PILGRIMS PRIDE CORP - Quarter Report: 2006 April (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 April
1, 2006
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
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
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 May 1, 2006, was
66,555,733.
1
|
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
|
||
|
PART
I. FINANCIAL INFORMATION
|
||
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
April
1, 2006 and October 1, 2005
|
||
|
Three
months and six months ended April 1, 2006 and April 2,
2005
|
||
|
Six
months ended April 1, 2006 and April 2, 2005
|
||
|
Item
2.
|
||
|
Item
3.
|
||
|
Item
4.
|
||
|
PART
II. OTHER INFORMATION
|
||
|
Item
1.
|
||
|
Item
1A.
|
||
|
Item
4.
|
||
|
Item
6.
|
||
|
PART
I. FINANCIAL INFORMATION
|
|||||||
|
Item
1. Financial Statements
|
|||||||
|
Pilgrim's
Pride Corporation
|
|||||||
|
(Unaudited)
|
|||||||
|
April
1, 2006
|
October
1, 2005
|
||||||
|
(In
thousands, except share and per share data)
|
|||||||
|
Assets
|
|||||||
|
Current
Assets:
|
|||||||
|
Cash
and cash equivalents
|
$
|
67,680
|
$
|
132,567
|
|||
|
Trade
accounts and other receivables, less allowance for doubtful
accounts
|
232,405
|
288,528
|
|||||
|
Income
taxes receivable
|
14,822
|
--
|
|||||
|
Inventories
|
608,681
|
527,329
|
|||||
|
Current
deferred income taxes
|
25,038
|
25,107
|
|||||
|
Other
current assets
|
37,356
|
25,884
|
|||||
|
Total
Current Assets
|
985,982
|
999,415
|
|||||
|
Investment
in Available for Sale Securities
|
199,754
|
304,593
|
|||||
|
Other
Assets
|
48,916
|
53,798
|
|||||
|
Property,
Plant and Equipment:
|
|||||||
|
Land
|
52,804
|
51,887
|
|||||
|
Buildings,
machinery and equipment
|
1,645,650
|
1,612,739
|
|||||
|
Autos
and trucks
|
56,149
|
55,202
|
|||||
|
Construction-in-progress
|
70,876
|
58,942
|
|||||
|
1,825,479
|
1,778,770
|
||||||
|
Less
accumulated depreciation
|
(667,668
|
)
|
(624,673
|
)
|
|||
|
1,157,811
|
1,154,097
|
||||||
|
$
|
2,392,463
|
$
|
2,511,903
|
||||
|
Liabilities
and Stockholders’ Equity
|
|||||||
|
Current
Liabilities:
|
|||||||
|
Accounts
payable
|
$
|
299,640
|
$
|
281,909
|
|||
|
Accrued
expenses
|
275,930
|
288,106
|
|||||
|
Income
taxes payable
|
--
|
16,196
|
|||||
|
Current
maturities of long-term debt
|
8,211
|
8,603
|
|||||
|
Total
Current Liabilities
|
583,781
|
594,814
|
|||||
|
Long-Term
Debt, Less Current Maturities
|
486,903
|
518,863
|
|||||
|
Deferred
Income Taxes
|
172,558
|
173,232
|
|||||
|
Minority
Interest in Subsidiary
|
1,866
|
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
|
677,700
|
753,527
|
|||||
|
Accumulated
other comprehensive loss
|
(789
|
)
|
(373
|
)
|
|||
|
Less
treasury stock, 271,100 shares
|
(1,568
|
)
|
(1,568
|
)
|
|||
|
Total
Stockholders’ Equity
|
1,147,355
|
1,223,598
|
|||||
|
$
|
2,392,463
|
$
|
2,511,903
|
||||
|
See
notes to consolidated financial
statements.
|
|
Pilgrim’s
Pride Corporation and Subsidiaries
(Unaudited)
|
|||||||||||||
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
April
1, 2006
|
April
2, 2005
|
April
1, 2006
|
April
2, 2005
|
||||||||||
|
(in
thousands, except share and per share data)
|
|||||||||||||
|
Net
Sales
|
$
|
1,265,709
|
$
|
1,375,321
|
$
|
2,609,521
|
$
|
2,743,568
|
|||||
|
Cost
of sales
|
1,228,508
|
1,211,266
|
2,453,920
|
2,418,395
|
|||||||||
|
Gross
profit
|
37,201
|
164,055
|
155,601
|
325,173
|
|||||||||
|
Selling,
general and administrative
|
75,137
|
75,100
|
147,339
|
145,203
|
|||||||||
|
Operating
income (loss)
|
(37,936
|
)
|
88,955
|
8,262
|
179,970
|
||||||||
|
Other
Expense (Income):
|
|||||||||||||
|
Interest
expense
|
13,271
|
12,049
|
25,666
|
25,216
|
|||||||||
|
Interest
income
|
(3,214
|
)
|
(2,731
|
)
|
(7,161
|
)
|
(3,674
|
)
|
|||||
|
Foreign
exchange (gain)
|
(190
|
)
|
(223
|
)
|
(810
|
)
|
(326
|
)
|
|||||
|
Miscellaneous,
net
|
(702
|
)
|
(10,733
|
)
|
1,028
|
(11,748
|
)
|
||||||
|
Total
other expenses, net
|
9,165
|
(1,638
|
)
|
18,723
|
9,468
|
||||||||
|
Income
(loss) before income taxes
|
(47,101
|
)
|
90,593
|
(10,461
|
)
|
170,502
|
|||||||
|
Income
tax (benefit) expense
|
(15,147
|
)
|
34,204
|
(4,185
|
)
|
65,604
|
|||||||
|
Net
income (loss)
|
$
|
(31,954
|
)
|
$
|
56,389
|
$
|
(6,276
|
)
|
$
|
104,898
|
|||
|
Net
income (loss) per common share
-
basic and diluted
|
$
|
(0.48
|
)
|
$
|
0.85
|
$
|
(0.09
|
)
|
$
|
1.58
|
|||
|
Dividends
declared per common share
|
$
|
0.0225
|
$
|
0.0150
|
$
|
1.0450
|
$
|
0.0150
|
|||||
|
Weighted
average shares outstanding
|
66,555,733
|
66,555,733
|
66,555,733
|
66,555,733
|
|||||||||
|
See
notes to consolidated financial
statements.
