PILGRIMS PRIDE CORP - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________________
FORM
10-K
____________________
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended September 29,
2007
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the transition period from
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to
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Commission
File number 1-9273
PILGRIM’S
PRIDE CORPORATION
(Exact
name of registrant as specified in its charter)
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Delaware
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75-1285071
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(State
or other jurisdiction of
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(I.R.S.
Employer Identification No.)
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incorporation
or organization)
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4845
US Hwy 271 North
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Pittsburg,
Texas
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75686-0093
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(Address
of principal executive offices)
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(Zip
code)
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Registrant’s
telephone number, including area code: (903)
434-1000
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, Par Value $0.01
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the
Act: None
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Pilgrim's
Pride Corporation
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes x No ¨
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
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.
Large
Accelerated Filer x Accelerated
Filer o Non-accelerated
Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
aggregate market value of the Registrant’s Common Stock, $0.01 par value, held
by non-affiliates of the Registrant as of March 31, 2007, was
$1,340,874,524. For purposes of the foregoing calculation only, all
directors, executive officers and 5% beneficial owners have been deemed
affiliates.
Number
of
shares of the Registrant’s Common Stock outstanding as of November 13, 2007, was
66,555,733.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Registrant’s proxy statement for the annual meeting of stockholders to be
held January 30, 2008 are incorporated by reference into Part III.
2
Pilgrim's
Pride Corporation
PILGRIM’S
PRIDE CORPORATION
FORM
10-K
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PART
I
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Page
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Business
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4
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Risk
Factors
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23
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Unresolved
Staff Comments
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32
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Properties
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33
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Legal
Proceedings
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35
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Submission
of Matters to a Vote of Security Holders
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38
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PART
II
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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39
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Selected
Financial Data
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44
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Management’s
Discussion and Analysis of Financial Condition and Results
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of
Operations
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47
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Quantitative
and Qualitative Disclosures about Market Risk
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66
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Financial
Statements and Supplementary Data (see Index to Financial Statements
and
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Schedules
below)
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68
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Changes
in and Disagreements with Accountants on Accounting and
Financial
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Disclosure
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68
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Controls
and Procedures
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68
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Other
Information
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72
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PART
III
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Directors
and Executive Officers and Corporate Governance
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74
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Executive
Compensation
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74
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Security
Ownership of Certain Beneficial Owners and Management and
Related
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Stockholder
Matters
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74
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Certain
Relationships and Related Transactions, and Director
Independence
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74
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Principal
Accounting Fees and Services
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75
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PART
IV
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Exhibits
and Financial Statement Schedules
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76
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83
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INDEX
TO FINANCIAL STATEMENTS AND SCHEDULES
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86
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87
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88
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89
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90
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91
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118
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Item
1.
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Business
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(a) General
Development of Business
Overview
The
Company, which was incorporated in Texas in 1968 and reincorporated in Delaware
in 1986, is the successor to a partnership founded in 1946 as a retail feed
store. Over the years, the Company grew through both internal growth
and various acquisitions of farming operations and poultry processors including
the significant acquisitions in fiscal 2004 and 2007 discussed
below. We are the world’s largest chicken company and have one of the
best known brand names in the chicken industry. In the U.S., we
produce both prepared and fresh chicken and fresh 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 also control the processing, preparation, packaging and
sale of our product lines, which we believe has made us one of the highest
quality, lowest-cost producers of chicken in North America. We have
consistently applied a long-term business strategy of focusing our growth
efforts on the higher-value, higher-margin prepared foods products and have
become a recognized industry leader in this market
segment. Accordingly, our sales efforts have traditionally been
targeted to the foodservice industry, principally chain restaurants and food
processors, and have more recently been targeted to retailers seeking
value-added products. We have continually made investments to ensure
our prepared foods capabilities remain state-of-the-art and have complemented
these investments with a substantial and successful research and development
effort. In fiscal 2007, we sold 7.7 billion pounds of dressed chicken
and 151.7 million pounds of dressed turkey and generated net sales of $7.6
billion. In fiscal 2007, our U.S. operations, including Puerto Rico,
accounted for 93.3% of our net sales, with the remaining 6.7% arising from
our
Mexico operations.
Recent
Business Acquisition Activities
On
December 27, 2006, we acquired a majority of the outstanding common stock of
Gold Kist Inc. (“Gold Kist”) through a tender offer. We subsequently
acquired all remaining Gold Kist shares and, on January 9, 2007, Gold Kist
became our wholly owned subsidiary. We sometimes refer to this
acquisition as the “fiscal 2007 acquisition”. For financial reporting
purposes, we have not included the operating results and cash flows of Gold
Kist
in our consolidated financial statements for the period from December 27, 2006
through December 30, 2006. The operating results
and
cash flows of Gold Kist from December 27, 2006 through December 30, 2006 were
not material. Gold Kist operated a fully-integrated chicken
production business that included live production, processing, marketing and
distribution. This acquisition has positioned us as the world’s
leading chicken producer, and that position has provided us with enhanced
abilities to compete more efficiently and provide even better customer service,
expand our geographic reach and customer base, further pursue value-added and
prepared foods opportunities, and offer long-term growth opportunities for
our
stockholders, employees and growers. We are also better positioned to
compete in the industry both internationally and in the U.S. as consolidations
occur.
On
November 23, 2003, we completed the purchase of all the outstanding stock of
the
corporations represented as the ConAgra Foods, Inc. 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 since the date of the
acquisition. The acquisition provided us with additional lines of
specialty prepared chicken products, well-known brands, well-established
distributor relationships and Southeastern U.S. processing
facilities. The acquisition also included the largest distributor of
chicken products in Puerto Rico.
Strategy
Our
objectives are (1) to increase sales, profit margins and earnings and (2) to
outpace the growth of, and maintain our leadership position in, the chicken
industry. To achieve these goals, we plan to continue pursuing the
following strategies:
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Capitalize
on significant scale with leading industry position and brand
recognition. We are the largest producer of chicken
products in the U.S. We estimate that our U.S. market share,
based on the total annual chicken production in the U.S., is approximately
25%, which is approximately 20% higher than the second largest competitor
in the chicken industry. The complementary fit of markets,
distributor relationships and geographic locations are a few of the
many
benefits we realized from our fiscal 2004 and 2007 acquisitions previously
discussed. We believe the acquired businesses’ established
relationships with broad-line national distributors and retailers
have
enabled us to expand our customer base and provide nationwide distribution
capabilities for all of our product lines. As a result, we
believe we are one of only two U.S. chicken producers that can supply
the
growing demand for a broad range of price competitive standard and
specialized products with well-known brand names on a nationwide
basis
from a single source supplier.
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-
Capitalize
on attractive U.S. prepared foods
market. We focus our U.S. growth initiatives on sales
of prepared foods to the foodservice and value-added retail markets because
they
continue to be two of the fastest growing and most profitable segments in the
poultry industry. Products sold to these market segments require
further processing, which enables us to charge a premium for our products,
reducing the impact of feed ingredient costs on our profitability and improving
and stabilizing our profit margins. Feed ingredient costs typically
decrease from approximately 33%-49% of total production cost for fresh chicken
products to approximately 17%-24% for prepared chicken products. Due
to increased demand from our customers and our fiscal 2004 and 2007
acquisitions, our sales of prepared chicken products grew from $921.1 million
in
fiscal 2003 to $2,492.4 million in fiscal 2007, a compounded annual growth
rate
of 28.3%. Prepared foods sales represented 39.5% of our total U.S.
chicken revenues in fiscal 2007, which we believe provides us with a significant
competitive advantage and reduces our exposure to feed price
fluctuations. The addition of well-known brands, including Pierce®
and Easy-Entree®, from our fiscal 2004 acquisition significantly expanded our
already sizeable prepared foods chicken offerings. Similarly, our
acquisition of highly customized cooked chicken products, including breaded
cutlets, sizzle strips and Wing-Dings®, for restaurants and specialty
foodservice customers from this acquisition complemented our existing lines
of
pre-cooked
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breast
fillets, tenderloins, burgers, nuggets, salads and other prepared
products
for institutional foodservice, fast-food and retail
customers.
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- Emphasize
customer-driven research and technology. We have a
long-standing reputation for customer-driven research and development
in
designing new products and implementing advanced processing
technology. This enables us to better meet our customers’
changing needs for product innovation, consistent quality and cost
efficiency. In particular, customer-driven research and
development is integral to our growth strategy for the prepared foods
market in which customers continue to place greater importance on
value-added services. Our research and development personnel
often work directly with customers in developing products for them,
which
we believe helps promote long-term
relationships.
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- Enhance
U.S. fresh chicken profitability through value-added, branded
products. Our U.S.
fresh chicken sales accounted for $3,255.7 million, or 51.4%, of
our U.S.
chicken sales for fiscal 2007. In addition to maintaining the
sales of traditional fresh chicken products, our strategy is to shift
the
mix of our U.S. fresh chicken products by continuing to increase
sales of
higher margin, faster growing products, such as fixed weight packaged
products and marinated chicken and chicken parts, and to continually
shift
portions of this product mix into the higher value and margin prepared
chicken products. Much of our fresh chicken products are sold
under the Pilgrim’s Pride®
brand name, which is a well-known brand in the chicken
industry.
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-
Improve
operating efficiencies and increase capacity on a cost-effective
basis. As production and sales grow, we continue to
focus on improving operating efficiencies by investing in state-of-the-art
technology and processes, training and our total quality management
program. Specific initiatives
include:
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-
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standardizing
lowest-cost production processes across our various
facilities;
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-
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centralizing
purchasing and other shared services;
and
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-
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standardizing
and upgrading technology where
appropriate.
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In
addition, we have a proven history of increasing capacity while improving
operating efficiencies at acquired properties in both the U.S. and
Mexico. As a result, according to industry data, since 1993 we have
consistently been one of the lower-cost producers of chicken.
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Continue
to
seek strategic acquisitions. We have pursued
opportunities to expand through acquisitions in the past. We
expect to continue to pursue acquisition opportunities in the future
that
would complement our existing businesses, broaden our production
capabilities and/or improve our operating
efficiencies.
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-
Capitalize
on export opportunities. We intend to continue to focus on
international opportunities to complement our U.S. chicken operations and
capitalize on attractive export markets. According to the USDA, the
export of U.S. chicken products increased 9.7%
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from
2002 through 2006. We believe U.S. chicken exports will
continue to grow as worldwide demand increases for high-grade, low-cost
meat protein sources. According to USDA data, the export market
for chicken is expected to grow at a compounded annual growth rate
of 1.8%
from 2006 to 2011. Historically, we have targeted international
markets to generate additional demand for our dark chicken meat,
which is
a natural by-product of our U.S. operations given our concentration
on
prepared foods products and the U.S. customers’ general preference for
white chicken meat. As part of this initiative, we have created
a significant international distribution network into several markets,
including Mexico, which we now utilize not only for dark chicken
meat
distribution, but also for various higher margin prepared foods and
other
poultry products. We employ both a direct international sales
force and export brokers. Our key international markets include
Eastern Europe, including Russia; the Far East, including China;
and
Mexico. We believe that we have substantial opportunities to
expand our sales to these markets by capitalizing on direct international
distribution channels supplemented by our existing export broker
relationships. Our export sales accounted for approximately
10.1% and 21.1% of our U.S. chicken sales and pounds, respectively,
for
fiscal 2007.
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(b)
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Financial
Information About Segments
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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) a seller
of other products. See a discussion of our business segments in Item
7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
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(c)
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Narrative
Description of Business
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Products
and
Markets
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Our
chicken products consist primarily of:
(1)
Prepared chicken products, which are products such as portion-controlled breast
fillets, tenderloins and strips, delicatessen products, salads, formed nuggets
and patties and bone-in chicken parts. These products are sold either
refrigerated or frozen and may be fully cooked, partially cooked or
raw. In addition, these products are breaded or non-breaded and
either pre-marinated or non-marinated.
(2)
Fresh
chicken, which is refrigerated (non-frozen) whole or cut-up chicken sold to
the
foodservice industry either pre-marinated or non-marinated. Fresh
chicken also includes prepackaged case-ready chicken, which includes various
combinations of freshly refrigerated, whole chickens and chicken parts in trays,
bags or other consumer packs labeled and priced ready for the retail grocer's
fresh meat counter.
(3)
Export and other chicken products, which are primarily parts and whole chicken,
either refrigerated or frozen for U.S. export or domestic use, and chicken
prepared foods products for U.S. export.
Our
turkey products consist primarily of fresh and frozen whole
turkeys.
Our
chicken and turkey products are sold primarily to:
(1) Foodservice
customers, which are customers such as chain restaurants, food processors,
foodservice distributors and certain other institutions. We sell
products to our foodservice customers ranging from portion-controlled
refrigerated poultry parts to fully-cooked and frozen, breaded or non-breaded
poultry parts or formed products.
(2) Retail
customers, which are customers such as grocery store chains, wholesale clubs
and
other retail distributors. We sell to our retail customers branded,
pre-packaged, cut-up and whole poultry, and fresh refrigerated or frozen whole
poultry and poultry parts in trays, bags or other consumer packs.
(3) Export
and other product customers, who purchase chicken products for export to Eastern
Europe, including Russia; the Far East, including China; Mexico; and other
world
markets. Our export and other chicken products, with the exception of
our exported prepared foods products, consist of whole chickens and chicken
parts sold primarily in bulk, non-branded form, either refrigerated to
distributors in the U.S. or frozen for distribution to export
markets.
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Our
other products consist of:
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(1) Other
types of meat along with various other staples purchased and sold by our
distribution centers as a convenience to our chicken customers who purchase
through the distribution centers.
(2) The
production and sale of table eggs, commercial feeds and related items, live
hogs
and proteins.
The following table sets forth, for the periods beginning with fiscal 2003,
net
sales attributable to each of our primary product lines and markets served
with
those products. Consistent with our long-term strategy, we emphasized
our U.S. growth initiatives on sales of prepared foods products, primarily
to
the foodservice market. This product and market segment has
experienced, and we believe will continue to experience, greater growth than
fresh chicken products. We based the table on our internal sales
reports and their classification of product types and customers.
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Fiscal
Year Ended
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| Sept. 29, 2007(a) |
Sept.
30, 2006
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Oct.
1, 2005
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Oct. 2, 2004(a) |
Sept.
27, 2003
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(52
weeks)
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(52
weeks)
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(52
weeks)
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(53
weeks)
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(52
weeks)
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U.S.
Chicken Sales:
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(in
thousands)
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Prepared
Foods:
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Foodservice
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$ | 1,897,643 | $ | 1,567,297 | $ | 1,622,901 | $ | 1,647,904 | $ | 731,331 | ||||||||||
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Retail
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511,470
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308,486
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283,392
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213,775
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163,018
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Total
Prepared Foods
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2,409,113
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1,875,783
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1,906,293
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1,861,679
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894,349
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Fresh
Chicken:
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Foodservice
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2,280,057
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1,388,451
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1,509,189
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1,328,883
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474,251
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Retail
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975,659
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496,560
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612,081
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653,798
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257,911
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Total
Fresh Chicken
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3,255,716
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1,885,011
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2,121,270
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1,982,681
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732,162
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Export
and Other:
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Export:
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Prepared
Foods
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83,317
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64,338
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59,473
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34,735
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26,714
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Chicken
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559,429
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257,823
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303,150
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212,611
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85,087
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| Total Export(b) |
642,746
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322,161
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362,623
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247,346
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111,801
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|||||||||||||||
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Other
Chicken By-Products
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20,779
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15,448
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21,083
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(b)
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(b)
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|||||||||||||||
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Total
Export and Other
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663,525
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337,609
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383,706
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247,346
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111,801
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|||||||||||||||
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Total
U.S. Chicken
|
6,328,354
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4,098,403
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4,411,269
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4,091,706
|
1,738,312
|
|||||||||||||||
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Mexico
Chicken Sales:
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488,466
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418,745
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403,353
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362,442
|
349,305
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|||||||||||||||
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Total
Chicken Sales
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6,816,820
|
4,517,148
|
4,814,622
|
4,454,148
|
2,087,617
|
|||||||||||||||
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U.S.
Turkey Sales:
|
||||||||||||||||||||
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Foodservice
|
14,025
|
30,269
|
73,908
|
120,676
|
138,405
|
|||||||||||||||
|
Retail
|
104,239
|
96,968
|
125,741
|
154,289
|
154,552
|
|||||||||||||||
|
118,264
|
127,237
|
199,649
|
274,965
|
292,957
|
||||||||||||||||
| Export and other(b) |
4,100
|
3,664
|
5,189
|
11,287
|
12,721
|
|||||||||||||||
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Total
U.S. Turkey Sales
|
122,364
|
130,901
|
204,838
|
286,252
|
305,678
|
|||||||||||||||
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Other
Products:
|
||||||||||||||||||||
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United
States
|
638,738
|
570,510
|
626,056
|
600,091
|
207,284
|
|||||||||||||||
|
Mexico
|
20,677
|
17,006
|
20,759
|
23,232
|
18,766
|
|||||||||||||||
|
Total
Other Products
|
659,415
|
587,516
|
646,815
|
623,323
|
226,050
|
|||||||||||||||
|
Total
Net Sales
|
$ | 7,598,599 | $ | 5,235,565 | $ | 5,666,275 | $ | 5,363,723 | $ | 2,619,345 | ||||||||||
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Total
Chicken Prepared Foods
|
$ | 2,492,430 | $ | 1,940,121 | $ | 1,965,766 | $ | 1,896,414 | $ | 921,063 | ||||||||||
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(a) The
fiscal 2007 acquisition on December 27, 2006 and fiscal 2004 acquisition
on November 23, 2003 have been accounted for as purchases. For
financial reporting purposes, we have not included the operation
results
and cash flows of the fiscal 2007 acquisition in our consolidated
financial statements for the period from December 27, 2006 through
December 30, 2006. The operating results and cash flows of the
fiscal 2007 acquisition from December 27, 2006 through December 30,
2006
were not material. The results of operations for the fiscal
2004 acquisition have been included in our consolidated results of
operations since the acquisition
date.
|
|
|
(b) The
Export and Other category historically included the sales of certain
chicken by-products sold in international markets, as well as the
export
of chicken and turkey products. Prior to fiscal 2005,
by-product sales were not specifically identifiable from the Export
and
Other category. Accordingly, a detail breakout is not available
prior to such time; however, the Company believes that the relative
split
between these categories as shown in fiscal 2005 would not be dissimilar
in the prior fiscal periods. Export items include certain
poultry parts that have greater value in some overseas markets than
in the
U.S.
|
The following table sets forth, beginning with fiscal 2003, the percentage
of
net U.S. chicken and turkey sales attributable to each of our primary product
lines and the markets serviced with those products. We based the
table and related discussion on our internal sales reports and their
classification of product types and customers.
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Fiscal
Year Ended
|
||||||||||||||||||||
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Sept.
29, 2007 (a)
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Sept.
30, 2006
|
Oct.
1, 2005
|
Oct.
2, 2004(a)
|
Sept.
27, 2003
|
||||||||||||||||
|
U.S.
Chicken Sales:
|
||||||||||||||||||||
|
Prepared
Foods:
|
||||||||||||||||||||
|
Foodservice
|
30.1
|
38.2
|
36.8
|
40.3
|
42.1
|
|||||||||||||||
|
Retail
|
8.1
|
7.5
|
6.4
|
5.2
|
9.4
|
|||||||||||||||
|
Total
Prepared Foods
|
38.2 | % | 45.7 | % | 43.2 | % | 45.5 | % | 51.5 | % | ||||||||||
|
Fresh
Chicken:
|
||||||||||||||||||||
|
Foodservice
|
36.0
|
33.9
|
34.2
|
32.5
|
27.3
|
|||||||||||||||
|
Retail
|
15.4
|
12.1
|
13.9
|
16.0
|
14.8
|
|||||||||||||||
|
Total
Fresh Chicken
|
51.4 | % | 46.0 | % | 48.1 | % | 48.5 | % | 42.1 | % | ||||||||||
|
Export
and Other:
|
||||||||||||||||||||
|
Export:
|
||||||||||||||||||||
|
Prepared
Foods
|
1.3
|
1.6
|
1.3
|
0.8
|
1.5
|
|||||||||||||||
|
Chicken
|
8.8
|
6.3
|
6.9
|
5.2
|
4.9
|
|||||||||||||||
| Total Export(b) |
10.1
|
7.9
|
8.2
|
6.0
|
6.4
|
|||||||||||||||
|
Other
Chicken By-Products
|
0.3
|
0.4
|
0.5
|
(b)
|
(b)
|
|||||||||||||||
|
Total
Export and Other
|
10.4 | % | 8.3 | % | 8.7 | % | 6.0 | % | 6.4 | % | ||||||||||
|
Total
U.S. Chicken
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
|
Total
Chicken Prepared Foods as a percentage of U.S. Chicken
|
39.5 | % | 47.3 | % | 44.5 | % | 46.3 | % | 53.0 | % | ||||||||||
|
U.S.
Turkey Sales:
|
||||||||||||||||||||
|
Foodservice
|
11.4
|
23.1
|
36.0
|
42.1
|
45.3
|
|||||||||||||||
|
Retail
|
85.2
|
74.1
|
61.4
|
53.9
|
50.5
|
|||||||||||||||
| 96.6 | % | 97.2 | % | 97.4 | % | 96.0 | % | 95.8 | % | |||||||||||
| Export and Other(b) |
3.4
|
2.8
|
2.6
|
4.0
|
4.2
|
|||||||||||||||
|
Total
U.S. Turkey
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
|
|
(a) The
fiscal 2007 acquisition on December 27, 2006 and fiscal 2004 acquisition
on November 23, 2003 have been accounted for as purchases. For
financial reporting purposes, we have not included the operating
results
and cash flows of the fiscal 2007 acquisition in our consolidated
financial statements for the period from December 27, 2006 through
December 30, 2006. The operating results and cash flows of
the fiscal 2007 acquisition from December 27, 2006 through December
30, 2006 were not material. The results of operations for the
fiscal 2004 acquisition have been included in our consolidated
results of operations since the acquisition
date.
|
|
|
(b)
The Export and Other category historically included the sales of
certain
chicken by-products sold in international markets as well as the
export of
chicken and turkey products. Prior to fiscal 2005, by-product
sales were not specifically identifiable from the Export and Other
category. Accordingly, a detail breakout is not available prior
to such time; however, the Company believes that the relative split
between these categories as shown in fiscal 2005 would not be dissimilar
in the prior fiscal periods. Export items include certain
poultry parts that have greater value in some overseas markets than
in the
U.S.
|
UNITED
STATES
Product
Types
Chicken
Products
Prepared
Foods
Overview. During
fiscal 2007, $2,409.1 million of our U.S. chicken sales were in prepared
foods
products to foodservice customers and retail distributors, as compared to
$894.3
million in fiscal 2003. These numbers reflect the strategic focus for
our growth and our fiscal 2004 and 2007 acquisitions. The market for
prepared chicken products has experienced, and we believe will continue to
experience, greater growth, higher average sales prices and higher margins
than
fresh chicken products. Also, the production and sale in the U.S. of
prepared foods products reduce the impact of the costs of feed ingredients
on
our profitability. Feed ingredient costs are the single largest
component of our total U.S. cost of sales, representing approximately 35.8%
of
our U.S. cost of sales for fiscal 2007. 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 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.
We
establish prices for our prepared chicken products based primarily upon
perceived value to the customer, production costs and prices of competing
products. The majority of these products are sold pursuant to
agreements with varying terms that either set a fixed price for the products
or
set a price according to formulas based on an underlying commodity market,
subject in many cases to minimum and maximum prices.
Fresh
Chicken
Overview. Our
fresh chicken business is an important component of our sales and accounted
for
$3,255.7 million, or 51.4%, of our total U.S. chicken sales for fiscal
2007. In addition to maintaining sales of mature, traditional fresh
chicken products, our strategy is to shift the mix of our U.S. fresh chicken
products by continuing to increase sales of higher margin, faster growing
products, such as marinated chicken and chicken parts, and to continually
shift
portions of this product mix into the higher value and margin prepared foods
category.
Most
fresh chicken products are sold to established customers, based upon certain
weekly or monthly market prices reported by the USDA and other public price
reporting services, plus a markup, which is dependent upon the customer’s
location, volume, product specifications and other factors. We
believe our practices with respect to sales of fresh chicken are generally
consistent with those of our competitors. The majority of these
products are sold pursuant to agreements with varying terms that either set
a
fixed price for the products or set a price according to formulas based on
an
underlying commodity market, subject in many cases to minimum and maximum
prices.
Export and Other Chicken
Products Overview. Our
export and other products consist of whole chickens and chicken parts sold
primarily in bulk, non-branded form, either refrigerated
to
distributors
in the U.S. or frozen for distribution to export markets, and branded and
non-branded prepared foods products for distribution to export
markets. In fiscal 2007, approximately $663.5 million, or 10.4%, of
our total U.S. chicken sales were attributable to U.S. chicken export and
other
products. These exports and other products, other than the prepared
foods products, have historically been characterized by lower prices and
greater
price volatility than our more value-added product
lines.
Turkey
Products
Turkey
Overview. Our
turkey business accounted for $122.4 million of sales in fiscal
2007. As is typical for the industry, a significant portion of the
sales of fresh and frozen whole turkeys is seasonal in nature, with the height
of sales occurring during the Thanksgiving and Christmas
holidays.
Most
turkey products are sold to established customers pursuant to agreements with
varying terms that either set a fixed price or are subject to a market driven
formula with some agreements based upon market prices reported by the USDA
and
other public price reporting services, plus a markup, subject in many cases
to
minimum and maximum prices. This is dependent upon the customer’s
location, volume, product specifications and other factors. We
believe our practices with respect to sales of fresh turkey are generally
consistent with those of our competitors with similar programs.
Markets
for Chicken Products
Foodservice. The
foodservice market principally consists of chain restaurants, food processors,
broad-line distributors and certain other institutions located throughout the
continental U.S. We supply chicken products ranging from
portion-controlled refrigerated chicken parts to fully cooked and frozen,
breaded or non-breaded chicken parts or formed products.
We
believe the Company is well-positioned to be the primary or secondary supplier
to many national and international chain restaurants who require multiple
suppliers of chicken products. Additionally, we believe we are well
suited to be the sole supplier for many regional chain
restaurants. Regional chain restaurants often offer better margin
opportunities and a growing base of business.
We believe we have significant competitive strengths in terms of full-line
product capabilities, high-volume production capacities, research and
development expertise and extensive distribution and marketing experience
relative to smaller and non-vertically integrated producers. While
the overall chicken market has grown consistently, we believe the majority
of
this growth in recent years has been in the foodservice
market. According to the National Chicken Council, from 2002 through
2006, sales of chicken products to the foodservice market grew at a compounded
annual growth rate of approximately 7.9%, versus 4.9% growth for the chicken
industry overall. Foodservice growth is anticipated to continue as
food-away-from-home expenditures continue to outpace overall industry
rates. According to Technomic Information Services,
food-away-from-home expenditures grew at a compounded annual growth rate of
approximately 5.5% from 2002 through 2006 and are projected to grow at a
4.8%
compounded
annual growth rate from 2007 through 2012. Due to internal growth and
our fiscal 2004 and 2007 acquisitions, our sales to the foodservice market
from
fiscal 2003 through fiscal 2007 grew at a compounded annual growth rate of
36.4%
and represented 66.1% of the net sales of our U.S. chicken operations in
fiscal
2007.
Foodservice
–
Prepared
Foods. Our
prepared chicken products sales to the foodservice market were $1,897.6 million
in fiscal 2007 compared to $731.3 million in fiscal 2003, a compounded annual
growth rate of approximately 26.9%. In addition to the significant
increase in sales created by the fiscal 2004 and 2007 acquisitions, we attribute
this growth in sales of prepared chicken products to the foodservice market
to a
number of factors:
First,there
has been significant growth in the number of foodservice operators offering
chicken on their menus and in the number of chicken items
offered.
Second,foodservice
operators are increasingly purchasing prepared chicken products, which allow
them to reduce labor costs while providing greater product consistency, quality
and variety across all restaurant locations.
Third,there
is a strong need among larger foodservice companies for a single-source supplier
in the prepared chicken products market. A viable supplier must be
able to ensure supply, demonstrate innovation and new product development
and
provide competitive pricing. We have been successful in our objective
of becoming a supplier of choice by being the primary or secondary prepared
chicken products supplier to many large foodservice companies
because:
- We
are vertically integrated, giving us control over our supply of chicken and
chicken parts;
- Our
further processing facilities, with a wide range of capabilities, are
particularly well suited to the high-volume production as well as low-volume
custom production runs necessary to meet both the capacity and quality
requirements of the foodservice market; and
- We
have established a reputation for dependable quality, highly responsive service
and excellent technical support.
Fourth,as
a result of the experience and reputation developed with larger customers,
we
have increasingly become the principal supplier to mid-sized foodservice
organizations.
Fifth,our
in-house product development group follows a customer-driven research and
development focus designed to develop new products to meet customers’ changing
needs. Our research and development personnel often work directly
with institutional customers in developing products for these
customers.
Sixth,
we
are a leader in utilizing advanced processing technology, which enables us
to
better meet our customers’ needs for product innovation, consistent quality and
cost efficiency.
Foodservice
–
Fresh
Chicken. We
produce and market fresh, refrigerated chicken for sale to U.S. quick-service
restaurant chains, delicatessens and other customers. These chickens
have the giblets removed, are usually of specific weight ranges and are usually
pre-cut to customer specifications. They are often marinated to
enhance value and product differentiation. By growing and processing
to customers’ specifications, we are able to assist quick-service restaurant
chains in controlling costs and maintaining quality and size consistency
of
chicken pieces sold to the consumer.
Retail. The
retail market consists primarily of grocery store chains, wholesale clubs
and
other retail distributors. We concentrate our efforts in this market
on sales of branded, prepackaged cut-up and whole chicken and chicken parts
to
grocery store chains and retail distributors. For a number of years,
we have invested in both trade and retail marketing designed to establish
high
levels of brand name awareness and consumer preferences.
We
utilize numerous marketing techniques, including advertising, to develop
and
strengthen trade and consumer awareness and increase brand loyalty for consumer
products marketed under the Pilgrim’s Pride®
brand. Our co-founder, Lonnie “Bo” Pilgrim, is the featured
spokesperson in our television, radio and print advertising, and a trademark
cameo of a person wearing a Pilgrim’s hat serves as the logo on all of our
primary branded products. As a result of this marketing strategy,
Pilgrim’s Pride®
is a well-known brand name in a number of markets. We believe our
efforts to achieve and maintain brand awareness and loyalty help to provide
more
secure distribution for our products. We also believe our efforts at
brand awareness generate greater price premiums than would otherwise be the
case
in certain markets. We also maintain an active program to identify
consumer preferences. The program primarily consists of discovering
and validating new product ideas, packaging designs and methods through
sophisticated qualitative and quantitative consumer research techniques in
key
geographic markets.
Retail
–
Prepared
Foods. We
sell retail-oriented prepared chicken products primarily to grocery store
chains
located throughout the U.S. Our prepared chicken products sales to
the retail market were $511.5 million in fiscal 2007 compared to $163.0 million
in fiscal 2003, a compounded annual growth rate of approximately
33.1%. We believe that our growth in this market segment will
continue as retailers concentrate on satisfying consumer demand for more
products that are quick, easy and convenient to prepare at
home.
Retail
–
Fresh
Chicken. Our
prepackaged retail products include various combinations of freshly
refrigerated, whole chickens and chicken parts in trays, bags or other consumer
packs labeled and priced ready for the retail grocer’s fresh meat
counter. Our retail fresh chicken products are sold in the
midwestern, southwestern, southeastern and western regions of the
U.S. Our fresh chicken sales to the retail market were $975.7 million
in fiscal 2007 compared to $257.9 million in fiscal 2003, a compounded annual
growth rate of approximately 39.5% resulting primarily from our fiscal 2004
and
2007 acquisitions. We believe the retail prepackaged fresh chicken
business will continue to be a large and relatively stable market, providing
opportunities for product differentiation and regional brand
loyalty.
Export
and Other
Chicken Products. Our
export and other chicken products, with the exception of our exported prepared
foods products, consist of whole chickens and chicken
parts
sold
primarily in bulk, non-branded form either refrigerated to distributors in
the
U.S. or frozen for distribution to export markets. In the U.S.,
prices of these products are negotiated daily or weekly and are generally
related to market prices quoted by the USDA or other public price reporting
services. We sell U.S.-produced chicken products for export to
Eastern Europe, including Russia; the Far East, including China; Mexico;
and
other world markets.
Historically,
we have targeted international markets to generate additional demand for
our
dark chicken meat, which is a natural by-product of our U.S. operations given
our concentration on prepared foods products and the U.S. customers’ general
preference for white chicken meat. We have also begun selling
prepared chicken products for export to the international divisions of our
U.S.
chain restaurant customers. We believe that U.S. chicken exports will
continue to grow as worldwide demand increases for high-grade, low-cost meat
protein sources. We also believe that worldwide demand for higher
margin prepared foods products will increase over the next several
years. Accordingly, we believe we are well positioned to capitalize
on such growth. Also included in this category are chicken
by-products, which are converted into protein products and sold primarily
to
manufacturers of pet foods.
Markets
for Turkey Products
Most
of
our turkey sales are derived from products sold to the retail
market. This market consists primarily of grocery store chains,
wholesale clubs and other retail distributors. We concentrate our
efforts in this market on sales of branded, prepackaged whole turkeys to
grocery
store chains and retail distributors in the eastern and southwestern regions
of
the U.S. We believe this regional marketing focus enables us to
develop consumer brand franchises and capitalize on proximity to the trade
customer in terms of lower transportation costs, more timely and responsive
service and enhanced product freshness.
