PILGRIMS PRIDE CORP - Quarter Report: 2007 December (Form 10-Q)
UNITED
STATES
SECURITIES
AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
|
For
the quarterly periodended
December
29,
2007
OR
¨
|
TRANSITION
REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For
the transition period
from to
|
Commission
File number 1-9273
![PPC Logo](https://www.sec.gov/Archives/edgar/data/0000802481/000080248108000017/seclogo.jpg)
PILGRIM’S
PRIDE
CORPORATION
(Exact
name of registrant as specified
in its charter)
Delaware
|
75-1285071
|
|
(State
or other jurisdiction
of
|
(I.R.S.
Employer
|
|
incorporation
or
organization)
|
Identification
No.)
|
|
4845
US Hwy271 N, Pittsburg,
TX
|
75686-0093
|
|
(Address
of principal executive
offices)
|
(Zip
code)
|
|
Registrant’s
telephone number,
including area code: (903)
434-1000
|
Not
Applicable
(Former
name, former address and former
fiscal year, if changed since last report.)
Indicate
by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or
15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or
for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days. Yes xNo ¨
Indicate
by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer x Accelerated
filer
¨ Non-accelerated
filer
¨
Indicate
by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨No
x
Number
of shares outstanding of the
issuer’s common stock, as of January 28,
2008, was 66,555,733.
1
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
|
||
PART
I. FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements (Unaudited)
|
|
December
29, 2007 and September 29, 2007
|
||
Three
months ended December 29, 2007 and December 30, 2006
|
||
Three
months ended December 29, 2007 and December 30, 2006
|
||
Notes
to consolidated financial statements as of December
29, 2007
|
||
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
||
Quantitative
and Qualitative Disclosures about Market Risk
|
||
Controls
and Procedures
|
||
PART
II. OTHER INFORMATION
|
||
Legal
Proceedings
|
||
Risk
Factors
|
||
Submission
of Matters to a Vote of Security Holders
|
||
Exhibits
|
||
|
PART
I. FINANCIAL INFORMATION
|
||||||||
ITEM
1. FINANCIAL STATEMENTS
|
||||||||
PILGRIM’S
PRIDE CORPORATION
|
||||||||
(Unaudited)
|
||||||||
December
29,
2007
|
September
29,
2007
|
|||||||
Assets:
|
(In
thousands)
|
|||||||
Cash
and cash equivalents
|
$ | 94,662 | $ | 66,168 | ||||
Investment
in available-for-sale securities
|
8,813 | 8,153 | ||||||
Trade
accounts and other receivables, less allowance for doubtful
accounts
|
130,449 | 130,173 | ||||||
Inventories
|
1,027,223 | 961,885 | ||||||
Income
taxes receivable
|
46,623 | 61,901 | ||||||
Current
deferred income taxes
|
10,001 | 8,095 | ||||||
Other
current assets
|
48,225 | 47,959 | ||||||
Total
current assets
|
1,365,996 | 1,284,334 | ||||||
Investment
in available-for-sale securities
|
45,896 | 46,035 | ||||||
Other
assets
|
135,337 | 138,546 | ||||||
Goodwill
|
499,669 | 505,166 | ||||||
Property,
plant and equipment, net
|
1,789,814 | 1,800,155 | ||||||
$ | 3,836,712 | $ | 3,774,236 | |||||
Liabilities
and stockholders’ equity:
|
||||||||
Accounts
payable
|
458,737 | 402,316 | ||||||
Accrued
expenses
|
464,046 | 500,014 | ||||||
Current
maturities of long-term debt
|
2,884 | 2,872 | ||||||
Total
current liabilities
|
925,667 | 905,202 | ||||||
Long-term
debt, less current maturities
|
1,404,062 | 1,318,558 | ||||||
Deferred
income taxes
|
312,984 | 326,570 | ||||||
Other
long-term liabilities
|
55,771 | 51,685 | ||||||
Commitments
and contingencies
|
— | — | ||||||
Preferred
stock
|
— | — | ||||||
Common
stock
|
665 | 665 | ||||||
Additional
paid-in capital
|
469,779 | 469,779 | ||||||
Retained
earnings
|
653,948 | 687,775 | ||||||
Accumulated
other comprehensive income
|
13,836 | 14,002 | ||||||
Total
stockholders’ equity
|
1,138,228 | 1,172,221 | ||||||
$ | 3,836,712 | $ | 3,774,236 | |||||
See
notes to consolidated financial statements.