|
|||||||||||||
|
Pilgrim’s
Pride Corporation and Subsidiaries
(Unaudited)
|
||||||||||
|
Six
Months Ended
|
||||||||||
|
April
1, 2006
|
April
2, 2005
|
|||||||||
|
(in
thousands)
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||
|
Net
income (loss)
|
$
|
(6,276
|
)
|
$
|
104,898
|
|||||
|
Adjustments
to reconcile net income (loss) to cash provided by operating
activities
|
||||||||||
|
Depreciation
and amortization
|
65,092
|
63,842
|
||||||||
|
Impairment
of assets
|
3,767
|
--
|
||||||||
|
Loss
on property disposals
|
1,215
|
1,990
|
||||||||
|
Deferred
income taxes
|
(605
|
)
|
830
|
|||||||
|
Changes
in operating assets and liabilities
|
||||||||||
|
Accounts
and other receivables
|
59,192
|
33,099
|
||||||||
|
Income
taxes receivable
|
(14,822
|
)
|
--
|
|||||||
|
Inventories
|
(81,353
|
)
|
38,348
|
|||||||
|
Other
current assets
|
(11,471
|
)
|
(2,207
|
)
|
||||||
|
Accounts
payable and accrued expenses
|
(10,642
|
)
|
(68,164
|
)
|
||||||
|
Other
|
(2,134
|
)
|
182
|
|||||||
|
Cash
provided by operating activities
|
1,963
|
172,818
|
||||||||
|
Investing
Activities:
|
||||||||||
|
Acquisitions
of property, plant and equipment
|
(74,519
|
)
|
(52,154
|
)
|
||||||
|
Purchases
of investment securities
|
(212,403
|
)
|
--
|
|||||||
|
Proceeds
from sale/maturity of investment securities
|
319,260
|
--
|
||||||||
|
Proceeds
from property disposals
|
2,717
|
3,677
|
||||||||
|
Other,
net
|
(3
|
)
|
(299
|
)
|
||||||
|
Cash
provided by (used for) investing activities
|
35,052
|
(48,776
|
)
|
|||||||
|
Financing
Activities:
|
||||||||||
|
Proceeds
from notes payable to banks
|
83,000
|
--
|
||||||||
|
Repayments
on notes payable to banks
|
(83,000
|
)
|
--
|
|||||||
|
Payments
on long-term debt
|
(32,350
|
)
|
(12,390
|
)
|
||||||
|
Cash
dividends paid
|
(69,551
|
)
|
(1,997
|
)
|
||||||
|
Cash
used for financing activities
|
(101,901
|
)
|
(14,387
|
)
|
||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(1
|
)
|
17
|
|||||||
|
Increase
(decrease) in cash and cash equivalents
|
(64,887
|
)
|
109,672
|
|||||||
|
Cash
and cash equivalents at beginning of year
|
132,567
|
38,165
|
||||||||
|
Cash
and Cash Equivalents at End of Period
|
$
|
67,680
|
$
|
147,837
|
||||||
|
|
||||||||||
|
See
notes to consolidated financial
statements.
|
||||||||||
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 April 1, 2006 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 (loss) was $(31.7) million and $56.7 million for the
three
months and $(6.1) million and $105.2 million for the six months ended April
1,
2006 and April 2, 2005, respectively.
On
November 30, 2005, the Company declared a special dividend of $1.00 per share
totaling $66.6 million with a record date of December 30, 2005, which was
paid
on January 13, 2006.
NOTE
B—INVENTORIES
|
April
1,
|
October
1,
|
|||
|
(In
thousands)
|
2006
|
2005
|
||
|
Chicken:
|
||||
|
Live
chicken and hens
|
$
|
203,065
|
$
|
196,406
|
|
Feed
and eggs
|
130,397
|
114,091
|
||
|
Finished
chicken products
|
226,675
|
164,412
|
||
|
560,137
|
474,909
|
|||
|
Turkey:
|
||||
|
Live
turkey and hens
|
$
|
6,650
|
$
|
7,209
|
|
Feed
and eggs
|
2,770
|
4,924
|
||
|
Finished
turkey products
|
20,347
|
23,072
|
||
|
29,767
|
35,205
|
|||
|
Other
Products:
|
||||
|
Commercial
feed, table eggs, and retail farm store
|
$
|
6,369
|
$
|
4,866
|
|
Distribution
inventories (other than chicken & turkey products)
|
12,408
|
12,349
|
||
|
18,777
|
17,215
|
|||
|
Total
Inventories
|
$
|
608,681
|
$
|
527,329
|
NOTE
C—NOTES PAYABLE AND LONG-TERM DEBT
In
the
first six months of fiscal 2006 the Company retired $32.4 million of debt
($5.0
million representing scheduled payments) including the purchase of $17.4
million
of its 9 1/4% senior subordinated unsecured notes and $2.5 million of its
9 5/8%
senior unsecured notes, which were recorded as treasury bonds, recording
an
immaterial loss on the retirement.
NOTE
D—INCOME TAXES
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
E—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 has purchased from the Company live chickens
and
hens and certain feed inventories during the grow-out process
and then contracted 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 $477,609 during the quarter ended April 2, 2005, and
$4,539
and $1,003,337 during the six months ended April 1, 2006 and April 2, 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.”