We
utilize numerous marketing techniques, including advertising, to develop
and
strengthen trade and consumer awareness and increase brand loyalty for consumer
products marketed generally under the Pilgrim’s Pride®
and
Pilgrim’s SignatureTMbrands. We
believe our efforts to achieve and maintain brand awareness and loyalty help
to
provide more secure distribution for our products. We also believe
our efforts at brand awareness generate greater price premiums than would
otherwise be the case in certain markets in the eastern regions of the
U.S. We also maintain an active program to identify consumer
preferences. The program primarily consists of testing new product
ideas, packaging designs and methods through sophisticated qualitative and
quantitative consumer research techniques in key geographic
markets.
Markets
for Other Products
We
have regional distribution centers located in Arizona, Florida, Iowa,
Mississippi, Ohio, Tennessee, Texas and Utah that are primarily focused on
distributing our own chicken products; however, the distribution centers
also
distribute certain poultry and non-poultry products purchased from third
parties
to independent grocers and quick service restaurants. Our non-chicken
distribution business is conducted as an accommodation to our customers and
to
achieve greater economies of scale in distribution logistics. Poultry
sales from our regional distribution centers are included in the chicken
and
turkey sales amounts contained in the above tables; however, all non-poultry
sales amounts are contained in the Other Products. We believe
the
store-door
delivery capabilities for our own poultry products provide a strategic service
advantage in selling to quick service, national chain restaurants.
We
market fresh eggs under the Pilgrim’s Pride®brand
name, as well as under private labels, in various sizes of cartons and flats
to
U.S. retail grocery and institutional foodservice customers located primarily
in
Texas. We have a housing capacity for approximately 2.1 million
commercial egg laying hens which can produce approximately 42 million dozen
eggs
annually. U.S. egg prices are determined weekly based upon reported
market prices. The U.S. egg industry has been consolidating over the
last few years, with the 25 largest producers accounting for more than 74.3%
of
the total number of egg laying hens in service during 2007. We
compete with other U.S. egg producers primarily on the basis of product quality,
reliability, price and customer service.
We
market a high-nutrient egg called EggsPlus™. This
egg contains high levels of Omega-3 and Omega-6 fatty acids along with Vitamin
E, making the egg a heart-friendly product. Our marketing of
EggsPlus™ has received national recognition for our progress in being an
innovator in the “functional foods” category.
In
addition, we produce and sell livestock feeds at our feed mill in Mt. Pleasant,
Texas and at our farm supply store in Pittsburg, Texas to dairy farmers and
livestock producers in northeastern Texas. We engage in similar sales
activities at our other U.S. feed mills.
We
also have a small pork operation that we acquired through our 2007 acquisition
that raises and sells live hogs to processors.
MEXICO
Background
The
Mexico market represented approximately 6.7% of our net sales in fiscal
2007. We are the second largest producer and seller of chicken in
Mexico. We believe that we are one of the lower-cost producers of
chicken in Mexico.
Product
Types
While
the market for chicken products in Mexico is less developed than in the U.S.,
with sales attributed to fewer, more basic products, we have been successful
in
differentiating our products through high quality client service and product
improvements such as dry-air chilled eviscerated products. The
supermarket chains consider us the leaders in innovation for fresh
products. The market for value added products is
increasing. Our strategy is to capitalize on this trend through our
vast U.S. experience in both products and quality and our well-known
service.
Markets
We
sell our chicken products primarily to wholesalers, large restaurant chains,
fast food accounts, supermarket chains and direct retail distribution in
selected markets. We have national presence and are currently present
in all but two of the 32 Mexican States, which in total represent 99% of
the
Mexican population.
Foreign
Operations Risks
Our
foreign operations pose special risks to our business and
operations. See Item 1A. “Risk Factors” for a discussion of foreign
operations risks.
GENERAL
Competitive
Conditions
The
chicken and turkey industries are highly competitive and our largest U.S.
competitor has greater financial and marketing resources than we
do. In the U.S., Mexico and Puerto Rico, we compete principally with
other vertically integrated poultry companies. We are the largest
producer of chicken in the U.S. and Puerto Rico, and the second largest producer
in Mexico. The second largest producer in the U.S. is Tyson Foods,
Inc. The largest producer in Mexico is Industrias Bachoco SA de
CV.
In
general, the competitive factors in the U.S. chicken and turkey industries
include price, product quality, product development, brand identification,
breadth of product line and customer service. Competitive factors
vary by major market. In the foodservice market, competition is based
on consistent quality, product development, service and price. In the
U.S. retail market, we believe that product quality, brand awareness, customer
service and price are the primary bases of competition. There is some
competition with non-vertically integrated further processors in the U.S.
prepared food business. We believe vertical integration generally
provides significant, long-term cost and quality advantages over non-vertically
integrated further processors.
In
Mexico, where product differentiation has traditionally been limited, product
quality, service and price have been the most critical competitive
factors. The North American Free Trade Agreement eliminated tariffs
for chicken and chicken products sold to Mexico on January 1,
2003. However, 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. The tariff rate
on import duties was reduced on January 1, 2007, to 19.8%, and on January
1,
2008 the tariff rate is scheduled to be reduced to zero. As this
tariff is 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.
We
are not a significant competitor in the distribution business as it relates
to
products other than chicken. We distribute these products solely as a
convenience to our chicken customers. The broad-line distributors do
not consider us to be a factor in those markets. The competition
related to our other products such as table eggs, feed and protein are much
more
regionalized and no one competitor is dominant.
Key
Customers
Our
two largest customers accounted for approximately 18% of our net sales in
fiscal
2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12% of
our
net sales.
Regulation
and Environmental Matters
The
chicken and turkey industries are subject to government regulation, particularly
in the health and environmental areas, including provisions relating to the
discharge of materials into
the
environment, by the Centers for Disease Control, the USDA, the Food and Drug
Administration (“FDA”) and the Environmental Protection Agency (“EPA”) in the
U.S. and by similar governmental agencies in Mexico. Our chicken processing
facilities in the U.S. are subject to on-site examination, inspection and
regulation by the USDA. The FDA inspects the production of our feed
mills in the U.S. Our Mexican food processing facilities and feed
mills are subject to on-site examination, inspection and regulation by a
Mexican
governmental agency, which performs functions similar to those performed
by the
USDA and FDA. We believe that we are in substantial compliance with
all applicable laws and regulations relating to the operations of our
facilities.
We
anticipate increased regulation by the USDA concerning food safety, by the
FDA
concerning the use of medications in feed and by the EPA and various other
state
agencies concerning discharges to the environment. Although we do not
anticipate any regulations having a material adverse effect upon us, a material
adverse effect may occur.
Employees
and Labor Relations
As
of September 29, 2007, we employed approximately 49,800 persons in the U.S.
and
5,100 persons in Mexico. Approximately 16,350 employees at various
facilities in the U.S. are members of collective bargaining units. In
Mexico, approximately 2,950 employees are covered by collective bargaining
agreements. We have not experienced any work stoppage at any location
in over five years. We believe our relations with our employees are
satisfactory. At any given time, we will be in some stage of contract
negotiation with various collective bargaining units.
Financial
Information about Foreign Operations
The
Company’s foreign operations are in Mexico. Geographic financial
information is set forth in Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operation.”
Available
Information; NYSE CEO Certification
The
Company’s Internet website is http://www.pilgrimspride.com. The
Company makes available, free of charge, through its Internet website, the
Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, Directors and Officers Forms 3, 4 and 5, and amendments
to
those reports, as soon as reasonably practicable after electronically filing
such materials with, or furnishing them to, the Securities and Exchange
Commission. The public may read and copy any materials that the
Company files with the Securities and Exchange Commission at its Public
Reference Room at 100 F Street, NE, Washington, DC 20549 and may obtain
information about the operation of the Public Information Room by calling
the
Securities and Exchange Commission at 1-800-SEC-0330.
In addition, the Company makes available, through its Internet website, the
Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines
and the written charter of the Audit Committee, each of which is available
in
print to any stockholder who requests it by
contacting
the Secretary of the Company at 4845 U.S. Highway 271 North, Pittsburg, Texas
75686-0093.
As
required by the rules of the New York Stock Exchange, the Company submitted
its
unqualified Section 303A.12(a) Co-Principal Executive Officers Certification
for
the preceding year to the New York Stock Exchange.
We
included the certifications of the Co-Principal Executive Officers and the
Chief
Financial Officer of the Company required by Section 302 of the Sarbanes-Oxley
Act of 2002 and related rules, relating to the quality of the Company's public
disclosure, in this report on Form 10-K as Exhibits 31.1, 31.2 and
31.3.
Executive
Officers
Set
forth below is certain information relating to our current executive
officers:
|
Name
|
Age
|
Positions
|
||
|
Lonnie
"Bo" Pilgrim
|
79
|
Senior
Chairman of the Board
|
||
|
Lonnie
Ken Pilgrim
|
49
|
Chairman
of the Board
|
||
|
Clifford
E. Butler
|
65
|
Vice
Chairman of the Board
|
||
|
O.B.
Goolsby, Jr.
|
60
|
President,
Chief Executive Officer, and Director
|
||
|
Richard
A. Cogdill
|
47
|
Chief
Financial Officer
|
||
|
Secretary,
Treasurer and Director
|
||||
|
J.
Clinton Rivers
|
48
|
Chief
Operating Officer
|
||
|
Robert
A. Wright
|
53
|
Executive
Vice President of Sales and Marketing
|
||
Lonnie "Bo"
Pilgrim has served as
Senior Chairman of the Board since July 2007. He served as Chairman
of the Board since the organization of Pilgrim's Pride in July 1968 until
July
2007. He also served as Chief Executive Officer from July 1968 to
June 1998. Prior to the incorporation of Pilgrim's Pride, Mr. Pilgrim
was a partner in its predecessor partnership business founded in
1946.
Lonnie Ken Pilgrim has served as
Chairman of the Board since July 2007. He served as Executive Vice
President, Assistant to Chairman from November 2004 until July 2007, and
he
served as Senior Vice President, Transportation from August 1997 to November
2004. Prior to that he served as Vice President. He has been a member
of the Board of Directors since March 1985, and he has been employed by
Pilgrim’s Pride since 1977. He is a son of Lonnie “Bo”
Pilgrim.
Clifford
E. Butler serves
as Vice Chairman of the Board. On October 10, 2007, Clifford E.
Butler announced his retirement from his position as Vice Chairman of the
Board
effective December 31, 2007, and that he will not stand for re-election
as a
director. Mr. Butler joined us as Controller and director in 1969,
was named Senior Vice President of Finance in 1973, became Chief Financial
Officer and Vice Chairman of the Board
in July 1983, became Executive President in January 1997 and served in
such
capacity through July 1998.
O.B. Goolsby, Jr. has
served as President and Chief
Executive Officer since September 2004. Mr. Goolsby served as President
and Chief Operating Officer from November 2002 to September 2004. Prior to
being named as President and Chief Operating Officer in November 2002,
Mr.
Goolsby served as Executive Vice President, Prepared Foods Complexes from
June
1998 to November 2002. He was previously Senior Vice President, Prepared
Foods Operations from August 1992 to June 1998 and Vice President, Prepared
Foods Operations from September 1987 to August 1992 and was employed by
the
Company in other capacities from November 1969 to January
1981.
Richard A. Cogdillhas served as
Chief Financial Officer, Secretary and Treasurer since January
1997. Mr. Cogdill became a Director in September
1998. Previously he served as Senior Vice President, Corporate
Controller, from August 1992 through December 1996 and as
Vice
President, Corporate Controller from October 1991 through August
1992. Prior to October 1991, he was a Senior Manager with Ernst &
Young LLP. Mr. Cogdill is a Certified Public Accountant.
J.
Clinton Rivers has served
as Chief Operating Officer since October 2004. He served as Executive Vice
President of Prepared Food Operations from November 2002 to October 2004.
Mr. Rivers was the Senior Vice President of Prepared Foods Operations from
1999
to November 2002, and was the Vice President of Prepared Foods Operations
from
1992 to 1999. From 1989 to 1992, he served as Plant Manager of the Mount
Pleasant, Texas Production Facility. Mr. Rivers joined Pilgrim’s Pride in
1986 as the Quality Assurance Manager, and also held positions at Perdue
Farms
and Golden West Foods.
Robert
A. Wright has
served as Executive Vice President of Sales and Marketing since June 2004.
He served as Executive Vice President, Turkey Division from October 2003
to June
2004. Prior to October 2003, Mr. Wright served as President of Butterball
Turkey Company for five years.
Forward
Looking Statements
Statements
of our intentions, beliefs, expectations or predictions for the future,
denoted
by the words "anticipate," "believe," "estimate," "expect," "plan," "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 those described under "Risk Factors" below and elsewhere
in
this Annual Report on Form 10-K.
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
in
information contained in previous filings or communications. The
risks described below are not the only risks we face, and additional risks
and
uncertainties may also impair our business operations. The occurrence
of any one or more of the following or other currently unknown factors
could
materially adversely affect our business and operating results.
Risk
Factors
The
following risk factors should be read carefully in connection with evaluating
our business and the forward-looking information contained in this Annual
Report
on Form 10-K. Any of the following risks could materially adversely
affect our business, operations, industry or financial position or our
future
financial performance. While we believe we have identified and
discussed below the key risk factors affecting our business, there may
be
additional risks and uncertainties that are not presently known or that
are not
currently believed to be significant that
adversely
affect our business, operations, industry, financial position and financial
performance in the future.
Cyclicality
and Commodity Prices.
Industry cyclicality can affect our earnings, especially due to
fluctuations in commodity prices of feed ingredients, chicken and
turkey.
Profitability
in the chicken and turkey industries 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.
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 United
States and foreign governments. In particular, weather patterns often
change agricultural conditions in an unpredictable manner. A
significant change in weather patterns could affect supplies of feed
ingredients, as well as both the industry's and our ability to obtain feed
ingredients, grow chickens and turkeys or deliver products.
The
cost of corn and soybean meal, our primary feed ingredients, increased
significantly from August 2006 to the date of this report and there can
be no
assurance that the price of corn or soybean meal will not continue to rise
as a
result of, among other things, increasing demand for these products around
the
world and alternative uses of these products, such as ethanol and biodiesel
production.
High
feed ingredient prices have had a material adverse effect on our operating
results. We periodically seek, to the extent available, to enter into
advance purchase commitments or financial hedging contracts for the purchase
of
feed ingredients in an effort to manage our feed ingredient
costs. The use of such instruments may not be
successful.
Livestock
and Poultry Disease,
including Avian Influenza. Outbreaks of livestock diseases in
general and poultry diseases in particular, including avian influenza,
can
significantly affect our ability to conduct our operations and demand for
our
products.
We
take precautions designed to ensure that our flocks are healthy and that
our
processing plants and other facilities operate in a sanitary and
environmentally-sound manner. However, events beyond our control,
such as the outbreaks of disease, either in our own flocks or elsewhere,
could
significantly affect demand for our products or our ability to conduct
our
operations. Furthermore, an outbreak of disease 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 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.
During
the first half of fiscal 2006, there was substantial publicity regarding
a
highly pathogenic strain of avian influenza, known as H5N1, which has been
affecting Asia since 2002
and
which has also been found in Europe and Africa. 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 birds
that
were infected with the disease.
Although
highly pathogenic H5N1 has not been identified in North America, there
have been
outbreaks of low pathogenic strains of avian influenza in North America,
and in
Mexico outbreaks of both high and low-pathogenic strains of avian influenza
are
a fairly common occurrence. Historically, the outbreaks of low
pathogenic avian influenza have not generated the same level of concern,
or
received the same level of publicity or been accompanied by the same reduction
in demand for poultry products in certain countries as that associated
with the
highly pathogenic H5N1 strain. Accordingly, even if the highly
pathogenic H5N1 strain does not spread to North or Central America, there
can be
no assurance that it will not materially adversely affect demand for North
or
Central American produced poultry internationally and/or domestically,
and, if
it were to spread to North or Central America, there can be no assurance
that it
would not significantly affect our ability to conduct our operations and/or
demand for our products, in each case in a manner having a material adverse
effect on our business, reputation and/or prospects.
Contamination
of
Products. If our poultry products become contaminated, we may
be subject to product liability claims and product recalls.
Poultry
products may be subject to contamination by disease-producing organisms,
or
pathogens, such as Listeria
monocytogenes, Salmonella
and generic E.coli. These
pathogens are generally found in the environment, and, as a result, there
is a
risk that they, as a result of food processing, could be present in our
processed poultry products. These pathogens can also be introduced as
a result of improper handling at the further processing, foodservice or
consumer
level. These risks may be controlled, although not eliminated, by
adherence to good manufacturing practices and finished product
testing. We have little, if any, control over proper handling once
the product has been shipped. Illness and death may result if the
pathogens are not eliminated at the further processing, foodservice or
consumer
level. Even an inadvertent shipment of contaminated products is a
violation of law and may lead to increased risk of exposure to product
liability
claims, product recalls and increased scrutiny by federal and state regulatory
agencies and may have a material adverse effect on our business, reputation
and
prospects.
In
October 2002, one product sample produced in our Franconia, Pennsylvania
facility that had not been shipped to customers tested positive for
Listeria. We later received information from the USDA suggesting
environmental samples taken at the facility had tested positive for both
the
strain of Listeria identified in the product and a strain having characteristics
similar to those of the strain identified in a Northeastern Listeria
outbreak. As a result, we voluntarily recalled all cooked deli
products produced at the plant from May 1, 2002 through October 11,
2002. We carried insurance designed to cover the direct recall
related expenses and certain aspects of the related business interruption
caused
by the recall.
Product
Liability. Product liability claims or product recalls can
adversely affect our business reputation and expose us to increased scrutiny
by
federal and state regulators.
The
packaging, marketing and distribution of food products entail an inherent
risk
of product liability and product recall and the resultant adverse
publicity. We may be subject to significant liability if the
consumption of any of our products causes injury, illness or
death. We could be required to recall certain of our products in the
event of contamination or damage to the products. In addition to the
risks of product liability or product recall due to deficiencies caused by our
production or processing operations, we may encounter the same risks if
any
third party tampers with our products. We cannot assure you that we
will not be required to perform product recalls, or that product liability
claims will not be asserted against us, in the future. Any claims
that may be made may create adverse publicity that would have a material
adverse
effect on our ability to market our products successfully or on our business,
reputation, prospects, financial condition and results of
operations.
If
our poultry products become contaminated, we may be subject to product
liability
claims and product recalls. There can be no assurance that any
litigation or reputational injury associated with product recalls will
not have
a material adverse effect on our ability to market our products successfully
or
on our business, reputation, prospects, financial condition and results
of
operations.
Substantial
Leverage. Our
substantial indebtedness could
adversely affect our financial condition.
Our
acquisition of Gold Kist increased our indebtedness significantly. We currently
have a substantial amount of indebtedness, which could adversely affect
our
financial condition and could have important consequences to you. For
example, it could:
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Make
it more difficult for us to satisfy our obligations under our
debt
securities;
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Increase
our vulnerability to general adverse economic
conditions;
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Limit
our ability to obtain necessary financing and to fund future
working
capital, capital expenditures and other general corporate
requirements;
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Require
us to dedicate a substantial portion of our cash flow from operations
to
payments on our indebtedness, thereby reducing the availability
of our
cash flow to fund working capital, capital expenditures and for
other
general corporate purposes;
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Limit
our flexibility in planning for, or reacting to, changes in our
business
and the industry in which we
operate;
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Place
us at a competitive disadvantage compared to our competitors
that have
less debt;
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Limit
our ability to pursue acquisitions and sell assets;
and
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Limit,
along with the financial and other restrictive covenants in our indebtedness,
our ability to borrow additional funds. Failing to comply with those
covenants could
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result
in an event of default or require redemption of
indebtedness. Either of these events could have a material
adverse effect on us.
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Our
ability to make payments on and to refinance our indebtedness will depend
on our
ability to generate cash in the future, which is dependent on various
factors. These factors include the commodity prices of feed
ingredients, chicken and turkey and general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control.
Additional
Borrowings Available. Despite
our substantial indebtedness, we may still be able to incur significantly
more
debt; this could intensify the risks described above.
Despite
our significant indebtedness, we are not prohibited from incurring significant
additional indebtedness in the future. If additional debt is added to
our current substantial debt levels, the related risks that we now face
could
intensify.
Insurance. We
are exposed to risks relating to product liability, product recall, property
damage and injuries to persons for which insurance coverage is expensive,
limited and potentially inadequate.
Our
business operations entail a number of risks, including risks relating
to
product liability claims, product recalls, property damage and injuries
to
persons. We currently maintain insurance with respect to certain of
these risks, including product liability insurance, property insurance,
workers
compensation insurance and general liability insurance, but in many cases
such
insurance is expensive, difficult to obtain and no assurance can be given
that
such insurance can be maintained in the future on acceptable terms, or
in
sufficient amounts to protect us against losses due to any such events,
or at
all. Moreover, even though our insurance coverage may be designed to
protect us from losses attributable to certain events, it may not adequately
protect us from liability and expenses we incur in connection with such
events. For example, the losses attributable to our October 2002
recall of cooked deli-products produced at one of our facilities significantly
exceeded available insurance coverage. Additionally, in the past, two
of our insurers encountered financial difficulties and were unable to fulfill
their obligations under the insurance policies as anticipated and, separately,
two of our other insurers contested coverage with respect to claims covered
under policies purchased, forcing us to litigate the issue of coverage
before we
were able to collect under these policies.
Significant
Competition. Competition
in the chicken and turkey industries with other vertically integrated poultry
companies may make us unable to compete successfully in these industries,
which
could adversely affect our business.
The
chicken and turkey industries are highly competitive. In both the U.S.
and
Mexico, we primarily compete with other vertically integrated poultry
companies.
In
general, the competitive factors in the U.S. poultry industry
include:
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Price;
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Product
quality;
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Product
development;
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Brand
identification;
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Breadth
of product line; and
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Customer
service.
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Competitive
factors vary by major market. In the foodservice market, competition
is based on consistent quality, product development, service and
price. In the U.S. retail market, we believe that competition is
based on product quality, brand awareness, customer service and
price. Further, there is some competition with non-vertically
integrated further processors in the prepared food business.
In
Mexico, where product differentiation has traditionally been limited, product
quality and price have been the most critical competitive
factors. The North American Free Trade Agreement eliminated tariffs
for chicken and chicken products sold to Mexico on January 1,
2003. However, 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 was
reduced on January 1, 2006 to 39.5%, and was further reduced to 19.8% on
January
1, 2007. On January 1, 2008, the tariff is scheduled to be reduced to
zero. In connection with the reduction of the tariffs in Mexico,
increased competition from chicken imported into Mexico from the U.S. may
have a
material adverse effect on the Mexican chicken industry in general, and
on our
Mexican operations in particular.
Loss
of Key Customers. The
loss of one or more of our largest customers could adversely affect our
business.
Our
two largest customers accounted for approximately 18% of our net sales
in fiscal
2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12%
of our
net sales. Our business could suffer significant setbacks in revenues
and operating income if we lost one or more of our largest customers, or
if our
customers' plans and/or markets should change significantly.
Integration
of Gold Kist. There
can be no assurance that Gold Kist can be combined successfully with our
business.
In
evaluating the terms of our acquisition of Gold Kist, we analyzed the respective
businesses of the Company and Gold Kist and made certain assumptions concerning
their respective future operations. A principal assumption was that
the acquisition will produce operating results better than those historically
experienced or expected to be experienced in the future by us in the absence
of
the acquisition. There can be no assurance, however, that this
assumption is correct or that the businesses of the Company and Gold Kist
will
be successfully integrated in a timely manner.
Synergies
of Gold Kist. There
can be no assurance that we will achieve anticipated synergies from our
acquisition of Gold Kist.
We
consummated the Gold Kist acquisition with the expectation that it will
result
in beneficial synergies, such as cost savings and enhanced
growth. Success in realizing these benefits and the timing of this
realization depend upon the successful integration of the operations of
Gold
Kist into the Company, and upon general and industry-specific economic
factors. The integration of two independent companies is a complex,
costly and time-consuming process. The difficulties of combining the
operations of the companies include, among others:
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Transitioning
and preserving Gold Kist's customer, contractor, supplier and
other
important third-party
relationships;
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Integrating
corporate and administrative
infrastructures;
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Coordinating
sales and marketing functions;
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Minimizing
the diversion of management's attention from ongoing business
concerns;
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Coordinating
geographically separate organizations;
and
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Retaining
key employees.
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Even
if we are able to effectively integrate the operations of Gold Kist into
our
existing operations and economic conditions remain stable, there can be
no
assurance that the anticipated synergies will be achieved.
Assumption
of Unknown Liabilities in Acquisitions. Assumption
of unknown liabilities in acquisitions may harm our financial condition
and
operating results.
Acquisitions
may be structured in such a manner that would result in the assumption
of
unknown liabilities not disclosed by the seller or uncovered during
pre-acquisition due diligence. For example, our acquisition of Gold
Kist was structured as a stock purchase. In that acquisition we
assumed all of the liabilities of Gold Kist, including liabilities that
may be
unknown. These obligations and liabilities could harm our financial
condition and operating results.
Potential
Acquisitions. We
intend to pursue opportunities to acquire complementary businesses, which
could
increase leverage and debt service requirements and could adversely affect
our
financial situation if we fail to successfully integrate the acquired
business.
We
intend to pursue selective acquisitions of complementary businesses in
the
future. Inherent in any future acquisitions are certain risks such as
increasing leverage and debt service requirements and combining company
cultures
and facilities, which could have a material adverse effect on our operating
results, particularly during the period immediately following such
acquisitions. Additional debt or equity capital may be required to
complete future
acquisitions,
and there can be no assurance that we will be able to raise the required
capital. Furthermore, acquisitions involve a number of risks and
challenges, including:
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Diversion
of management's attention;
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The
need to integrate acquired
operations;
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Potential
loss of key employees and customers of the acquired
companies;
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Lack
of experience in operating in the geographical market of the
acquired
business;
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and
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An
increase in our expenses and working capital
requirements.
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Any
of these and other factors could adversely affect our ability to achieve
anticipated cash flows at acquired operations or realize other anticipated
benefits of acquisitions.
Foreign
Operations Risks. Our
foreign operations pose special risks to our business and
operations.
We
have significant operations and assets located in Mexico and may participate
in
or acquire operations and assets in other foreign countries in the
future. Foreign operations are subject to a number of special risks,
including among others:
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Currency
exchange rate fluctuations;
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Trade
barriers;
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Exchange
controls;
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Expropriation;
and
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Changes
in laws and policies, including those governing foreign-owned
operations.
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Currency
exchange rate fluctuations have adversely affected us in the
past. Exchange rate fluctuations or one or more other risks may have
a material adverse effect on our business or operations in the
future.
Our
operations in Mexico are conducted through subsidiaries organized under
the laws
of Mexico. We may rely in part on intercompany loans and distributions
from our
subsidiaries to meet our obligations. Claims of creditors of our
subsidiaries, including trade creditors, will generally have priority as
to the
assets of our subsidiaries over our claims. Additionally, the ability
of our Mexican subsidiaries to make payments and distributions to us will
be
subject to, among other things, Mexican law. In the past, these laws
have not had a material adverse effect on the ability of our Mexican
subsidiaries to make these payments and distributions. However, laws
such as these may have a material adverse effect on the ability of our
Mexican
subsidiaries to make these payments and distributions in the
future.
In
October 2007, Mexico’s legislative bodies enacted La Ley del Impuesto
Empresarial a Tasa Única (“IETU”), a new minimum corporation tax, which will be
assessed on companies doing business in Mexico beginning January 1,
2008. We are currently evaluating the anticipated impact that IETU
will have on our business and operating results. Because of IETU,
there can be no assurance that we will be able to utilize the net operating
loss
carryovers and other deferred tax benefits generated in Mexico. There
can also be no assurance that IETU will not have a material adverse effect
on
our financial results.
Disruptions
in International Markets and Distribution
Channels. Disruptions
in international markets and distribution channels could adversely affect
our
business.
Historically,
we have targeted international markets to generate additional demand for
our
chicken dark meat, specifically leg quarters, which are a natural by-product
of
our U.S. operations, given our concentration on prepared foods products
and the
U.S. customers’ general preference for white meat. As part of this initiative,
we have created a significant international distribution network into several
markets, including Eastern Europe, including Russia; the Far East, including
China; and Mexico. Our success in these markets could be, and in
recent periods has 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, and may also be caused by outbreaks
of disease such as avian influenza, either in our own flocks or elsewhere
in the
world, and resulting changes in consumer preferences. There can be no assurance
that one or more of these or other disruptions in our international markets
and
distribution channels will not adversely affect our business.
Extreme
Weather and Natural Disasters. Extreme
weather or natural disasters could negatively impact our business.
Extreme
weather or natural disasters, including droughts, floods, excessive cold
or
heat, hurricanes or other storms, could impair the health or growth of
our
flocks or interfere with our operations due to power outages, fuel shortages,
damage to our production and processing facilities or disruption of
transportation channels, among other things. Any of these factors could
have an
adverse effect on our financial results.
Government
Regulation. Regulation,
present and future, is a constant factor affecting our
business.
Our
operations are subject to federal, state and local governmental regulation,
including in the health, safety and environmental areas. We
anticipate increased regulation by various agencies concerning food safety,
the
use of medication in feed formulations and the disposal of poultry by-products
and wastewater discharges.
Also, changes in laws or regulations or the application thereof may lead
to
government enforcement actions and the resulting litigation by private
litigants. We are aware of an industry-wide investigation by the Wage
and Hour Division of the U.S. Department of Labor to ascertain compliance
with
various wage and hour issues, including the compensation of employees
for
the
time
spent on such activities such as donning and doffing work
equipment. We have been named a defendant in a number of related
suits brought by employees. Due, in part, to the government
investigation and the recent U.S. Supreme Court decision in IBP, Inc.
v.
Alvarez, it is possible that we may be subject to additional employee
claims.
Unknown matters, new laws and regulations, or stricter interpretations
of
existing laws or regulations may materially affect our business or operations
in
the future.
Immigration
Legislation and Enforcement. New
immigration legislation or increased enforcement efforts in connection
with
existing immigration legislation could cause our costs of doing business
to
increase, cause us to change the way in which we do business or otherwise
disrupt our operations.
Immigration
reform continues
to attract significant attention in the public arena and the United
States Congress. If new federal immigration legislation is enacted or
if states in which we do business enact immigration laws, such laws may
contain
provisions that could make it more difficult or costly for us to hire
United States citizens and/or legal immigrant workers. In such case,
we may incur additional costs to run our business or may have to change
the way
we conduct our operations, either of which could have a material adverse
effect
on our business, operating results and financial condition. Also,
despite our past and continuing efforts to hire only United States
citizens and/or persons legally authorized to work in the United
States,
increased enforcement efforts with respect to existing immigration laws
by
governmental authorities may disrupt a portion of our workforce or our
operations at one or more of our facilities, thereby negatively impacting
our
business.
Control
of Voting Stock. Control
over the Company is maintained by members of the family of Lonnie "Bo"
Pilgrim.
As
described in more detail in Item 12. "Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters," through two limited
partnerships and related trusts and voting agreements, Lonnie "Bo" Pilgrim,
Patricia R. Pilgrim, his wife, and Lonnie Ken Pilgrim, his son, control
62.225%
of the voting power of our outstanding common stock. Accordingly,
they control the outcome of all actions requiring stockholder approval,
including the election of directors and significant corporate transactions,
such
as a merger or other sale of the Company or its assets. This ensures
their ability to control the foreseeable future direction and management
of the
Company. In addition, an event of default under certain agreements
related to our indebtedness will occur if Lonnie "Bo" Pilgrim and certain
members of his family cease to own at least a majority of the voting power
of
the outstanding common stock.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
Operating
Facilities
We
operate 34 poultry processing plants in the U.S. Of this total, 33
process chicken and are located in Alabama, Arkansas, Florida, Georgia,
Kentucky, Louisiana, North Carolina, South Carolina, Tennessee, Texas,
Virginia,
and West Virginia. We have one turkey processing plant in
Pennsylvania, one chicken processing plant in Puerto Rico and three chicken
processing plants in Mexico.
The
U.S. chicken processing plants have weekly capacity to process 42.5 million
broilers and operated at 92.8% of capacity in fiscal 2007.
Our
turkey plant has the weekly capacity to process 0.2 million birds under
current
inspection and line configurations and operates at 94% of
capacity. Our Mexico facilities have the capacity to process 3.2
million broilers per week and operated at 89% of capacity in fiscal
2007. Our Puerto Rico processing plant has the capacity to process
0.3 million birds per week based on one eight-hour shift per day. For
segment reporting purposes, we include Puerto Rico with our U.S.
operations.
In
the U.S., the processing plants are supported by 42 hatcheries, 31 feed
mills
and 12 rendering plants. The hatcheries, feed mills and rendering
plants operated at 85%, 84% and 76% of capacity, respectively, in fiscal
2007. In Puerto Rico, the processing plant is supported by one
hatchery and one feed mill which operated at 82% and 50% of capacity,
respectively, in fiscal 2007. In Mexico, the processing plants are
supported by six hatcheries, four feed mills and two rendering
facilities. The Mexico hatcheries, feed mills and rendering
facilities operated at 97%, 80% and 70% of capacity, respectively, in fiscal
2007.
We
also operate twelve prepared foods plants. These plants are located
in Alabama, Georgia, Louisiana, Pennsylvania, South Carolina, Tennessee,
Texas
and West Virginia. These plants have the capacity to produce
approximately 1,545 million pounds of further processed product per year
and in
fiscal 2007 operated at approximately 87% of capacity based on the current
product mix and six-day production at most facilities and 24/7 production
at two
facilities.
Other
Facilities and Information
We
own a partially automated distribution freezer located outside of Pittsburg,
Texas, which includes 125,000 square feet of storage area. We operate
a commercial egg operation and farm store in Pittsburg, Texas, a commercial
feed
mill in Mt. Pleasant, Texas and a pork grow-out operation in Jefferson,
Georgia.
