743.6		$	314.3			12.9	%

(a)	U.S. chicken sales increased primarily due to the fiscal 2004 acquisition.
(b)	U.S. sales of other products increased primarily due to the fiscal 2004 acquisition which included several distribution centers which had a larger proportion of beef, pork, and other non-poultry products than did our existing distribution centers.
(c)	Mexico chicken sales increased primarily due to a 12.7% increase in net revenue per pound produced, partially offset by a 6.3% reduction in pounds produced.
(d)	The decrease in Mexico sales of other products was primarily due to a reduction of outside feed sales, primarily due to price declines.
(e)	The decrease in turkey sales was due to a decrease in turkey production created by the restructuring of the turkey division in fiscal 2004 as described in our Annual Report on Form 10-K for the fiscal year ended October 2, 2004, offset somewhat by a change in sales mix away from commodity products which also resulted from the restructuring.

Gross Profit. Gross profit increased $113.4 million, or 56.6%, in the first six months of fiscal 2005 compared to the first six months of fiscal 2004.

The following table provides gross profit information (in millions):

		Six Months			Change From
		Ended			Six Months Ended									Percentage of			Percentage
		April 2,						April 3,			Percentage			Net Sales			of Net Sales
Components		2005						2004			Change			Fiscal 2005			Fiscal 2004
Net sales		$	2,743.6					$	314.3			12.9	%		100.0	%		100.0	%
Cost of sales			2,429.7						200.9			9.0	%		88.6			91.7			(a	)
Gross profit		$	313.9					$	113.4			56.6	%		11.4	%		8.3	%		(b	)

(a)	U.S. operations cost of sales increased $211.8 million primarily due to a 19.4% increase in pounds produced which was primarily due to the fiscal 2004 acquisition, partially offset by a 21.4% reduction in the per pound cost of feed ingredients. Mexico operations cost of sales decreased $10.9 million primarily due to a 24.7% decrease in the per pound cost of feed ingredients and a 6.3% decrease in dressed pounds produced which is primarily due to the current six month period having 26 weeks, which is 3.7% less than the 27 weeks contained in the same period last year.
(b)	U.S. gross profit increased $94.2 million due primarily to a 21.4% reduction in the per pound cost of feed ingredients and a $12.0 million improvement in our turkey operations, due primarily to the previously mentioned turkey restructuring. Mexico operations gross profit increased $19.2 million due primarily to a 12.7% increase in net revenue per pound produced and a 20.1% reduction in per pound cost of feed ingredients, offset partially by a 6.3% decline in pounds produced.

Operating Income. Operating income for the first six months of fiscal 2005 increased $87.6 million when compared to the first six months of fiscal 2004.

		Six Months			Change from
		Ended			Six Months Ended						Percentage			Percentage
		April 2,			April 3,			Percentage			of Net Sales			of Net Sales
Components		2005			2004			Change			Fiscal 2005			Fiscal 2004
Gross profit		$	313.9		$	113.4			56.6	%		11.4	%		8.3	%
Selling, general and administrative expense			133.9			25.8			23.9	%		4.9			4.5			(a	)
Operating income		$	180.0		$	87.6			94.8	%		6.5	%		3.8	%		(b	)

(a)	Increase is primarily due to the inclusion of the fiscal 2004 acquisition for the full first six months of fiscal 2005, increased sales of prepared foods products and due to profit based retirement and compensation plans.
(b)	Increase in operating income is due to the items discussed above under gross profit, offset by increased selling, general and administrative expenses discussed above.

Interest Expense. Consolidated net interest expense decreased 17.3% to $21.5 million in the first six months of fiscal 2005, when compared to $26.0 million for the first six months of fiscal 2004, due primarily to lower average debt in the current period. As a percentage of sales, interest expense in the first six months of fiscal 2005 decreased to 0.8% from 1.1% in the first six months of fiscal 2004.

Miscellaneous, Net. Consolidated miscellaneous, net expense (income) of ($11.7) million increased ($12.8) million versus the same period last year, consisting mainly of a nonrecurring gain of $11.7 million associated with a litigation settlement reached. See Note C to the consolidated financial statements included elsewhere herein.

Income Tax Expense. Consolidated income tax expense in the first six months of fiscal 2005 was $65.6 million, compared to an income tax expense of $21.9 million in the first six months of fiscal 2004. This increase in consolidated income tax expense was primarily caused by higher pretax earnings in the United States for the first six months of fiscal 2005 and a change in Mexican tax law in December 2004.

 

The following table presents our available sources of liquidity as of April 2, 2005. See our Annual Report on Form 10-K for the fiscal year ended October 2, 2004 for a detailed description of each facility discussed below.

		Facility			Available			Amount			Available
Source of Liquidity		Amount			Borrowing			Outstanding			Liquidity
(in millions)
Cash and cash equivalents		$	--		$	--		$	--		$	147.8
Debt Facilities:
Revolving credit facilities			168.0			125.5			--			125.5
Revolving/term facility			500.0			500.0			--			500.0
Receivables purchase
agreement			125.0			125.0			--			125.0
Total available liquidity											$	898.3

At April 2, 2005, our working capital increased to $492.3 million and our current ratio increased to 1.87 to 1, compared with working capital of $383.7 million and a current ratio of 1.61 to 1 at October 2, 2004, primarily due to the working capital changes discussed below.

Trade accounts and other receivables were $291.1 million at April 2, 2005, compared to $324.2 million at October 2, 2004. The $33.1 million, or 10.2%, decrease in trade accounts and other receivables was primarily due to reduced sales in the second quarter of fiscal 2005 compared to the fourth quarter of fiscal 2004 due to cyclicality.

Inventories were $571.7 million at April 2, 2005, compared to $610.0 million at October 2, 2004. The $38.3 million, or 6.3%, decrease in inventories was primarily due to a decrease in finished products.