Transactions
with related parties are summarized as follows:
|
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||
|
April
1, 2006
|
April
2, 2005
|
April
1, 2006
|
April
2
2005
|
|||||||||
|
(in
thousands)
|
||||||||||||
|
Lease
payments on commercial egg property
|
$
|
188
|
$
|
188
|
$
|
375
|
$
|
375
|
||||
|
Chick,
feed and other sales to major stockholder, including
advances
|
$
|
152
|
$
|
405
|
$
|
372
|
$
|
50,486
|
||||
|
Live
chicken purchases and other payments to major stockholder
|
$
|
238
|
$
|
31,847
|
$
|
704
|
$
|
53,242
|
||||
|
Loan
guaranty fees
|
$
|
367
|
$
|
451
|
$
|
777
|
$
|
897
|
||||
|
Lease
payments and operating expenses on airplane
|
$
|
120
|
$
|
135
|
$
|
251
|
$
|
276
|
||||
NOTE
F—COMMITMENTS and CONTINGENCIES
At
April
1, 2006, 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
G—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:
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
April
1, 2006
|
April
2, 2005(a)
|
|
April
1, 2006
|
April
2, 2005(a)
|
|
||||||||
|
(In
thousands)
|
|||||||||||||
|
Net
Sales to Customers:
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$
|
985,208
|
$
|
1,090,782
|
$
|
2,019,374
|
$
|
2,125,620
|
|||||
|
Mexico
|
104,031
|
90,888
|
196,434
|
187,825
|
|||||||||
|
Sub-total
|
1,089,239
|
1,181,670
|
2,215,808
|
2,313,445
|
|||||||||
|
Turkey
|
17,115
|
37,328
|
79,019
|
117,102
|
|||||||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
154,083
|
148,139
|
307,613
|
303,186
|
|||||||||
|
Mexico
|
5,272
|
8,184
|
7,081
|
9,835
|
|||||||||
|
Sub-total
|
159,355
|
156,323
|
314,694
|
313,021
|
|||||||||
|
Total
|
$
|
1,265,709
|
$
|
1,375,321
|
$
|
2,609,521
|
$
|
2,743,568
|
|||||
|
Operating
Income (Loss):
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$
|
(37,716
|
)
|
$
|
82,076
|
$
|
16,146
|
$
|
170,683
|
||||
|
Mexico
|
1,844
|
8,892
|
(5,226
|
)
|
14,074
|
||||||||
|
Sub-total
|
(35,872
|
)
|
90,968
|
10,920
|
184,757
|
||||||||
|
Turkey(b)
|
(6,716
|
)
|
(5,484
|
)
|
(12,358
|
)
|
(10,249
|
)
|
|||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
4,314
|
1,520
|
8,904
|
3,069
|
|||||||||
|
Mexico
|
338
|
1,951
|
796
|
2,393
|
|||||||||
|
Sub-total
|
4,652
|
3,471
|
9,700
|
5,462
|
|||||||||
|
Total
|
$
|
(37,936
|
)
|
$
|
88,955
|
$
|
8,262
|
$
|
179,970
|
||||
|
Depreciation
and Amortization(c)
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$
|
28,717
|
$
|
28,496
|
$
|
54,278
|
$
|
53,385
|
|||||
|
Mexico
|
3,125
|
3,015
|
5,718
|
6,101
|
|||||||||
|
Sub-total
|
31,842
|
31,511
|
59,996
|
59,486
|
|||||||||
|
Turkey
|
772
|
776
|
1,553
|
1,543
|
|||||||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
2,090
|
1,443
|
3,467
|
2,719
|
|||||||||
|
Mexico
|
40
|
47
|
76
|
94
|
|||||||||
|
Sub-total
|
2,130
|
1,490
|
3,543
|
2,813
|
|||||||||
|
Total
|
$
|
34,744
|
$
|
33,777
|
$
|
65,092
|
$
|
63,842
|
|||||
|
(a)
|
Certain
historical amounts have been reclassified to conform to current
year
presentation.
|
|
(b)
|
Included
in the operating losses for the turkey segment for the three months
ended
April 1, 2006 are charges of $3.8 million to write certain assets
down to
estimated realizable value. These assets are held for sale and
are related
to the Franconia, Pennsylvania turkey cooking facility at which
the
Company ceased production of certain products in March 2006. Also
included
in the operating losses for the turkey segment for the same three
month
period are accrued severance expenses totaling $0.2 million. In
addition
to the previous items, the operating losses for the turkey segment
for the
six months ended April 1, 2006 include charges of $2.5 million
to reduce
certain packaging and supplies, bringing the total charges for
the six
months ended April 1, 2006 to $6.5 million. Included
in the three months and six months ended April 2, 2005 are $4.4
million in
proceeds from the final resolution of our 2004 turkey restructuring
activities.
|
|
(c)
|
Includes
amortization of capitalized financing costs of approximately $0.9
million
and $0.6 million for the three month periods and $1.6 million and
$1.2
million for the six month periods ending April 1, 2006 and April
2, 2005,
respectively.
|
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
Overview.
Focus
and
concern abroad over avian influenza has significantly reduced international
demand for chicken products, leading to higher inventory levels and contributing
to lower overall market pricing. At the same time, industry production levels
have continued to increase, creating an oversupply situation and further
weakening prices. During the second quarter of fiscal 2006, the market pricing
we received for both chicken breast meat and leg quarters declined approximately
30.0% from the same period in the prior year. Additionally, during the second
quarter of fiscal 2006 our U.S. chicken sales volumes declined approximately
4.0% because of lower demand versus the same period in the prior year due
primarily to the effects of avian influenza concerns in the international
markets. This change in pricing and demand adversely affected our results
for
the second quarter of fiscal 2006. Additionally, some U.S. customers
renegotiated our contracts with them to reflect the current pricing environment
for chicken.
In
response to this challenging operating environment, we are executing a
multi-point plan designed to improve our competitive position:
|
·
|
First,
we have delayed one-half of our planned expansion in the Fresh
Food
Service Division of our Mayfield, Kentucky plant from early July
until
mid-August of this year, and the other half of this expansion until
April
2007.
|
|
·
|
Second,
a reduction in the weekly slaughter rate by appoximately 3%, which
is
equivalent to approximately 830,000 head per week. This reduction is
scheduled to begin in July.
|
|
·
|
Third,
we are reducing our planned capital investment for the year by
$25-$40 million. Our original capital investment projection for the
year had been in the range of $180-$200 million. Our
new estimated range for the year is $140-$175 million. We are
focusing only on those projects we deem critically necessary to our
business or those in which our immediate investment is judged by
us to be in our best long-term interests.
|
|
·
|
Fourth,
we have sharpened our focus on reducing costs and operating more
efficiently. For example, in order to eliminate holiday and overtime
premiums, we have cut egg placements for Memorial Day and the Fourth
of
July as well as other previously planned Saturday productions.
|
10
We
intend
to continue to monitor market conditions for purposes of determining when
we
believe further changes in our business are prudent.
Results.
Net
income for the second quarter of fiscal 2006 is down $88.3 million, or 156.7%,
from the second quarter of fiscal 2005, resulting in a net loss of $32.0
million
for the quarter ended April 1, 2006. This decrease is primarily due
to:
| · |
Reduced
selling prices for leg quarters created by market disruptions caused
by
the avian influenza scares in other parts of the world. Industry-wide
inventories of leg quarters have reached extremely high levels
due to
reduced purchasing in foreign markets and have delayed and will
continue
to delay the recovery of export selling prices. Additionally, the
oversupply of leg quarters has put significant pressure on the
U.S. white
meat markets which has increased white meat inventories and contributed
to
historically low breast meat
prices.
|
| · |
Increased
cost of sales due to higher freight delivery costs and higher soybean
meal
costs as well as the cost of fuel in other
areas.
|
Net
income for the first six months of fiscal 2006 is down $111.2 million, or
106.0%, from the first six months of fiscal 2005, resulting in a net loss
of
$6.3 million for the six months ended April 1, 2006. This decrease is primarily
due to:
| · |
The
above factors for the second quarter plus an oversupply situation
in
Mexico during the first quarter of fiscal 2006 causing sharply
reduced
selling prices in Mexico and an increase in cost of sales in the
first
quarter of fiscal 2006 over the first quarter of fiscal 2005 created
by
increased energy costs, higher freight delivery costs and higher
soybean
meal costs.
|
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 27.0% of our consolidated cost
of
sales in the first six 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 chicken export markets. As described above, recent
disruptions include the effects focus and concern over avian influenza has
had
on international demand for chicken products and effects the resulting
oversupply has had on U.S. chicken prices. 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, including with
respect to avian influenza. For example, on April 27, 2006, Russia’s agriculture
ministry, citing cases where products were offloaded without import permission,
the discovery of fake products and other factors, announced that it had
temporarily cancelled all poultry import permits, although it stated further
that permits would be reissued within two weeks. As Russia represents
approximately 30% of exports from the U.S. chicken industry, this cancellation
of poultry import permits may put further pressure on pricing. Also, 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
chicken 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 some of 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. 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 Form 10-K for the fiscal year ended October 1,
2005.