We own office buildings in Pittsburg, Texas and Atlanta, Georgia, which
house
our executive offices, our Logistics and Customer Service offices and our
general corporate functions as well as an office building in Mexico City,
which
houses our Mexican marketing offices, and an office building in Broadway,
Virginia, which houses additional sales and marketing, research and development,
and support activities. We lease offices in Dallas, Texas and Duluth,
Georgia, which house additional sales and marketing and support
activities.
We
have 13 regional distribution centers located in Arizona, Florida, Iowa,
Mississippi, Ohio, Tennessee, Texas, and Utah, five of which we own and
eight of
which we lease.
Most
of our domestic property, plant and equipment is pledged as collateral
on our
long-term debt and credit facilities. See Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of
Operation.”
Item
3. Legal Proceedings
On
July 1, 2002, three individuals, on behalf of themselves and a putative
class of
chicken growers, filed their original class action complaint against the
Company
in the United States District Court for the Eastern District of Texas,
Texarkana
Division, styled “Cody Wheeler, et al. vs. Pilgrim’s Pride
Corporation.” In their lawsuit, plaintiffs initially alleged that the
Company violated the Packers and Stockyards Act (7 U.S.C. Section 192)
(the
“PSA”) and breached fiduciary duties allegedly owed to the plaintiff
growers. The plaintiffs also brought individual actions under the
Packers and Stockyards Act alleging, among other things, 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, virtually re-wrote most of the
allegations. Now the plaintiffs contend that the Company and Tyson
are involved in a conspiracy to violate federal antitrust laws. The
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 the plaintiffs’ Packers and Stockyards
Act and antitrust claims. The Court ordered that the plaintiffs may
proceed with their Packers and Stockyards Act claims as set forth in Plaintiffs’
Third Amended Complaint. The Court also ordered that the plaintiffs
may proceed with their respective antitrust claims asserted against the
Company
and Tyson in a separate cause of action styled “Cody Wheeler, et al vs.
Pilgrim’s Pride Corporation, et al.” On March 6, 2006, the plaintiffs
filed their motion for class certification in the original
lawsuit. Pilgrim’s Pride attacked the plaintiffs’ class certification
brief on several grounds, and ultimately the plaintiffs voluntarily withdrew
their Motion for Class Certification on May 26, 2006. As a result,
the Court canceled the class certification hearing and on June 2, 2006
the Court
entered an Order withdrawing Plaintiffs’ Motion for Class Certification and
prohibiting the plaintiffs from filing any additional class-action claims
against Pilgrim’s Pride in this lawsuit. Additionally, the two former
growers who joined the lawsuit on September 30, 2005 withdrew from the
case. On March 30, 2007, the Court issued an order granting in part
and denying in part the Company’s pending motion for summary
judgment. In the order, the Court ruled that plaintiffs do not have
to demonstrate an adverse effect on competition in order to prevail under
the
PSA. This ruling is inconsistent with many other jurisdictions’
interpretation of the PSA. The Court issued an order staying the
lawsuit until the issue is decided by the Fifth Circuit. On June 29,
2007, the Fifth Circuit accepted the appeal. The matter is currently
being briefed by the parties. The Company intends to defend
vigorously against the plaintiffs’ individual claims. The Company
does not expect this matter to have a material impact on its financial
position,
operations or liquidity.
On January 3, 2006, an action styled "Cody Wheeler, et al. vs. Pilgrim's
Pride
Corporation, et al.," arising out of the original Wheeler litigation described
above, was filed in the United States District Court for the Eastern District
of
Texas, Texarkana Division. The lawsuit was filed by the three
original plaintiffs and a former grower, both in their individual capacities
and
on behalf of a putative class of chicken growers. In the lawsuit, the
four plaintiffs allege that the Company and Tyson are involved in a conspiracy
to violate federal antitrust laws. On September 28, 2007, the court
issued an order denying plaintiffs’ request to certify a class
action. Plaintiffs filed the Petition for Permission to Appeal the
District Court’s Order on October 15, 2007 with the U.S. Court of Appeals for
the Fifth Circuit. The Company intends to defend vigorously any
attempts by the Plaintiffs to reverse the District Court’s Order denying
certification to the matter as a class
action
and the merits of the four plaintiffs’ individual claims. The Company
does not expect this matter to have a material impact on its 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. The Company deposed all of the remaining plaintiffs
and filed individual motions for summary judgment against each of
them. On March 28, 2006, the Court issued Orders concerning the
motions for summary judgment. It granted the Company’s motion against
Plaintiff Robert Nelson and dismissed all of his claims in their entirety
based
on the theory of judicial estoppel. The Court heard oral argument on
the Plaintiffs’ Class Certification Motion on August 11, 2006, and the Court
took the matter under advisement. On May 15, 2007, the Court issued
its order denying Plaintiffs’ Motion for Class Certification in its
entirety. The plaintiffs subsequently withdrew their petition to
appeal to the Eight Circuit Court of Appeals. Thus, the Court’s order
denying plaintiffs’ class certification motion stands as a final, binding
judgment. On July 18, 2007, the Court ordered the remaining six
individual Plaintiffs to file their own individual lawsuits without any
class
action allegations. In contravention of the Court’s instructions,
Plaintiffs’ counsel added new and/or dismissed allegations to each new
Complaint. On October 1, 2007, Pilgrim’s moved to strike those
allegations and filed its Answers subject to same. The Court entered
an Order striking the errant allegations, and the Plaintiffs are in the
process
of redrafting their individual Complaints. The Company intends to
re-file its already completed motions for summary judgment after the individual
Complaints are re-filed. The Company intends to defend
vigorously against the Plaintiffs’ individual claims. The Company
believes it has meritorious defenses to these individual claims and intends
to
vigorously defend these claims. The ultimate liability with respect
to these claims cannot be determined at this time; however, the Company
does not
expect this matter to have a material impact on its financial position,
operations or liquidity.
The
Wage and Hour Division of the U.S. Department of Labor conducted an industry
wide investigation to ascertain compliance with various wage and hour issues,
including the compensation of employees for the time spent on such activities
such as donning and doffing work equipment. Due, in part, to the
government investigation and the recent U.S. Supreme Court decision in
IBP,
Inc. v. Alvarez, employees have brought claims against the
Company. The claims filed against the Company as of the date of this
Annual Report include: “Juan Garcia, et al. v. Pilgrim’s Pride
Corporation, a/k/a Wampler Foods, Inc.”, filed in Pennsylvania state court on
January 27, 2006 and subsequently removed to the U.S. District Court for
the
Eastern District of Pennsylvania; “Esperanza Moya, et al. v. Pilgrim’s Pride
Corporation and Maxi Staff, LLC”, filed March 23, 2006 in the Eastern District
of Pennsylvania; “Barry Antee, et al. v. Pilgrim’s Pride Corporation” filed
April 20, 2006 in the Eastern District of Texas; “Stephania Aaron, et al. v.
Pilgrim’s Pride Corporation” filed August 22, 2006 in the Western District of
Arkansas; “Salvador Aguilar, et al. v. Pilgrim’s Pride Corporation” filed August
23, 2006 in the Northern District of Alabama; “Benford v. Pilgrim’s Pride
Corporation” filed November 2, 2006 in the Northern District of Alabama; and
“Porter v. Pilgrim’s Pride Corporation” filed December 7, 2006 in the Eastern
District of Tennessee; “Freida Brown, et al
v.
Pilgrim’s Pride Corporation” filed March 14, 2007 in the Middle District of
Georgia, Athens Division; “Roy Menser, et al v. Pilgrim’s Pride Corporation”
filed February 28, 2007 in the Western District of Paducah, Kentucky; “Victor
Manuel Hernandez v. Pilgrim’s Pride Corporation” filed January 30, 2007 in the
Northern District of Georgia, Rome Division; “Angela Allen et al v. Pilgrim’s
Pride Corporation” filed March 27, 2007 in United States District Court, Middle
District of Georgia, Athens Division; Daisy Hammond and Felicia Pope
v. Pilgrim’s Pride Corporation, in the Gainesville Division, Northern District
of Georgia, filed on June 6, 2007; Gary Price v. Pilgrim’s Pride Corporation, in
the U.S. District Court for the Northern District of Georgia, Atlanta Division,
filed on May 21, 2007; and Kristin Roebuck et al v. Pilgrim’s Pride Corporation,
in the U.S. District Court, Athens, Georgia, Middle District, filed on
May 23,
2007. The plaintiffs generally purport to bring a collective action
for unpaid wages, unpaid overtime wages, liquidated damages, costs, attorneys'
fees, and declaratory and/or injunctive relief and generally allege that
they
are not paid for the time it takes to either clear security, walk to their
respective workstations, don and doff protective clothing, and/or sanitize
clothing and equipment. The presiding judge in the consolidated action in
El Dorado issued an initial Case Management order on July 9,
2007. Plaintiffs’ counsel filed a Consolidated Amended Complaint and
the parties filed a Joint Rule 26(f) Report. A complete
scheduling order has not been issued, and discovery has not yet
commenced. Plaintiffs have filed a consolidated motion for
conditional certification in the consolidated case. On October 12,
2007, Pilgrim’s filed its response in opposition to that motion. As
of the date of this Annual Report, the following suits have been filed
against
Gold Kist, now merged into Pilgrim’s Pride Corporation, which make one or more
of the allegations referenced above: Merrell v. Gold Kist, Inc., in the
U.S.
District Court for the Northern District of Georgia, Gainesville Division,
filed
on December 21, 2006; Harris v. Gold Kist, Inc., in the U.S. District Court
for
the Northern District of Georgia, Newnan Division, filed on December 21,
2006;
Blanke v. Gold Kist, Inc., in the U.S. District Court for the Southern
District
of Georgia, Waycross Division, filed on December 21, 2006; Clarke v. Gold
Kist,
Inc., in the U.S. District Court for the Middle District of Georgia, Athens
Division, filed on December 21, 2006; Atchison v. Gold Kist, Inc., in the
U.S.
District Court for the Northern District of Alabama, Middle Division, filed
on
October 3, 2006; Carlisle v. Gold Kist, Inc., in the U.S. District Court
for the Northern District of Alabama, Middle Division, filed on October
2, 2006;
Benbow v. Gold Kist, Inc., in the U.S. District Court for the District
of South
Carolina, Columbia Division, filed on October 2, 2006; Bonds v. Gold Kist,
Inc.,
in the U.S. District Court for the Northern District of Alabama, Northwestern
Division, filed on October 2, 2006. On April 23, 2007, Pilgrim’s
filed a Motion to Transfer and Consolidate with the Judicial Panel on
Multidistrict Litigation (“JPML”) requesting that all of the pending Gold Kist
cases be consolidated into one case. Pilgrim’s withdrew its Motion
subject to the Plaintiffs’ counsel’s agreement to consolidate the seven separate
actions into the pending Benbow
case by dismissing those lawsuits and refiling/consolidating them into
the Benbow
action. Motions to Dismiss have been filed in all of the pending
seven cases, and all of these cases have been formally
dismissed. Pursuant to the Court’s April 16, 2007 Order, the parties
reached agreement on the terms of class notice and the Court granted conditional
class certification. Discovery has recently been
initiated. The Company intends to assert a vigorous defense to the
litigation. The amount of ultimate liability with respect to any of
these cases cannot be determined at this time.
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. See Note J “Commitments and Contingencies” of Item 8
“Financial Statements and Supplementary Data”, which is incorporated herein by
reference.
Item
4. Submission of Matters to a Vote of Security
Holders
None.
|
Item
5.Market for the Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
|
Quarterly
Stock Prices and Dividends
High
and low prices of
and dividends relating to the Company’s common stock for the periods indicated
were:
|
Fiscal
2007 Prices
|
Fiscal
2006 Prices
|
Dividends
|
||||||||||||||||||||||
|
Fiscal
Quarter
|
High
|
Low
|
High
|
Low
|
2007
|
2006
|
||||||||||||||||||
|
PPC
Common Stock
|
||||||||||||||||||||||||
|
First
|
$ | 29.54 | $ | 23.64 | $ | 37.75 | $ | 30.11 | $ | .0225 | $ | 1.0225 | ||||||||||||
|
Second
|
33.19
|
28.59
|
27.00
|
20.95
|
.0225
|
.0225
|
||||||||||||||||||
|
Third
|
38.17
|
32.77
|
28.09
|
20.85
|
.0225
|
.0225
|
||||||||||||||||||
|
Fourth
|
40.59
|
32.29
|
29.00
|
23.11
|
.0225
|
.0225
|
||||||||||||||||||
Holders
The
Company’s common stock (ticker symbol “PPC”) is traded on the New York Stock
Exchange. The Company estimates there were approximately 35,000
holders (including individual participants in security position listings)
of the
Company’s common stock as of November 9, 2007.
Dividends
Starting
in the first quarter of fiscal 2006, the Company’s Board of Directors has
declared quarterly cash dividends of $0.0225 per share of common
stock. Additionally, in the first quarter of fiscal 2006, the
Company’s Board of Directors declared a special $1.00 dividend per share of
common stock. Prior to fiscal 2006 and with the exception of two
quarters in 1993, the Company's Board of Directors declared cash dividends
of
$0.015 per share of common stock (on a split adjusted basis) every fiscal
quarter since the Company's initial public offering in 1986. Payment
of future dividends will depend upon the Company's financial condition,
results
of operations and other factors deemed relevant by the Company's Board
of
Directors, as well as any limitations imposed by lenders under the Company's
credit facilities. The Company's revolving credit facility and
revolving/term borrowing facility currently limit dividends to a maximum
of $26
million per year. See Note E of the notes to Consolidated Financial
Statements included in Item 15 for additional discussions of the Company's
credit facilities.
Issuer
Purchases of Equity Security in Fiscal 2007
The
Company did not repurchase any of its equity securities in fiscal
2007.
Total
Return on Registrant’s Common Equity
The
following graphs compare the performance of the Company with that of the
Russell
2000 composite index and a peer group of companies with the investment
weighted
on market capitalization. The total cumulative return on investment (change
in
the year-end stock price plus reinvested dividends) for each of the periods
for
the Company, the Russell 2000 composite index and the peer group is based
on the
stock price or composite index at the beginning of the applicable
period. Companies in the peer group index include Cagle's, Inc.,
Sanderson Farms Inc., Hormel Foods Corp., Smithfield Foods Inc. and Tyson
Foods
Inc.
The
first graph covers the period from November 21, 2003 through September
29, 2007
and shows the performance of the Company's single class of common stock.
On
November 21, 2003, each share of the Company's then outstanding Class A
common
stock and Class B common stock was reclassified into one share of new common
stock, which is now the only authorized class of the Company's common
stock.
The
second graph covers the five fiscal year period ending September 29, 2007
and
shows the performance of the Company's Class A and Class B shares after
giving
effect to the reclassification into the Company's single class of common
stock
on November 21, 2003 based on a one to one exchange ratio. The third
graph covers the period from September 29, 2002 through November 20, 2003,
the
last date on which the Company's Class A and Class B shares traded on the
New
York Stock
Exchange prior to reclassification into a single new class of
shares of common stock.
The
stock price performance represented by these graphs is not necessarily
indicative of future stock performance.
|
|
|
11/21/03
|
10/2/04
|
10/1/05
|
9/30/06
|
9/29/07
|
|
Pilgrim's
Pride Corporation
|
100.00
|
190.89
|
254.14
|
197.18
|
251.08
|
|
|
Russell
2000
|
100.00
|
113.10
|
129.73
|
142.61
|
160.21
|
|
|
Peer
Group
|
100.00
|
112.59
|
131.40
|
127.35
|
140.41
|
|
|
|
9/28/02
|
9/27/03
|
11/20/03
|
10/2/04
|
10/1/05
|
9/30/06
|
9/29/07
|
|
Pilgrim's
Pride Corporation Class A(1)
|
100.00
|
180.96
|
195.33
|
383.25
|
510.23
|
395.88
|
504.10
|
|
Pilgrim's
Pride Corporation Class B(1)
|
100.00
|
140.92
|
150.72
|
298.92
|
397.96
|
308.77
|
393.18
|
|
Russell
2000
|
100.00
|
136.01
|
146.80
|
166.94
|
191.49
|
210.50
|
236.47
|
|
Peer
Group
|
100.00
|
119.32
|
132.39
|
147.39
|
172.02
|
166.72
|
183.81
|
|
(1)
|
On
November 21, 2003, each share of the Company’s then outstanding Class A
common stock and Class B common stock was reclassified into one share
of
new common stock, which is now the only authorized class of the Company’s
common stock.
|
|
9/28/02
|
9/27/03
|
11/20/03
|
|
|
Pilgrim's
Pride Corporation Class A(1)
|
100.00
|
180.96
|
195.33
|
|
Pilgrim's
Pride Corporation Class B(1)
|
100.00
|
140.92
|
150.72
|
|
Russell
2000
|
100.00
|
136.01
|
146.80
|
|
Peer
Group
|
100.00
|
119.32
|
132.39
|
(1) On November 21, 2003, each share of the Company’s then outstanding Class A common stock and Class B common stock was reclassified into one share of new common stock, which is now the only authorized class of the Company’s common stock.
43
Pilgrim's
Pride Corporation
Item
6. Selected
Financial
Data
|
(In
thousands, except ratios and per share data)
|
Eleven
Years Ended September 29, 2007
|
||||||||||||||||||
|
2007(a)
|
|
2006
|
2005
|
2004(b)(c)
|
|||||||||||||||
|
(53
weeks)
|
|||||||||||||||||||
|
Income
Statement Data:
|
|||||||||||||||||||
|
Net
sales
|
$ | 7,598,599 | $ | 5,235,565 | $ | 5,666,275 | $ | 5,363,723 | |||||||||||
|
Gross
profit(e)
|
591,538
|
297,600
|
745,199
|
529,039
|
|||||||||||||||
|
Operating
income(e)
|
232,537
|
3,002
|
435,812
|
265,314
|
|||||||||||||||
|
Interest
expense, net
|
125,757
|
40,553
|
43,932
|
52,129
|
|||||||||||||||
|
Loss
on early extinguishment of debt
|
26,463
|
--
|
--
|
--
|
|||||||||||||||
|
Income
(loss) before income taxes(e)
|
91,607
|
(36,317 | ) |
403,523
|
208,535
|
||||||||||||||
|
Income
tax expense (benefit)(f)
|
44,590
|
(2,085 | ) |
138,544
|
80,195
|
||||||||||||||
|
Net
income (loss)(e)
|
47,017
|
(34,232 | ) |
264,979
|
128,340
|
||||||||||||||
|
Ratio
of earnings to fixed charges(g)
|
1.57 | x |
(f)
|
7.19 | x | 4.08 | x | ||||||||||||
|
Per
Common Share Data:(h)
|
|||||||||||||||||||
|
Net
income (loss)
|
$ | 0.71 | $ | (0.51 | ) | $ | 3.98 | $ | 2.05 | ||||||||||
|
Cash
dividends
|
0.09
|
1.09
|
0.06
|
0.06
|
|||||||||||||||
|
Book
value
|
17.61
|
16.79
|
18.38
|
13.87
|
|||||||||||||||
|
Balance
Sheet Summary:
|
|||||||||||||||||||
|
Working
capital
|
$ | 379,132 | $ | 528,836 | $ | 404,601 | $ | 383,726 | |||||||||||
|
Total
assets
|
3,774,236
|
2,426,868
|
2,511,903
|
2,245,989
|
|||||||||||||||
|
Notes
payable and current maturities of long-term debt
|
2,872
|
10,322
|
8,603
|
8,428
|
|||||||||||||||
|
Long-term
debt, less current maturities
|
1,318,558
|
554,876
|
518,863
|
535,866
|
|||||||||||||||
|
Total
stockholders’ equity
|
1,172,221
|
1,117,327
|
1,223,598
|
922,956
|
|||||||||||||||
|
Cash
Flow Summary:
|
|||||||||||||||||||
|
Operating
cash flow
|
$ | 463,964 | $ | 30,382 | $ | 493,073 | $ | 272,404 | |||||||||||
|
Depreciation
& amortization(i)
|
204,903
|
135,133
|
134,944
|
113,788
|
|||||||||||||||
|
Purchases
of investment securities
|
125,045
|
318,266
|
305,458
|
--
|
|||||||||||||||
|
Proceeds
from sale or maturity of investment securities
|
208,676
|
490,764
|
--
|
--
|
|||||||||||||||
|
Capital
expenditures
|
172,323
|
143,882
|
116,588
|
79,642
|
|||||||||||||||
|
Business
acquisitions, net of equity consideration(a)(b) (d)
|
1,102,069
|
--
|
--
|
272,097
|
|||||||||||||||
|
Financing
activities, net provided by (used in)
|
630,229
|
(38,750 | ) |
18,860
|
96,665
|
||||||||||||||
|
Other
Data:
|
|||||||||||||||||||
|
EBITDA(j)
|
$ | 411,073 | $ | 136,763 | $ | 580,078 | $ | 372,501 | |||||||||||
|
Key
Indicators (as a percentage of net sales):
|
|||||||||||||||||||
|
Gross
profit(e)
|
7.8
|
%
|
5.7
|
%
|
13.2
|
%
|
9.9 | % | |||||||||||
|
Selling,
general and
administrative
expenses
|
4.7
|
%
|
5.6
|
%
|
5.5
|
%
|
4.8 | % | |||||||||||
|
Operating
income (e)
|
3.1
|
%
|
0.8
|
%
|
7.7
|
%
|
4.9 | % | |||||||||||
|
Interest
expense, net
|
1.6
|
%
|
1.0
|
%
|
0.9
|
%
|
1.0 | % | |||||||||||
|
Net
income (loss)(e)
|
0.6
|
%
|
(0.7 | ) |
%
|
4.7
|
%
|
2.4 | % | ||||||||||
|
Eleven
Years Ended September 29, 2007
|
||||||||||||||||||||||||||||||||
|
2003
|
2002
|
2001(d)
|
2000
|
1999
|
1998
|
1997
|
||||||||||||||||||||||||||
|
(53
weeks)
|
||||||||||||||||||||||||||||||||
| $ | 2,619,345 | $ | 2,533,718 | $ | 2,214,712 | $ | 1,499,439 | $ | 1,357,403 | $ | 1,331,545 | $ | 1,277,649 | |||||||||||||||||||
|
200,483
|
165,165
|
213,950
|
165,828
|
185,708
|
136,103
|
114,467
|
||||||||||||||||||||||||||
|
63,613
|
29,904
|
94,542
|
80,488
|
109,504
|
77,256
|
63,894
|
||||||||||||||||||||||||||
|
37,981
|
32,003
|
29,342
|
17,779
|
17,666
|
20,148
|
22,075
|
||||||||||||||||||||||||||
|
--
|
--
|
1,433
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||
|
63,235
|
1,910
|
61,861
|
62,786
|
90,904
|
56,522
|
43,824
|
||||||||||||||||||||||||||
|
7,199
|
(12,425 | ) |
20,724
|
10,442
|
25,651
|
6,512
|
2,788
|
|||||||||||||||||||||||||
|
56,036
|
14,335
|
41,137
|
52,344
|
65,253
|
50,010
|
41,036
|
||||||||||||||||||||||||||
| 2.24 | x |
(g)
|
2.13 | x | 3.04 | x | 4.33 | x | 2.96 | x | 2.57 | x | ||||||||||||||||||||
| $ | 1.36 | $ | 0.35 | $ | 1.00 | $ | 1.27 | $ | 1.58 | $ | 1.21 | $ | 0.99 | |||||||||||||||||||
|
0.06
|
0.06
|
0.06
|
0.06
|
0.045
|
0.04
|
0.04
|
||||||||||||||||||||||||||
|
10.46
|
9.59
|
9.27
|
8.33
|
7.11
|
5.58
|
4.41
|
||||||||||||||||||||||||||
| $ | 211,119 | $ | 179,037 | $ | 203,350 | $ | 124,531 | $ | 154,242 | $ | 147,040 | $ | 133,542 | |||||||||||||||||||
|
1,257,484
|
1,227,890
|
1,215,695
|
705,420
|
655,762
|
601,439
|
579,124
|
||||||||||||||||||||||||||
|
2,680
|
3,483
|
5,099
|
4,657
|
4,353
|
5,889
|
11,596
|
||||||||||||||||||||||||||
|
415,965
|
450,161
|
467,242
|
165,037
|
183,753
|
199,784
|
224,743
|
||||||||||||||||||||||||||
|
446,696
|
394,324
|
380,932
|
342,559
|
294,259
|
230,871
|
182,516
|
||||||||||||||||||||||||||
| $ | 98,892 | $ | 98,113 | $ | 87,833 | $ | 130,803 | $ | 81,452 | $ | 85,016 | $ | 49,615 | |||||||||||||||||||
|
74,187
|
70,973
|
55,390
|
36,027
|
34,536
|
32,591
|
29,796
|
||||||||||||||||||||||||||
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||
|
53,574
|
80,388
|
112,632
|
92,128
|
69,649
|
53,518
|
50,231
|
||||||||||||||||||||||||||
|
4,499
|
--
|
239,539
|
--
|
--
|
--
|
--
|
||||||||||||||||||||||||||
| (39,767 | ) | (21,793 | ) |
246,649
|
(24,769 | ) | (19,634 | ) | (32,498 | ) |
348
|
|||||||||||||||||||||
| $ | 173,926 | $ | 103,469 | $ | 146,166 | $ | 115,356 | $ | 142,043 | $ | 108,268 | $ | 94,782 | |||||||||||||||||||
|
7.7
|
%
|
6.5
|
%
|
9.7
|
%
|
11.1
|
%
|
13.7
|
%
|
10.2
|
%
|
9.0 | % | |||||||||||||||||||
|
5.2
|
%
|
5.3
|
%
|
5.4
|
%
|
5.7
|
%
|
5.6
|
%
|
4.4
|
%
|
4.0 | % | |||||||||||||||||||
|
2.4
|
%
|
1.2
|
%
|
4.3
|
%
|
5.4
|
%
|
8.1
|
%
|
5.8
|
%
|
5.0 | % | |||||||||||||||||||
|
1.5
|
%
|
1.3
|
%
|
1.3
|
%
|
1.2
|
%
|
1.3
|
%
|
1.5
|
%
|
1.7 | % | |||||||||||||||||||
|
2.1
|
%
|
0.6
|
%
|
1.9
|
%
|
3.5
|
%
|
4.8
|
%
|
3.8
|
%
|
3.2 | % | |||||||||||||||||||
|
(a)
|
The
Company acquired Gold Kist Inc. on December 27, 2006 for $1.139
billion. For financial reporting purposes, we have not included
the operating results and cash flows of Gold Kist in our consolidated
financial statements for the period from December 27, 2006
through December 30, 2006. The operating results and
cash flows of Gold Kist from December 27, 2006 through December
30, 2006
were not material.
|
|
(b)
|
The
Company acquired the ConAgra chicken division on November 23, 2003
for
$635.2 million including the non-cash value of common stock issued
of
$357.5 million. The acquisition 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 the acquisition
date.
|
|
(c)
|
On
April 26, 2004, the Company announced a plan to restructure its
turkey
division, including the sale of some facilities in
Virginia. The facilities were sold in the fourth quarter of
fiscal 2004. In connection with the restructuring, the Company
recorded in cost of sales-restructuring charges of approximately
$64.2
million and $7.9 million of other restructuring
charges.
|
|
(d)
|
The
Company acquired WLR Foods on January 27, 2001 for $239.5 million
and the
assumption of $45.5 million of indebtedness. The acquisition
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 the acquisition date.
|
|
(e)
|
Gross
profit, operating income and net income include the following
non-recurring recoveries, restructuring charges and other unusual
items
for each of the years presented (in
millions):
|
|
2005
|
2004
|
2003
|
||||||||||
|
Effect
on Gross Profit and Operating Income:
|
||||||||||||
|
Cost
of sales-restructuring
|
$ | -- | $ | (64.2 | ) | $ | -- | |||||
|
Non-recurring
recoveries recall insurance
|
$ | -- | $ | 23.8 | $ | -- | ||||||
|
Non-recurring
recoveries for avian influenza
|
$ | -- | $ | -- | $ | 26.6 | ||||||
|
Non-recurring
recoveries for vitamin and methionine litigation
|
$ | -- | $ | 0.1 | $ | 19.9 | ||||||
|
Additional
effect on Operating Income:
|
||||||||||||
|
Other
restructuring charges
|
$ | -- | $ | (7.9 | ) | $ | -- | |||||
|
Other
income for litigation settlement
|
11.7
|
--
|
--
|
|||||||||
|
Other
income for vitamin and methionine litigation
|
$ | -- | $ | 0.9 | $ | 36.0 | ||||||
|
In
addition, the Company estimates its losses related to the October
2002
recall (excluding insurance recoveries) and the 2002 avian influenza
outbreak negatively affected gross profit and operating income
in each of
the years presented as follows (in
millions):
|
|
2004
|
2003
|
2002
|
||||||||||
|
Recall
effects (estimated)
|
$ | (20.0 | ) | $ | (65.0 | ) | $ | -- | ||||
|
Losses
from avian influenza (estimated)
|
$ | -- | $ | (7.3 | ) | $ | (25.6 | ) | ||||
|
(f)
|
Fiscal
2006 included income tax expense of $25.8 million associated with
the
restructuring of the Mexico operations and subsequent repatriation
of
foreign earnings under the American Jobs Creation Act of
2004. Fiscal 2003 included a non-cash tax benefit of $16.9
million associated with the reversal of a valuation allowance on
net
operating losses in the Company’s Mexico operations. Fiscal
2002 included a tax benefit of $11.9 million from changes in Mexican
tax
laws.
|
|
(g)
|
For
purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest
(including capitalized interest) on all indebtedness, amortization
of
capitalized financing costs and that portion of rental expense
that we
believe to be representative of interest. Earnings were
inadequate to cover fixed charges by $40.6 million and $4.1 million
in
fiscal 2006 and 2002 respectively.
|
|
(h)
|
Historical
per share amounts represent both basic and diluted and have been
restated
to give effect to a stock dividend issued on July 30, 1999. The
stock reclassification on November 21, 2003 that resulted in the
new
common stock traded as PPC did not affect the number of shares
outstanding.
|
|
(i)
|
Includes
amortization of capitalized financing costs of approximately $6.6
million,
$2.6 million, $2.3 million, $2.0 million, $1.5 million, $1.4 million,
$1.9
million, $1.2 million, $1.1 million, $1.0 million and $0.9 million
in
fiscal years 2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999,
1998
and 1997, respectively.
|
|
(j)
|
“EBITDA”
is defined as the sum of net income (loss) plus interest, taxes,
depreciation and amortization. EBITDA is presented because it
is used by us and we believe it is frequently used by securities
analysts,
investors and other interested parties, in addition to and not
in lieu of
Generally Accepted Accounting Principles (GAAP) results, to compare
the
performance of companies. EBITDA is not a measurement of
financial performance under GAAP and should not be considered as
an
alternative to cash flow from operating activities or as a measure
of
liquidity or an alternative to net income as indicators of our
operating
performance or any other measures of performance derived in accordance
with GAAP.
|
A
reconciliation of net income to EBITDA is as follows (in
thousands):
|
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
2000
|
1999
|
1998
|
1997
|
||||||||||||||||||||||||||||||||||
|
Net
Income (loss)
|
$ |
47,017
|
$ | (34,232 | ) | $ |
264,979
|
$ |
128,340
|
$ |
56,036
|
$ |
14,335
|
$ |
41,137
|
$ |
52,344
|
$ |
65,253
|
$ |
50,010
|
$ |
41,036
|
|||||||||||||||||||||
|
Add:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Interest
expense, net
|
121,117
|
40,553
|
43,932
|
52,129
|
37,981
|
32,003
|
29,342
|
17,779
|
17,666
|
20,148
|
22,075
|
|||||||||||||||||||||||||||||||||
|
I Income
tax expense
(benefit)
|
44,590
|
(2,085 | ) |
138,544
|
80,195
|
7,199
|
(12,425 | ) |
20,724
|
10,442
|
25,651
|
6,512
|
2,788
|
|||||||||||||||||||||||||||||||
|
Depreciation
and amortization(i)
|
204,903
|
135,133
|
134,944
|
113,788
|
74,187
|
70,973
|
55,390
|
36,027
|
34,536
|
32,591
|
29,796
|
|||||||||||||||||||||||||||||||||
|
Minus:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Amortization
of capitalized financing costs(i)
|
6,554
|
2,606
|
2,321
|
1,951
|
1,477
|
1,417
|
1,860
|
1,236
|
1,063
|
993
|
913
|
|||||||||||||||||||||||||||||||||
|
EBITDA
|
411,073
|
136,763
|
580,078
|
372,501
|
173,926
|
103,469
|
144,733
|
115,356
|
142,043
|
108,268
|
94,782
|
|||||||||||||||||||||||||||||||||
|
Add:
|
||||||||||||||||||||||||||||||||||||||||||||
|
Loss on early extinguishment of debt
|
26,463
|
1,433
|
||||||||||||||||||||||||||||||||||||||||||
|
Adjusted
EBITDA
|
$
|
437,536
|
$
|
146,166
|
||||||||||||||||||||||||||||||||||||||||
Note: We
have included EBITDA adjusted to exclude losses on early extinguishment of
debt
in fiscal 2007, as we believe investors may be interested in our EBITDA
excluding this item as this is how our management analyzes EBITDA from
continuing operations.
Item
7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
§ Description
of the Company
The
Company is the world’s largest chicken company and has one of the best known
brand names in the chicken industry. In the U.S., we produce both
prepared and fresh chicken and fresh turkey. In Mexico and Puerto Rico, we
exclusively produce fresh chicken. Through vertical integration we
control the breeding, hatching and growing of chickens. Our products
are sold to foodservice, retail and frozen entrée customers primarily through
foodservice distributors, retailers and restaurants throughout the U.S. and
Puerto Rico and in the northern and central regions of Mexico. We
operate in three business segments and two geographical areas.