|
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
(Unaudited)
|
||||||||
Three
Months Ended
|
||||||||
December
29,
2007
|
December
30,
2006
|
|||||||
(In
thousands, except share and per share data)
|
||||||||
Net
sales
|
$ | 2,093,211 | $ | 1,337,132 | ||||
Cost
of sales
|
1,985,455 | 1,271,606 | ||||||
Gross
profit
|
107,756 | 65,526 | ||||||
Selling,
general and administrative expense
|
105,347 | 68,432 | ||||||
Operating
income (loss)
|
2,409 | (2,906 | ) | |||||
Other
expense (income):
|
||||||||
Interest
expense
|
30,335 | 13,914 | ||||||
Interest
income
|
(508 | ) | (1,309 | ) | ||||
Miscellaneous,
net
|
(2,863 | ) | (1,011 | ) | ||||
Total
other expense (income)
|
26,964 | 11,594 | ||||||
Loss
before income taxes
|
(24,555 | ) | (14,500 | ) | ||||
Income
tax expense (benefit)
|
7,774 | (5,764 | ) | |||||
Net
loss
|
$ | (32,329 | ) | $ | (8,736 | ) | ||
Net
loss per common share—basic and diluted
|
$ | (0.49 | ) | $ | (0.13 | ) | ||
Dividends
declared per common share
|
$ | 0.0225 | $ | 0.0225 | ||||
Weighted
average shares outstanding
|
66,555,733 | 66,555,733 | ||||||
Reconciliation
of net loss to comprehensive loss:
|
||||||||
Net
loss
|
$ | (32,329 | ) | $ | (8,736 | ) | ||
Unrealized
gain (loss) on securities
|
(166 | ) | 2,830 | |||||
Comprehensive
loss
|
$ | (32,495 | ) | $ | (5,906 | ) | ||
See
notes to consolidated financial statements.
|
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
(Unaudited)
|
||||||||
Three
Months Ended
|
||||||||
December
29,
2007
|
December
30,
2006
|
|||||||
(In
thousands)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (32,329 | ) | $ | (8,736 | ) | ||
Adjustments
to reconcile net loss to cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
55,923 | 32,697 | ||||||
(Gain)
loss on property disposals
|
(121 | ) | 1,769 | |||||
Deferred
income tax benefit
|
(8,881 | ) | (4,286 | ) | ||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
and other receivables
|
(249 | ) | 17,948 | |||||
Inventories
|
(65,366 | ) | (29,460 | ) | ||||
Other
current assets
|
2,009 | (5,166 | ) | |||||
Accounts
payable and accrued expenses
|
4,225 | (15,123 | ) | |||||
Income
taxes, net
|
8,667 | 2,631 | ||||||
Other
|
923 | 1,997 | ||||||
Cash
used in operating activities
|
(35,199 | ) | (5,729 | ) | ||||
Cash
flows for investing activities:
|
||||||||
Acquisitions
of property, plant and equipment
|
(42,684 | ) | (39,350 | ) | ||||
Purchases
of investment securities
|
(3,287 | ) | (140,350 | ) | ||||
Proceeds
from sale or maturity of investment securities
|
2,750 | 108,437 | ||||||
Business
acquisition activity, primarily cash acquired
|
— | 34,065 | ||||||
Proceeds
from property disposals
|
150 | 2,557 | ||||||
Other,
net
|
— | (2,139 | ) | |||||
Cash
used in investing activities
|
(43,071 | ) | (36,780 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from long-term debt
|
298,000 | 99,843 | ||||||
Payments
on long-term debt
|
(212,272 | ) | (90,680 | ) | ||||
Change
in outstanding cash management obligations
|
22,533 | 24,984 | ||||||
Cash
dividends paid
|
(1,497 | ) | (1,498 | ) | ||||
Cash
provided by financing activities
|
106,764 | 32,649 | ||||||
Increase
(decrease) in cash and cash equivalents
|
28,494 | (9,860 | ) | |||||
Cash
and cash equivalents at beginning of period
|
66,168 | 156,404 | ||||||
Cash
and cash equivalents at end of period
|
$ | 94,662 | $ | 146,544 | ||||
See
notes to consolidated financial statements.