The
following table presents certain information regarding our
segments:
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
|
April
1, 2006
|
April
2, 2005(a)
|
|
April
1, 2006
|
April
2, 2005(a)
|
|
||||||||
|
(In
thousands)
|
|||||||||||||
|
Net
Sales to Customers:
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$
|
985,208
|
$
|
1,090,782
|
$
|
2,019,374
|
$
|
2,125,620
|
|||||
|
Mexico
|
104,031
|
90,888
|
196,434
|
187,825
|
|||||||||
|
Sub-total
|
1,089,239
|
1,181,670
|
2,215,808
|
2,313,445
|
|||||||||
|
Turkey
|
17,115
|
37,328
|
79,019
|
117,102
|
|||||||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
154,083
|
148,139
|
307,613
|
303,186
|
|||||||||
|
Mexico
|
5,272
|
8,184
|
7,081
|
9,835
|
|||||||||
|
Sub-total
|
159,355
|
156,323
|
314,694
|
313,021
|
|||||||||
|
Total
|
$
|
1,265,709
|
$
|
1,375,321
|
$
|
2,609,521
|
$
|
2,743,568
|
|||||
|
Operating
Income (Loss):
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$
|
(37,716
|
)
|
$
|
82,076
|
$
|
16,146
|
$
|
170,683
|
||||
|
Mexico
|
1,844
|
8,892
|
(5,226
|
)
|
14,074
|
||||||||
|
Sub-total
|
(35,872
|
)
|
90,968
|
10,920
|
184,757
|
||||||||
|
Turkey(b)
|
(6,716
|
)
|
(5,484
|
)
|
(12,358
|
)
|
(10,249
|
)
|
|||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
4,314
|
1,520
|
8,904
|
3,069
|
|||||||||
|
Mexico
|
338
|
1,951
|
796
|
2,393
|
|||||||||
|
Sub-total
|
4,652
|
3,471
|
9,700
|
5,462
|
|||||||||
|
Total
|
$
|
(37,936
|
)
|
$
|
88,955
|
$
|
8,262
|
$
|
179,970
|
||||
|
Depreciation
and Amortization(c)
|
|||||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$
|
28,717
|
$
|
28,496
|
$
|
54,278
|
$
|
53,385
|
|||||
|
Mexico
|
3,125
|
3,015
|
5,718
|
6,101
|
|||||||||
|
Sub-total
|
31,842
|
31,511
|
59,996
|
59,486
|
|||||||||
|
Turkey
|
772
|
776
|
1,553
|
1,543
|
|||||||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
2,090
|
1,443
|
3,467
|
2,719
|
|||||||||
|
Mexico
|
40
|
47
|
76
|
94
|
|||||||||
|
Sub-total
|
2,130
|
1,490
|
3,543
|
2,813
|
|||||||||
|
Total
|
$
|
34,744
|
$
|
33,777
|
$
|
65,092
|
$
|
63,842
|
|||||
|
(a)
|
Certain
historical amounts have been reclassified to conform to current
year
presentation.
|
|
(b)
|
Included
in the operating losses for the turkey segment for the three months
ended
April 1, 2006 are charges of $3.8 million to write certain assets
down to
estimated realizable value. These assets are held for sale and
are related
to the Franconia, Pennsylvania turkey cooking facility at which
the
Company ceased production of certain products in March 2006. Also
included
in the operating losses for the turkey segment for the same three
month
period are accrued severance expenses totaling $0.2 million. In
addition
to the previous items, the operating losses for the turkey segment
for the
six months ended April 1, 2006 include charges of $2.5 million
to reduce
certain packaging and supplies, bringing the total charges for
the six
months ended April 1, 2006 to $6.5 million. Included
in the three months and six months ended April 2, 2005 are $4.4
million in
proceeds from the final resolution of our 2004 turkey restructuring
activities.
|
|
(c)
|
Includes
amortization of capitalized financing costs of approximately $0.9
million
and $0.6 million for the three month periods and $1.6 million and
$1.2
million for the six month periods ending April 1, 2006 and April
2, 2005,
respectively.
|
13
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
1, 2006
|
April
2, 2005
|
April
1, 2006
|
April
2, 2005
|
|||||||||
|
Net
Sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
|
Costs
and Expenses:
|
|||||||||||||
|
Cost
of sales
|
97.1
|
%
|
88.1
|
%
|
94.0
|
%
|
88.1
|
%
|
|||||
|
Gross
profit
|
2.9
|
%
|
11.9
|
%
|
6.0
|
%
|
11.9
|
%
|
|||||
|
Selling,
general and administrative
|
5.9
|
%
|
5.5
|
%
|
5.6
|
%
|
5.3
|
%
|
|||||
|
Operating
Income (Loss)
|
(3.0
|
)%
|
6.4
|
%
|
0.3
|
%
|
6.6
|
%
|
|||||
|
Interest
expense
|
1.0
|
%
|
0.9
|
%
|
1.0
|
%
|
0.9
|
%
|
|||||
|
Interest
income
|
(0.3
|
)%
|
(0.2
|
)%
|
(0.3
|
)%
|
(0.1
|
)%
|
|||||
|
Income
(loss) before income taxes
|
(3.7
|
)%
|
6.6
|
%
|
(0.4
|
)%
|
6.2
|
%
|
|||||
|
Net
income (loss)
|
(2.5
|
)%
|
4.1
|
%
|
(0.2
|
)%
|
3.8
|
%
|
|||||
Results
of Operations
Fiscal
Second Quarter 2006 Compared to Fiscal Second Quarter 2005
Net
Sales. Net
Sales
for the second quarter of fiscal 2006 decreased $109.6 million, or 8.0%,
over
the second quarter of fiscal 2005. The following table provides additional
information regarding net sales (in millions):
|
Fiscal
Quarter Ended
|
Change
from
Fiscal
Quarter Ended
|
||||||||||||
|
April
1,
|
April
2,
|
Percentage
|
|||||||||||
|
Source
|
2006
|
2005
|
Change
|
||||||||||
|
Chicken-
|
|||||||||||||
|
United
States
|
$
|
985.2
|
$
|
(105.6
|
)
|
(9.7
|
)%
|
(a
|
)
|
||||
|
Mexico
|
104.0
|
13.1
|
14.4
|
%
|
(b
|
)
|
|||||||
|
$
|
1,089.2
|
$
|
(92.5
|
)
|
(7.8
|
)%
|
|||||||
|
Turkey
|
$
|
17.1
|
$
|
(20.2
|
)
|
(54.2
|
)%
|
(c
|
)
|
||||
|
Other
Products-
|
|||||||||||||
|
United
States
|
$
|
154.1
|
$
|
6.0
|
4.1
|
%
|
(d
|
)
|
|||||
|
Mexico
|
5.3
|
(2.9
|
)
|
(35.4
|
)%
|
(e
|
)
|
||||||
|
$
|
159.4
|
$
|
3.1
|
2.0
|
%
|
||||||||
|
$
|
1,265.7
|
$
|
(109.6
|
)
|
(8.0
|
)%
|
|||||||
|
(a)
|
U.S.