§ Recent
Business Acquisition
On
December 27, 2006, we acquired 88.9% of all outstanding common shares of
Atlanta-based Gold Kist Inc. (“Gold Kist”). Gold Kist was the
third-largest chicken company in the U.S., accounting for approximately 9%
of
all chicken produced domestically in recent years. On January 9,
2007, we acquired the remaining Gold Kist common shares, making Gold Kist
a
wholly owned subsidiary of Pilgrim’s Pride Corporation. For financial
reporting purposes, we have not included the operating results and cash flows
of
Gold Kist in our consolidated financial statements for the period from December
27, 2006 through December 30, 2006. The
operating results and cash flows of Gold Kist from December 27, 2006 through
December 30, 2006 were not material.
We
are in the process of fully integrating the operations of Gold Kist into
the
Company. We intend to do this as rapidly as possible without
interrupting the business. We expect the acquisition and its
integration will result in significant cost-saving opportunities and enhanced
growth. We are currently implementing an optimization plan for all
production and distribution facilities and determining and implementing a
“best
practice” approach across all operations.
§ Executive
Summary
Overview. Focus
and concern abroad over avian influenza significantly reduced international
demand for chicken products during fiscal 2006 when compared to fiscal 2005,
leading at times to higher inventory levels and contributing to lower overall
market pricing. At the same time, industry production levels
continued to increase, creating an oversupply situation and further weakening
prices. During fiscal 2006, the average market pricing for chicken
leg quarters and breast meat declined approximately 19.7% and 15.8%,
respectively, from fiscal 2005. Additionally, our U.S. chicken sales
volume for fiscal 2006 was 2.3% less than fiscal 2005 because of avian influenza
concerns in the international markets.
The
cost of corn, our primary feed ingredient, increased significantly from August
2006 to the date of this report.
In
response to this challenging operating environment, we executed a multi-point
plan designed to improve our competitive position:
|
-
|
First,
we delayed one-half of our planned expansion in the Fresh Food
Service
Division of our Mayfield, Kentucky plant from July 2006 until September
2006, and the other half of this expansion from July 2006 until
June
2007.
|
|
-
|
Second,
beginning on July 1, 2006, we reduced our weekly slaughter rate
by
approximately 3%, which is equivalent to approximately 830,000
head per
week. Beginning on January 1, 2007, we further reduced weekly
slaughter to achieve a 5% year-over-year decline, which is equivalent
to
approximately 1.3 million head per
week.
|
|
-
|
Third,
we reduced our capital investments for fiscal 2006 to $144
million. Our original capital investment projection for the year had
been in the range of $180-$200 million. We focused only on those
projects we deemed critically necessary to our business or those in
which our immediate investment was judged by us to be
in our best long-term
interests.
|
|
-
|
Fourth,
we sharpened our focus on reducing costs and operating more
efficiently.
|
Industry-wide production cutbacks implemented early in 2007 along with strong
demand for our products created an improved pricing environment for our products
in the last half of fiscal 2007 when compared to the same prior year
period. This allowed the Company to return to profitability in spite
of further increases in the cost of feed ingredients during fiscal
2007. During fiscal 2007, the average market pricing for chicken
increased from the prior fiscal year.
Additionally,
our U.S. chicken sales volume in fiscal 2007 was 41.1% higher than fiscal
2006
due primarily to the Gold Kist acquisition.
We
also experienced increased production and freight cost related to operational
inefficiencies, labor shortages at several facilities and higher fuel
costs. We believe the labor shortages are attributable in part to
heightened publicity of governmental immigration enforcement efforts, ongoing
Company compliance efforts and continued changes in the Company’s employment
practices in light of recently published governmental best practices and
the
pending new labor hiring regulations.
Results. Net
income for fiscal 2007 of $47.0 million is up $81.2 million from net loss
of
$34.2 million for fiscal 2006. This increase is primarily due to a
7.8% increase in our selling prices and an improvement in our product mix
on top
of a 34.7% increase in volume because of the Gold Kist acquisition, offset
by
the increased cost of sales, net interest charges and other costs described
below.
Offsetting
the price and volume improvements were the following:
|
·
|
In
addition to the effects of the Gold Kist acquisition, cost of sales
increased from fiscal 2006 to fiscal 2007 due in part to higher
feed
ingredient and fuel costs between the two periods, operational
inefficiencies and labor shortages. Feed ingredients costs rose
38.2% and 31.3% in the U.S. and Mexico chicken divisions, respectively,
due primarily to corn and soybean meal
prices.
|
|
·
|
Net
interest expense increased $80.6 million in fiscal 2007, when compared
to
fiscal 2006, due primarily to the financing of the Gold Kist
acquisition.
|
|
·
|
We
recognized $14.5 million and $12.0 million of losses on the early
extinguishments of debt during the second and fourth quarters of
fiscal
2007, respectively.
|
§ 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, which 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 35.8% of our consolidated cost of sales in fiscal
2007. 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. The cost of corn and
soybean meal, our primary feed ingredients, increased significantly from
August
2006 until the date of this report, and there can be no assurance that the
price
of corn or soybean meal will not continue to rise as a result of, among other
things, increasing demand for these products around the world and alternative
uses of these products, such as ethanol and biodiesel production. As
further processing is performed, feed ingredient costs become a decreasing
percentage of a product’s total production cost, thereby reducing their impact
on our profitability. Products sold in this form enable us to charge
a premium, reduce the impact of feed ingredient costs on our profitability
and
improve and stabilize our profit
margins.
As
a significant portion of the U.S. poultry production is exported, the commodity
prices of chicken and turkey can be, and in recent periods have been, adversely
affected by disruptions in poultry export markets. 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 and Japan have restricted
the importation of U.S.-produced poultry for both of these reasons in recent
periods. In addition, as described above, in fiscal 2006, focus and
concern abroad over avian influenza significantly reduced international demand
for chicken products. 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, 2007 to 19.8% and is scheduled to be reduced
so
that the final tariff rate at January 1, 2008 will be zero. The
tariff was imposed due to concerns that the duty-free importation of such
products as provided by the North American Free Trade Agreement would injure
Mexico’s poultry industry. As such tariffs are reduced, we expect
greater amounts of chicken to be imported into Mexico from the U.S., which
could
negatively affect the profitability of Mexican chicken producers, including
our
Mexico operations. 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
October 2007, Mexico’s legislative bodies enacted La Ley del Impuesto
Empresarial a Tasa Única (“IETU”), a new minimum corporation tax, which will be
assessed on companies doing business in Mexico beginning January 1,
2008. We are currently evaluating the anticipated impact that IETU
will have on our business and operating results and there can be no assurance
that IETU will not have a material adverse effect on our financial
results.
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) a
seller
of other products. Our chicken segment includes sales of chicken
products we produce and purchase for resale in the U.S., including Puerto
Rico,
and Mexico. Our chicken segment conducts separate operations
in
the
U.S., Puerto Rico and Mexico and is reported as two separate geographical
areas. Substantially all of the assets and operations of the fiscal
2007 acquisition are included in our U.S. chicken segment since the date
of
acquisition.
Our
turkey segment includes sales of turkey products we produce and purchase
for
resale in our turkey and distribution operations in the U.S.
Our
other products segment includes distribution of non-poultry products that
are
purchased from third parties and sold to independent grocers and quick service
restaurants. Also included in this category are sales of table eggs,
feed, protein products, live hogs and other items, some of which are produced
or
raised by the Company.
Inter-area
sales and inter-segment sales, which are not material, are accounted for
at
prices comparable to normal trade customer sales. Corporate 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.
Assets
associated with our corporate functions, including cash and cash equivalents
and
investments in available for sale securities, are included in our chicken
segment.
Selling,
general and administrative expenses related to our distribution centers are
allocated based on the proportion of net sales to the particular segment
to
which the product sales relate.
Depreciation
and amortization, total assets and capital expenditures of our distribution
centers are included in our chicken segment based on the primary focus of
the
centers.
The
following table presents certain information regarding our
segments:
|
Fiscal
Year Ended
|
||||||||||||
|
September
29, 2007(a)
|
September
30, 2006
|
October
1, 2005
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Net
Sales to Customers:
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 6,328,354 | $ | 4,098,403 | $ | 4,411,269 | ||||||
|
Mexico
|
488,466
|
418,745
|
403,353
|
|||||||||
|
Sub-total
|
6,816,820
|
4,517,148
|
4,814,622
|
|||||||||
|
Turkey
|
122,364
|
130,901
|
204,838
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
638,738
|
570,510
|
626,056
|
|||||||||
|
Mexico
|
20,677
|
17,006
|
20,759
|
|||||||||
|
Sub-total
|
659,415
|
587,516
|
646,815
|
|||||||||
|
Total
|
$ | 7,598,599 | $ | 5,235,565 | $ | 5,666,275 | ||||||
|
Operating
Income (Loss):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 192,447 | $ | 28,619 | $ | 405,662 | ||||||
|
Mexico
|
13,116
|
(17,960 | ) |
39,809
|
||||||||
|
Sub-total
|
205,563
|
10,659
|
445,471
|
|||||||||
|
Turkey
|
(4,655 | ) | (15,511 | ) | (22,539 | ) | ||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
28,637
|
6,216
|
8,250
|
|||||||||
|
Mexico
|
2,992
|
1,638
|
4,630
|
|||||||||
|
Sub-total
|
31,629
|
7,854
|
12,880
|
|||||||||
|
Total
|
$ | 232,537 | $ | 3,002 | $ | 435,812 | ||||||
|
Depreciation
and Amortization: (b)
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 183,808 | $ | 109,346 | $ | 114,131 | ||||||
|
Mexico
|
11,015
|
11,305
|
12,085
|
|||||||||
|
Sub-total
|
194,823
|
120,651
|
126,216
|
|||||||||
|
Turkey
|
1,587
|
6,593
|
3,343
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
8,278
|
7,743
|
5,196
|
|||||||||
|
Mexico
|
215
|
146
|
189
|
|||||||||
|
Sub-total
|
8,493
|
7,889
|
5,385
|
|||||||||
|
Total
|
$ | 204,903 | $ | 135,133 | $ | 134,944 | ||||||
|
Total
Assets:
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 3,247,812 | $ | 1,897,763 | $ | 2,059,579 | ||||||
|
Mexico
|
348,894
|
361,887
|
287,414
|
|||||||||
|
Sub-total
|
3,596,706
|
2,259,650
|
2,346,993
|
|||||||||
|
Turkey
|
69,653
|
76,908
|
77,319
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
103,757
|
88,650
|
85,581
|
|||||||||
|
Mexico
|
4,120
|
1,660
|
2,010
|
|||||||||
|
Sub-total
|
107,877
|
90,310
|
87,591
|
|||||||||
|
Total
|
$ | 3,774,236 | $ | 2,426,868 | $ | 2,511,903 | ||||||
|
Capital
Expenditures (excluding acquisition):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 164,449 | $ | 133,106 | $ | 102,470 | ||||||
|
Mexico
|
1,633
|
6,536
|
4,924
|
|||||||||
|
Sub-total
|
166,082
|
139,642
|
107,394
|
|||||||||
|
Turkey
|
502
|
257
|
3,604
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
5,699
|
3,567
|
5,448
|
|||||||||
|
Mexico
|
40
|
416
|
142
|
|||||||||
|
Sub-total
|
5,739
|
3,983
|
5,590
|
|||||||||
|
Total
|
$ | 172,323 | $ | 143,882 | $ | 116,588 | ||||||
|
(a)
|
The
Company acquired Gold Kist on December 27, 2006 for $1.139
billion. For financial reporting purposes, we have not included
the operating results and cash flows of Gold Kist in our consolidated
financial statements for the period from December 27, 2006
through December 30, 2006. The operating results and
cash flows of Gold Kist from December 27, 2006 through December
30, 2006
were not material.
|
|
(b)
|
Includes
amortization of capitalized financing costs of approximately $6.6
million,
$2.6 million, and $2.3 million in fiscal 2007, 2006 and 2005,
respectively, and amortization of intangible assets of approximately
$6.3
million in fiscal 2007.
|
The
following table presents certain items as a percentage of net sales for the
periods indicated:
Fiscal
Year Ended
|
September
29,
2007
|
September
30,
2006
|
October
1,
2005
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
and Expenses
|
||||||||||||
|
Cost
of sales
|
92.2
|
94.3
|
86.8
|
|||||||||
|
Gross
profit
|
7.8
|
5.7
|
13.2
|
|||||||||
|
Selling,
general and administrative expense
|
4.7
|
5.6
|
5.5
|
|||||||||
|
Operating
income
|
3.1
|
0.1
|
7.7
|
|||||||||
|
Interest
expense, net
|
1.6
|
0.8
|
0.7
|
|||||||||
|
Income
(loss) before income taxes
|
1.2
|
(0.7 | ) |
7.1
|
||||||||
|
Net
income (loss)
|
0.6
|
(0.7 | ) |
4.7
|
||||||||
Results
of Operations
Fiscal
2007 Compared to
Fiscal 2006
Net
Sales. Net
sales for fiscal 2007 increased $2,363.0 million, or 45.1%, over fiscal
2006. The following table provides additional information regarding
net sales (dollars in millions):
|
Fiscal
Year Ended
|
|||||||||||||
|
September
29,
|
Change
from
|
Percentage
|
|||||||||||
|
Source
|
2007
|
Fiscal
2006
|
Change
|
||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$ | 6,328.3 | $ | 2,229.9 | 54.4 | % |
(a)
|
||||||
|
Mexico
|
488.5
|
69.8
|
16.7 | % |
(b)
|
||||||||
| $ | 6,816.8 | $ | 2,299.7 | 50.9 | % | ||||||||
|
Turkey
|
$ | 122.4 | $ | (8.5 | ) | (6.5 | ) % |
(c)
|
|||||
|
Other
products:
|
|||||||||||||
|
United
States
|
$ | 638.7 | $ | 68.1 | 11.9 | % |
(d)
|
||||||
|
Mexico
|
20.7
|
3.7
|
21.8 | % |
(e)
|
||||||||
| $ | 659.4 | $ | 71.8 | 12.2 | % | ||||||||
|
Net
Sales
|
$ | 7,598.6 | $ | 2,363.0 | 45.1 | % | |||||||
|
(a)
|
U.S.
chicken sales increased primarily as the result of a 41.1% increase
in
volume due to the acquisition of Gold Kist on December 27, 2006,
increases
in the average selling prices of chicken and, for legacy Pilgrim’s Pride
products, an improved product mix containing more higher-margin,
value-added products.
|
|
(b)
|
Mexico
chicken sales increased compared to fiscal year 2006, due primarily
to
increases in production and a 21.2% increase in pricing per pound
sold.
|
|
(c)
|
Turkey
sales declined due primarily to an 8.1% decrease in pricing of
turkey
products.
|
|
(d)
|
U.S.
sales of other products increased primarily due to the acquisition
of Gold
Kist on December 27, 2006 and improved pricing from rendering
operations.
|
|
(e)
|
Mexico
other products sales increased due to increased sales volumes of
and
increased sales prices for commercial
feed.
|
Gross
Profit. Gross profit for fiscal 2007 increased $293.9 million,
or 98.8%, over fiscal 2006. The following table provides gross profit
information (dollars in millions):
|
Fiscal
Year Ended
|
Percentage
|
Percentage
|
|||||||||||||||||||
|
September
29,
|
Change
from
|
Percentage
|
of
Net Sales
|
of
Net Sales
|
|||||||||||||||||
|
Components
|
2007
|
Fiscal
2006
|
Change
|
Fiscal
2007
|
Fiscal
2006
|
||||||||||||||||
|
Net
sales
|
$ | 7,598.6 | $ | 2,363.0 | 45.1 | % | 100.0 | % | 100.0 | % | |||||||||||
|
Cost
of sales
|
7,007.1
|
2,069.1
|
41.9 | % | 92.2 | % | 94.3 | % |
(a)
|
||||||||||||
|
Gross
profit
|
$ | 591.5 | $ | 293.9 | 98.8 | % | 7.8 | % | 5.7 | % |
(b)
|
||||||||||
|
(a)
|
Cost
of sales in the U.S. chicken operations increased $1,995.7 million
due
primarily to the acquisition of Gold Kist and increased quantities
and
costs of energy and feed ingredients. We also experienced in
fiscal 2007, and continue to experience, increased production and
freight
costs related to operational inefficiencies, labor shortages at
several
facilities and higher fuel costs. We believe the labor
shortages are attributable in part to heightened publicity of governmental
immigration enforcement efforts, ongoing Company compliance efforts
and
continued changes in the Company’s employment practices in light of
recently published governmental best practices and the pending
new labor
hiring regulations. Cost of sales in our Mexico chicken
operations increased primarily due to increased feed ingredient
cost.
|
|
(b)
|
Gross
profit as a percent of net sales improved 2.1 percentage points
due to
sales prices in the industry increasing in response to the increased
cost
of feed ingredients.
|
Operating
Income. Operating income for fiscal 2007 compared to fiscal
2006 increased $229.5 million, as described in the following table (dollars
in
millions):
|
Fiscal
Year Ended
|
||||||||||||
|
September
29,
|
Change
from
|
Percentage
|
||||||||||
|
Source
|
2007
|
Fiscal
2006
|
Change
|
|||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 192.5 | $ | 163.9 | 573.1 | % | ||||||
|
Mexico
|
13.1
|
31.0
|
173.2 | % | ||||||||
| $ | 205.6 | $ | 194.9 | NM | ||||||||
|
Turkey
|
$ | (4.7 | ) | $ | 10.8 | 70.0 | % | |||||
|
Other
Products:
|
||||||||||||
|
United
States
|
$ | 28.6 | $ | 22.4 | 361.3 | % | ||||||
|
Mexico
|
3.0
|
1.4
|
87.5 | % | ||||||||
| $ | 31.6 | $ | 23.8 | 305.1 | % | |||||||
|
Operating
Income
|
$ | 232.5 | $ | 229.5 | NM | |||||||
NM = Not meaningful
|
Fiscal
Year Ended
|
Percentage
|
Percentage
|
||||||||||||
|
September
29,
|
Change
from
|
Percentage
|
of
Net Sales
|
of
Net Sales
|
||||||||||
|
Components
|
2007
|
Fiscal
2006
|
Change
|
Fiscal
2007
|
Fiscal
2006
|
|||||||||
|
Gross
profit
|
$
|
591.5
|
$
|
293.9
|
98.8
|
%
|
7.8
|
%
|
5.7
|
%
|
||||
|
S Selling, general and administrative expense
|
359.0
|
64.4
|
21.9
|
%
|
4.7
|
%
|
5.6
|
%
|
(a)
|
|||||
|
Operating
income
|
$
|
232.5
|
$
|
229.5
|
NM
|
|
3.1
|
%
|
0.1
|
%
|
(b)
|
|||
NM = Not meaningful
|
(a)
|
Selling,
general and administrative expense increased due primarily to the
acquisition of Gold Kist.
|
|
(b)
|
The
increase in operating income when compared to fiscal 2006 is due
primarily
to the acquisition of Gold Kist, increases in the average selling
prices
of chicken, improved product mix and a reduction of selling, general
and
administrative expenses as a percentage of net sales, offset by
increased
production and freight costs and the other factors described
above.
|
Interest
Expense. Consolidated
interest expense increased 148.6% to $125.8 million in fiscal 2007, when
compared to $50.6 million for fiscal 2006, due primarily to increased borrowing
for the acquisition of Gold Kist.
Interest
Income. Interest
income decreased 54.0% to $4.6 million in fiscal 2007, compared to $10.0
million
in fiscal 2006, due to lower investment balances.
Loss
on Early Extinguishment of
Debt. During
fiscal 2007, the Company recognized loss on early extinguishment of debt
of
$26.4 million, which included premiums of $16.9 million along with unamortized
loan costs of $9.5 million. These losses related to the redemption of
$77.5
million
of our 9 1/4/% Senior Subordinated Notes due 2013 and all of our 9 5/8%
Senior
Notes due 2011.
Income
Tax Expense. Consolidated
income tax expense in fiscal 2007 was $44.6 million, compared to tax
benefit of
$2.1 million in fiscal 2006. The increase in consolidated income tax
expense is the result of the pretax earnings in fiscal 2007 versus pre-tax
loss
in the U.S. and Mexico in 2006 and an increase in tax contingency
reserves. In addition, fiscal 2006 included income tax expense of
$25.8 million for the restructuring of the Mexico operations and subsequent
repatriation of earnings from Mexico under the American Jobs Creation
Act
of 2004, and a $10.6 million benefit from a change in an estimate,
both of which are described in Note A to the Consolidated Financial
Statements.
Fiscal
2006 Compared to
Fiscal 2005
Net
Sales. Net
sales for fiscal 2006 decreased $430.7 million, or 7.6%, when compared
to fiscal
2005. The following table provides additional information regarding
net sales (dollars in millions):
|
Fiscal
Year Ended
|
|||||||||||||
|
September
30,
|
Change
from
|
Percentage
|
|||||||||||
|
Source
|
2006
|
Fiscal
2005
|
Change
|
||||||||||
|
Chicken:
|
|||||||||||||
|
United
States
|
$ | 4,098.4 | $ | (312.8 | ) | (7.1 | ) % |
(a)
|
|||||
|
Mexico
|
418.7
|
15.3
|
3.8 | % |
(b)
|
||||||||
| $ | 4,517.1 | $ | (297.5 | ) | (6.2 | ) % | |||||||
|
Turkey
|
$ | 130.9 | $ | (73.9 | ) | (36.1 | ) % |
(c)
|
|||||
|
Other
Products:
|
|||||||||||||
|
United
States
|
$ | 570.6 | $ | (55.5 | ) | (8.9 | ) % |
(d)
|
|||||
|
Mexico
|
17.0
|
(3.8 | ) | (18.3 | ) % |
(e)
|
|||||||
| $ | 587.6 | $ | (59.3 | ) | (9.2 | ) % | |||||||
|
Net
Sales
|
$ | 5,235.6 | $ | (430.7 | ) | (7.6 | ) % | ||||||
|
(a)
|
U.S.
chicken sales declined primarily due to 15.8% lower breast meat
prices and
19.7% lower leg quarter prices and 2.3% reduction in
volume.
|
|
(b)
|
Mexico
chicken sales increased compared to fiscal year 2005, due primarily
to
increases in production, partially offset by a 9.1% decrease
in pricing
per pound sold.
|
|
(c)
|
Turkey
sales declined due to our decision in the first quarter of fiscal
2006 to
cease production of certain products at our Franconia, Pennsylvania
turkey
cooking operations.
|
|
(d)
|
U.S.
sales of other products decreased primarily due to the divesture
of
certain distribution centers whose sales included a large volume
of
non-poultry products.
|
|
(e)
|
Mexico
other products sales decreased due to reduced sales volumes of
commercial
feed.
|
Gross
Profit. Gross
profit for fiscal 2006 decreased $447.6 million, or 60.1%, over fiscal
2005. The following table provides gross profit information (dollars
in millions):
|
Fiscal
Year Ended
|
Change
|
Percentage
|
Percentage
|
||||||||||||||||||
|
September
30,
|
from
|
Percentage
|
of
Net Sales
|
of
Net Sales
|
|||||||||||||||||
|
Components
|
2006
|
Fiscal
2005
|
Change
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||||||
|
Net
sales
|
$ | 5,235.6 | $ | (430.7 | ) | (7.6 | ) % | 100.0 | % | 100.0 | % | ||||||||||
|
Cost
of sales
|
4,938.0
|
16.9
|
0.3 | % | 94.3 | % | 86.8 | % |
(a)
|
||||||||||||
|
Gross
profit
|
$ | 297.6 | $ | (447.6 | ) | (60.1 | ) % | 5.7 | % | 13.2 | % | ||||||||||
|
(a)
|
Cost
of sales in the U.S. chicken operations increased $71.8 million
due
primarily to increased energy and packaging costs. Cost of
sales in our turkey operations decreased significantly because
of the
restructuring of this division in fiscal 2004 and first quarter
of fiscal
2006. Cost of sales in our Mexico chicken operations increased
$71.6 million primarily due to a 9.7% increase in production
volumes.
|
Operating
Income. Operating income for fiscal 2006 compared to fiscal
2005 decreased $432.8 million, or 99.3%, as described in the following
table
(dollars in millions):
|
Fiscal
Year Ended
|
||||||||||||
|
September
30,
|
Change
from
|
Percentage
|
||||||||||
|
Source
|
2006
|
Fiscal
2005
|
Change
|
|||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 28.6 | $ | (377.1 | ) | (93.0 | ) % | |||||
|
Mexico
|
(17.9 | ) | (57.7 | ) | (145.0 | ) % | ||||||
| $ | 10.7 | $ | (434.8 | ) | (97.6 | ) % | ||||||
|
Turkey
|
$ | (15.5 | ) | $ | 7.0 | 31.1 | % | |||||
|
Other
Products:
|
||||||||||||
|
United
States
|
$ | 6.2 | $ | (2.0 | ) | (24.4 | ) % | |||||
|
Mexico
|
1.6
|
(3.0 | ) | (65.2 | ) % | |||||||
| $ | 7.8 | $ | (5.0 | ) | (39.1 | ) % | ||||||
|
Operating
Income
|
$ | 3.0 | $ | (432.8 | ) | (99.3 | ) % | |||||
|
Fiscal
Year Ended
|
Percentage
|
Percentage
|
|||||||||||||||||||
|
September
30,
|
Change
from
|
Percentage
|
of
Net Sales
|
of
Net Sales
|
|||||||||||||||||
|
Components
|
2006
|
Fiscal
2005
|
Change
|
Fiscal
2006
|
Fiscal
2005
|
||||||||||||||||
|
Gross
profit
|
$ | 297.6 | $ | (447.6 | ) | (60.1 | ) % | 5.7 | % | 13.2 | % | ||||||||||
|
S
Sel l
ing, general and administrative expense
|
294.6
|
(14.8 | ) | (4.8 | ) % | 5.6 | % | 5.5 | % |
(a)
|
|||||||||||
|
Operating
income
|
$ | 3.0 | $ | (432.8 | ) | (99.3 | ) % | 0.1 | % | 7.7 | % |
(b)
|
|||||||||
|
(a)
|
Selling,
general and administrative expense decreased due primarily to
a decrease
in costs associated with our profit-based retirement and compensation
plans.
|
|
(b)
|
The
decrease in operating income when compared to fiscal 2005 is
due primarily
to lower market pricing for chicken products, as well as increased
costs
for energy and packaging.
|
Interest
Expense. Consolidated
interest expense increased 2.0% to $50.6 million in fiscal 2006, when compared
to $49.6 million for fiscal 2005, due primarily to higher average outstanding
debt balances experienced in the fiscal year.
Interest
Income. Interest
income increased 75.4% to $10.0 million in fiscal 2006, compared to $5.7
million
in fiscal 2005, due to higher average investment balances and slightly
higher
rates.
Income
Tax
Expense. Consolidated
income tax benefit in fiscal 2006 was $2.1 million, compared to tax expense
of
$138.5 million in fiscal 2005. The decrease in consolidated income
tax expense is the result of the pretax loss in fiscal 2006 versus significant
earnings in the U.S. and Mexico in fiscal 2005. In addition, fiscal
2006 included income tax expense of $25.8 million for the restructuring
of the
Mexico operations and subsequent repatriation of earnings from Mexico under
the
American Jobs Creation Act of 2004, and a $10.6 million benefit from
a
change
in an estimate, both of which are described in Note A to the Consolidated
Financial Statements.
Liquidity
and Capital Resources
The
following table presents our available sources of liquidity as of September
29,
2007.
|
Facility
|
Amount
|
|||||||||
|
Source
of Liquidity
|
Amount
|
Outstanding
|
Available
|
|||||||
|
(in
millions)
|
||||||||||
|
Cash
and cash equivalents
|
$
|
--
|
$
|
--
|
$
|
66.2
|
||||
|
Investments
in available-for-sale securities
|
--
|
--
|
8.2
|
|||||||
|
Debt
facilities:
|
||||||||||
|
Revolving
credit facilities
|
350.0
|
26.3
|
238.8
|
(a)
|
||||||
|
Revolving/term
facility
|
550.0
|
--
|
550.0
|
|||||||
|
|
||||||||||
|
Receivables
purchase agreement
|
300.0
|
300.0
|
--
|
|||||||
|
(a)
|
At
September 29, 2007, the Company had $84.9 million in letters
of credit
outstanding relating to normal business transactions.
|
In
September 2006, the Company entered into an amended and restated revolver/term
credit agreement with a maturity date of September 21, 2016. At
September 29, 2007 this revolver/term credit agreement provides for an
aggregate
commitment of $1.172 billion consisting of i) a $550 million revolving/term
loan
commitment and ii) $622.4 million in various term loans. At September
29, 2007, the Company had nothing outstanding under the revolver and $622.4
million outstanding in various term loans. The total credit facility
is presently secured by certain fixed assets with a current availability
of
$550.0 million. From time to time, if certain conditions are satisfied,
the
Company has the right to increase the revolving/term loan commitment and
term
loan commitment to a total maximum amount of $1.0 billion and $750 million,
respectively. Borrowings under the revolving/term loan commitment are
available on a revolving basis until September 21, 2011 at which time the
outstanding borrowings will be converted to a term loan maturing on September
21, 2016. The fixed rate term loans bear interest at rates ranging
from 6.84% to 7.06%. The voluntary converted loans bear interest at
rates ranging from LIBOR plus 1.0% - 2.0% depending upon the Company’s total
debt to capitalization ratio. The floating rate term loans bear
interest at LIBOR plus 1.50%-1.75% based on the ratio of the Company’s debt to
EBITDA, as defined in the agreement. The revolving/term loans provide
for interest rates ranging from LIBOR plus 1.0%-2.0% depending upon the
Company’s total debt to capitalization ratio. Revolving/term loans
converted to term loans on September 21, 2011 will be payable in equal
quarterly
principal payments of 10% per annum of the original principal amount beginning
the calendar quarter following the conversion date with the remaining balance
due on the maturity date. Of the term loans outstanding, $208.7
million must be repaid in equal quarterly principal payments of 1% per
annum of
the original principal
amount,
with the remaining balance due on the maturity date. All borrowings
are subject to the availability of eligible collateral and no material
adverse
change provisions. Commitment fees charged on the unused balance of
this facility range from 0.20% to 0.40% depending upon the Company’s total debt
to capitalization ratio. One-half of the outstanding obligations
under the revolver/term credit agreement are guaranteed by Pilgrim Interests,
Ltd., an entity related to our Senior Chairman, Lonnie "Bo"
Pilgrim.
On
December 15, 2006, the Company borrowed $100 million at 6.84% under our
revolver/term credit agreement and used substantially all of the funds
to repay,
in full, term loans payable to an insurance company under a note purchase
agreement maturing in 2012 and 2013.
In
January 2007, the Company borrowed (1) $780 million under our revolver/term
credit agreement and (2) $450 million under our bridge loan agreement to
fund
the Gold Kist acquisition. On
January 24, 2007, the Company closed on the sale of $400 million of 7 5/8%
Senior Notes due 2015 (the “Senior Notes”) and $250 million of 8 3/8% Senior
Subordinated Notes due 2017 (the “Subordinated Notes”), sold at
par. Interest is payable on May 1 and November 1 of each year,
beginning November 1, 2007. We may redeem all or part of the Senior
Notes on or after May 1, 2011. We may redeem all or part of the
Subordinated Notes on or after May 1, 2012. Before May 1, 2010, we
also may redeem up to 35% of the aggregate principal amount of each of
the
Senior Notes and the Subordinated Notes with the proceeds of certain equity
offerings. Each of these optional redemptions is at a premium as
described in the indentures under which the notes were issued. The
proceeds from the sale of the notes, after underwriting discounts, were
used to
(1) retire the loans outstanding under our bridge loan agreement, (2) repurchase
$77.5 million of the Company’s 9 1/4% Senior Subordinated Notes due 2013 at a
premium of $7.4 million plus accrued interest of $1.3 million and (3) reduce
outstanding revolving loans under our revolver/term credit
agreement. Loss on early extinguishment of debt includes the $7.4
million premium along with unamortized loan costs of $7.1 million related
to the
retirement of these Notes.
On
September 21, 2007, the Company redeemed all of its 9 5/8% Senior Notes
due 2011
at a total cost of $307.5 million. To fund a portion of the aggregate
redemption price, the Company sold $300 million of trade receivables under
its
Receivables Purchase Agreement. Loss on early extinguishment of debt
includes the $9.5 million premium along with unamortized loan costs of
$2.5
million related to the retirement of these Notes.
As
of September 29, 2007, we had a $300.0 million commitment under a domestic
revolving credit facility that provides for interest rates ranging from
LIBOR
plus 0.75-1.75%
depending upon our total debt to capitalization ratio. From time to
time, if certain conditions are satisfied, the Company has the right to
increase
the revolving commitment to a total maximum amount of $450
million. At September 29, 2007, $215.1 million was available for
borrowing under the domestic revolving credit facility. Borrowings
against this facility are subject to the availability of eligible collateral
and
no material adverse change provisions. The obligations under this
facility are secured by domestic chicken inventories. Commitment fees
charged on the unused balance of this facility range from 0.175% to 0.35%
depending upon the Company’s total debt to capitalization
ratio. One-half of the outstanding obligations under the domestic
revolving credit facility are guaranteed by Pilgrim Interests, Ltd., an
entity
related to our Senior Cairman, Lonnie "Bo" Pilgrim.
On
September 25, 2006, a subsidiary of the Company, Avícola Pilgrim’s Pride de
México, S. de R.L. de C.V. (the “Borrower”), entered into a secured revolving
credit agreement of up to $75 million with a final maturity date of September
25, 2011. In March 2007, the Borrower elected to reduce the
commitment under this agreement to approximately $50
million. Outstanding amounts bear interest at rates ranging from the
higher of the Prime Rate or Federal Funds Effective Rate plus 0.5%; LIBOR
plus
1.25%-2.75%; or TIIE plus 1.05%-2.55% depending on the loan
designation. Obligations under this agreement are secured by a
security interest in and lien upon all capital stock and other equity interests
of the Company’s Mexican subsidiaries. All the obligations of the
Borrower are secured by unconditional guaranty by the Company. At
September 29, 2007, $26.3 million was outstanding and approximately $23.7
million was available for borrowings. All borrowings are subject to
no material adverse effect provisions.