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
A—BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of Pilgrim’s Pride
Corporation (referred to herein as “Pilgrim’s,” “the Company,” “we,” “us,” “our”
or similar terms) have been prepared in accordance with accounting principles
generally accepted in the United States (“US”) for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X of
the
US Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by US generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal and recurring
adjustments unless otherwise disclosed) considered necessary for a fair
presentation have been included. Operating results for the three
months ended December 29, 2007 are not necessarily indicative of the results
that may be expected for the fiscal year ending September 27,
2008. For further information, refer to the consolidated financial
statements and footnotes thereto included in Pilgrim’s Annual Report on Form
10-K for the fiscal year ended September 29, 2007.
The
consolidated financial statements include the accounts of Pilgrim’s and its
majority-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated.
The
assets and liabilities of the foreign subsidiaries are translated at
end-of-period exchange rates, except for any non-monetary assets, which are
translated at equivalent dollar costs at dates of acquisition using historical
rates. Operations of foreign subsidiaries are translated at average
exchange rates in effect during the period.
Certain
reclassifications have been made to prior periods to conform to current period
presentations.
The
Company and certain retirement plans that it sponsors invest in a variety
of
financial instruments. In response to the continued turbulence in global
financial markets, we have analyzed our portfolios of investments and, to
the
best of our knowledge, none of our investments, including money market funds
units, commercial paper and municipal securities, have been downgraded because
of this turbulence, and neither we nor any fund in which we participate hold
more than negligible amounts of structured investment vehicles, mortgage
backed
securities, collateralized debt obligations, credit derivatives, hedge funds
investments, fund of funds investments or perpetual preferred
securities.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations. This
Statement improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects by establishing
principles and requirements for how the acquirer (a) recognizes and measures
in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (b) recognizes
and
measures the goodwill acquired in the business combination or a gain from
a
bargain purchase, and (c) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The Company must apply prospectively SFAS No.
141(R) to business combinations for which the acquisition date occurs during
or
subsequent to the first quarter of fiscal 2010. The impact that adoption
of SFAS
No. 141(R) will have on the Company’s financial condition, results of operations
and cash flows is dependent upon many factors. Such factors would include,
among
others, the fair values of the assets acquired and the liabilities assumed
in
any applicable business combination, the amount of any costs the Company
would
incur to effect any applicable business combination, and the amount of any
restructuring costs the Company expected but was not obligated to incur as
the
result of any applicable business combination. There can be no assurance
that
application of SFAS No. 141(R) to any applicable business combination will
not
have a material adverse effect on the Company’s financial condition, results of
operations or cash flows.
In
December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests
in
Consolidated Financial Statements—an amendment of ARB No. 51. This
Statement improves the relevance, comparability, and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for
how
that reporting entity (a) identifies, labels and presents in its consolidated
statement of financial position the ownership interests in subsidiaries held
by
parties other than itself, (b) identifies and presents on the face of its
consolidated statement of operations the amount of consolidated net income
attributable to itself and to the noncontrolling interest, (c) accounts for
changes in its ownership interest while it retains a controlling financial
interest in its subsidiary, (d) initially measures any retained noncontrolling
equity investment in a subsidiary that is deconsolidated, and (e) discloses
other information about its interests and the interests of the noncontrolling
owners. The Company must apply prospectively the accounting requirements
of
SFAS No. 160 in the first quarter of fiscal 2010. The Company should also
apply retroactively the presentation and disclosure requirements of the
Statement for all periods presented at that time. The Company does not expect
the adoption of SFAS No. 160 will have a material impact on its financial
condition, results of operations and cash flows.
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 obligation at December 30, 2006
|
$ | 1,138,699 |
We
retired the Gold Kist 10.25% 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 (a) $780.0 million borrowed under our
revolving-term secured credit facility and (b) $450.0 million borrowed under
our
$450.0 million senior unsecured term loan agreement.