chicken sales for the quarter declined compared to the same
quarter last
fiscal year due to a 5.8% decrease in net revenue per pound
sold and a
4.2% decrease in the number of pounds sold. As described
above under
“Executive Summary”, demand for exported dark meat continues to be
significantly less than in the prior fiscal year which has
had an adverse
impact on pricing.
|
|
(b)
|
Mexico
chicken sales increased compared to the second quarter last
fiscal year
because of a 3.9% increase in revenue per pound sold and
a 10.1% increase
in pounds sold.
|
|
(c)
|
Turkey
sales declined due to the runoff of inventory in fiscal 2005
created by
the 2004 restructuring of our turkey operations in Hinton,
Virginia and
our decision in the first quarter of fiscal 2006 to cease
production of
certain products at our Franconia, Pennsylvania turkey cooking
operation.
|
|
(d)
|
U.S.
other product sales increased due to higher realized sales
prices for
protein by-products and table eggs offset by lower non-poultry
distribution sales.
|
|
(e)
|
Mexico
other product sales decreased due to a decline in sales of
chicks to other
growers and lower feed
sales.
|
Gross
Profit.
Gross
profit decreased $126.8 million, or 77.3%, in the second quarter of fiscal
2006
compared to the second 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
|
||||||||||||||||
|
April
1,
|
April
2,
|
Percentage
|
Second
Quarter
|
Second
Quarter
|
|||||||||||||||
|
Components
|
2006
|
2005
|
Change
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||||
|
Net
sales
|
$
|
1,265.7
|
$
|
(109.6
|
)
|
(8.0
|
)%
|
100.0
|
%
|
100.0
|
%
|
||||||||
|
Cost
of sales
|
1,228.5
|
17.2
|
1.5
|
%
|
97.1
|
%
|
88.1
|
%
|
(a
|
)
|
|||||||||
|
Gross
profit
|
$
|
37.2
|
$
|
(126.8
|
)
|
(77.3
|
)%
|
2.9
|
%
|
11.9
|
%
|
(b
|
)
|
||||||
|
(a)
|
Cost
of sales increased $36.4 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. Supplement fuel payments
to growers
in the second quarter of fiscal 2006 were $7.4 million higher than
in the
second quarter of fiscal 2005. These increases were offset by a
$19.2
million decrease in the cost of sales in the turkey division due
to
reduced sales created by the 2004 turkey restructuring and the
decision to
cease production on March 3, 2006, of certain products at our Franconia,
Pennsylvania turkey cooking facility. Included in cost of sales
was a
charge of $3.8 million to impair the carrying value of certain
equipment
formerly used in our turkey division and currently held for sale
and $0.2
million for severance costs. Included in cost of sales for the
second
quarter of fiscal 2005 were proceeds of $4.4 million from the final
resolution of the 2004 turkey restructuring activities.
|
|
(b)
|
Gross
profit decreased $126.8 million due to the combination of depressed
selling prices in the U.S. due primarily to a decrease in export
demand
for U.S. chicken products caused by changes in buying patterns
in foreign
markets as a result of avian influenza outbreaks in those countries
and
increased freight and fuel costs along with increased soybean meal
costs.
|
Operating
Income (Loss).
Operating income for the second quarter of fiscal 2006 decreased $126.8 million,
or 142.6%, when compared to the second quarter of fiscal 2005.
The
following tables provide operating income (loss) information
(millions):
|
|
Change
from
|
|||||||||
|
Quarter
Ended
|
Quarter
Ended
|
|||||||||
|
April 1,
|
April
2,
|
Percentage
|
||||||||
|
Source
|
2006
|
2005
|
Change
|
|||||||
|
Chicken
|
||||||||||
|
United
States
|
$
|
(37.7
|
)
|
$
|
(119.8
|
)
|
(145.9
|
)%
|
||
|
Mexico
|
1.8
|
(7.1
|
)
|
(79.8
|
)%
|
|||||
|
$
|
(35.9
|
)
|
$
|
(126.9
|
)
|
(139.5
|
)%
|
|||
|
Turkey
|
$
|
(6.7
|
)
|
$
|
(1.2
|
)
|
21.8
|
%
|
||
|
Other
Products
|
||||||||||
|
United
States
|
$
|
4.4
|
$
|
2.9
|
193.3
|
%
|
||||
|
Mexico
|
0.3
|
(1.6
|
)
|
(84.2
|
)%
|
|||||
|
$
|
4.7
|
$
|
1.3
|
38.2
|
%
|
|||||
|
Operating
Income (Loss)
|
$
|
(37.9
|
)
|
$
|
(126.8
|
)
|
(142.6
|
)%
|
|
Change
from
|
Percentage
|
Percentage
|
|||||||||||||||||
|
Quarter
Ended
|
Quarter
Ended
|
of
Net Sales
|
of
Net Sales
|
||||||||||||||||
|
April
1,
|
April
2,
|
Percentage
|
Second
Quarter
|
Second
Quarter
|
|||||||||||||||
|
Components
|
2006
|
2005
|
Change
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||||
|
Gross
profit
|
$
|
37.2
|
$
|
(126.8
|
)
|
(77.3
|
)%
|
2.9
|
%
|
11.9
|
%
|
||||||||
|
Selling,
general and administrative expense
|
75.1
|
--
|
0.0
|
%
|
5.9
|
%
|
5.5
|
%
|
(a
|
)
|
|||||||||
|
Operating
income (loss)
|
$
|
(37.9
|
)
|
$
|
(126.8
|
)
|
(142.6
|
)%
|
(3.0
|
)%
|
6.4
|
%
|
(b
|
)
|
|||||
|
(a)
|
Selling,
general and administrative expense increased as a percentage of
net sales
due to decreased sales.
|
|
(b)
|
Decreased
operating income is primarily due to the items discussed above
under gross
profit.
|
Interest Expense. Interest expense increased 9.9% to $13.3 million in the second quarter of fiscal 2006, when compared to $12.1 million for the second quarter of fiscal 2005, due primarily to short-term borrowings during the current quarter and increased short-term rates which impact certain of our debt. As a percentage of sales, interest expense in the second quarter of fiscal 2006 increased to 1.0% from 0.9% in the second quarter of fiscal 2005.