We
also maintain operating leases for various types of equipment, some of
which
contain residual value guarantees for the market value of assets at the
end of
the term of the lease. The terms of the lease maturities range from
one to seven years. We estimate the maximum potential amount of the
residual value guarantees is approximately $21.1 million; however, the
actual
amount would be offset by any recoverable amount based on the fair market
value
of the underlying leased assets. No liability has been recorded
related to this contingency as the likelihood of payments under these guarantees
is not considered to be probable and the fair value of the guarantees is
immaterial. We historically have not experienced significant payments
under similar residual guarantees.
At
September 29, 2007, our working capital decreased to $379.1 million and
our
current ratio decreased to 1.42 to 1, compared with working capital of
$528.8
million and a current ratio of 1.92 to 1 at September 30, 2006, primarily
due to
lower cash balances and receivables and higher accounts payable and accrued
liabilities, partially offset by increased inventories.
Trade
accounts and other receivables were $130.2 million at September 29, 2007,
compared to $263.1 million at September 30, 2006. The $132.9 million,
or 50.5%, decrease in trade accounts and other receivables was primarily
due to
the September 2007 sale of $300.0 million trade receivables under the
Receivables Purchase Agreement, partially offset by receivables obtained
from
the Gold Kist acquisition.
Inventories
were $961.9 million at September 29, 2007, compared to $585.9 million at
September 30, 2006. The $376.0 million, or 64.2%, increase in
inventories was primarily due to the Gold Kist acquisition and increased
product
costs in finished chicken products and live inventories as a result of
higher
feed ingredient costs.
Accounts
payable increased $108.6 million, or 37.0%, to $402.3 million at September
29,
2007, compared to $293.7 million at September 30, 2006. The increase
was primarily due to the Gold Kist acquisition and higher feed ingredient
costs.
Accrued
liabilities increased $227.2 million, or 83.3%, to $500.0 million compared
to
$272.8 million at September 30, 2006. This increase is due primarily
to the Gold Kist acquisition.
Cash flows provided by operating activities were $464.0 million and $30.4
million for fiscal 2007 and 2006, respectively. The increase in cash
flows provided by operating activities for
fiscal
2007 when compared to fiscal 2006 was primarily due to increased net income
and
lower receivables.
Cash
flows provided by (used in) investing activities were ($1.184) billion
and $32.3
million for fiscal 2007 and 2006, respectively. Cash of $1.102
billion was used to acquire Gold Kist. Capital expenditures
(excluding business acquisitions) of $172.3 million and $143.8 million
for
fiscal years 2007 and 2006, respectively, were primarily incurred to acquire
and
expand certain facilities, improve efficiencies, reduce costs and for the
routine replacement of equipment. Cash was used to purchase
investment securities of $125.0 million in fiscal 2007 and $318.3 million
in
fiscal 2006. Cash proceeds in fiscal 2007 from the sale or maturity
of investment securities was $208.7 million. We anticipate spending
approximately $290 million to $300 million in fiscal 2008 to improve
efficiencies and for the routine replacement of equipment at our current
operations. We expect to finance such expenditures with available
cash and operating cash flows and existing revolving/term and revolving
credit
facilities.
Cash
flows used in financing activities were $630.2 million and $38.8 million
for the
fiscal years 2007 and 2006, respectively. The increase in cash
provided by financing activities for fiscal 2007, when compared to fiscal
2006,
was attributable to proceeds received from long-term debt, including proceeds
of
$1.23 billion borrowed to fund the Gold Kist 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. Among other considerations, we have not recorded a liability
for any of these indemnities as, based upon the likelihood of payment,
the fair
value of such indemnities is immaterial.
Our
loan agreements generally obligate us to reimburse the applicable lender
for
incremental increased costs due to a change in law that imposes (i) any
reserve
or special deposit requirement against assets of, deposits with or credit
extended by such lender related to the loan, (ii) any tax, duty or other
charge
with respect to the loan (except standard income tax) or (iii) capital
adequacy
requirements. In addition, some of our loan agreements contain a
withholding tax provision that requires us to pay additional amounts to
the
applicable lender or other financing party, generally if withholding taxes
are
imposed on such lender or other financing party as a result of a change
in the
applicable tax law. These increased cost and withholding tax
provisions continue for the entire term of the applicable transaction,
and there
is no limitation on the maximum additional amounts we could be obligated
to pay
under such provisions. Any failure to pay amounts due under such
provisions generally would trigger an event of default, and, in a secured
financing transaction, would entitle the lender to foreclose upon the collateral
to realize the amount due.
Off-Balance
Sheet Arrangements
On June 29, 1999, the Camp County Industrial Development Corporation issued
$25.0 million of variable-rate environmental facilities revenue bonds supported
by letters of credit obtained by us. We may draw from these proceeds
over the construction period for new sewage and solid waste disposal facilities
at a poultry by-products plant to be built in Camp County, Texas. We
are not required to borrow the full amount of the proceeds from these revenue
bonds. All amounts borrowed from these funds will be due in
2029. The revenue bonds are supported
by
letters of credit obtained by us under our revolving credit facilities
which are
secured by our domestic chicken inventories. The bonds will be
recorded as debt of the Company if and when they are spent to fund
construction.
In
connection with the Receivables Purchase Agreement dated June 26, 1998,
as
amended, the Company sells, on a revolving basis, certain of its trade
receivables (the “Pooled Receivables”) to a special purpose corporation wholly
owned by the Company, which in turn sells a percentage ownership interest
to
third parties. As of September 29, 2007, $300.0 million in Pooled
Receivables had been sold. During fiscal 2006 and 2005 there were no
Pooled Receivables sold. The gross proceeds resulting from the sale
are included in cash flows from operating activities in the Consolidated
Statements of Cash Flows. Losses on these sales were
immaterial.
Contractual
Obligations
Contractual
obligations at September 29, 2007 were as follows (dollars in
millions):
|
Payments
Due By Period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1-3
years
|
3-5
years
|
More
than 5 years
|
|||||||||||||||
|
Long-term
debt(a)
|
$ | 1,321.4 | $ | 2.9 | $ | 3.7 | $ | 29.3 | $ | 1,285.5 | ||||||||||
|
Guarantee
fees
|
31.2
|
3.6
|
7.0
|
7.0
|
13.6
|
|||||||||||||||
|
Operating
leases
|
147.5
|
46.8
|
65.4
|
30.3
|
5.0
|
|||||||||||||||
|
Purchase
obligations
|
40.1
|
40.1
|
--
|
--
|
--
|
|||||||||||||||
|
Total
|
$ | 1,540.2 | $ | 93.4 | $ | 76.1 | $ | 66.6 | $ | 1,304.1 | ||||||||||
|
(a)
|
Excludes
$84.9 million in letters of credit outstanding related to normal
business
transactions.
|
Critical
Accounting Policies and Estimates
General. Our
discussion and analysis of our financial condition and results of operations
are
based upon our financial statements, which have been prepared in accordance
with
accounting principles generally accepted in the U.S. The preparation
of these financial statements requires us to make estimates and judgments
that
affect the reported amounts of assets, liabilities, revenues and
expenses. On an ongoing basis, we evaluate our estimates, including
those related to revenue recognition, customer programs and incentives,
allowance for doubtful accounts, inventories, income taxes and product
recall
accounting. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about
the carrying values of assets and liabilities that are not readily apparent
from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial
statements.
Revenue
Recognition. Revenue
is recognized upon shipment and transfer of ownership of the product to
the
customer and is recorded net of estimated incentive offerings including
special
pricing agreements, promotions and other volume-based
incentives. Revisions to these estimates are charged back to net
sales in the period in which the facts that give rise to the revision become
known.
Inventory. Live
poultry inventories are stated at the lower of cost or market and breeder
hens
at the lower of cost, less accumulated amortization, or market. The
costs associated with breeder hens are accumulated up to the production
stage
and amortized over their productive lives using the unit-of-production
method. Finished poultry products, feed, eggs and other inventories
are stated at the lower of cost (first-in, first-out method) or
market. We record valuations and adjustments for our inventory and
for estimated obsolescence at or equal to the difference between the cost
of
inventory and the estimated market value based upon known conditions affecting
inventory obsolescence, including significantly aged products, discontinued
product lines, or damaged or obsolete products. We allocate meat
costs between our various finished poultry products based on a by-product
costing technique that reduces the cost of the whole bird by estimated
yields
and amounts to be recovered for certain by-product parts. This
primarily includes leg quarters, wings, tenders and offal, which are carried
in
inventory at the estimated recovery amounts, with the remaining amount
being
reflected as our breast meat cost. Generally, the Company performs an
evaluation of whether any lower of cost or market adjustments are required
at
the segment level based on a number of factors, including: (i) pools of
related
inventory, (ii) product continuation or discontinuation, (iii) estimated
market
selling prices and (iv) expected distribution channels. If actual
market conditions or other factors are less favorable than those projected
by
management, additional inventory adjustments may be
required.
Property,
Plant and
Equipment. The
Company records impairment charges on long-lived assets used in operations
when
events and circumstances indicate that the assets may be impaired and the
undiscounted cash flows estimated to be generated by those assets are less
than
the carrying amount of those assets. The impairment charge is
determined based upon the amount the net book value of the assets exceeds
their
fair market value. In making these determinations, the Company
utilizes certain assumptions, including, but not limited to: (i)
future cash flows estimated to be generated by these assets, which are
based on
additional assumptions such as asset utilization, remaining length of service
and estimated salvage values; (ii) estimated fair market value of the
assets; and (iii) determinations with respect to the lowest level of cash
flows relevant to the respective impairment test, generally groupings of
related
operational facilities.
Litigation
and Contingent
Liabilities. The
Company is subject to lawsuits, investigations and other claims related
to
employment, environmental, product and other matters, and is required to
assess
the likelihood of any adverse judgments or outcomes to these matters as
well as
potential ranges of probable losses. A determination of the amount of
reserves required, including legal defense costs, if any, for these
contingencies is made when losses are determined to be probable and reasonably
estimatible and after considerable analysis of each individual
issue. These reserves may change in the future due to favorable or
adverse judgments, changes in the
Company’s
assumptions, the effectiveness of strategies or other factors beyond the
Company’s control.
Accrued
Self
Insurance. Insurance
expense for casualty claims and employee-related health care benefits are
estimated using historical experience and actuarial
estimates. Stop-loss coverage is maintained with third party insurers
to limit the Company’s total exposure. Certain categories of claim
liabilities are actuarially determined. The assumptions used to
arrive at periodic expenses are reviewed regularly by
management. However, actual expenses could differ from these
estimates and could result in adjustments to be recognized.
Purchase
Price
Accounting. The
Company allocates the total purchase price in connection with acquisitions
to
assets and liabilities based upon their estimated fair values. For
property, plant and equipment and intangible assets other than goodwill,
for
significant acquisitions, the Company has historically relied upon the
use of
third party valuation experts to assist in the estimation of fair values.
Historically, the carrying value of acquired accounts receivable, inventory
and
accounts payable have approximated their fair value as of the date of
acquisition, though adjustments are made within purchase price accounting
to the
extent needed to record such assets and liabilities at fair
value. With respect to accrued liabilities, the Company uses all
available information to make its best estimate of the fair value of the
acquired liabilities and, when necessary, may rely upon the use of third
party
actuarial experts to assist in the estimation of fair value for certain
liabilities, primarily self-insurance accruals.
Income
Taxes. The
Company recognizes deferred tax assets and liabilities for the effect of
temporary differences between the book and tax bases of recorded assets
and
liabilities. Taxes are provided for international subsidiaries based
on the assumption that their earnings are indefinitely reinvested in foreign
subsidiaries and as such deferred taxes are not provided for in U.S. income
taxes that would be required in the event of distribution of these
earnings. We also reduce deferred tax assets by a valuation allowance
if it is more likely than not that some portion or all of the deferred
tax asset
will not be realized. We review the recoverability of any tax assets
recorded on the balance sheet, primarily operating loss carryforwards,
based on
both historical and anticipated earnings levels of the individual operations
and
provide a valuation allowance when it is more likely than not that amounts
will
not be recovered.
The
Company has reserves for taxes that may become payable in future years
as a
result of audits by tax authorities. Although the Company believes
that the positions taken on previously filed tax returns are reasonable,
it
nevertheless has established tax reserves in recognition that various taxing
authorities may challenge the positions taken by the Company resulting
in
additional liabilities for tax and interest. The tax reserves are
reviewed as circumstances warrant and adjusted as events occur that affect
the
Company’s potential liability for additional taxes, such as lapsing of
applicable statutes of limitations, conclusion of tax audits, additional
exposure based on current calculations, identification of new issues, release
of administrative guidance, or rendering of a court decision
affecting a particular tax issue.
Item
7A. Quantitative and Qualitative Disclosures
about Market Risk
Market
Risk Sensitive Instruments and Positions
The
risk inherent in our market risk sensitive instruments and positions is
primarily the potential loss arising from adverse changes in the price
of feed
ingredients, foreign currency exchange rates and interest rates as discussed
below. The Company does not believe its market risk related to its
available-for-sale securities is material. The sensitivity analyses
presented do not consider the effects that such adverse changes may have
on
overall economic activity, nor do they consider additional actions our
management may take to mitigate our exposure to such changes. Actual
results may differ.
Feed
Ingredients. We
purchase certain commodities, primarily corn and soybean meal. As a
result, our earnings are affected by changes in the price and availability
of
such feed ingredients. As market conditions dictate, we will from
time to time fix 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 September 29, 2007. Based on our
feed consumption during fiscal 2007, such an increase would have resulted
in an
increase to cost of sales of approximately $236.3 million. A 10%
change in ending feed ingredients inventories at September 29, 2007 would
be
$5.0 million, excluding any potential impact on production costs of chicken
and
turkey inventory.
Foreign
Currency. Our
earnings are affected by foreign exchange rate fluctuations related to
the
Mexican peso net monetary position of our Mexico subsidiaries. We
manage this exposure primarily by attempting to minimize our Mexican peso
net
monetary position, but from time to time, we have also considered executing
hedges to help minimize this exposure. Such instruments, however,
have historically not been economically feasible. We are also exposed
to the effect of potential exchange rate fluctuations to the extent that
amounts
are repatriated from Mexico to the U.S. However, we currently
anticipate that the future cash flows of our Mexico subsidiaries will be
reinvested in our Mexico operations. In addition, the Mexican peso
exchange rate can directly and indirectly impact our results of operations
and
financial position in several ways, including potential economic recession
in
Mexico resulting from a devalued peso. The impact on our financial
position and results of operations resulting from a hypothetical change
in the
exchange rate between the U.S. dollar and the Mexican peso cannot be reasonably
estimated. Foreign currency exchange gains and losses, representing
the change in the U.S. dollar value of the net monetary assets of our Mexico
subsidiaries denominated in Mexican pesos, was a loss of $ 1.4 million
in fiscal
2007, a loss of $0.1 million in fiscal 2006, and a gain of $0.5 million
in
fiscal 2005. On September 29, 2007, the Mexican peso closed at 10.93
to 1 U.S. dollar, compared to 11.01 at September 30, 2006. No
assurance can be given as to how future movements in the peso could affect
our
future earnings.
Interest
Rates. Our
earnings are also affected by changes in interest rates due to the impact
those
changes have on our variable-rate debt instruments. We had
variable-rate debt instruments representing approximately 34.5% of our
long-term
debt at September 29, 2007. Holding other variables constant,
including levels of indebtedness, a 25 basis points increase in interest
rates
would have increased our interest expense by $1.1 million for fiscal
2007. These amounts are determined by considering the impact of the
hypothetical interest rates on our variable-rate long-term debt at September
29,
2007.
Market
risk for fixed-rate long-term debt is estimated as the potential increase
in
fair value resulting from a hypothetical 25 basis points decrease in interest
rates and amounts to approximately $3.4 million as of September 29, 2007,
using
discounted cash flow analysis.
Impact
of
Inflation. Due
to low to moderate inflation in the U.S. and Mexico and our rapid inventory
turnover rate, the results of operations have not been significantly affected
by
inflation during the past three-year period.
Item
8. Financial Statements and Supplementary
Data
The
consolidated financial statements together with the report of our independent
registered public accounting firm and financial statement schedule are
included
on pages 86 through 118 of this report. Financial statement schedules
other than those included herein have been omitted because the required
information is contained in the consolidated financial statements or related
notes, or such information is not applicable.
Item
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
|
|
Not
Applicable.
|
Item
9A. Controls and Procedures
As
of September 29, 2007, an evaluation was performed under the supervision
and
with the participation of the Company’s management, including the Senior
Chairman of the Board of Directors, Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company’s
“disclosure controls and procedures” (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)). Based on that evaluation, the Company’s management, including
the Senior Chairman of the Board of Directors, Chief Executive Officer
and Chief
Financial Officer, concluded the Company’s disclosure controls and procedures
were effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and that information
we are
required to disclose in our reports filed with the Securities and Exchange
Commission is accumulated and communicated to our management, including
our
Senior Chairman of the Board of Directors, Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
In
the fourth quarter of fiscal 2007, the Company substantially completed
the
integration of Gold Kist’s accounting processes into the legacy systems,
policies and procedures of Pilgrim’s Pride.
In connection with the evaluation described above, the Company’s management,
including the Senior Chairman of the Board, Chief Executive Officer and
Chief
Financial Officer, indentified no other change in the Company’s internal control
over financial reporting that occurred during the Company’s fiscal quarter ended
September 29, 2007and that has materially
affected,
or is reasonably likely to materially affect, the Company’s internal control
over financial reporting.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Pilgrim's
Pride Corporation’s (“PPC”) management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such
term is
defined in Exchange Act Rules 13a-15(f). PPC’s internal control
system is designed to provide reasonable assurance regarding the reliability
of
financial reporting and the preparation of financial statements in accordance
with generally accepted accounting principles.
Under
the supervision and with the participation of management, including its
principal executive officer and principal financial officer, PPC’s management
assessed the design and operating effectiveness of internal control over
financial reporting as of September 29, 2007 based on the framework set
forth in
Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organization of theTreadway
Commission.
Based
on this assessment, management concluded that PPC’s internal control over
financial reporting was effective as of September 29, 2007. Ernst
& Young LLP, an independent registered public accounting firm, has issued
an
attestation report on the effectiveness of the Company’s internal control over
financial reporting as of September 29, 2007. That report is included
herein.
/s/
Lonnie “Bo”
Pilgrim
Lonnie
“Bo” Pilgrim
Senior
Chairman of the Board of Directors
/s/
O. B. Goolsby,
Jr.
O.
B.
Goolsby, Jr.
President,
Chief
Executive Officer
Director
/s/
Richard A.
Cogdill
Richard
A. Cogdill
Chief
Financial Officer
Secretary
and Treasurer
Director
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The
Board of Directors and Stockholders
Pilgrim’s
Pride Corporation
We
have audited Pilgrim's Pride Corporation’s internal control over financial
reporting as of September 29, 2007, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO
criteria). Pilgrim's Pride Corporation’s management is responsible
for maintaining effective internal control over financial reporting and
for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our
responsibility is to express an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists,
testing
and evaluating the design and operating effectiveness of internal control
based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention
or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting
may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls
may
become inadequate because of changes in conditions, or that the degree
of
compliance with the policies or procedures may deteriorate.
In
our opinion, Pilgrim's Pride Corporation maintained, in all material respects,
effective internal control over financial reporting as of September 29,
2007,
based on the COSO criteria.
We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets
of
Pilgrim's Pride Corporation as of September 29, 2007 and September 30,
2006, and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for each of the three years in the period ended September 29,
2007,
of Pilgrim's Pride Corporation, and our report dated November 13, 2007,
expressed an unqualified opinion thereon.
Ernst
& Young LLP
Dallas,
Texas
November
13, 2007
Item
9B. Other Information
Not
Applicable.
|
|
PART
III
|
Item
10. Directors and Executive Officers and
Corporate Governance
Certain
information regarding our executive officers has been presented under “Executive
Officers” included in Item 1. “Business,” above.
Reference
is made to the section entitled “Election of Directors” of the Company’s Proxy
Statement for its 2008 Annual Meeting of Stockholders, which section is
incorporated herein by reference.
Reference
is made to the section entitled “Section 16(a) Beneficial Ownership Reporting
Compliance” of the Company’s Proxy Statement for its 2008 Annual Meeting of
Stockholders, which section is incorporated herein by reference.
We
have adopted a Code of Business Conduct and Ethics, which applies to all
employees, including our Chief Executive Officer and our Chief Financial
Officer
and Principal Accounting Officer. The full text of our Code of
Business Conduct and Ethics is published on our website, at www.pilgrimspride.com,
under the “Investors-Corporate Governance” caption. We intend to
disclose future amendments to, or waivers from, certain provisions of this
Code
on our website within four business days following the date of such amendment
or
waiver.
See
Item 13. “Certain Relationships and Related Transactions, and
Director Independence.”
Item
11. Executive
Compensation
See
Item 13. “Certain Relationships and Related Transactions, and
Director Independence.”
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
See
Item 13. “Certain Relationships and Related Transactions, and
Director Independence.”
As
of September 29, 2007, the Company did not have any compensation plans
(including individual compensation arrangements) under which equity securities
of the Company are authorized for issuance by the Company.
Item
13. Certain
Relationships and Related Transactions, and Director Independence
Additional
information responsive to Items 10, 11, 12 and 13 is incorporated by reference
from the sections entitled “Security Ownership,” “Board of Directors
Independence,” “Committees of the Board of Directors,” “Election of Directors,”
“Report of the Compensation Committee,” “Compensation Discussion and Analysis,”
“Executive Compensation,” “Compensation Committee Interlocks and Insider
Participation” and “Certain Transactions” of the Company’s Proxy Statement for
its 2008 Annual Meeting of Stockholders.
Item
14. Principal Accounting Fees and
Services
The
information required by this item is incorporated herein by reference from
the
section entitled “Independent Registered Public Accounting Firm Fee Information”
of the Company’s Proxy Statement for its 2008 Annual Meeting of
Stockholders.
PART
IV
Item
15. Exhibits
and Financial Statement Schedules
|
(a)
|
Financial
Statements
|
|
|
(1)
|
The
financial statements and schedules listed in the index to financial
statements and schedules on page 3 of this report are filed as
part of
this report.
|
|
|
(2)
|
All
other schedules for which provision is made in the applicable
accounting
regulations of the SEC are not required under the related instructions
or
are not applicable and therefore have been omitted.
|
|
|
(3)
|
The
financial statements schedule entitled “Valuation and Qualifying Accounts
and Reserves” is filed as part of this report on page
118.
|
|
|
(b)
|
Exhibits
|
Exhibit
Number
|
2.1
|
Agreement
and Plan of Reorganization dated September 15, 1986, by and among
Pilgrim’s Pride Corporation, a Texas corporation; Pilgrim’s Pride
Corporation, a Delaware corporation; and Doris Pilgrim Julian,
Aubrey Hal
Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie “Bo” Pilgrim,
Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim
(incorporated by reference from Exhibit 2.1 to the Company’s Registration
Statement on Form S-1 (No. 33-8805) effective November 14,
1986).
|
|
|
2.2
|
Agreement
and Plan of Merger dated September 27, 2000 (incorporated by
reference
from Exhibit 2 of WLR Foods, Inc.’s Current Report on Form 8-K (No.
000-17060) dated September 28, 2000).
|
|
|
2.3
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among
the Company,
Protein Acquisition Corporation, a wholly-owned subsidiary of
the Company,
and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1)
to
Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO
filed on December 5, 2006).
|
|
|
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).
|
|
|
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).
|
|
|
4.1
|
Certificate
of Incorporation of the Company, as amended (included as Exhibit
3.1).
|
|
|
4.2
|
Amended
and Restated Corporate Bylaws of the Company (included as Exhibit
3.2).
|
|
|
4.3
|
Indenture,
dated November 21, 2003, between Pilgrim's Pride Corporation
and The Bank
of New York as Trustee relating to Pilgrim’s Pride’s 9 ¼% Senior Notes due
2013 (incorporated by reference from Exhibit 4.1 of the Company's
Registration Statement on Form S-4 (No. 333-111975) filed on
January 16,
2004).
|
|
4.4
|
Form
of 9 ¼% Note due 2013 (incorporated by reference from Exhibit 4.3 of
the
Company's Registration Statement on Form S-4 (No. 333-111975)
filed on
January 16, 2004).
|
|
|
4.5
|
Senior
Debt Securities Indenture dated as of January 24, 2007, by and
between the
Company and Wells Fargo Bank, National Association, as trustee
(incorporated by reference from Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on January 24, 2007).
|
|
|
4.6
|
First
Supplemental Indenture to the Senior Debt Securities Indenture
dated as of
January 24, 2007, by and between the Company and Wells Fargo
Bank,
National Association, as trustee (incorporated by reference from
Exhibit
4.2 to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.7
|
Form
of 7 5/8% Senior Note due 2015 (incorporated by reference from
Exhibit 4.3
to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.8
|
Senior
Subordinated Debt Securities Indenture dated as of January 24,
2007, by
and between the Company and Wells Fargo Bank, National Association,
as
trustee (incorporated by reference from Exhibit 4.4 to the Company’s
Current Report on Form 8-K filed on January 24, 2007).
|
|
|
4.9
|
First
Supplemental Indenture to the Senior Subordinated Debt Securities
Indenture dated as of January 24, 2007, by and between the Company
and
Wells Fargo Bank, National Association, as trustee (incorporated
by
reference from Exhibit 4.5 to the Company’s Current Report on Form 8-K
filed on January 24, 2007).
|
|
|
4.10
|
Form
of 8 3/8% Subordinated Note due 2017 (incorporated by reference
from
Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January
24, 2007).
|
|
|
10.1
|
Pilgrim’s
Industries, Inc. Profit Sharing Retirement Plan, restated as
of July 1,
1987 (incorporated by reference from Exhibit 10.1 of the Company’s Form
8-K filed on July 1, 1992). …
|
|
|
10.2
|
Senior
Executive Performance Bonus Plan of the Company (incorporated
by reference
from Exhibit A in the Company’s Proxy Statement dated December 13, 1999).
…
|
|
|
10.3
|
Aircraft
Lease Extension Agreement between B.P. Leasing Co. (L.A. Pilgrim,
individually) and Pilgrim’s Pride Corporation (formerly Pilgrim’s
Industries, Inc.) effective November 15, 1992 (incorporated by
reference
from Exhibit 10.48 of the Company’s Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
|
|
|
10.4
|
Broiler
Grower Contract dated May 6, 1997 between Pilgrim’s Pride Corporation and
Lonnie “Bo” Pilgrim (Farm 30) (incorporated by reference from Exhibit
10.49 of the Company’s Quarterly Report on Form 10-Q for the three months
ended March 29, 1997).
|
|
10.5
|
Commercial
Egg Grower Contract dated May 7, 1997 between Pilgrim’s Pride Corporation
and Pilgrim Poultry G.P. (incorporated by reference from Exhibit
10.50 of
the Company’s Quarterly Report on Form 10-Q for the three months ended
March 29, 1997).
|
|
|
10.6
|
Agreement
dated October 15, 1996 between Pilgrim’s Pride Corporation and Pilgrim
Poultry G.P. (incorporated by reference from Exhibit 10.23 of
the
Company’s Quarterly Report on Form 10-Q for the three months ended
January 2, 1999).
|
|
|
10.7
|
Heavy
Breeder Contract dated May 7, 1997 between Pilgrim’s Pride Corporation and
Lonnie “Bo” Pilgrim (Farms 44, 45 & 46) (incorporated by reference
from Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
|
|
|
10.8
|
Broiler
Grower Contract dated January 9, 1997 by and between Pilgrim’s Pride and
O.B. Goolsby, Jr. (incorporated by reference from Exhibit 10.25
of the
Company’s Registration Statement on Form S-1 (No. 333-29163) effective
June 27, 1997).
|
|
|
10.9
|
Broiler
Grower Contract dated January 15, 1997 by and between Pilgrim’s Pride
Corporation and B.J.M. Farms (incorporated by reference from
Exhibit 10.26
of the Company’s Registration Statement on Form S-1 (No. 333-29163)
effective June 27, 1997).
|
|
|
10.10
|
Broiler
Grower Agreement dated January 29, 1997 by and between Pilgrim’s Pride
Corporation and Clifford E. Butler (incorporated by reference
from Exhibit
10.27 of the Company’s Registration Statement on Form S-1 (No. 333-29163)
effective June 27, 1997).
|
|
|
10.11
|
Receivables
Purchase Agreement dated June 26, 1998 between Pilgrim’s Pride Funding
Corporation, as Seller, Pilgrim’s Pride Corporation, as Servicer, Pooled
Accounts Receivable Capital Corporation, as Purchaser, and Nesbitt
Burns
Securities Inc., as Agent (incorporated by reference from Exhibit
10.33 of
the Company’s Quarterly Report on Form 10-Q for the three months ended
June 27, 1998).
|
|
|
10.12
|
Purchase
and Contribution Agreement dated as of June 26, 1998 between
Pilgrim’s
Pride Funding Corporation and Pilgrim’s Pride Corporation (incorporated by
reference from Exhibit 10.34 of the Company’s Quarterly Report on Form
10-Q for the three months ended June 27, 1998).
|
|
|
10.13
|
Guaranty
Fee Agreement between Pilgrim’s Pride Corporation and Pilgrim Interests,
Ltd., dated June 11, 1999 (incorporated by reference from Exhibit
10.24 of
the Company’s Annual Report on Form 10-K for the fiscal year ended October
2, 1999).
|
|
|
10.14
|
Broiler
Production Agreement between Pilgrim's Pride Corporation and
Lonnie “Bo”
Pilgrim dated November 15, 2005 (incorporated by reference from
Exhibit
99.1 of the Company’s Current Report on Form 8-K dated November 10,
2005).
|
|
|
10.15
|
Commercial
Property Lease dated December 29, 2000 between Pilgrim’s Pride Corporation
and Pilgrim Poultry G.P. (incorporated by reference from Exhibit
10.30 of
the Company’s Quarterly Report on Form 10-Q for the three months ended
December 30, 2000).
|
|
10.16
|
Amendment
No. 1 dated as of July 12, 2002 to Receivables Purchase Agreement
dated as
of June 26, 1998 among Pilgrim’s Pride Funding Corporation, the Company,
Fairway Finance Corporation (as successor in interest to Pooled
Accounts
Receivable Capital Corporation) and BMO Nesbitt Burns Corp. (f/k/a
Nesbitt
Burns Securities Inc.) (incorporated by reference from Exhibit
10.32 of
the Company’s Annual Report on Form 10-K filed on December 6,
2002).
|
|
|
10.17
|
Amendment
No. 3 dated as of July 18, 2003 to Receivables Purchase Agreement
dated as
of June 26, 1998 between Pilgrim’s Pride Funding Corporation (“Seller”),
Pilgrim’s Pride Corporation as initial Servicer, Fairway Finance
Corporation (as successor in interest to Pooled Accounts Receivable
Capital Corporation) (“Purchaser”) and Harris Nesbitt Corporation as agent
for the purchaser (incorporated by reference from Exhibit 10.1
of the
Company’s Quarterly Report on Form 10-Q filed July 23,
2003).
|
|
|
10.18
|
Agricultural
Lease between Pilgrim’s Pride Corporation (Lessor) and Patrick W. Pilgrim
(Tenant) dated May 1, 2003 (incorporated by reference from Exhibit
10.15
of the Company’s Quarterly Report on Form 10-Q filed July 23,
2003).
|
|
|
10.19
|
Amendment
No. 4 dated as of December 31, 2003 to Receivables Purchase Agreement
dated as of June 26, 1998, among Pilgrim's Pride Funding Corporation,
Pilgrim's Pride Corporation as initial Servicer, Fairway Finance
Company,
LLC (as successor to Fairway Finance Corporation) as purchaser
and Harris
Nesbitt Corp. (f/k/a BMO Nesbitt Burns Corp.) as agent for the
purchaser
(incorporated by reference from Exhibit 10.4 of the Company's
Quarterly
Report on Form 10-Q filed February 4, 2004).
|
|
|
10.20
|
Amendment
No. 1 dated as of December 31, 2003 to Purchase and Contribution
Agreement
dated as of June 26, 1998, between Pilgrim's Pride Funding Corporation
and
Pilgrim's Pride Corporation (incorporated by reference from Exhibit
10.5
of the Company's Quarterly Report on Form 10-Q filed February
4,
2004).
|
|
|
10.21
|
Employee
Stock Investment Plan of the Company (incorporated by reference
from
Exhibit 4.1 of the Company's Registration Statement on Form S-8
(No.
333-111929) filed on January 15, 2004). …
|
|
|
10.22
|
Purchase
and Amendment Agreement between Pilgrim's Pride Corporation and
ConAgra
Foods, Inc. dated August 3, 2005 (incorporated by reference from
Exhibit
10.1 of the Company’s Current Report on Form 8-K dated August 4,
2005).
|
|
|
10.23
|
Amended
and Restated 2005 Deferred Compensation Plan of the Company (incorporated
by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K
dated December 30, 2005). …
|
|
|
10.24
|
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).
|
|
10.25
|
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).
|
|
|
10.26
|
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).
|
|
|
10.27
|
Credit
Agreement by and among the Avícola Pilgrim’s Pride de México, S. de R.L.
de C.V. (the "Borrower"), Pilgrim's Pride Corporation, certain
Mexico
subsidiaries of the Borrower, ING Capital LLC, and the lenders
signatory
thereto dated as of September 25, 2006 (incorporated by reference
from
Exhibit 10.1 of the Company's Current Report on Form 8-K filed
on
September 28, 2006).
|
|
|
10.28
|
2006
Amended and Restated Credit Agreement by and among CoBank, ACB,
Agriland,
FCS and the Company dated as of September 21, 2006 (incorporated
by
reference from Exhibit 10.2 of the Company's Current Report on
Form 8-K
filed on September 28, 2006).
|
|
|
10.29
|
First
Amendment to the Pilgrim’s Pride Corporation Amended and Restated 2005
Deferred Compensation Plan Trust, dated as of November 29, 2006
(incorporated by reference from Exhibit 10.03 of the Company’s Current
Report on Form 8-K filed on December 05, 2006). …
|
|
|
10.30
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among
the Company,
the Purchaser and Gold Kist Inc. (incorporated by reference from
Exhibit
99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on
Schedule TO filed on December 5, 2006).
|
|
|
10.31
|
First
Amendment to Credit Agreement, dated as of December 13, 2006,
by and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as a
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on December 19, 2006).
|
|
|
10.32
|
Second
Amendment to Credit Agreement, dated as of January 4, 2007, by
and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as a
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on January 9, 2007).
|
|
|
10.33
|
Fourth
Amended and Restated Secured Credit Agreement, dated as of February
8,
2007, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution,
Ltd., Bank of Montreal, as agent, SunTrust Bank as syndication
agent, U.S.