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 table summarizes the fair value of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):
Current
assets
|
$ | 418,583 | ||
Property,
plant and equipment
|
674,444 | |||
Goodwill
|
499,669 | |||
Intangible
assets
|
64,500 | |||
Other
assets
|
65,597 | |||
Total
assets acquired
|
1,722,793 | |||
Current
liabilities
|
269,619 | |||
Long-term
debt, less current maturities
|
140,674 | |||
Deferred
income taxes
|
93,509 | |||
Other
long-term liabilities
|
80,292 | |||
Total
liabilities assumed
|
584,094 | |||
Total
purchase price
|
$ | 1,138,699 |
Goodwill
and other intangible assets
reflected above were determined to meet the criteriafor
recognition apart from tangible
assets acquired and liabilities assumed. Intangible assets related to the
acquisition consisted of the following at December 27,
2006:
Fair
|
Amortization
|
|||||||
Value
|
Period
|
|||||||
(In
thousands)
|
(In
years)
|
|||||||
Intangible
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 | ||||||
Weighted
average amortization
periodof intangible
assets
subject
to
amortization
|
10.9 | |||||||
Goodwill
|
$ | 499,669 | N/A |
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 assetwe recognizedwas
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 assetwe
recognizedwas 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 financial information has been presented as if the
acquisition had occurred at the beginning of each period presented.
Three
Months Ended
|
||||||||
December
29,
2007
Actual
|
December
30,
2006
Pro
forma
|
|||||||
(In
thousands, except share and per share data)
|
||||||||
Net
sales
|
$ | 2,093,211 | $ | 1,864,942 | ||||
Depreciation
and amortization
|
$ | 55,923 | $ | 57,919 | ||||
Operating
income (loss)
|
$ | 2,409 | $ | (33,456 | ) | |||
Interest
expense, net
|
$ | 29,827 | $ | 38,426 | ||||
Loss
before taxes
|
$ | (24,555 | ) | $ | (69,433 | ) | ||
Net
loss
|
$ | (32,329 | ) | $ | (42,919 | ) | ||
Net
loss per common share
|
$ | (0.49 | ) | $ | (0.64 | ) | ||
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 “Agreement”) 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. The aggregate amount of Pooled Receivables sold plus
the
remaining Pooled Receivables available for sale under this Agreement
declined from
$300.0
million at September 29, 2007
to $284.2
million at December 29, 2007.
The
outstanding amount of Pooled
Receivables sold and the remaining Pooled Receivables available for sale
under
this Agreement at December 29, 2007 were $265.6 million and
$18.6 million, respectively. The loss recognized on the sold
receivables during the quarter ended December 29, 2007 was not
material.
NOTE
D—INVENTORIES
December
29,
2007
|
September
29,
2007
|
|||||||
(In
thousands)
|
||||||||
Chicken:
|
||||||||
Live
chicken and hens
|
$ | 353,511 | $ | 343,185 | ||||
Feed
and eggs
|
254,311 | 223,631 | ||||||
Finished
chicken products
|
381,688 | 337,052 | ||||||
Total
chicken inventories
|
989,510 | 903,868 | ||||||
Turkey:
|
||||||||
Live
turkey and hens
|
$ | 9,870 | $ | 8,839 | ||||
Feed
and eggs
|
2,696 | 2,664 | ||||||
Finished
turkey products
|
7,124 | 25,929 | ||||||
Total
turkey inventories
|
19,690 | 37,432 | ||||||
Other
products:
|
||||||||
Commercial
feed, table eggs, retail farm store and other
|
$ | 9,926 | $ | 11,327 | ||||
Distribution
inventories (other than chicken and turkey products)
|
8,097 | 9,258 | ||||||
Total
other products inventories
|
18,023 | 20,585 | ||||||
Total
inventories
|
$ | 1,027,223 | $ | 961,885 |
NOTE
E—PROPERTY, PLANT AND EQUIPMENT
December
29,
2007
|
September
29,
2007
|
|||||||
(In
thousands)
|
||||||||
Land
|
$ | 112,198 | $ | 115,101 | ||||
Buildings,
machinery and equipment
|
2,403,330 | 2,391,154 | ||||||
Autos
and trucks
|
61,612 | 59,559 | ||||||
Construction-in-progress
|
149,674 | 124,193 | ||||||
Property,
plant and equipment, gross
|
2,726,814 | 2,690,007 | ||||||
Accumulated
depreciation
|
(937,000 | ) | (889,852 | ) | ||||
Property, plant
and equipment, net
|
$ | 1,789,814 | $ | 1,800,155 |
NOTE
F—NOTES PAYABLE AND LONG-TERM DEBT
Maturity
|
December
29,
2007
|
September
29,
2007
|
|||||||
(In
thousands)
|
|||||||||
Senior
unsecured notes, at 7.625%
|
2015
|
$ | 400,000 | $ | 400,000 | ||||
Senior
subordinated notes, at 8.375%
|
2017
|
250,000 | 250,000 | ||||||
Secured
revolving credit facility with notes payable at LIBOR plus 0.75%
to LIBOR
plus 1.75%
|
2013
|
86,500 | — | ||||||
Secured
revolving credit facility with notes payable at LIBOR plus 1.25%
to LIBOR
plus 2.75%
|
2011
|
26,080 | 26,293 | ||||||
Secured