Interest
Income. Interest income increased from $2.7 million in the second quarter
of fiscal 2005 to $3.2 million in the second 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 second quarter of fiscal 2006
increased to 0.3% from 0.2% in the second quarter of fiscal 2005.
Miscellaneous,
Net.
Consolidated miscellaneous, net expense (income), which decreased $10.0 million
to $(0.7) million, for the first quarter of fiscal 2006 consisted mainly
of
non-recurring recoveries. Miscellaneous, net of $(10.7) for the second quarter
of fiscal 2005 consisted primarily of a non-recurring gain of $11.7 million
associated with a litigation settlement.
Income
Tax (Benefit) Expense.
Consolidated income tax benefit in the second quarter of fiscal 2006 was
$(15.1)
million, compared to an income tax expense of $34.2 million in the second
quarter of fiscal 2005. This income tax benefit was primarily due to the
loss
before income taxes in the U.S.
First
Six Months of Fiscal 2006 Compared to First Six Months of Fiscal 2005
Net
Sales. Net
Sales
for the first six months of fiscal 2006 decreased $134.1 million, or 4.9%,
versus the first six months of fiscal 2005. The following table provides
additional information regarding net sales (in millions):
|
|
First
Six Months Ended
|
Change
from
First
Six Months Ended
|
|||||||||||
|
April
1,
|
April
2,
|
Percentage
|
|||||||||||
|
Source
|
2006
|
2005
|
Change
|
||||||||||
|
Chicken-
|
|||||||||||||
|
United
States
|
$
|
2,019.4
|
$
|
(106.2
|
)
|
(5.0
|
)%
|
(a
|
)
|
||||
|
Mexico
|
196.4
|
8.6
|
4.6
|
%
|
(b
|
)
|
|||||||
|
$
|
2,215.8
|
$
|
(97.6
|
)
|
(4.2
|
)%
|
|||||||
|
Turkey
|
$
|
79.0
|
$
|
(38.1
|
)
|
(32.5
|
)%
|
(c
|
)
|
||||
|
Other
Products-
|
|||||||||||||
|
United
States
|
$
|
307.6
|
$
|
4.3
|
1.4
|
%
|
|||||||
|
Mexico
|
7.1
|
(2.7
|
)
|
(27.6
|
)%
|
(d
|
)
|
||||||
|
$
|
314.7
|
$
|
1.6
|
0.5
|
%
|
||||||||
|
$
|
2,609.5
|
$
|
(134.1
|
)
|
(4.9
|
)%
|
|
(a)
|
U.S.
chicken sales for the first six months of fiscal 2006 were 5.0%
less than
the first six months of fiscal 2005 because of a 3.1% decline in
pounds
sold and a 1.9% decline in net revenue per pound sold.
|
|
(b)
|
Mexico
chicken sales increased due to a 10.0% increase in pounds sold
during the
first six months of fiscal 2006 versus the first six months of
fiscal 2005
offset somewhat by a 5.0% decline in net revenue per pound
sold.
|
|
(c)
|
Turkey
sales declined because of the 2004 restructuring and the March
2006
discontinuation of certain products discussed above.
|
|
(d)
|
Mexico
other product sales decreased due to a decline in sales of chicks
to other
growers and lower feed sales.
|
Gross
Profit.
Gross
profit decreased $169.6 million, or 52.2%, in the first six months of fiscal
2006 compared to the first six months of fiscal 2005.
The
following table provides gross profit information (in millions):
|
Change
From
|
Percentage
of
|
Percentage
of
|
|||||||||||||||||
|
First
Six
|
First
Six
|
Net
Sales
|
Net
Sales
|
||||||||||||||||
|
Months
Ended
|
Months
Ended
|
First
Six
|
First
Six
|
||||||||||||||||
|
April
1,
|
April
2,
|
Percentage
|
Months
|
Months
|
|||||||||||||||
|
Components
|
2006
|
2005
|
Change
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||||
|
Net
sales
|
$
|
2,609.5
|
$
|
(134.1
|
)
|
(4.9
|
)%
|
100.0
|
%
|
100.0
|
%
|
||||||||
|
Cost
of sales
|
2,453.9
|
35.5
|
1.4
|
%
|
94.0
|
%
|
88.1
|
%
|
(a
|
)
|
|||||||||
|
Gross
profit
|
$
|
155.6
|
$
|
(169.6
|
)
|
(52.2
|
)%
|
6.0
|
%
|
11.9
|
%
|
(b
|
)
|
||||||
|
(a)
|
Cost
of sales increased $71.0 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. Supplement fuel payments
to growers
in the first six months of fiscal 2006 were $9.0 million higher
than in
the first six months of fiscal 2005.These increases were offset
by a $35.5
million decrease in the cost of sales in the turkey division due
to
reduced sales created by the 2004 turkey restructuring and the
decision to
cease production on March 3, 2006, of certain products at our Franconia,
Pennsylvania turkey cooking facility. Included in cost of sales
for the
first six months of fiscal 2006 was a charge of $3.8 million to
impair the
carrying value of certain equipment currently held for sale and
formerly
used in our turkey division, a charge of $2.5 million to reduce
the value
of certain packaging and supplies associated with those products
and $0.2
million for severance costs. Included in the cost of sales for
the first
six months of fiscal 2005 were proceeds of $4.4 million from the
final
resolution of the 2004 turkey restructuring activities.
|
|
(b)
|
Gross
profit decreased $169.6 million due to the combination of depressed
selling prices, due primarily to a decrease in export demand for
U.S.
chicken products caused by changes in buying patterns in foreign
markets
as a result of avian influenza outbreaks in those countries, increased
freight and fuel costs, and the increased cost of soybean
meal.
|
Operating
Income.