Bank National Association and Wells Fargo Bank, National Association
as
Co-Documentation Agents, BMO Capital Market as lead arranger,
and the
other lenders signatory thereto (incorporated by reference from
Exhibit
10.01 of the Company’s Current Report on Form 8-K dated February 12,
2007).
|
|
10.34
|
Third
Amendment to Credit Agreement, dated as of February 7, 2007,
by and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as a
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.02 of the Company’s Current
Report on Form 8-K dated February 12, 2007).
|
|
|
10.35
|
First
Amendment to Credit Agreement, dated as of March 15, 2007, by
and among
the Borrower, the Company, the Subsidiary Guarantors, ING Capital
LLC, and
the Lenders (incorporated by reference from Exhibit 10.01 of
the Company’s
Current Report on Form 8-K dated March 20, 2007).
|
|
|
10.36
|
Fourth
Amendment to Credit Agreement, dated as of July 3, 2007, by and
among the
Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.1 of the Company's
Quarterly
Report on Form 10-Q filed July 31, 2007).
|
|
|
10.37
|
Amendment
No. 5 to Receivables Purchase Agreement dated as of August 20,
2007, among
the Company, Pilgrim's Pride Funding Corporation, Fairway Finance
Company,
LLC and BMO Capital Markets Corp. (incorporated by reference
from Exhibit
10.01 of the Company’s Current Report on Form 8-K dated August 24,
2007).
|
|
|
10.38
|
Retirement
and Consulting Agreement dated as of October 10, 2007, between
the Company
and Clifford E. Butler (incorporated by reference from Exhibit
10.1 of the
Company’s Current Report on Form 8-K dated October 10, 2007). …
|
|
|
10.39
|
Fifth
Amendment to Credit Agreement, dated as of August 7, 2007, by
and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as
syndication party, and the other syndication parties signatory
thereto.*
|
|
|
10.40
|
Sixth
Amendment to Credit Agreement, dated as of November 7, 2007,
by and among
the Company as borrower, CoBank, ACB, as administrative agent,
and the
other syndication parties signatory thereto (incorporated by
reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated
November 13, 2007).
|
|
|
12
|
Ratio
of Earnings to Fixed Charges for the years ended September 29,
2007,
September 30, 2006, October 1, 2005, October 2, 2004, September
27, 2003,
and September 28, 2002.*
|
|
|
21
|
Subsidiaries
of Registrant.*
|
|
|
23
|
Consent of Ernst & Young LLP.*
|
|
|
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
|
|
|
…Represents
a management contract or compensation plan
arrangement
|
Pursuant
to the requirements of Section 13 or 15(d) 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 on the 19h day of November
2007.
PILGRIM’S PRIDE CORPORATION
|
By:
|
/s/
Richard A. Cogdill
|
|
Richard
A. Cogdill
|
|
|
Chief
Financial Officer, Secretary and Treasurer
|
|
|
(Principal
Financial and Accounting Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been
signed below by the following persons on behalf of the Registrant and in
the
capacities and on the date indicated.
|
Signature
|
Title
|
Date
|
|
/s/
Lonnie “Bo” Pilgrim
|
Senior
Chairman of the Board
|
11/19/07
|
|
Lonnie
“Bo” Pilgrim
|
||
|
/s/
Lonnie Ken Pilgrim
|
Chairman
of the Board
|
11/19/07
|
|
Lonnie
Ken Pilgrim
|
||
|
/s/
Clifford E. Butler
|
Vice
Chairman of the Board
|
11/19/07
|
|
Clifford
E. Butler
|
||
|
/s/
O.B. Goolsby, Jr.
|
President
|
11/19/07
|
|
O.B.
Goolsby, Jr.
|
Chief
Executive Officer
|
|
|
Director
|
||
|
/s/
Richard A. Cogdill
|
Chief
Financial Officer,
|
11/19/07
|
|
Richard
A. Cogdill
|
Secretary
and Treasurer
|
|
|
Director
|
||
|
(Principal
Financial and Accounting Officer)
|
||
|
/s/
Charles L. Black
|
Director
|
11/19/07
|
|
Charles
L. Black
|
||
|
/s/
Linda Chavez
|
Director
|
11/16/07
|
|
Linda
Chavez
|
||
|
/s/
S. Key Coker
|
Director
|
11/19/07
|
|
S.
Key Coker
|
||
|
/s/
Keith W. Hughes
|
Director
|
11/19/07
|
|
Keith
W. Hughes
|
|
/s/
Blake D. Lovette
|
Director
|
11/19/07
|
|
Blake
D. Lovette
|
||
|
/s/
Vance C. Miller, Sr.
|
Director
|
11/19/07
|
|
Vance
C. Miller, Sr.
|
||
|
/s/
James G. Vetter, Jr.
|
Director
|
11/19/07
|
|
James
G. Vetter, Jr.
|
||
|
/s/
Donald L. Wass, Ph.D.
|
Director
|
11/19/07
|
|
Donald
L. Wass, Ph.D.
|
||
The
Board of Directors and Stockholders
Pilgrim’s
Pride Corporation
We
have audited the accompanying consolidated balance sheets of Pilgrim’s Pride
Corporation as of September 29, 2007 and September 30, 2006, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
each of the three years in the period ended September 29, 2007. Our
audits also included the financial statement schedule listed in the index
at
Item 15(a). These financial statements and schedule are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our opinion, the financial statements referred to above present fairly,
in all
material respects, the consolidated financial position of Pilgrim’s Pride
Corporation as of September 29, 2007 and September 30, 2006, and the
consolidated results of its operations and its cash flows for each of the
three
years in the period ended September 29, 2007, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Pilgrim's
Pride
Corporation’s internal control over financial reporting as of September 29, 2007
based on criteria established in Internal Control
- Integrated
Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission,
and our
report dated November 13, 2007, expressed an unqualified opinion
thereon.
Ernst
& Young LLP
Dallas,
Texas
November
13, 2007
Pilgrim’s
Pride Corporation
|
(In
thousands, except share and per share data)
|
September
29, 2007
|
September
30, 2006
|
||||||
|
Assets
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 66,168 | $ | 156,404 | ||||
|
Investment
in available-for-sale securities
|
8,153
|
21,246
|
||||||
|
Trade
accounts and other receivables, less
allowance
for doubtful accounts
|
130,173
|
263,149
|
||||||
|
Inventories
|
961,885
|
585,940
|
||||||
|
Income
taxes receivable
|
61,901
|
39,167
|
||||||
|
Current
deferred taxes
|
8,095
|
7,288
|
||||||
|
Other
current assets
|
47,959
|
32,480
|
||||||
|
Total
Current Assets
|
1,284,334
|
1,105,674
|
||||||
|
Investment
in Available-for-Sale Securities
|
46,035
|
115,375
|
||||||
|
Other
Assets
|
138,546
|
50,825
|
||||||
|
Goodwill
|
505,166
|
--
|
||||||
|
Property,
Plant and Equipment:
|
||||||||
|
Land
|
115,101
|
52,493
|
||||||
|
Buildings,
machinery and equipment
|
2,391,154
|
1,702,949
|
||||||
|
Autos
and trucks
|
59,559
|
57,177
|
||||||
|
Construction
in progress
|
124,193
|
63,853
|
||||||
|
2,690,007
|
1,876,472
|
|||||||
|
Less
accumulated depreciation
|
(889,852 | ) | (721,478 | ) | ||||
|
1,800,155
|
1,154,994
|
|||||||
| $ | 3,774,236 | $ | 2,426,868 | |||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 402,316 | $ | 293,685 | ||||
|
Accrued
expenses
|
500,014
|
272,830
|
||||||
|
Current
maturities of long-term debt
|
2,872
|
10,322
|
||||||
|
Total
Current Liabilities
|
905,202
|
576,837
|
||||||
|
Long-Term
Debt, Less Current Maturities
|
1,318,558
|
554,876
|
||||||
|
Deferred
Income Taxes
|
326,570
|
175,869
|
||||||
|
Other
Long-Term Liabilities
|
51,685
|
1,958
|
||||||
|
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; 66,555,733 issued
and outstanding
|
665
|
665
|
||||||
|
Additional
paid-in capital
|
469,779
|
469,779
|
||||||
|
Retained
earnings
|
687,775
|
646,750
|
||||||
|
Accumulated
other comprehensive income
|
14,002
|
134
|
||||||
|
Total
Stockholders’ Equity
|
1,172,221
|
1,117,328
|
||||||
| $ | 3,774,236 | $ | 2,426,868 | |||||
|
See
Notes to Consolidated Financial Statements
|
||||||||
Pilgrim’s
Pride Corporation
|
(In
thousands, except per share data)
|
Three
Years Ended September 29, 2007
|
|||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
Sales
|
$ | 7,598,599 | $ | 5,235,565 | $ | 5,666,275 | ||||||
|
Cost
and Expenses:
|
||||||||||||
|
Cost
of sales
|
7,007,061
|
4,937,965
|
4,921,076
|
|||||||||
|
Gross
Profit
|
591,538
|
297,600
|
745,199
|
|||||||||
|
Selling,
general and administrative
|
359,001
|
294,598
|
309,387
|
|||||||||
|
Operating
Income
|
232,537
|
3,002
|
435,812
|
|||||||||
|
Other
Expenses (Income):
|
||||||||||||
|
Interest
expense
|
125,757
|
50,601
|
49,585
|
|||||||||
|
Interest
income
|
(4,640 | ) | (10,048 | ) | (5,653 | ) | ||||||
|
Loss
on early extinguishment of debt
|
26,463
|
--
|
--
|
|||||||||
|
Foreign
exchange (gain) loss
|
1,378
|
144
|
(474 | ) | ||||||||
|
Miscellaneous,
net
|
(8,028 | ) | (1,378 | ) | (11,169 | ) | ||||||
|
140,930
|
39,319
|
32,289
|
||||||||||
|
Income
(Loss) Before Income Taxes
|
91,607
|
(36,317 | ) |
403,523
|
||||||||
|
Income
Tax Expense (Benefit)
|
44,590
|
(2,085 | ) |
138,544
|
||||||||
|
Net
Income (Loss)
|
$ | 47,017 | $ | (34,232 | ) | $ | 264,979 | |||||
|
N
Net Income (Loss) per Common Share-Basic and Diluted
|
$ | 0.71 | $ | (0.51 | ) | $ | 3.98 | |||||
|
See
Notes to Consolidated Financial Statements
|
||||||||||||
Pilgrim’s
Pride Corporation
|
Accumulated
|
||||||||||||||||||||||||||||
|
Total
|
Additional
|
Other
|
||||||||||||||||||||||||||
|
Shares
of
|
Par
|
Paid-In
|
Retained
|
Comprehensive
|
Treasury
|
|||||||||||||||||||||||
|
Common
Stock
|
Value
|
Capital
|
Earnings
|
Income
(Loss)
|
Stock
|
Total
|
||||||||||||||||||||||
|
Balance
at October 2, 2004
|
66,826,833
|
$ |
668
|
$ |
431,662
|
$ |
492,542
|
$ | (348 | ) | $ | (1,568 | ) | $ |
922,956
|
|||||||||||||
|
Sale
of common stock
|
15,443,054
|
154
|
521,774
|
521,928
|
||||||||||||||||||||||||
|
Purchase
and retirement of common
stock
|
(15,443,054 | ) | (154 | ) | (482,092 | ) | (482,246 | ) | ||||||||||||||||||||
|
Net
income for year
|
264,979
|
264,979
|
||||||||||||||||||||||||||
|
Other
comprehensive loss
|
(25 | ) | (25 | ) | ||||||||||||||||||||||||
|
Total
comprehensive income
|
264,954
|
|||||||||||||||||||||||||||
|
Cash
dividends declared ($.06
per share)
|
(3,993 | ) | (3,993 | ) | ||||||||||||||||||||||||
|
Balance
at October 1, 2005
|
66,826,833
|
668
|
471,344
|
753,527
|
(373 | ) | (1,568 | ) |
1,223,598
|
|||||||||||||||||||
|
Cancellation
of Treasury Stock
|
(271,100 | ) | (3 | ) | (1,565 | ) |
1,568
|
|||||||||||||||||||||
|
Net
loss for year
|
(34,232 | ) | (34,232 | ) | ||||||||||||||||||||||||
|
Other
comprehensive income
|
507
|
507
|
||||||||||||||||||||||||||
|
Total
comprehensive loss
|
(33,725 | ) | ||||||||||||||||||||||||||
|
Cash
dividends declared ($1.09
per share)
|
(72,545 | ) | (72,545 | ) | ||||||||||||||||||||||||
|
Balance
at September 30, 2006
|
66,555,733
|
665
|
469,779
|
646,750
|
134
|
--
|
1,117,328
|
|||||||||||||||||||||
|
Net
income for year
|
47,017
|
47,017
|
||||||||||||||||||||||||||
|
Other
comprehensive income
|
13,868
|
13,868
|
||||||||||||||||||||||||||
|
Total
comprehensive income
|
60,885
|
|||||||||||||||||||||||||||
|
Cash
dividends declared ($.09
per share)
|
(5,992 | ) | (5,992 | ) | ||||||||||||||||||||||||
|
Balance
at September 29, 2007
|
66,555,733
|
$ |
665
|
$ |
469,779
|
$ |
687,775
|
$ |
14,002
|
--
|
$ |
1,172,221
|
||||||||||||||||
See
Notes
to Consolidated Financial Statements
Pilgrim’s
Pride Corporation
|
(In
thousands)
|
Three
Years Ended September 29, 2007
|
|||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cash
Flows From Operating Activities:
|
||||||||||||
|
Net
income (loss)
|
$ | 47,017 | $ | (34,232 | ) | $ | 264,979 | |||||
|
Adjustments
to reconcile net income (loss) to cash provided by
operating
activities
|
||||||||||||
|
Depreciation
and amortization
|
204,903
|
135,133
|
134,944
|
|||||||||
|
Non-cash
loss on early extinguishment of debt
|
9,543
|
--
|
--
|
|||||||||
|
Asset
impairment
|
--
|
3,767
|
--
|
|||||||||
|
(Gain)
loss on property disposals
|
(446 | ) |
1,781
|
4,326
|
||||||||
|
Deferred
income taxes
|
83,884
|
20,455
|
2,247
|
|||||||||
|
Changes
in operating assets and liabilities, net of the effect of business
acquired
|
||||||||||||
|
Accounts
and other receivables
|
247,217
|
31,121
|
21,192
|
|||||||||
|
Income
taxes (payable) receivable
|
5,570
|
(55,363 | ) | (38,251 | ) | |||||||
|
Inventories
|
(129,645 | ) | (58,612 | ) |
82,669
|
|||||||
|
Prepaid
expenses and other current assets
|
(2,981 | ) | (6,594 | ) |
20,800
|
|||||||
|
Accounts
payable, and accrued expenses
|
(5,097 | ) | (3,501 | ) | (610 | ) | ||||||
|
Other
|
3,999
|
(3,573 | ) |
777
|
||||||||
|
Cash
Provided by Operating Activities
|
463,964
|
30,382
|
493,073
|
|||||||||
|
Investing
Activities:
|
||||||||||||
|
Acquisitions
of property, plant and equipment
|
(172,323 | ) | (143,882 | ) | (116,588 | ) | ||||||
|
Purchase
of investment securities
|
(125,045 | ) | (318,266 | ) | (305,458 | ) | ||||||
|
Proceeds
from sale or maturity of investment securities
|
208,676
|
490,764
|
--
|
|||||||||
|
Business
acquisition, net of cash acquired
|
(1,102,069 | ) |
--
|
--
|
||||||||
|
Proceeds
from property disposals
|
6,286
|
4,148
|
4,963
|
|||||||||
|
Other,
net
|
--
|
(506 | ) | (524 | ) | |||||||
|
Cash
Provided by (Used in) Investing Activities
|
(1,184,475 | ) |
32,258
|
(417,607 | ) | |||||||
|
Financing
Activities:
|
||||||||||||
|
Proceeds
from notes payable to banks
|
--
|
270,500
|
--
|
|||||||||
|
Repayments
on notes payable to banks
|
--
|
(270,500 | ) |
--
|
||||||||
|
Proceeds
from long-term debt
|
751,255
|
74,683
|
--
|
|||||||||
|
Payments
on long-term debt
|
(1,368,700 | ) | (36,950 | ) | (16,829 | ) | ||||||
|
Bank
overdraft activity
|
39,231
|
--
|
--
|
|||||||||
|
Purchases
for retirement of common stock
|
--
|
--
|
(482,246 | ) | ||||||||
|
Sale
of common stock
|
--
|
--
|
521,928
|
|||||||||
|
Borrowing
for acquisition
|
1,230,000
|
--
|
--
|
|||||||||
|
Equity
and debt issue costs
|
(15,565 | ) | (3,938 | ) |
--
|
|||||||
|
Cash
dividends paid
|
(5,992 | ) | (72,545 | ) | (3,993 | ) | ||||||
|
Cash
Provided by (Used in) Financing Activities
|
630,229
|
(38,750 | ) |
18,860
|
||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
46
|
(53 | ) |
76
|
||||||||
|
(Decrease)
increase in cash and cash equivalents
|
(90,236 | ) |
23,837
|
94,402
|
||||||||
|
Cash
and cash equivalents at beginning of year
|
156,404
|
132,567
|
38,165
|
|||||||||
|
Cash
and Cash Equivalents at End of Year
|
$ | 66,168 | $ | 156,404 | $ | 132,567 | ||||||
|
Supplemental
Disclosure Information:
|
||||||||||||
|
Cash
paid during the year for:
|
||||||||||||
|
Interest
(net of amount capitalized)
|
$ | 104,394 | $ | 48,590 | $ | 46,945 | ||||||
|
Income
taxes paid
|
$ | 11,164 | $ | 37,813 | $ | 172,929 | ||||||
|
See
Notes to Consolidated Financial Statements
|
||||||||||||
NOTE
A – BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pilgrim’s
Pride Corporation (referred to herein as “the Company”, “we”, “us”, “our”, or
similar terms) is the world’s largest chicken company. In the U.S.,
we produce both prepared and fresh chicken and fresh turkey. In Mexico
and
Puerto Rico, we produce exclusively fresh chicken. Through vertical
integration, we control the breeding, hatching and growing of chickens
and the
processing and preparation, packaging and sale of our product
lines.
Our
prepared chicken products include portion-controlled breast fillets, tenderloins
and strips, delicatessen products, salads, formed nuggets and patties and
bone-in chicken parts. These products are sold either refrigerated or
frozen and may be fully cooked, partially cooked or raw. In addition,
these products are breaded or non-breaded and either pre-marinated or
non-marinated. The Company also sells fresh chicken products to the
foodservice and retail markets. Our fresh chicken products consist of
refrigerated (non-frozen) whole or cut-up chicken, either pre-marinated
or
non-marinated, and pre-packaged chicken in various combinations of freshly
refrigerated, whole chickens and chicken parts.
Our
turkey products include fresh and frozen whole birds. In addition, we
have fully cooked whole turkeys available.
Accounting
Adjustments and Reclassifications
During
the fourth quarter of fiscal 2006, we recorded certain accounting adjustments
(“Accounting Adjustments”) in our 2006 Consolidated Financial Statements.
These Accounting Adjustments related to the accounting for the Pilgrim’s
Pride Retirement Plan for Union Employees and certain post-employment benefit
obligations in Mexico. These Accounting Adjustments resulted in a charge
of $4.6 million, net of tax, in our Consolidated Statement of Operations
that
related to prior periods.
We
believe these Accounting Adjustments, considered individually and in the
aggregate, were not material to our Consolidated Financial Statements for
the
years ended September 30, 2006 or October 1, 2005. As a result, they were
reflected as an adjustment in fiscal 2006 only. In making this
assessment, we considered qualitative and quantitative factors, including
the
significant earnings we reported in fiscal 2005 and the impact of making
these
Accounting Adjustments in fiscal 2006, primarily based on their significance
to
other key financial measures and consideration of the trend of earnings for
2006 versus the prior periods presented.
Certain
items in prior year financial statements have been reclassified to the
current
year’s presentation.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Pilgrim’s Pride
Corporation and its majority owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
The
Company reports on the basis of a 52/53-week fiscal year that ends on the
Saturday closest to September 30. As a result, fiscal years 2007,
2006, and 2005 each had 52 weeks.
The
financial statements of the Company’s Mexico subsidiaries are remeasured as if
the U.S. dollar were the functional currency. Accordingly, we
translate assets and liabilities, other than non-monetary assets, of the
Mexico
subsidiaries at current exchange rates. We translate non-monetary assets
using
the historical rates in effect on the date of acquisition. We
translate income and expenses at average exchange rates in effect during
the
period. Foreign exchange gains or losses are separately stated as a
component of “Other Expenses (Income)” in the Consolidated Statement of
Operations.
Revenue
Recognition
Revenue
is recognized upon shipment and transfer of ownership of the product to
the
customer and is recorded net of estimated incentive offerings including
special
pricing agreements, promotions and other volume-based
incentives. Revisions to these estimates are charged back to net
sales in the period in which the facts that give rise to the revision become
known.
Shipping
and Handling Costs
Costs
associated with the products shipped to customers are recognized in cost
of
sales.
Cash
Equivalents
The
Company considers highly liquid investments with a maturity of three months
or
less when purchased to be cash equivalents.
Investment
in Available-for-Sale Securities
The
Company’s investments at September 29, 2007 are in debt and equity securities
which are classified as available for sale and carried at market
value. Investments are classified based on their underlying
contractual maturity at date of purchase by the Company. Certain
investments are held in trust as compensating balance arrangements for
our
insurance liability and are classified as long-term based on a maturity
date
greater than one year from the balance sheet date and management’s intention not
to use such assets in the next twelve months. Available-for-sale
investments with a remaining maturity date of one year or less from the
balance
sheet date are classified as current assets and those with a maturity date
of
greater than one year are classified as long-term assets based on management’s
intention not to use such assets in the next twelve
months. Investments in debt securities are primarily invested in
municipal bonds. The average maturity period of the Company’s
investments at September 29, 2007 was 1-3 years. All equity
securities are classified as long-term. Approximately $0.9 million,
net of tax, in unrealized gains related to these investments at September
29,
2007 were recorded as accumulated other comprehensive income, a separate
component of stockholders’ equity.
Fair
Value of Financial Instruments
The
carrying values of cash and cash equivalents, accounts receivable, and
accounts
payable at September 29, 2007 and September 30, 2006 approximated their
fair
values due to the short- term nature of these items. Long-term
investments are adjusted to fair value on a monthly basis. The fair
values of the Company’s long-term investments in available for sale securities
was $46.0 million. See Note E for discussion of the fair value of the
Company’s long-term debt.
Concentrations
of Credit Risk
The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents, investment securities, and
trade
receivables. The Company’s cash equivalents are in high-quality
securities placed with major banks and financial
institutions. Concentrations of credit risk with respect to
receivables are limited due to the large number of customers and their
dispersion across geographic areas.
With
the exception of one customer that accounts for approximately 14.0% of
accounts
receivable at September 29, 2007 and 12% of net sales for fiscal 2007 primarily
related to our chicken segment, the Company does not believe it has significant
concentrations of credit risk in its accounts receivable, which are generally
unsecured. Credit evaluations are performed on all significant
customers and updated as circumstances dictate.
Inventories
Live
poultry inventories are stated at the lower of cost or market and breeder
hens
at the lower of cost, less accumulated amortization, or market. The
costs associated with breeder hens are accumulated up to the production
stage
and amortized over the productive lives using the unit-of-production
method. Finished poultry products, feed, eggs and other inventories
are stated at the lower of cost (first-in, first-out method) or
market. We record valuations and adjustments for our inventory and
for estimated obsolescence at or equal to the difference between the cost
of
inventory and the estimated market value based upon known conditions affecting
the inventory’s obsolescence, including significantly aged products,
discontinued product lines, or damaged or obsolete products. We
allocate meat costs between our various finished poultry products based
on a
by-product costing technique that reduces the cost of the whole bird by
estimated yields and amounts to be recovered for certain by-product parts,
primarily including leg quarters, wings, tenders and offal, which are carried
in
inventory at the estimated recovery amounts, with the remaining amount
being
reflected as our breast meat cost. Generally, the Company performs an
evaluation of whether any lower of cost or market adjustments are required
at
the segment level based on a number of factors, including: (i) pools of
related
inventory, (ii) product age, condition and continuation or discontinuation,
(iii) estimated market selling prices and (iv) expected distribution
channels. If actual market conditions or other factors are less
favorable than those projected by management, additional inventory adjustments
may be required.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost, and repair and maintenance costs
are
expensed as incurred. Depreciation is computed using the
straight-line method over the
estimated useful lives of these assets. Depreciation expense was $196.4 million, $130.5 million and $130.6 million in fiscal 2007, 2006 and 2005, respectively. Estimated useful lives for building, machinery and equipment are 5 years to 33 years and for automobiles and trucks are 3 years to 10 years. The charge to income resulting from amortization of assets recorded under capital leases is included with depreciation expense.
The
Company records impairment charges on long-lived assets used in operations
when
events and circumstances indicate that the assets may be impaired and
the
undiscounted cash flows estimated to be generated by those assets are
less than
the carrying amount of those assets. The impairment charge is
determined based upon the amount the net book value of the assets exceeds
their
fair market value. In making these determinations, the Company
utilizes certain assumptions, including, but not limited to: (i) future
cash
flows estimates expected to be generated by these assets, which are based
on
additional assumptions such as asset utilization, remaining length of
service
and estimated salvage values; (ii) estimated fair market value of the
assets;
and (iii) determinations with respect to the lowest level of cash flows
relevant
to the respective impairment test, generally groupings of related operational
facilities.
Accrued
Expenses
The
carrying values of accrued expenses were as follows:
|
September
29, 2007
|
September
30, 2006
|
|||||||
|
(Dollars
in thousands)
|
||||||||
|
Compensation
and benefits
|
$ | 231,401 | $ | 143,555 | ||||
|
Interest
|
49,063
|
5,276
|
||||||
|
Other
|
219,550
|
123,999
|
||||||
|
Accrued
expenses
|
$ | 500,014 | $ | 272,830 | ||||
Purchase
Price Accounting
The
Company allocates the total purchase price in connection with acquisitions
to
assets and liabilities based upon their estimated fair values. For
property, plant and equipment and intangible assets other than goodwill,
for
significant acquisitions, the Company has historically relied upon the
use of
third-party valuation experts to assist in the estimation of fair
values. Historically, the carrying value of acquired accounts
receivable, inventory and accounts payable have approximated their fair
value as
of the date of acquisition, though adjustments are made within purchase
price
accounting to the extent needed to record such assets and liabilities at
fair
value. With respect to accrued liabilities, the Company uses all
available information to make its best estimate of the fair value of the
acquired liabilities and, when necessary, may rely upon the use of third-party
actuarial experts to assist in the estimation of fair value for certain
liabilities, primarily pension and self-insurance accruals.
Litigation
and Contingent Liabilities
The
Company is subject to lawsuits, investigations and other claims related
to
employment, environmental, product and other matters, and is required to
assess the likelihood of any adverse judgments or outcomes to these matters
as
well as potential ranges of probable losses. A determination of the
amount of reserves required, including anticipated cost of defense, if
any, for
these contingencies is made when losses are determined to be probable and
after
considerable analysis of each individual issue. These reserves may
change in the future due to changes in the Company’s assumptions, the
effectiveness of strategies, or other factors beyond the Company’s
control.
Accrued
Self Insurance
Insurance
expense for casualty claims and employee-related health care benefits are
estimated using historical and current experience and actuarial
estimates. Stop-loss coverage is maintained with third-party insurers
to limit the Company’s total exposure. Certain categories of claim
liabilities are actuarially determined. The assumption used to arrive
at periodic expenses is reviewed regularly by management. However,
actual expenses could differ from these estimates and could result in
adjustments to be recognized.
Income
Taxes
We
recognize deferred tax assets and liabilities for the effect of temporary
differences between the book and tax bases of recorded assets and
liabilities. Taxes are provided for international subsidiaries based
on the assumption that their earnings are indefinitely reinvested in foreign
subsidiaries and as such deferred taxes are not provided for in U.S. income
taxes that would be required in the event of distribution of these
earnings. We also reduce deferred tax assets by a valuation allowance
if it is more likely than not that some portion or all of the deferred
tax asset
will not be realized. We review the recoverability of any tax assets
recorded on the balance sheet, primarily operating loss carryforwards,
based on
both historical and anticipated earnings levels of the individual operations
and
provide a valuation allowance when it is more likely than not that amounts
will
not be recovered.
As
of September 29, 2007, the Company had reserves totaling $26.9 million
for taxes
that may become payable in future years as a result of audits by tax
authorities. Although the Company believes that the positions taken
on previously filed tax returns are reasonable, it nevertheless has established
tax reserves in recognition that various taxing authorities may challenge
the
positions taken by the Company resulting in additional liabilities for
tax and
interest. The tax reserves are reviewed as circumstances warrant and
adjusted as events occur that affect the Company’s potential liability for
additional taxes, such as lapsing of applicable statutes of limitations,
conclusion of tax audits, additional exposure based on current calculations,
identification of new issues, release of administrative guidance, or
rendering of a court decision affecting a particular tax issue.
Common
Stock
Prior
to November 21, 2003, the Company had two classes of authorized common
stock,
Class A common stock and Class B common stock. After the New York
Stock Exchange closed on November 21, 2003, each share of Class A common
stock
and each share of Class B common stock was reclassified into one share
of new
common stock. The new common stock is our only class of authorized
common stock. The new common stock is listed on the New York Stock
Exchange under the symbol “PPC” and registered under the Securities Exchange Act
of 1934.
Following
the reclassification, our certificate of incorporation contains no provisions
for Class A common stock or Class B common stock. In connection with
the elimination of the dual class capital structure, our certificate of
incorporation now authorizes 160 million shares of common stock instead
of 100
million shares of Class A common stock and 60 million shares of Class B
common
stock.
Except
as to voting rights, the rights of the new common stock are substantially
identical to the rights of the Class A common stock and Class B common
stock. Each share of common stock that was reclassified into our new
common stock is generally entitled to cast twenty votes on all matters
submitted
to a vote of the stockholders until there is a change in the beneficial
ownership of such share.
The
reclassification had no significant effect on our Consolidated Financial
Statements, as the combination of the Class A and Class B shares into a
new
class of common stock did not affect the overall shares of common stock
outstanding. Prior year balances reflect this reclassification as if
it had occurred as of the earliest period presented.
As
of September 29, 2007, we estimate that approximately 26 million shares
of our
common stock carry 20 votes per share, of which 25.3 million shares are
beneficially owned by our Senior Chairman, Lonnie “Bo” Pilgrim, or certain
related entities.
Net
Income (Loss) per Common Share
Net
income (loss) per common share is based on the weighted average number
of shares
of common stock outstanding during the year. The weighted average
number of shares outstanding (basic and diluted) included herein were 66,555,733
in 2007, 2006 and 2005.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Pending
Adoption of Recent Accounting Pronouncements
In
June 2006, the Financial Accounting Standards Board (“FASB”) issued
Interpretation (“FIN”) No. 48,Accounting for
Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109. This
Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements. FIN No. 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. The Company must adopt this Interpretation in
the first quarter of fiscal 2008. The Company has not completed its
evaluation as to the impact that adoption will have on its consolidated
financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157,Fair
Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair
value
in generally accepted accounting principles, and expands disclosures about
fair
value measurements. SFAS No. 157 does not require any new fair value
measurements. However, for some enterprises, the application of this
Statement will change current practice. The Company must adopt SFAS
No. 157 in the first quarter of fiscal 2009. Although the Company has
not completed its evaluation as to the impact that adoption will have on
its
Consolidated Financial Statements, it currently believes the adoption of
SFAS
No. 157 will not require material modification of its fair value measurements
and will be substantially limited to expanded disclosures in the notes
to its
Consolidated Financial Statements.
In
January 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial
Assets and Financial Liabilities. This
Statement permits an enterprise to choose to measure many financial instruments
and certain other items at fair value. SFAS No. 159 will become
effective for the Company in the first quarter of fiscal 2009. The
Company is currently evaluating the impact that use of the fair value
measurement option on its financial instruments and other applicable items
would
have on its Consolidated Financial Statements.
NOTE
B – BUSINESS ACQUISITION
On
December 27, 2006, we acquired 45,343,812 shares, representing 88.9% of
shares
outstanding, of Gold Kist Inc. (“Gold Kist”) common stock through a tender
offer. We subsequently acquired all remaining Gold Kist shares and,
on January 9, 2007, Gold Kist became a wholly owned subsidiary of the
Company. Gold Kist, based in Atlanta, Georgia, was the third largest
chicken company in the United States, accounting for more than nine percent
of
chicken produced in the United States in recent years. Gold Kist
operated a fully-integrated chicken production business that included live
production, processing, marketing and distribution.
For
financial reporting purposes, we have not included the operating results
and
cash flows of Gold Kist in our consolidated financial statements for the
period
from December 27, 2006 through December 30, 2006. The operating
results and cash flows of Gold Kist from December 27, 2006 through December
30,
2006 were not material. We have included the acquired assets and
assumed liabilities in our balance sheet using an allocation of the purchase
price based on an appraisal received from a third-party valuation
specialist.