Accounts payable and accrued liabilities decreased $68.2 million to $556.9 million at April 2, 2005, compared to $625.1 million at October 2, 2004 due primarily to normal fluctuations with respect to the timing of payments.

Capital expenditures of $52.2 million and $40.0 million for the six months ended April 2, 2005 and April 3, 2004, respectively, were primarily incurred to improve efficiencies, reduce costs and for the routine replacement of equipment. We anticipate spending approximately $150.0 million to $175.0 million in fiscal 2005 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 $172.8 million and $159.9 million for the six months ended April 2, 2005 and April 3, 2004, respectively. The increase in cash flows provided by operating activities for the first six months of fiscal 2005, when compared to the first six months of fiscal 2004, was due primarily to improvements in profitability and the fiscal 2004 acquisition, as well as changes in working capital items described above.

Cash flows (used) provided by financing activities were ($14.4) million and $213.8 million for the six months ended April 2, 2005 and April 3, 2004, respectively. The decrease in cash provided by financing activities for the first six months of fiscal 2005, when compared to the first six months fiscal 2004, was due primarily to the debt issued to finance the fiscal 2004 acquisition.

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.

We purchase certain commodities, primarily corn and soybean meal. As a result, our earnings are affected by changes in the price and availability of such feed ingredients. As market conditions dictate, we will from time to time lock-in future feed ingredient prices using various hedging techniques, including forward purchase agreements with suppliers and futures contracts. We do not use such financial instruments for trading purposes and are not a party to any leveraged derivatives. Market risk is estimated as a hypothetical 10% increase in the weighted-average cost of our primary feed ingredients as of April 2, 2005. Based on our feed consumption during the six months ended April 2, 2005, such an increase would have resulted in an increase to cost of sales of approximately $61.3 million, excluding the impact of any hedging in that period.

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 loss of $0.3 million in the first six months of fiscal 2005 compared to a loss of $0.3 million for the first six months of fiscal 2004. On April 2, 2005, the Mexico peso closed at 11.20 to 1 U.S. dollar, compared to 11.36 at October 2, 2004. 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 2, 2004, other than as described above.

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 affecting the production performance and/or marketability of the Company’s poultry products;

·	Contamination of our products, which has recently and can in the future lead to product liability claims and product recalls;

·	Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate;

·	Management of our cash resources, particularly in light of our leverage;

·	Restrictions imposed by, and as a result of, our leverage;

·	Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign operations;

·	Changes in laws or regulations or the application thereof affecting our operations, as well as competitive factors and pricing pressures;

·	Risks associated with the acquisition of ConAgra’s chicken division including possible unknown liabilities assumed in connection with the acquisition and loss of customers of the acquired business;

·	Inability to recognize the anticipated cost savings and anticipated benefits in connection with our recent turkey division restructuring; 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.

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, other than the integration of the ConAgra chicken division acquisition historical account systems to the Company’s systems, 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 April 2, 2005, and that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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 March 14, 2003, the court entered an order dismissing the plaintiffs’ claim of breach of fiduciary duty and negligence. The plaintiffs also dropped the charges of fraud prior to the entering of the order by the court. The Company intends to defend vigorously the claims brought by the three individual growers in this case. If the plaintiffs elect to file a motion to certify this matter as a class action, the Company intends to oppose certification of the putative class. 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. 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; “Mary Samudovsky v. Pilgrim’s Pride Corporation and Jack Lambersky Poultry Company, Inc., et al,” which was filed in the Superior Court of New Jersey, Law Division: Camden County, and served on October 26, 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 “Catherine Dillon, individually and as guardian ad litem for her infant son, Brian Dillon, and Joseph Dillon, individually” v. Pilgrim’s Pride Corporation and Jack Lambersky Poultry Company, et al,” which was filed in the Superior Court of New Jersey, Essex County, on September 10, 2004. 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, if any, with respect to any of 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. One of the named plaintiffs, Gloria Willis, was 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.

Pilgrim’s Pride Corporation held its Annual Meeting of Shareholders on January 26, 2005. The meeting was held to elect thirteen Directors for the ensuing year; to appoint Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending October 1, 2005; and to transact such other business as was properly brought before the meeting. There were 566,220,545 votes received, constituting 95.11% of the 595,348,066 votes outstanding on the record date and entitled to vote. With regard to the election of Directors for the ensuing year, the following votes were cast:

NOMINEE		FOR			WITHHELD
Lonnie “Bo” Pilgrim		558,502,925			7,717,620
Clifford E. Butler		558,986,177			7,234,368
O.B. Goolsby		558,990,493			7,230,052
Richard A. Cogdill		558,940,904			7,279,641
Lonnie Ken Pilgrim		558,511,814			7,708,731
Charles L. Black		565,800,970			419,575
Linda Chavez		565,987,499			233,046
S. Key Coker		565,958,004			262,541
Keith W. Hughes		565,989,668			230,877
Blake D. Lovette		565,684,893			535,652
Vance C. Miller, Sr.		565,806,033			414,512
James G. Vetter, Jr.		558,516,279			7,704,266
Donald L. Wass, Ph.D.		565,805,084			415,461

 

All Directors were elected by the above results.

With regard to ratifying the appointment of Ernst & Young LLP as the Company’s independent auditors for fiscal 2005, the following votes were cast:

FOR		AGAINST		ABSTAIN
565,869,728		336,532		14,285

 

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

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PILGRIM’S PRIDE CORPORATION
		/s/ Richard A.Cogdill
Date:	April 25, 2005	Richard A. Cogdill
		Executive Vice President,
		Chief Financial Officer,
		Secretary and Treasurer
		(Principal Financial Officer,
		Chief Accounting Officer and
		Authorized Signatory)

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