Operating income for the first six months of fiscal 2006 decreased $171.7
million, or 95.4%, when compared to the first six months of fiscal
2005.
The
following tables provide operating income information (millions):
|
Change
from
|
||||||||||
|
First
Six
|
First
Six
|
|||||||||
|
Months
Ended
|
Months
Ended
|
|||||||||
|
April
1,
|
April
2,
|
Percentage
|
||||||||
|
Source
|
2006
|
2005
|
Change
|
|||||||
|
Chicken
|
||||||||||
|
United
States
|
$
|
16.1
|
$
|
(159.0
|
)
|
(90.8
|
)%
|
|||
|
Mexico
|
(5.2
|
)
|
(19.3
|
)
|
(136.9
|
)%
|
||||
|
$
|
10.9
|
$
|
(178.3
|
)
|
(94.2
|
)%
|
||||
|
Turkey
|
$
|
(12.4
|
)
|
$
|
2.3
|
15.6
|
%
|
|||
|
Other
Products
|
||||||||||
|
United
States
|
$
|
9.0
|
$
|
5.9
|
190.3
|
%
|
||||
|
Mexico
|
0.8
|
(1.6
|
)
|
(66.7
|
)%
|
|||||
|
$
|
9.8
|
$
|
4.3
|
78.2
|
%
|
|||||
|
Operating
Income
|
$
|
8.3
|
$
|
(171.7
|
)
|
(95.4
|
)%
|
|||
|
Change
from
|
Percentage
|
Percentage
|
|||||||||||||||||
|
First
Six
|
First
Six
|
of
Net Sales
|
of
Net Sales
|
||||||||||||||||
|
Months
Ended
|
Months
Ended
|
First
Six
|
First
Six
|
||||||||||||||||
|
April
1,
|
April
2,
|
Percentage
|
Months
|
Months
|
|||||||||||||||
|
Components
|
2006
|
2005
|
Change
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||||
|
Gross
profit
|
$
|
155.6
|
$
|
(169.6
|
)
|
(52.2
|
)%
|
6.0
|
%
|
11.9
|
%
|
||||||||
|
Selling,
general and administrative expense
|
147.3
|
2.1
|
1.4
|
%
|
5.6
|
%
|
5.3
|
%
|
(a
|
)
|
|||||||||
|
Operating
income
|
$
|
8.3
|
$
|
(171.7
|
)
|
(95.4
|
)%
|
0.3
|
%
|
6.6
|
%
|
(b
|
)
|
||||||
|
(a)
|
Selling,
general and administrative expense increased as a percentage of
net sales
due primarily to reduced revenue. However, overall selling, general
and
administrative expense remained relatively flat with the fiscal
2005
period.
|
|
(b)
|
Decreased
operating income is primarily due to the items discussed above
under gross
profit and the slight increase in selling, general and administrative
expense.
|
Interest
Expense. Interest
expense increased 2.0% to $25.7 million in the first six months of fiscal
2006,
when compared to $25.2 million for the first six months of fiscal 2005,
due
primarily to short-term borrowings. As a percentage of sales, interest
expense
in the first six months of fiscal 2006 increased to 1.0% from 0.9% in the
first
six months of fiscal 2005.
Interest
Income.
Interest
income increased from $3.7 million in the first six months of fiscal 2005
to
$7.2 million in the first six months 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 six months of fiscal 2006 increased to 0.3%
from
0.1% in the first six months of fiscal 2005.
Miscellaneous,
Net.
Consolidated miscellaneous, net expense (income) for the first six months
of
fiscal 2006 was negligible. Miscellaneous, net of $(11.7) for the first six
months of fiscal 2005 consisted primarily of a non-recurring gain of $11.7
million associated with a litigation settlement.
Income
Tax (Benefit) Expense.
Consolidated income tax benefit in the first six months of fiscal 2006 was
$(4.2) million, compared to an income tax expense of $65.6 million in the
first
six months of fiscal 2005. This decrease in consolidated income tax expense
was
primarily due to a loss before income taxes in the U.S.
Liquidity
and Capital Resources
The
following table presents our available sources of liquidity as of April 1,
2006.
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
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
67,680
|
|||||
|
Investments
in available for sale securities - long-term
|
--
|
--
|
--
|
170,428
|
|||||||||
|
Debt
Facilities:
|
|||||||||||||
|
Revolving
credit facilities
|
168,000
|
135,975
|
--
|
135,975
|
|||||||||
|
Revolving/term
facility
|
500,000
|
500,000
|
--
|
500,000
|
|||||||||
|
Receivables
purchase
|
|||||||||||||
|
agreement
|
125,000
|
125,000
|
--
|
125,000
|
|||||||||
|
Total
available
|
793,000
|
760,975
|
$
|
999,083
|
|||||||||
At
April
1, 2006, our working capital decreased $2.4 million to $402.2 million and
our
current ratio increased to 1.69 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.
Trade
accounts and other receivables were $232.4 million at April 1, 2006, compared
to
$288.5 million at October 1, 2005, a decrease of $56.1 million or 19.5%.
This
decrease is due to decreased revenue in fiscal 2006 versus prior
year.
Income
taxes receivable of $14.8 million relates to the year to date loss before
income
taxes. This compares to an income tax payable of $16.2 million at October
1,
2005.
Inventories
were $608.7 million at April 1, 2006, compared to $527.3 million at October
1,
2005. The $81.4 million, or 15.4%, increase in inventories was primarily
due to
export disruptions relating to concern over avian influenza outside of North
America causing export inventories to build and also causing an increase
in
white meat due to pressures on that market created by liquidation of dark
meat
on domestic markets at unusually low prices.
Accounts
payable and accrued expenses increased $5.5 million, or 0.9%, to $575.5 million
at April 1, 2006, compared to $570.0 million at October 1, 2005 due primarily
to
normal fluctuations with respect to the timing of payments.
Capital
expenditures of $74.5 million and $52.2 million for the six months ended
April
1, 2006 and April 2, 2005, respectively, were primarily incurred to improve
efficiencies, expand capacity, reduce costs and for the routine replacement
of
equipment. We have reduced our expectation of capital spending by $25-$40
million and now anticipate spending of approximately $140.0 million to $175.0
million in fiscal 2006, down from our first quarter fiscal 2006 estimate
of
$180.0 million to $200.0 million, 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 $2.0 million and $172.8 million
for
the six months ended April 1, 2006 and April 2, 2005, respectively. The decrease
in cash flows provided by operating activities for the first six months of
fiscal 2006, when compared to the first six months of fiscal 2005, was due
primarily to decreased profitability.