The
following summarizes our purchase price at December 27, 2006 (in
thousands):
|
Purchase
50,146,368 shares at $21.00 per share
|
$ | 1,053,074 | ||
|
Premium
paid on retirement of debt
|
22,208
|
|||
|
Retirement
of various share-based compensation awards
|
25,677
|
|||
|
Various
costs and fees
|
37,740
|
|||
|
Total
purchase price
|
$ | 1,138,699 | ||
We
retired the Gold Kist 10 1/4% Senior Notes due 2014 with a book value of
$128.5
million at a cost of $149.8 million plus accrued interest and the Gold Kist
Subordinated Capital Certificates of Interest at par plus accrued interest
and a
premium of one year’s interest. We also paid acquisition transaction
costs and funded change in control payments to certain Gold Kist
employees. This acquisition was initially funded by (1) $780
million borrowed under our revolving-term secured credit facility and (2)
$450
million borrowed under our $450 million Senior Unsecured Term Loan Agreement
(“Bridge Loan”) (see Note E below).
In
connection with the acquisition, we elected to freeze certain of the Gold
Kist
benefit plans with the intent to ultimately terminate them. We
recorded a purchase price adjustment of $65.6 million to increase the benefit
plans liability to the $82.5 million current estimated cost of these plan
terminations. We do not anticipate any material net periodic benefit
costs (income) related to these plans in the future. Additionally, we
conformed Gold Kist’s accounting policies to our accounting policies and
provided for deferred income taxes on all related purchase
adjustments.
The
following summarizes our estimates of the fair value of the assets acquired
and
liabilities assumed at the date of acquisition.
Purchase
price allocation:
(In
thousands):
|
Current
assets
|
$ | 418,583 | ||
|
Property,
plant and equipment
|
675,054
|
|||
|
Goodwill
|
505,166
|
|||
|
Intangible
assets
|
64,500
|
|||
|
Other
assets
|
65,597
|
|||
|
Total
assets acquired
|
1,728,900
|
|||
|
Current
liabilities
|
276,194
|
|||
|
Long-term
debt, less current maturities
|
140,674
|
|||
|
Deferred
income taxes
|
93,509
|
|||
|
Other
long-term liabilities
|
79,824
|
|||
|
Total
liabilities assumed
|
590,201
|
|||
|
Total
purchase price
|
$ | 1,138,699 | ||
|
|
Goodwill
and other intangible assets reflected above were determined to meet the
criteria
for recognition apart from tangible assets acquired and liabilities assumed.
Intangible assets related to the acquisition consisted of the following
at
December 27, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Amortization
|
|
||
|
|
|
Fair
Value
|
|
|
Period
|
|
||
|
|
|
(In
millions)
|
|
|
(In
years)
|
|
||
|
|
||||||||
|
I
In tangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
51,000
|
13.0
|
|
|||
|
Trade
name
|
|
|
13,200
|
3.0
|
|
|||
|
Non-compete
agreements
|
|
|
300
|
3.0
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets subject to amortization
|
|
|
64,500
|
|
|
|
|
|
|
G Goodwill
|
|
|
505,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
intangible assets
|
|
$
|
569,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average amortization period
|
|
|
|
|
|
|
10.9
|
|
Goodwill,
which is recognized in the Company’s chicken segment, represents the purchase
price in excess of the value assigned to identifiable tangible and intangible
assets. We elected to acquire Gold Kist at a price that resulted in
the recognition of goodwill because of the following strategic and financial
benefits:
|
-
|
The
combined company is now positioned as the world’s leading chicken producer
and that position has provided us with enhanced abilities
to:
|
|
·
|
Compete
more efficiently and provide even better customer
service;
|
|
·
|
Expand
our geographic reach and customer
base;
|
|
·
|
Further
pursue value-added and prepared foods opportunities;
and
|
|
·
|
Offer
long-term growth opportunities for our stockholders, employees,
and
growers.
|
|
-
|
The
combined company is better positioned to compete in the industry
both
internationally and in the United States as additional consolidation
occurs.
|
The
amortizable intangible assets were determined by us to have finite lives.
The
useful life for the customer relationships intangible asset we recognized
was
based on our forecasts of customer turnover. The useful life for the
trade name
intangible asset we recognized was based on the estimated length of our
use of
the Gold Kist trade name while it is phased out and replaced with the
Pilgrim’s
Pride trade name. The useful life of the non-compete agreements intangible
asset
we recognized was based on the remaining life of the agreements. We amortize
these intangible assets over their remaining useful lives on a straight-line
basis. Annual amortization expense for these intangible assets was
$6.3 million in fiscal 2007. We expect to recognize annual
amortization expense of $8.4 million in fiscal 2008 and fiscal 2009,
$5.1
million in fiscal 2010, $3.9 million in fiscal 2011 through fiscal 2019,
and
$1.0 million in fiscal 2020.
The
following unaudited pro forma financial information has been presented
as if the
acquisition had occurred at the beginning of each period presented.
|
In
thousands, except share and per share data
|
|
|||||||
|
Fiscal
2007
(Pro
forma)
|
Fiscal
2006
(Pro
forma)
|
|||||||
|
Net
sales
|
$ | 8,126,409 | $ | 7,352,018 | ||||
|
Depreciation
and amortization
|
$ | 230,126 | $ | 228,105 | ||||
|
Operating
income (loss)
|
$ | 201,986 | $ | (53,585 | ) | |||
|
Interest
expense, net
|
$ | 146,928 | $ | 125,314 | ||||
|
Income
(loss) before taxes
|
$ | 36,372 | $ | (172,740 | ) | |||
|
Net
income (loss)
|
$ | 12,832 | $ | (118,571 | ) | |||
|
Net
income (loss) per common share
|
$ | 0.19 | $ | (1.78 | ) | |||
|
Weighted average shares outstanding
|
66,555,733
|
66,555,733
|
||||||
NOTE
C – ACCOUNTS RECEIVABLE
In
connection with the Receivables Purchase Agreement dated June 26, 1998,
as
amended, the Company sells, on a revolving basis, certain of its trade
receivables (the “Pooled Receivables”) to a special purpose corporation wholly
owned by the Company, which in turn sells a percentage ownership interest
to
third parties. As of September 29, 2007, $300.0 million in Pooled
Receivables had been sold. During fiscal 2006 and 2005 there were no
Pooled Receivables sold. The gross proceeds resulting from the sale
are included in cash flows from operating activities in the Consolidated
Statements of Cash Flows. Losses on the sale were
immaterial.
NOTE
D – INVENTORIES
Inventories
consist of the following:
|
September
29,
|
September
30,
|
|||||||
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Chicken:
|
||||||||
|
Live
chicken and hens
|
$ | 343,185 | $ | 196,284 | ||||
|
Feed
and eggs
|
223,631
|
132,309
|
||||||
|
Finished
chicken products
|
337,052
|
201,516
|
||||||
|
903,868
|
530,109
|
|||||||
|
Turkey:
|
||||||||
|
Live
turkey and hens
|
$ | 8,839 | $ | 7,138 | ||||
|
Feed
and eggs
|
2,664
|
4,740
|
||||||
|
Finished
turkey products
|
25,929
|
26,685
|
||||||
|
37,432
|
38,563
|
|||||||
|
Other
Products:
|
||||||||
|
Commercial feed, table eggs, and retail farm store
|
$ | 11,327 | $ | 7,080 | ||||
|
Distribution inventories
(other
than chicken & turkey products)
|
9,258
|
10,188
|
||||||
|
20,585
|
17,268
|
|||||||
|
Total
Inventories
|
$ | 961,885 | $ | 585,940 | ||||
NOTE
E – NOTES PAYABLE AND LONG-TERM DEBT
The
following table presents our long-term debt as of September 29, 2007 and
September 30, 2006 (in thousands):
|
(in
thousands)
|
Final
Maturity
|
|
September
29, 2007
|
|
|
September
30, 2006
|
|
||
|
|
|
|
|
|
|
|
|
||
|
Senior
unsecured notes, at 7 5/8%
|
2015
|
|
$
|
400,000
|
|
|
$
|
--
|
|
|
Senior
unsecured notes, at 8 3/8%
|
2017
|
|
|
250,000
|
|
|
|
--
|
|
|
Senior
unsecured notes, at 9 5/8%
|
2011
|
|
|
--
|
|
|
|
299,601
|
|
|
Senior
subordinated unsecured notes, at 9 1/4%
|
2013
|
|
|
5,135
|
|
|
|
82,640
|
|
|
Secured
revolving credit facility with notes payable at LIBOR plus 1.25%
to LIBOR
plus 2.75%
|
2011
|
|
|
26,293
|
|
|
|
74,682
|
|
|
Note
payable to an insurance company at 6.68%
|
2012
|
|
|
--
|
|
|
|
50,115
|
|
|
Notes
payable to an insurance company at LIBOR plus 2.2075%
|
2013
|
|
|
--
|
|
|
|
41,333
|
|
|
Secured
revolving-term/credit facility with notes payable at LIBOR or
US
Treasuries, plus a spread
|
2016
|
|
|
622,350
|
|
|
|
--
|
|
|
Other
|
Various
|
|
|
17,652
|
|
|
|
16,827
|
|
|
|
|
|
|
1,321,430
|
|
|
|
565,198
|
|
|
Less
current maturities
|
|
|
|
(2,872
|
)
|
|
|
(10,322
|
)
|
|
Total
|
|
|
$
|
1,318,558
|
|
|
$
|
554,876
|
|
In
September 2006, the Company entered into an amended and restated revolver/term
credit agreement with a maturity date of September 21, 2016. At
September 29, 2007 this revolver/term credit agreement provides for an
aggregate
commitment of $1.172 billion consisting of i) a $550 million revolving/term
loan
commitment and ii) $622.4 million in various term loans. At September
29, 2007, the Company had nothing outstanding under the revolver and $622.4
million outstanding in various term loans. The total credit facility
is presently secured by certain fixed assets with a current availability
of
$550.0 million. From time to time, if certain conditions are satisfied,
the
Company has the right to increase the revolving/term loan commitment and
term
loan commitment to a total maximum amount of $1.0 billion and $750 million,
respectively. Borrowings under the revolving/term loan commitment are
available on a revolving basis until September 21, 2011 at which time the
outstanding borrowings will be converted to a term loan maturing on September
21, 2016. The fixed rate term loans bear interest at rates ranging
from 6.84% to 7.06%. The voluntary converted loans bear interest at
rates ranging from LIBOR plus 1.0% - 2.0% depending upon the Company’s total
debt to capitalization ratio. The floating rate term loans bear
interest at LIBOR plus 1.50%-1.75% based on the ratio of the Company’s debt to
EBITDA, as defined in the agreement. The revolving/term loans provide
for interest rates ranging from LIBOR plus 1.0%-2.0% depending upon the
Company’s total debt to capitalization ratio. Revolving/term loans
converted to term loans on September 21, 2011 will be payable in equal
quarterly
principal payments of 10% per annum of the original principal amount beginning
the calendar quarter following the conversion date with the remaining balance
due on the maturity date. Of the term loans outstanding, $208.7
million must be repaid in equal quarterly principal payments of 1% per
annum of
the original principal amount with the remaining balance due on the maturity
date. All borrowings are subject to the availability of eligible
collateral and no material adverse change provisions. Commitment fees
charged on the unused balance of this facility range from 0.20% to 0.40%
depending upon the
Company’s
total debt to capitalization ratio. One-half of the outstanding
obligations under the revolver/term credit agreement are guaranteed by
Pilgrim
Interests, Ltd., an entity related to our Senior Chairman, Lonnie "Bo"
Pilgrim.
On
December 15, 2006, the Company borrowed $100 million at 6.84% under our
revolver/term credit agreement and used substantially all of the funds
to repay,
in full, term loans payable to an insurance company under a note purchase
agreement maturing in 2012 and 2013.
In
January 2007, the Company borrowed (1) $780 million under our revolver/term
credit agreement and (2) $450 million under our bridge loan agreement to
fund
the Gold Kist acquisition. On
January 24, 2007, the Company closed on the sale of $400 million of 7 5/8%
Senior Notes due 2015 (the “Senior Notes”) and $250 million of 8 3/8% Senior
Subordinated Notes due 2017 (the “Subordinated Notes”), sold at
par. Interest is payable on May 1 and November 1 of each year,
beginning November 1, 2007. We may redeem all or part of the Senior
Notes on or after May 1, 2011. We may redeem all or part of the
Subordinated Notes on or after May 1, 2012. Before May 1, 2010, we
also may redeem up to 35% of the aggregate principal amount of each of
the
Senior Notes and the Subordinated Notes with the proceeds of certain equity
offerings. Each of these optional redemptions is at a premium as
described in the indentures under which the notes were issued. The
proceeds from the sale of the notes, after underwriting discounts, were
used to
(1) retire the loans outstanding under our bridge loan agreement, (2) repurchase
$77.5 million of the Company’s 9 1/4% Senior Subordinated Notes due 2013 at a
premium of $7.4 million plus accrued interest of $1.3 million and (3) reduce
outstanding revolving loans under our revolving/term credit
agreement. Loss on early extinguishment of debt includes the $7.4
million premium along with unamortized loan costs of $7.1 million related
to the
retirement of these Notes.
On
September 21, 2007, the Company redeemed all of its 9 5/8% Senior Notes
due 2011
at a total cost of $307.5 million. To fund a portion of the aggregate
redemption price, the Company sold $300 million of trade receivables under
its
Receivables Purchase Agreement. Loss on early extinguishment of debt
includes the $9.5 million premium along with unamortized loan costs of
$2.5
million related to the retirement of these Notes.
As
of September 29, 2007, we had a $300.0 million commitment under a domestic
revolving credit facility that provides for interest rates ranging from
LIBOR
plus 0.75-1.75% depending upon our total debt to capitalization
ratio. From time to time, if certain conditions are satisfied, the
Company has the right to increase the revolving commitment to a total maximum
amount of $450 million. At September 29, 2007, $215.1 million was
available for borrowing under the domestic revolving credit
facility. Borrowings against this facility are subject to the
availability of eligible collateral and no material adverse change
provisions. The obligations under this facility are secured by
domestic chicken inventories. Commitment fees charged on the unused
balance of this facility range from 0.175% to 0.35% depending upon the
Company’s
total debt to capitalization ratio. One-half of the outstanding
obligations under the domestic revolving credit facility are guaranteed
by
Pilgrim Interests, Ltd., an entity related to our Senior Chairman, Lonnie
"Bo"
Pilgrim.
On September 25, 2006, a subsidiary of the Company, Avícola Pilgrim’s Pride de
México, S. de R.L. de C.V. (the “Borrower”), entered into a secured revolving
credit agreement of up to $75 million with a final maturity date of September
25, 2011. In March 2007, the Borrower elected to reduce the
commitment under this agreement to approximately $50
million. Outstanding
amounts
bear interest at rates ranging from the higher of the Prime Rate or Federal
Funds Effective Rate plus 0.5%; LIBOR plus 1.25%-2.75%; or TIIE plus 1.05%-2.55%
depending on the loan designation. Obligations under this agreement
are secured by a security interest in and lien upon all capital stock and
other
equity interests of the Company’s Mexican subsidiaries. All the
obligations of the Borrower are secured by unconditional guaranty by the
Company. At September 29, 2007, $26.3 million was outstanding and
approximately $23.7 million was available under this line. All
borrowings are subject to no material adverse effect provisions.
On June 29, 1999, the Camp County Industrial Development Corporation issued
$25.0 million of variable-rate environmental facilities revenue bonds supported
by letters of credit obtained by us. We may draw from these proceeds
over the construction period for new sewage and solid waste disposal facilities
at a poultry by-products plant to be built in Camp County, Texas. We
are not required to borrow the full amount of the proceeds from these revenue
bonds. All amounts borrowed from these funds will be due in
2029. The revenue bonds are supported by letters of credit obtained
by us under our available revolving credit facilities. The bonds will
be recorded as debt of the Company if and when they are spent to fund
construction.
Most
of our domestic inventories and domestic fixed assets are pledged as collateral
on our long-term debt and credit facilities.
Annual
maturities of long-term debt for the five years subsequent to September
29, 2007
are: 2008 -- $2.9 million; 2009 -- $2.4 million; 2010 -- $1.3
million; 2011 -- $27.9 million; and 2012 -- $1.3 million and thereafter
--
$1.286 billion.
The
Company is required, by certain provisions of its debt agreements, to maintain
levels of working capital and net worth, to limit dividends to a maximum
of $26
million per year, and to maintain various fixed charge, leverage, current
and
debt-to-equity ratios. In fiscal 2006, waivers were obtained to
permit a special $1 per share dividend. At September 29, 2007, the
Company has fully complied with these covenants.
Total interest expense was $125.8 million, $50.6 million and $49.6 million
in
fiscal 2007, 2006 and 2005, respectively. Interest related to new
construction capitalized in fiscal 2007, 2006 and 2005 was $5.7 million,
$4.3
million and $2.8 million, respectively.
The fair value of long-term debt, at September 29, 2007 and September 30,
2006
and based upon quoted market prices for the same or similar issues where
available or by using discounted cash flow analysis, was approximately
$1.338
billion and $592.3 million, respectively.
NOTE
F – INCOME TAXES
Income (loss) before income taxes after allocation of certain expenses
to
foreign operations for fiscal 2007, 2006 and 2005 was $80.0 million, ($19.7)
million and $361.1 million, respectively, for U.S. operations and $11.6
million,
($16.6) million and $42.4 million, respectively, for foreign
operations. The provisions for income taxes are based on pre-tax
financial statement income (loss).
The
components of income tax expense (benefit) are set forth below:
|
(In
thousands)
|
2007
|
2006
|
2005
|
|||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | (37,191 | ) | $ | (23,147 | ) | $ | 117,518 | ||||
|
Foreign
|
1,573
|
5,130
|
3,880
|
|||||||||
|
State
and other
|
(3,676 | ) | (4,523 | ) |
14,899
|
|||||||
|
Total
current
|
(39,294 | ) | (22,540 | ) |
136,297
|
|||||||
|
Deferred
|
||||||||||||
|
Federal
|
73,285
|
9,511
|
(1,594 | ) | ||||||||
|
Foreign
|
(1,637 | ) |
10,221
|
4,475
|
||||||||
|
State
and other
|
12,236
|
723
|
113
|
|||||||||
|
Total
deferred
|
83,884
|
20,455
|
2,994
|
|||||||||
|
Change
in valuation allowance
|
--
|
--
|
(747 | ) | ||||||||
| $ | 44,590 | $ | (2,085 | ) | $ | 138,544 | ||||||
The following is a reconciliation between the statutory U.S. federal income
tax
rate and the Company’s effective income tax rate:
|
2007
|
2006
|
2005
|
||||||||||
|
Federal
income tax rate
|
35.0 | % | (35.0 | ) % | 35.0 | % | ||||||
|
State
tax rate, net
|
2.6
|
(0.7 | ) |
2.1
|
||||||||
|
Permanent Items
|
2.9
|
|||||||||||
|
D
Difference in U.S. statutory tax rate and foreign country effective
tax
rate
|
(0.8 | ) | (1.0 | ) | (1. 3 | ) | ||||||
|
T Tax
credits
|
(8.0 | ) | (13.1 | ) | (1.1 | ) | ||||||
|
Tax effect of American Jobs Creation Act
repatriation
|
--
|
68.3
|
0.6
|
|||||||||
|
Currency
related differences
|
3.8
|
8.4
|
(1.1 | ) | ||||||||
|
Change
in contingency reserves
|
6.8
|
(29.7 | ) |
--
|
||||||||
|
Change
in valuation allowance
|
--
|
--
|
(0.2 | ) | ||||||||
|
Change
in tax rate
|
3.2
|
--
|
--
|
|||||||||
|
Other
|
3.2
|
(3.0 | ) |
0.3
|
||||||||
|
Total
|
48.7 | % | (5.8 | ) % | 34.3 | % | ||||||
Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
Significant
components of the Company’s deferred tax liabilities and assets are as
follows:
|
(In
thousands)
|
2007
|
2006
|
||||||
|
Deferred
tax liabilities:
|
||||||||
|
Property
and equipment
|
$ | 256,341 | $ | 144,361 | ||||
|
Inventories
|
109,410
|
43,627
|
||||||
|
Prior
use of cash accounting
|
16,936
|
18,457
|
||||||
|
Acquisition
related items
|
14,820
|
15,600
|
||||||
|
Deferred
foreign taxes
|
25,002
|
24,127
|
||||||
|
Identified
intangibles
|
21,964
|
--
|
||||||
|
Other
|
58,956
|
36,570
|
||||||
|
Total
deferred tax liabilities
|
503,429
|
282,742
|
||||||
|
Deferred
tax assets:
|
||||||||
|
Foreign
net operating losses
|
41,257
|
42,683
|
||||||
|
Expenses
deductible in different years
|
143,697
|
71,478
|
||||||
|
Total
deferred tax asset
|
184,954
|
114,161
|
||||||
|
Net
deferred tax liabilities
|
$ | 318,475 | $ | 168,581 | ||||
The
Company has not provided any deferred income taxes on the remaining
undistributed earnings of its Mexico subsidiaries based upon its determination
that such earnings will be indefinitely reinvested. As of September 29,
2007,
the cumulative undistributed earnings of these subsidiaries were approximately
$92.0 million. If such earnings were not considered indefinitely
reinvested, certain deferred foreign and U.S. income taxes would have been
provided, after consideration of estimated foreign tax
credits. However, determination of the amount of deferred income
taxes is not practical.
The
Mexican tax operating loss carryforwards of approximately $147.9 million
will
expire in the years ranging from 2008 through 2012.
The
American Jobs Creation Act was enacted in October 2004 (“Jobs Creation
Act”). The Jobs Creation Act includes a temporary incentive to U.S.
multinationals to repatriate foreign earnings at an approximate effective
5.25%
U.S. federal tax rate. During the fourth quarter of fiscal year 2006,
the Company repatriated $155.0 million in previously unremitted untaxed
earnings
under the provisions of the Jobs Creation Act. The total income tax
effects of repatriations under the Jobs Creation Act was $28.2 million,
of which
$25.8 million was recorded fiscal 2006. The key components of the
2006 provision included domestic income taxes of $10.1 million to reflect
federal and state taxes on the transaction, a deferred foreign tax provision
of
$24.1 million to accrue for future taxes that will result from certain
intra-Mexican dividends undertaken in 2006 to complete this transaction,
and a
benefit of $6.0 million to reflect the revaluation of certain deferred
tax
assets in Mexico that as a result of the transaction are expected to be
realized
at higher enacted tax rates.
In October 2007, Mexico’s legislative bodies enacted La Ley del Impuesto
Empresarial a Tasa Única (“IETU”), a new minimum corporation tax, which will be
assessed on companies doing business in Mexico beginning January 1,
2008. We are currently evaluating the
anticipated
impact that IETU will have on our business and operating
results. Because of IETU, there can be no assurance that we will be
able to utilize the net operating loss carryovers and other deferred tax
benefits generated in Mexico. There can also be no assurance that
IETU will not have a material adverse effect on our financial
results.
NOTE
G – COMPREHENSIVE INCOME (LOSS)
For
the period ending September 29, 2007, comprehensive income was $60.9 million,
consisting of net income of $47.0 million, unrealized gains related to
our
investments in debt securities of $0.8 million, to pension liability gains
of
$7.9 million and unrealized gains on cash flow hedges of $3.4
million. This compares to the fiscal year ended September 30, 2006 in
which comprehensive loss was $33.7 million, consisting of net loss of $34.2
million and unrealized gains related to our investments in debt securities
of
$0.5 million. Comprehensive income for the fiscal year ended October
1, 2005 was $265.0 million, consisting of net income of $265.0
million.
Accumulated
other comprehensive income at September 29, 2007 was $14.0 million net
of taxes
of $6.6 million and consisted of pretax adjustments for pension liability
gains
totaling $14.3 million accumulated unrealized gains on cash flow hedges
totaling
$5.3 million and accumulated unrealized gain on our investments in debt
securities totaling $0.9 million.
NOTE
H – SAVINGS AND PENSION PLANS
Retirement
Plans
The
Company maintains retirement plans for eligible employees as
follows:
|
·
|
the
Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”), a Section 401(k)
Salary Deferral Plan
|
|
·
|
the
Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”), a
defined benefit plan
|
|
·
|
the
To-Rico’s Employee Cash or Deferred Arrangement Profit Sharing Plan (the
“To-Rico’s Plan”), a Section 1165(e) Salary Deferral
Plan
|
|
·
|
the
legacy Gold Kist Pension Plan (the “GK Pension Plan”), a defined benefit
plan acquired with Gold Kist, Inc.
|
The
Company maintains three postretirement plans for eligible Mexico employees
as
required by Mexico law which cover primarily termination
benefits. Separate disclosure of plan obligations is not considered
material.
The RS Plan is maintained for certain eligible U.S. employees. Under
the RS Plan, eligible employees may voluntarily contribute a percentage
of their
compensation and there are various Company matching provisions. The
Union Plan covers certain locations or work groups within the
Company. The To-Rico’s Plan is maintained for certain eligible Puerto
Rican employees. Under the To-Rico’s Plan, eligible employees may
voluntarily contribute a percentage of their compensation and there are
various
Company matching provisions. The GK Pension Plan covers certain
eligible U.S. employees who were employed at locations that Pilgrim’s Pride
acquired in
its
acquisition of Gold Kist Inc. and participation in the GK Pension Plan
was
frozen as of February 8, 2007 for all participants with the exception of
terminated vested participants who are or may become permanently and totally
disabled. The plan was frozen for that group as of March 31,
2007.
Under
all of our retirement plans, the Company’s expenses were $10.0 million and $16.0
million in fiscal 2007 and 2006, respectively, including the correction
of $4.6
million, pretax, as described in Note A.
The
Company uses a calendar year measurement date for its defined benefits
plans,
while its postretirement benefit plans use a fiscal year end of September
29,
2007. Certain disclosures are listed below; other disclosures are not
material to the financial statements.
Medical
and Life Insurance Plans
The
acquisition of Gold Kist by Pilgrim’s Pride resulted in acquiring some
postretirement medical and life insurance obligations. In January
2001, Gold Kist began to substantially curtail its programs for active
employees. On July 1, 2003, Gold Kist terminated medical coverage for
retirees age 65 and older, and only retired employees in the closed group
between ages 55 and 65 could continue their coverage at rates above the
average
cost of the medical insurance plan for active employees. These
retired employees will all reach the age of 65 by 2012 and liabilities
of the
postretirement medical plan will then end.
Benefit
Obligations, Plan Assets, and Assumptions
The
following table sets forth the plans’ change in benefit obligation, change in
plan assets and economic assumptions for the years ended September 29,
2007 and
September 30, 2006:
|
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Change
in benefit obligation:
|
||||||||||||||||
|
Benefit
obligation at beginning of year
|
$ | 9,882 | $ | 8,778 | $ | -- | $ | -- | ||||||||
|
Service
cost
|
2,029
|
2,242
|
--
|
--
|
||||||||||||
|
Interest
cost
|
8,455
|
458
|
103
|
--
|
||||||||||||
|
Plan
participant contributions
|
61
|
27
|
681
|
--
|
||||||||||||
|
Actuarial
(gains) losses
|
(12,933 | ) | (1,533 | ) | (41 | ) |
--
|
|||||||||
|
Acquisitions
|
218,623
|
--
|
2,689
|
--
|
||||||||||||
|
Prior
service cost (credit)
|
237
|
--
|
-
|
--
|
||||||||||||
|
Benefits
paid
|
(29,551 | ) | (90 | ) | (1,000 | ) |
--
|
|||||||||
|
Benefit
obligation at end of year
|
196,803
|
9,882
|
2,432
|
--
|
||||||||||||
|
Change
in plan assets:
|
||||||||||||||||
|
Fair
value of plan assets at beginning of year
|
6,252
|
5,405
|
--
|
--
|
||||||||||||
|
Acquisitions
|
139,229
|
--
|
--
|
--
|
||||||||||||
|
Actual
return on plan assets
|
11,571
|
208
|
--
|
--
|
||||||||||||
|
Contributions
by employer
|
10,462
|
702
|
319
|
--
|
||||||||||||
|
Plan
participant contributions
|
61
|
27
|
681
|
--
|
||||||||||||
|
Benefits
paid
|
(29,551 | ) | (90 | ) | (1,000 | ) |
--
|
|||||||||
|
Fair
value of plan assets at end of year
|
138,024
|
6,252
|
--
|
--
|
||||||||||||
|
Funded
status
|
(58,779 | ) | (3,630 | ) | (2,432 | ) |
--
|
|||||||||
|
Unrecognized
prior service cost (benefit)
|
237
|
--
|
--
|
--
|
||||||||||||
|
Unrecognized
net (gain) loss
|
(14,824 | ) | (818 | ) | (41 | ) |
--
|
|||||||||
|
Net
(accrued) prepaid expense
|
$ | (73,366 | ) | $ | (4,448 | ) | $ | (2,473 | ) | $ | -- | |||||
|
Accumulated
other comprehensive loss
|
14,587
|
--
|
41
|
--
|
||||||||||||
|
Net
amount recognized
|
$ | (58,779 | ) | $ | (4,448 | ) | $ | (2,432 | ) | $ | -- | |||||
|
Projected
benefit obligation
|
$ | 196,803 | $ | 9,882 | $ | 2,432 |
--
|
|||||||||
|
Accumulated
benefit obligation
|
196,217
|
9,301
|
2,432
|
--
|
||||||||||||
|
Fair
value of plan assets
|
138,024
|
6,252
|
--
|
--
|
||||||||||||
|
Weighted-average
assumptions used to determine benefit obligation:
|
|||||||||||||
|
Discount
rate
|
5.06 | % | 5.75 | % | 5.87 | % |
NA
|
||||||
|
Rate
of increase in compensation levels
|
3.00 | % | 3.00 | % |
NA
|
NA
|
|||||||
The
health care cost trend rate used to determine the other postretirement
benefits
obligation at September 29, 2007 and September 30, 2006 was 8.0% and 8.5%,
respectively. The rate will decline ratably to 5.0% by fiscal 2014
and remain at that level thereafter. A 1% increase or decrease would
have an insignificant impact on the other postretirement benefit obligation
as
of September 29, 2007.
Net
Periodic Benefit Cost
The
following table sets forth the plans’ net periodic benefit cost and economic
assumptions for the years ended September 29, 2007 and September 30,
2006:
|
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||||
|
2007
|
2006
|
2007
|
2006
|
|||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Components
of net periodic benefit cost (income):
|
||||||||||||||||
|
Service
cost
|
$ |
2,029
|
$ |
2,242
|
$ |
--
|
$ |
--
|
||||||||
|
Interest
cost
|
8,455
|
458
|
103
|
--
|
||||||||||||
|
Estimated
return on plan assets
|
(8,170 | ) | (454 | ) |
--
|
--
|
||||||||||
|
Settlement
(gain) loss
|
(2,327 | ) |
--
|
--
|
--
|
|||||||||||
|
Net
periodic benefit cost (income)
|
$ | (13 | ) | $ |
2,246
|
103
|
$ |
--
|
||||||||
|
Weighted-average
assumptions used to determine benefit cost:
|
||||||||||||||||
|
Discount
rate
|
5.06 | % | 5.25 | % | 5.50 | % |
NA
|
|||||||||
|
Rate
of increase in compensation levels
|
3.00 | % | 3.00 | % |
NA
|
NA
|
||||||||||
|
Expected
return on plan assets
|
7.75 | % | 7.75 | % | 7.75 | % |
NA
|
|||||||||
A
1%
increase or decrease in the health care cost trend rate would have an
insignificant impact on the other postretirement service and interest cost
components for 2007.
Unrecognized
Gain
The
following table sets forth the plans’ accumulated other comprehensive income
that has not yet been recognized for the year ended September 29,
2007:
|
(in
thousands)
|
||||
|
Unrecognized
(gain) loss at beginning of period
|
$ | (818 | ) | |
|
Curtailment
and settlement adjustments
|
2,327
|
|||
|
Actuarial
(gain) loss
|
(12,974 | ) | ||
|
Asset
(gain) loss
|
(3,400 | ) | ||
|
Prior
service cost (credit)
|
237
|
|||
| $ | (14,628 | ) | ||
Plan
Assets
The
fair
value of plan assets for the Company’s pension plans, along with the asset
allocation by category, is shown below:
|
Pension
Benefits
|
|||||||
|
2007
|
2006
|
||||||
|
(in
thousands)
|
|||||||
|
Fair
value of plan assets at end of year
|
$
|
138,024
|
$
|
6,252
|
|||
|
Asset
allocation:
|
|||||||
|
Cash
and money market funds
|
2
|
%
|
0
|
%
|
|||
|
Equity
securities
|
71
|
%
|
66
|
%
|
|||
|
Debt
securities
|
27
|
%
|
34
|
%
|
|||
|
Total
assets
|
100
|
%
|
100
|
%
|
|||
Absent
regulatory or statutory limitations, the target asset allocation for the
investment of the assets for our ongoing pension plans is 25% in debt securities
and 75% in equity securities. The plans only invest in debt and equity
instruments for which there is a ready public market. We develop our expected
long-term rate of return assumptions based on the historical rates of returns
for equity and debt securities of the type in which our plans
invest.
Benefit
Payments
The
expected benefit payments from the Company’s pension and postretirement plans
for the fiscal years indicated are as follows:
|
Expected
Benefit Payments for fiscal year:
|
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||
|
(in
thousands)
|
|||||||||
|
2008
|
$ | 17,614 | $ | 380 | |||||
|
2009
|
17,502
|
243
|
|||||||
|
2010
|
17,010
|
205
|
|||||||
|
2011
|
16,230
|
175
|
|||||||
|
2012
|
15,812
|
177
|
|||||||
| 2013-2017 |
62,515
|
889
|
|||||||
|
Total
|
$ | 146,683 | $ | 2,069 | |||||
NOTE
I – RELATED PARTY TRANSACTIONS
Lonnie “Bo” Pilgrim, the Senior 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 may purchase from
the
Company live chickens and hens and certain feed inventories during the
grow-out
process and then contract 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.
No purchases have been made by the Company under this agreement since the
first
quarter of fiscal 2006 when the major stockholder recognized an operating
margin
of $4,539 on gross amounts paid by the Company to the major stockholder
as
described below in “Live chicken purchases from major stockholder.” For the
fiscal year ended October 1, 2005, the formula resulted in an operating
margin
of $1,017,000 on gross amounts paid by the Company to the major
stockholder.
Transactions
with the major stockholders or related entities are summarized as
follows:
|
2007
|
2006
|
2005
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Lease
payments on commercial egg property
|
$ | 750 | $ | 750 | $ | 750 | ||||||
|
Contract
grower pay
|
885
|
976
|
682
|
|||||||||
|
Other
sales to major stockholder
|
620
|
747
|
51,258
|
|||||||||
|
Live
chicken purchases from major stockholder
|
--
|
231
|
50,070
|
|||||||||
|
Loan
guaranty fees
|
3,592
|
1,615
|
1,775
|
|||||||||
|
Lease
payments and operating expenses on airplane
|
507
|
492
|
536
|
|||||||||
The
Company leases a commercial egg property including all of the ongoing costs
of
the operation from the Company’s major stockholder. The lease term
runs for ten years with a monthly lease payment of $62,500.
A
portion of the Company's debt obligations have been guaranteed by Pilgrim
Interests, Ltd., an entity related to the Company's Senior Chairman, Lonnie
"Bo"
Pilgrim. In consideration of such guarantees, the Company
has Pilgrims Interests, Ltd. a quarterly fee equal to 0.25% of
one-half of the average aggregate outstanding balance of such guaranteed
debt. During fiscal 2007, we paid $3.6 million to Pilgrim Interests,
Ltd.
The
Company leases an airplane from its major stockholder under an operating
lease
agreement that is renewable annually. The terms of the lease
agreement require monthly payments of $33,000 plus operating
expenses. Lease expense was $396,000 for each of the years 2007, 2006
and 2005. Operating expenses were $111,210, $96,480 and $140,090 in
2007, 2006 and 2005, respectively.
The
Company maintains depository accounts with a financial institution in which
the
Company’s major stockholder is also a major stockholder. Fees paid to
this bank in 2007, 2006 and 2005 are insignificant, and as of September
29,
2007, the Company had bank balances at this financial institution of
approximately $1.8 million.
The
major stockholder has deposited $0.3 million with the Company as an advance
on
miscellaneous expenditures.
A
son of the major stockholder sold commodity feed products and a limited
amount
of other services to the Company aggregating approximately $0.6 million
in
fiscal 2007. He also leases an insignificant amount of land from the
Company.
The
Company has entered into chicken grower contracts involving farms owned
by
certain of its officers and directors, providing the placement of Company-owned
flocks on their farms during the grow-out phase of production. These
contracts are on terms substantially the same as contracts entered into
by the
Company with unaffiliated parties and can be terminated by either party
upon
completion of the grow-out of each flock. The aggregate amounts paid
by the Company to these officers and directors under these grower contracts
during each of the fiscal years 2007, 2006 and 2005 were less than $1 million
in
total.
NOTE
J– COMMITMENTS and CONTINGENCIES
General
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. Among other considerations, we have not recorded a liability
for any of these indemnities as based upon the likelihood of payment, the
fair
value of such indemnities is immaterial.
Purchase
Obligations
The
Company will sometimes enter into non-cancelable contracts to purchase
capital
equipment and feed ingredients. At September 29, 2007, the Company
was party to outstanding purchase contracts totaling $40.1
million. Payments for purchases made under these contracts are due in
less than 1 year.
Leases
The
Consolidated Statements of Operations include rental expense for operating
leases of approximately $54.0 million, $35.1 million and $35.4 million
in 2007,
2006 and 2005, respectively. The Company’s future minimum lease
commitments under non-cancelable operating leases are as follows: 2008
-- $46.8
million; 2009 -- $37.1 million; 2010 -- $28.2 million; 2011 -- $21.0 million;
2012 -- $9.3 million and thereafter $5.0 million.
Certain
of the Company’s operating leases include rent escalations. The
Company includes the rent escalation in its minimum lease payments obligations
and recognizes them as a component of rental expense on a straight-line
basis
over the minimum lease term.
The
Company also maintains operating leases for various types of equipment,
some of
which contain residual value guarantees for the market value of assets
at the
end of the term of the lease. The terms of the lease maturities range from
one to seven years. The maximum potential amount of the residual value
guarantees is estimated to be approximately $21.1 million; however, the
actual
amount would be offset by any recoverable amount based on the fair market
value
of the underlying leased assets. No liability has been recorded related to
this contingency as the likelihood of payments under these guarantees is
not
considered to be probable and the fair value of such guarantees is
immaterial. The Company historically has not experienced significant
payments under similar residual guarantees.
Financial
Instruments
At
September 29, 2007, the Company had $84.9 million in letters of credit
outstanding relating to normal business transactions.
The
Company’s loan agreements generally obligate the Company to reimburse the
applicable lender for incremental increased costs due to a change in law
that
imposes (i) any reserve or special deposit requirement against assets of,
deposits with or credit extended by such lender related to the loan, (ii)
any
tax, duty or other charge with respect to the loan (except standard income
tax)
or (iii) capital adequacy requirements. In addition, some of the
Company’s loan agreements contain a withholding tax provision that requires the
Company to pay additional amounts to the applicable lender or other financing
party, generally if withholding taxes are imposed on such lender or other
financing party as a result of a change in the applicable tax
law. These increased cost and withholding tax provisions continue for
the entire term of the applicable transaction, and there is no limitation
on the
maximum additional amounts the Company could be obligated to pay under
such
provisions. Any failure to pay amounts due under such provisions
generally would trigger an event of default, and, in a secured financing
transaction, would entitle the lender to foreclose upon the collateral
to
realize the amount due.
Litigation
The
Company is subject to various legal proceedings and claims which arise
in the
ordinary course of business. Below is a summary of the most
significant claims outstanding against the Company. In the Company’s
opinion, it has made appropriate and adequate accruals for claims where
necessary, and the Company believes the probability of a material loss
beyond
the amounts accrued to be remote; however, the ultimate liability for these
matters is uncertain, and if significantly different than the amounts accrued,
the ultimate outcome could have a material effect on the financial condition
or
results of operations of the Company. The Company believes it has
substantial defenses to the claims made and intends to vigorously defend
these
cases.
Among
the claims presently pending against the Company are claims seeking unspecified
damages brought by current and former employees seeking compensation for
the
time spent donning and doffing work equipment. We are aware of an
industry-wide investigation by the Wage and Hour Division of the U.S. Department
of Labor to ascertain compliance with various wage and hour issues, including
the compensation of employees for the time spent on such activities such
as
donning and doffing work equipment. Due, in part, to the government
investigation and the recent U.S. Supreme Court decision in IBP,
Inc. v. Alvarez, it is possible that we may be subject to additional
employee claims. We intend to assert vigorous defenses to the
litigation. Nonetheless, there can be no assurances that other
similar claims may not be brought against the Company.
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. The Court
dismissed the claims of a third plaintiff Robert Nelson in their
entirety
based
on the theory of judicial estoppel. On May 15, 2007, the Court issued
its order denying Plaintiffs’ Motion for Class Certification in its
entirety. The plaintiffs subsequently withdrew their petition appeal
to the Eighth Circuit Court of Appeals. Thus the Court’s order
denying plaintiffs class certification motion stands as a final binding
order. Subsequent to the Court’s order on July 18, 2007, the six
remaining plaintiffs have filed individual actions. We believe we
have meritorious defenses to these individual claims and we intend to vigorously
defend these individual claims.
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 and
recorded
in miscellaneous, net in fiscal 2005.
NOTE
K – 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)
a seller
of other products.
Our
chicken segment includes sales of chicken products we produce and purchase
for
resale in the U.S., including Puerto Rico, and Mexico. Our chicken
segment conducts separate operations in the U.S. and Puerto Rico and in
Mexico
and is reported as two separate geographical areas.
Our
turkey segment includes sales of turkey products we produce and purchase
for
resale in our turkey and distribution operations, operating in the
U.S.
Our
other products segment includes distribution of non-poultry products that
are
purchased from third parties and sold to independent grocers and quick
service
restaurants. Also included in this category are sales of table eggs,
feed, protein products, live hogs and other items, some of which are produced
or
raised by the Company.
Inter-area
sales and inter-segment sales, which are not material, are accounted for
at
prices comparable to normal trade customer sales. Corporate 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.
Assets
associated with our corporate functions, included cash and cash equivalents
and
investments in available for sale securities are included in our chicken
segment.
Selling,
general and administrative expenses related to our distribution centers
are
allocated based on the proportion of net sales to the particular segment
to
which the product sales relate.
Depreciation
and amortization, total assets and capital expenditures of our distribution
centers are included in our chicken segment based on the primary focus of
the centers.
The
following table presents certain information regarding our
segments:
|
Fiscal
Year Ended
|
||||||||||||
|
September
29, 2007(a)
|
September
30, 2006
|
October
1, 2005
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Net
Sales to Customers:
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 6,328,354 | $ | 4,098,403 | $ | 4,411,269 | ||||||
|
Mexico
|
488,466
|
418,745
|
403,353
|
|||||||||
|
Sub-total
|
6,816,820
|
4,517,148
|
4,814,622
|
|||||||||
|
Turkey
|
122,364
|
130,901
|
204,838
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
638,738
|
570,510
|
626,056
|
|||||||||
|
Mexico
|
20,677
|
17,006
|
20,759
|
|||||||||
|
Sub-total
|
659,415
|
587,516
|
646,815
|
|||||||||
|
Total
|
7,598,599
|
5,235,565
|
5,666,275
|
|||||||||
|
Operating
Income (Loss):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 192,447 | $ | 28,619 | $ | 405,662 | ||||||
|
Mexico
|
13,116
|
(17,960 | ) |
39,809
|
||||||||
|
Sub-total
|
205,563
|
10,659
|
445,471
|
|||||||||
|
Turkey
|
(4,655 | ) | (15,511 | ) | (22,539 | ) | ||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
28,637
|
6,216
|
8,250
|
|||||||||
|
Mexico
|
2,992
|
1,638
|
4,630
|
|||||||||
|
Sub-total
|
31,629
|
7,854
|
12,880
|
|||||||||
|
Total
|
$ | 232,537 | $ | 3,002 | $ | 435,812 | ||||||
|
Depreciation
and
Amortization:(b)
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 183,808 | $ | 109,346 | $ | 114,131 | ||||||
|
Mexico
|
11,015
|
11,305
|
12,085
|
|||||||||
|
Sub-total
|
194,823
|
120,651
|
126,216
|
|||||||||
|
Turkey
|
1,587
|
6,593
|
3,343
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
8,278
|
7,743
|
5,196
|
|||||||||
|
Mexico
|
215
|
146
|
189
|
|||||||||
|
Sub-total
|
8,493
|
7,889
|
5,385
|
|||||||||
|
Total
|
$ | 204,903 | $ | 135,133 | $ | 134,944 | ||||||
|
Total
Assets:
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 3,247,812 | $ | 1,897,763 | $ | 2,059,579 | ||||||
|
Mexico
|
348,894
|
361,887
|
287,414
|
|||||||||
|
Sub-total
|
3,596,706
|
2,259,650
|
2,346,993
|
|||||||||
|
Turkey
|
69,653
|
76,908
|
77,319
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
103,757
|
88,650
|
85,581
|
|||||||||
|
Mexico
|
4,120
|
1,660
|
2,010
|
|||||||||
|
Sub-total
|
107,877
|
90,310
|
87,591
|
|||||||||
|
Total
|
$ | 3,774,236 | $ | 2,426,868 | $ | 2,511,903 | ||||||
|
C
Capital Expenditures (excluding acquisition):
|
||||||||||||
|
Chicken:
|
||||||||||||
|
United
States
|
$ | 164,449 | $ | 133,106 | $ | 102,470 | ||||||
|
Mexico
|
1,633
|
6,536
|
4,924
|
|||||||||
|
Sub-total
|
166,082
|
139,642
|
107,394
|
|||||||||
|
Turkey
|
502
|
257
|
3,604
|
|||||||||
|
Other
Products:
|
||||||||||||
|
United
States
|
5,699
|
3,567
|
5,448
|
|||||||||
|
Mexico
|
40
|
416
|
142
|
|||||||||
|
Sub-total
|
5,739
|
3,983
|
5,590
|
|||||||||
|
Total
|
$ | 172,323 | $ | 143,882 | $ | 116,588 | ||||||
|
(a)
|
The
Company acquired Gold Kist on December 27, 2006 for $1.139
billion. For financial reporting purposes, we have not included
the operating results and cash flows of Gold Kist in our consolidated
financial statements for the period from December 27, 2006
through December 30, 2006. The operating results and
cash flows of Gold Kist from December 27, 2006 through December
30, 2006
were not material.
|
|
(b)
|
Includes
amortization of capitalized financing costs of approximately
$6.6 million,
$2.3 million, and $2.0 million in fiscal 2007, 2006 and 2005,
respectively, and amortization of intangible assets of approximately
$6.3
million in fiscal 2007.
|
The
Company had one customer that represented 10% or more of annual net sales
in
fiscal years 2007, 2006 and 2005.
As
of each of the three years ended September 29, 2007, Mexico has net long
lived
assets of $106.2 million, $116.9 million and $122.1 million,
respectively.
At
September 29, 2007, Mexico has net assets of $284.8 million.
NOTE
L – QUARTERLY RESULTS (UNAUDITED)
|
(In
thousands, except per share data)
|
Fiscal
Year Ended September 29, 2007
|
|||||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
Fiscal
|
||||||||||||||||
|
Quarter
|
Quarter
(b)
|
Quarter(b)
|
Quarter(b)
|
Year
|
||||||||||||||||
|
Net
sales
|
$ | 1,337,132 | $ | 1,993,965 | $ | 2,118,386 | $ | 2,149,116 | $ | 7,598,599 | ||||||||||
|
Gross
profit
|
65,526
|
83,942
|
235,239
|
206,831
|
591,538
|
|||||||||||||||
|
Operating
income (loss)
|
(2.906 | ) | (11,699 | ) |
136,777
|
110,365
|
232,537
|
|||||||||||||
|
Net
income (loss)
|
(8,736 | ) | (40,077 | ) |
62,641
|
33,189
|
47,017
|
|||||||||||||
|
Per
Share:
|
||||||||||||||||||||
|
Net
income (loss)
|
(0.13 | ) | (0.60 | ) |
0.94
|
0.50
|
0.71
|
|||||||||||||
|
Cash
dividends
|
0.0225
|
0.0225
|
0.0225
|
0.0225
|
0.090
|
|||||||||||||||
|
(In
thousands, except per share data)
|
Fiscal
Year Ended September 30, 2006
|
|||||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
Fiscal
|
||||||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter(a)
|
|
Year
|
|||||||||||||||
|
Net
sales
|
$ | 1,343,812 | $ | 1,265,709 | $ | 1,287,646 | $ | 1,338,398 | $ | 5,235,565 | ||||||||||
|
Gross
profit
|
118,400
|
37,201
|
42,696
|
99,303
|
297,600
|
|||||||||||||||
|
Operating
income (loss)
|
46,198
|
(37,936 | ) | (26,737 | ) |
21,477
|
3,002
|
|||||||||||||
|
Net
income (loss)
|
25,678
|
(31,954 | ) | (20,473 | ) | (7,483 | ) | (34,232 | ) | |||||||||||
|
Per
Share:
|
||||||||||||||||||||
|
Net
income (loss)
|
0.39
|
(0.48 | ) | (0.31 | ) | (0.11 | ) | (0.51 | ) | |||||||||||
|
Cash
dividends
|
1.0225
|
0.0225
|
0.0225
|
0.0225
|
1.090
|
|||||||||||||||
|
(a)
|
Included
in gross profit in the fourth quarter of fiscal 2006 are charges
for
accounting adjustments of $6.4 million, pretax, related to certain
benefit
plans. Included in net income in the fourth quarter of fiscal
2006 is a $25.8 million tax provision for the American Jobs Creation
Act
of 2004 and a $10.6 million tax benefit for a change in estimate
of
contingency reserves as described in Note A and Note F.
|
|
(b)
|
The
Company acquired Gold Kist on December 27, 2006 for $1.139
billion. For financial reporting purposes, we have not included
the operating results and cash flows of Gold Kist in our consolidated
financial statements for the period from December 27, 2006
through December 30, 2006. The operating results and
cash flows of Gold Kist from December 27, 2006 through December
30, 2006
were not material.
|
|
PILGRIM'S
PRIDE CORPORATION
|
||||||||||||||||||||
|
SCHEDULE
II-VALUATION AND QUALIFYING
ACCOUNTS
|
||||||||||||||||||||
|
Col.
A
|
Col.
B
|
Col.
C
|
Col.
D
|
Col.
E
|
||||||||||||||||
|
ADDITIONS
|
||||||||||||||||||||
|
Charged
to
|
||||||||||||||||||||
|
Balance
at
|
Charged
to
|
Other
|
Balance
at
|
|||||||||||||||||
|
DESCRIPTION
|
Beginning
|
Costs
|
Accounts-
|
Deductions
|
end
|
|||||||||||||||
|
of
Period
|
and
Expenses
|
Describe(a)
|
Describe(b)
|
of
Period
|
||||||||||||||||
|
Year
ended September 29, 2007:
|
||||||||||||||||||||
|
Reserves
and allowances deducted
|
||||||||||||||||||||
|
from
asset accounts:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 2,084,409 | $ | 4,768,272 | $ | 1,324,131 | $ | 2,313,018 | $ | 5,863,794 | ||||||||||
|
Year
ended September 30, 2006:
|
||||||||||||||||||||
|
Reserves
and allowances deducted
|
||||||||||||||||||||
|
from
asset accounts:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 4,663,155 | $ | (100,676 | ) | $ | -- | $ | 2,478,070 | $ | 2,084,409 | |||||||||
|
Year
ended October 1, 2005:
|
||||||||||||||||||||
|
Reserves
and allowances deducted
|
||||||||||||||||||||
|
from
asset accounts:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 4,244,644 | $ | 767,923 | $ | -- | $ | 349,412 | $ | 4,663,155 | ||||||||||
|
(a) Balance
of allowance for doubtful accounts established for accounts receivable
acquired from Gold Kist.
|
||||||||||||||||||||
|
(b) Uncollectible
accounts written off, net of recoveries.
|
||||||||||||||||||||
Exhibit
Index
|
2.1
|
Agreement
and Plan of Reorganization dated September 15, 1986, by and among
Pilgrim’s Pride Corporation, a Texas corporation; Pilgrim’s Pride
Corporation, a Delaware corporation; and Doris Pilgrim Julian,
Aubrey Hal
Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie “Bo” Pilgrim,
Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim
(incorporated by reference from Exhibit 2.1 to the Company’s Registration
Statement on Form S-1 (No. 33-8805) effective November 14,
1986).
|
|
|
2.2
|
Agreement
and Plan of Merger dated September 27, 2000 (incorporated by
reference
from Exhibit 2 of WLR Foods, Inc.’s Current Report on Form 8-K (No.
000-17060) dated September 28, 2000).
|
|
|
2.3
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among
the Company,
Protein Acquisition Corporation, a wholly-owned subsidiary of
the Company,
and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1)
to
Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO
filed on December 5, 2006).
|
|
|
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).
|
|
|
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).
|
|
|
4.1
|
C Certificate
of Incorporation of the Company, as amended (included as Exhibit
3.1).
|
|
|
4.2
|
Amended
and Restated Corporate Bylaws of the Company (included as Exhibit
3.2).
|
|
|
4.3
|
Indenture,
dated November 21, 2003, between Pilgrim's Pride Corporation
and The Bank
of New York as Trustee relating to Pilgrim’s Pride’s 9 ¼% Senior Notes due
2013 (incorporated by reference from Exhibit 4.1 of the Company's
Registration Statement on Form S-4 (No. 333-111975) filed on
January 16,
2004).
|
|
|
4.4
|
Form
of 9 ¼% Note due 2013 (incorporated by reference from Exhibit 4.3 of
the
Company's Registration Statement on Form S-4 (No. 333-111975)
filed on
January 16, 2004).
|
|
|
4.5
|
Senior
Debt Securities Indenture dated as of January 24, 2007, by and
between the
Company and Wells Fargo Bank, National Association, as trustee
(incorporated by reference from Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on January 24, 2007).
|
|
|
4.6
|
First
Supplemental Indenture to the Senior Debt Securities Indenture
dated as of
January 24, 2007, by and between the Company and Wells Fargo
Bank,
National Association, as trustee (incorporated by reference from
Exhibit
4.2 to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
|
4.7
|
Form
of 7 5/8% Senior Note due 2015 (incorporated by reference from
Exhibit 4.3
to the Company’s Current Report on Form 8-K filed on January 24,
2007).
|
|
4.8
|
Senior
Subordinated Debt Securities Indenture dated as of January 24,
2007, by
and between the Company and Wells Fargo Bank, National Association,
as
trustee (incorporated by reference from Exhibit 4.4 to the Company’s
Current Report on Form 8-K filed on January 24, 2007).
|
|
|
4.9
|
First
Supplemental Indenture to the Senior Subordinated Debt Securities
Indenture dated as of January 24, 2007, by and between the Company
and
Wells Fargo Bank, National Association, as trustee (incorporated
by
reference from Exhibit 4.5 to the Company’s Current Report on Form 8-K
filed on January 24, 2007).
|
|
|
4.10
|
Form
of 8 3/8% Subordinated Note due 2017 (incorporated by reference
from
Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on January
24, 2007).
|
|
|
10.1
|
Pilgrim’s
Industries, Inc. Profit Sharing Retirement Plan, restated as
of July 1,
1987 (incorporated by reference from Exhibit 10.1 of the Company’s Form
8-K filed on July 1, 1992). …
|
|
|
10.2
|
Senior
Executive Performance Bonus Plan of the Company (incorporated
by reference
from Exhibit A in the Company’s Proxy Statement dated December 13, 1999).
…
|
|
|
10.3
|
Aircraft
Lease Extension Agreement between B.P. Leasing Co. (L.A. Pilgrim,
individually) and Pilgrim’s Pride Corporation (formerly Pilgrim’s
Industries, Inc.) effective November 15, 1992 (incorporated by
reference
from Exhibit 10.48 of the Company’s Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
|
|
|
10.4
|
Broiler
Grower Contract dated May 6, 1997 between Pilgrim’s Pride Corporation and
Lonnie “Bo” Pilgrim (Farm 30) (incorporated by reference from Exhibit
10.49 of the Company’s Quarterly Report on Form 10-Q for the three months
ended March 29, 1997).
|
|
|
10.5
|
Commercial
Egg Grower Contract dated May 7, 1997 between Pilgrim’s Pride Corporation
and Pilgrim Poultry G.P. (incorporated by reference from Exhibit
10.50 of
the Company’s Quarterly Report on Form 10-Q for the three months ended
March 29, 1997).
|
|
|
10.6
|
Agreement
dated October 15, 1996 between Pilgrim’s Pride Corporation and Pilgrim
Poultry G.P. (incorporated by reference from Exhibit 10.23 of
the
Company’s Quarterly Report on Form 10-Q for the three months ended
January 2, 1999).
|
|
|
10.7
|
Heavy
Breeder Contract dated May 7, 1997 between Pilgrim’s Pride Corporation and
Lonnie “Bo” Pilgrim (Farms 44, 45 & 46) (incorporated by reference
from Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the
three months ended March 29, 1997).
|
|
|
10.8
|
Broiler
Grower Contract dated January 9, 1997 by and between Pilgrim’s Pride and
O.B. Goolsby, Jr. (incorporated by reference from Exhibit 10.25
of the
Company’s Registration Statement on Form S-1 (No. 333-29163) effective
June 27, 1997).
|
|
10.9
|
Broiler
Grower Contract dated January 15, 1997 by and between Pilgrim’s Pride
Corporation and B.J.M. Farms (incorporated by reference from
Exhibit 10.26
of the Company’s Registration Statement on Form S-1 (No. 333-29163)
effective June 27, 1997).
|
|
|
10.10
|
Broiler
Grower Agreement dated January 29, 1997 by and between Pilgrim’s Pride
Corporation and Clifford E. Butler (incorporated by reference
from Exhibit
10.27 of the Company’s Registration Statement on Form S-1 (No. 333-29163)
effective June 27, 1997).
|
|
|
10.11
|
Receivables
Purchase Agreement dated June 26, 1998 between Pilgrim’s Pride Funding
Corporation, as Seller, Pilgrim’s Pride Corporation, as Servicer, Pooled
Accounts Receivable Capital Corporation, as Purchaser, and Nesbitt
Burns
Securities Inc., as Agent (incorporated by reference from Exhibit
10.33 of
the Company’s Quarterly Report on Form 10-Q for the three months ended
June 27, 1998).
|
|
|
10.12
|
Purchase
and Contribution Agreement dated as of June 26, 1998 between
Pilgrim’s
Pride Funding Corporation and Pilgrim’s Pride Corporation (incorporated by
reference from Exhibit 10.34 of the Company’s Quarterly Report on Form
10-Q for the three months ended June 27, 1998).
|
|
|
10.13
|
Guaranty
Fee Agreement between Pilgrim’s Pride Corporation and Pilgrim Interests,
Ltd., dated June 11, 1999 (incorporated by reference from Exhibit
10.24 of
the Company’s Annual Report on Form 10-K for the fiscal year ended October
2, 1999).
|
|
|
10.14
|
Broiler
Production Agreement between Pilgrim's Pride Corporation and
Lonnie “Bo”
Pilgrim dated November 15, 2005 (incorporated by reference from
Exhibit
99.1 of the Company’s Current Report on Form 8-K dated November 10,
2005).
|
|
|
10.15
|
Commercial
Property Lease dated December 29, 2000 between Pilgrim’s Pride Corporation
and Pilgrim Poultry G.P. (incorporated by reference from Exhibit
10.30 of
the Company’s Quarterly Report on Form 10-Q for the three months ended
December 30, 2000).
|
|
|
10.16
|
Amendment
No. 1 dated as of July 12, 2002 to Receivables Purchase Agreement
dated as
of June 26, 1998 among Pilgrim’s Pride Funding Corporation, the Company,
Fairway Finance Corporation (as successor in interest to Pooled
Accounts
Receivable Capital Corporation) and BMO Nesbitt Burns Corp. (f/k/a
Nesbitt
Burns Securities Inc.) (incorporated by reference from Exhibit
10.32 of
the Company’s Annual Report on Form 10-K filed on December 6,
2002).
|
|
|
10.17
|
Amendment
No. 3 dated as of July 18, 2003 to Receivables Purchase Agreement
dated as
of June 26, 1998 between Pilgrim’s Pride Funding Corporation (“Seller”),
Pilgrim’s Pride Corporation as initial Servicer, Fairway Finance
Corporation (as successor in interest to Pooled Accounts Receivable
Capital Corporation) (“Purchaser”) and Harris Nesbitt Corporation as agent
for the purchaser (incorporated by reference from Exhibit 10.1
of the
Company’s Quarterly Report on Form 10-Q filed July 23,
2003).
|
|
10.18
|
Agricultural
Lease between Pilgrim’s Pride Corporation (Lessor) and Patrick W. Pilgrim
(Tenant) dated May 1, 2003 (incorporated by reference from Exhibit
10.15
of the Company’s Quarterly Report on Form 10-Q filed July 23,
2003).
|
|
|
10.19
|
Amendment
No. 4 dated as of December 31, 2003 to Receivables Purchase Agreement
dated as of June 26, 1998, among Pilgrim's Pride Funding Corporation,
Pilgrim's Pride Corporation as initial Servicer, Fairway Finance
Company,
LLC (as successor to Fairway Finance Corporation) as purchaser
and Harris
Nesbitt Corp. (f/k/a BMO Nesbitt Burns Corp.) as agent for the
purchaser
(incorporated by reference from Exhibit 10.4 of the Company's
Quarterly
Report on Form 10-Q filed February 4, 2004).
|
|
|
10.20
|
Amendment
No. 1 dated as of December 31, 2003 to Purchase and Contribution
Agreement
dated as of June 26, 1998, between Pilgrim's Pride Funding Corporation
and
Pilgrim's Pride Corporation (incorporated by reference from Exhibit
10.5
of the Company's Quarterly Report on Form 10-Q filed February
4,
2004).
|
|
|
10.21
|
Employee
Stock Investment Plan of the Company (incorporated by reference
from
Exhibit 4.1 of the Company's Registration Statement on Form S-8
(No.
333-111929) filed on January 15, 2004). …
|
|
|
10.22
|
Purchase
and Amendment Agreement between Pilgrim's Pride Corporation and
ConAgra
Foods, Inc. dated August 3, 2005 (incorporated by reference from
Exhibit
10.1 of the Company’s Current Report on Form 8-K dated August 4,
2005).
|
|
|
10.23
|
Amended
and Restated 2005 Deferred Compensation Plan of the Company (incorporated
by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K
dated December 30, 2005). …
|
|
|
10.24
|
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).
|
|
|
10.25
|
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).
|
|
|
10.26
|
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).
|
|
|
10.27
|
|
Credit
Agreement by and among the Avícola Pilgrim’s Pride de México, S. de R.L.
de C.V. (the "Borrower"), Pilgrim's Pride Corporation, certain
Mexico
subsidiaries of the Borrower, ING Capital LLC, and the lenders
signatory
thereto dated as of September 25, 2006 (incorporated by reference
from
Exhibit 10.1 of the Company's Current Report on Form 8-K filed
on
September 28, 2006).
|
|
10.28
|
2006
Amended and Restated Credit Agreement by and among CoBank, ACB,
Agriland,
FCS and the Company dated as of September 21, 2006 (incorporated
by
reference from Exhibit 10.2 of the Company's Current Report on
Form 8-K
filed on September 28, 2006).
|
|
10.29
|
First
Amendment to the Pilgrim’s Pride Corporation Amended and Restated 2005
Deferred Compensation Plan Trust, dated as of November 29, 2006
(incorporated by reference from Exhibit 10.03 of the Company’s Current
Report on Form 8-K filed on December 05, 2006). …
|
|
|
10.30
|
Agreement
and Plan of Merger dated as of December 3, 2006, by and among
the Company,
the Purchaser and Gold Kist Inc. (incorporated by reference from
Exhibit
99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on
Schedule TO filed on December 5, 2006).
|
|
|
10.31
|
First
Amendment to Credit Agreement, dated as of December 13, 2006,
by and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as a
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on December 19, 2006).
|
|
|
10.32
|
Second
Amendment to Credit Agreement, dated as of January 4, 2007, by
and among
the Company, as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as a
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.01 to the Company’s Current
Report on Form 8-K filed on January 9, 2007).
|
|
|
10.33
|
Fourth
Amended and Restated Secured Credit Agreement, dated as of February
8,
2007, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution,
Ltd., Bank of Montreal, as agent, SunTrust Bank as syndication
agent, U.S.
Bank National Association and Wells Fargo Bank, National Association
as
Co-Documentation Agents, BMO Capital Market as lead arranger,
and the
other lenders signatory thereto (incorporated by reference from
Exhibit
10.01 of the Company’s Current Report on Form 8-K dated February 12,
2007).
|
|
|
10.34
|
Third
Amendment to Credit Agreement, dated as of February 7, 2007,
by and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as a
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.02 of the Company’s Current
Report on Form 8-K dated February 12, 2007).
|
|
|
10.35
|
First
Amendment to Credit Agreement, dated as of March 15, 2007, by
and among
the Borrower, the Company, the Subsidiary Guarantors, ING Capital
LLC, and
the Lenders (incorporated by reference from Exhibit 10.01 of
the Company’s
Current Report on Form 8-K dated March 20, 2007).
|
|
|
10.36
|
Fourth
Amendment to Credit Agreement, dated as of July 3, 2007, by and
among the
Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as
syndication party, and the other syndication parties signatory
thereto
(incorporated by reference from Exhibit 10.1 of the Company's
Quarterly
Report on Form 10-Q filed July 31,
2007).
|
|
10.37
|
Amendment
No. 5 to Receivables Purchase Agreement dated as of August 20,
2007, among
the Company, Pilgrim's Pride Funding Corporation, Fairway Finance
Company,
LLC and BMO Capital Markets Corp. (incorporated by reference
from Exhibit
10.01 of the Company’s Current Report on Form 8-K dated August 24,
2007).
|
|
|
10.38
|
Retirement
and Consulting Agreement dated as of October 10, 2007, between
the Company
and Clifford E. Butler (incorporated by reference from Exhibit
10.1 of the
Company’s Current Report on Form 8-K dated October 10, 2007). …
|
|
|
Fifth
Amendment to Credit Agreement, dated as of August 7, 2007, by
and among
the Company as borrower, CoBank, ACB, as lead arranger and co-syndication
agent, and the sole book runner, and as administrative, documentation
and
collateral agent, Agriland, FCS, as co-syndication agent, and
as
syndication party, and the other syndication parties signatory
thereto.*
|
||
|
10.40
|
Sixth
Amendment to Credit Agreement, dated as of November 7, 2007,
by and among
the Company as borrower, CoBank, ACB, as administrative agent,
and the
other syndication parties signatory thereto (incorporated by
reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated
November 13, 2007).
|
|
|
Ratio
of Earnings to Fixed Charges for the years ended September 29,
2007,
September 30, 2006, October 1, 2005, October 2, 2004, September
27, 2003,
and September 28, 2002.*
|
||
|
S Subsidiaries
of Registrant.*
|
||
|
Consent
of Ernst & Young LLP.*
|
||
|
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
|
|
|
…Represents
a management contract or compensation plan
arrangement
|
124