Cash
flows used for financing activities were $101.9 million and $14.4 million
for
the six months ended April 1, 2006 and April 2, 2005, respectively. This
increased use of cash was due to the special dividend of $1.00 per share,
or
$66.6 million, paid in January 2006 and the purchase and early retirement
of
certain of the Company’s long term debt as described in Note C to the
Consolidated Financial Statements.
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. We periodically elect, in some instances, to 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 10.0% increase in
the
weighted-average cost of our primary feed ingredients as of April 1, 2006.
Based
on our feed consumption during the six months ended April 1, 2006, such an
increase would have resulted in an increase to cost of sales of approximately
$65.7 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 $0.8 million
in the first six months of fiscal 2006 compared to a gain of $0.3 million
for
the first six months of fiscal 2005. On April 1, 2006, the Mexico peso closed
at
10.92 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, plans, 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;
|
| · |
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 any forward-looking statement or any
such
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, 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 1, 2006, and that
has materially affected, or is reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
PART
II. OTHER INFORMATION
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 Pilgrim’s Pride and Tyson in a separate cause of action. The
Company intends to defend vigorously both certification of each case as a
class
action and plaintiffs’ individual claims, if any, in each case. 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; 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. We have recently resolved the
litigation with the plaintiffs in the Harvey, Patterson, Clarke, Levonchuk
and
Niemtzow cases and we expect dismissal orders with respect to all of these
cases
to be entered in the near future. Neither the likelihood of an unfavorable
outcome nor the amount of ultimate liability, if any, with respect to any of
the
remaining cases can be determined at this time. The remaining 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 to the extent they
are
not resolved prior to trial. 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 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.
There
are
many factors that affect our business and the results of our operations, many
of
which are beyond our control. In this regard, "Item 1A. Risk Factors" to Part
I
of our Annual Report on Form 10-K for the year ended October 1, 2005 contained
a
description of significant factors that might cause the actual results of
operations in future periods to differ materially from those currently expected
or desired. We urge you to read the risk factors contained in our Form 10-K
as
well as the risk factor set forth below which supplements the risk factors
contained in our Form 10-K:
Avian
Influenza Outbreaks Have Had A Material Adverse Effect On The Poultry Industry
In General And Us In Particular.
In
recent
months there has been substantial publicity regarding a highly pathogenic strain
of avian influenza, known as H5N1, which has been affecting Asia since 2002
and
Europe and the Middle East since 2005. It is widely believed that H5N1 is being
spread by migratory birds, such as ducks and geese. There have also been some
cases where H5N1 is believed to have passed from birds to humans as humans
came
into contact with live and dead birds that were infected with the disease.
Although
H5N1 has not been identified in North America, the focus and concern over avian
influenza abroad has significantly reduced international demand for chicken
products and the resulting oversupply has had a significant adverse effect
on
both U.S. and international chicken prices. In the second quarter of fiscal
2006, the market pricing we received for both chicken leg quarters and breast
meat declined approximately 30% and U.S. chicken sales volumes declined
approximately 4%, in each case when compared to the prior year period. This
change in pricing and demand materially adversely affected our results for
the
second quarter of fiscal 2006. We can give no assurances as to when
international demand or pricing for chicken products will improve. Additionally,
although H5N1 has not been identified in North America, because of the flight
patterns of migratory birds, it is widely speculated that this strain of avian
influenza may reach North America as early as calendar year 2006. Any outbreak
of H5N1 in North America could result in governmental restrictions on the import
and export of our fresh chicken, turkey or other products to or from our
suppliers, facilities or customers or require us to destroy one or more of
our
flocks. This could also result in the cancellation of orders by some of our
customers and create adverse publicity that may have a material adverse effect
on our ability to market our products successfully and on our business,
reputation and prospects. Accordingly, no assurances can be given that demand
and pricing of U.S. produced poultry products will not continue to deteriorate
or that H5N1 will not otherwise have a material adverse effect on our business
or prospects.
Pilgrim’s
Pride Corporation held its Annual Meeting of Shareholders on January 25, 2006.
The meeting was held to elect thirteen Directors for the ensuing year; to act
on
a shareholder proposal if properly presented at the meeting; to ratify the
appointment of Ernst & Young LLP as the Company’s independent registered
public accounting firm for the fiscal year ending September 30, 2006; and to
transact such other business as was properly brought before the meeting. There
were 579,166,511 votes received, constituting 98.90% of the 585,597,872 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
|
554,242,782
|
24,923,729
|
|||
|
Clifford
E. Butler
|
560,361,712
|
18,804,799
|
|||
|
O.B.
Goolsby
|
560,377,126
|
18,789,385
|
|||
|
Richard
A. Cogdill
|
560,052,308
|
19,114,203
|
|||
|
Lonnie
Ken Pilgrim
|
554,230,484
|
24,936,027
|
|||
|
Charles
L. Black
|
577,664,945
|
1,501,566
|
|||
|
Linda
Chavez
|
578,504,511
|
662,000
|
|||
|
S.
Key Coker
|
578,564,483
|
602,028
|
|||
|
Keith
W. Hughes
|
578,580,938
|
585,573
|
|||
|
Blake
D. Lovette
|
578,404,828
|
761,683
|
|||
|
Vance
C. Miller, Sr.
|
577,665,538
|
1,500,973
|
|||
|
James
G. Vetter, Jr.
|
555,425,322
|
23,741,189
|
|||
|
Donald
L. Wass, Ph.D.
|
577,664,838
|
1,501,673
|
All
Directors were elected by the above results.
With
regard to the shareholder proposal requesting that the Board of Directors
issue
a report with respect to the controlled-atmosphere killing of chickens the
following votes were cast:
|
FOR
|
AGAINST
|
ABSTAIN
|
BROKER
NON VOTES
|
|||
|
2,323,376
|
567,442,960
|
4,574,215
|
4,825,960
|
With
regard to ratifying the appointment of Ernst & Young LLP as the Company’s
independent auditors for fiscal 2006, the following votes were
cast:
|
FOR
|
AGAINST
|
ABSTAIN
|
BROKER
NON VOTES
|
|||
|
578,140,356
|
1,024,726
|
1,429
|
0
|
|
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
|
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).
|
|
|
10.2
|
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).
|
|
|
10.3
|
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).
|
|
|
10.4
|
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
|
||
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:
|
May
2, 2006
|
Richard
A. Cogdill
|
|
|
Chief
Financial Officer,
|
|||
|
Secretary
and Treasurer
|
|||
|
(Principal
Financial Officer,
|
|||
|
Chief
Accounting Officer and
|
|||
|
Authorized
Signatory)
|
|||
|
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
|
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).
|
|
|
10.2
|
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).
|
|
|
10.3
|
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).
|
|
|
10.4
|
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
|
||