revolving-term/credit facility with notes payable at LIBOR or US
Treasuries plus a spread
|
2016
|
621,825 | 622,350 | ||||||
Other
|
Various
|
22,541 | 22,787 | ||||||
Notes
payable and long-term debt
|
1,406,946 | 1,321,430 | |||||||
Current
maturities of long-term debt
|
(2,884 | ) | (2,872 | ) | |||||
Notes
payable and long-term debt, less current maturities
|
$ | 1,404,062 | $ | 1,318,558 |
The
Company borrowed $298.0 million and
repaid $211.5 million under its secured revolving credit facility expiring
in
2013 and repaid $0.8 million under other facilities during the first quarter
of
fiscal 2008. At December 29, 2007, $126.9 million was
available for borrowing under the Company’s secured revolving credit facility
expiring in 2013, $23.9 million was available for borrowing under the Company’s
secured revolving credit facility expiring in 2011 and $550.0 million was
available for borrowing under the revolving portion of the Company’s secured
revolving-term/credit facility expiring in 2016.
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 $26million
per year, and
to
maintain
various fixed charge, leverage,
current and debt-to-equity ratios. At December 29, 2007,
the Company has
fully complied with these covenants.
NOTE
G—INCOME TAXES
We
recorded tax expense of $7.8 million for the three months ended December
29, 2007 on a loss before taxes of $24.6 million. The difference between
the effective rate reflected in the provision for income taxes and the amounts
determined by applying the applicable statutory United States tax rate for
the
three months ended December 29, 2007 is primarily due to an increase in the
valuation allowance on net operating losses in Mexico.
On
September 30, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income
Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). This
Interpretation required us to develop 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. Adoption of FIN 48
had
no significant effect on the Company’s financial condition. The net
unrecognized tax benefits of $32.9 million include $26.3 million that, if
recognized, would benefit our effective income tax rate and $6.6 million
that,
if recognized, would reduce goodwill.
The
Company files numerous consolidated and separate income tax returns in the
United States Federal jurisdiction, the Mexico Federal jurisdiction and in
many state jurisdictions. With few exceptions, the Company is no longer subject
to US Federal, state or local income tax examinations for years before 2003
and
is no longer subject to Mexico income tax examinations by tax authorities
for
years before 2005. We are currently under audit by the Internal
Revenue Service for the tax years ended September 26, 2003 to September 30,
2006. It is likely that the examination phase of the audit will conclude
in
2008, and it is reasonably possible a reduction in our FIN 48 liability may
occur; however, quantification of an estimated range cannot be made at this
time.
Our
continuing practice is to recognize interest and/or penalties related to
income
tax matters in income tax expense. During the three months ended December
29,
2007 we recognized $0.9 million in interest and penalties related to
uncertain tax positions. As of December 29, 2007, we have accrued approximately
$12.6 million of interest and penalties related to uncertain tax
positions.
In
October 2007, Mexico enacted La Ley del Impuesto Empresarial a Tasa Única
(“IETU”), a new minimum corporation tax, which will be assessed on companies
doing business in that country beginning January 1, 2008. While the Company
does
not anticipate paying taxes under IETU, the new law will affect the Company’s
tax planning strategies to fully realize its deferred tax assets under Mexico’s
regular income tax. The Company has evaluated the impact of IETU on its Mexico
operations and, because of the treatment of net operating losses under the
new
law, has established a valuation allowance for net operating losses it believes
do not meet the more likely than not realization criteria of SFAS No. 109,
Accounting for Income
Taxes;
this valuation allowance resulted in a $12.7 million charge to tax
expense.
NOTE
H—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 prices 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.
Certain
transactions with related parties are summarized as follows:
Three
Months Ended
|
||||||||
December
29,
2007
|
December
30,
2006
|
|||||||
(In
thousands)
|
||||||||
Lease
payments on commercial egg property
|
$ | 188 | $ | 188 | ||||
Contract
grower pay
|
260 | 199 | ||||||
Other
sales to major stockholder
|
163 | 147 | ||||||
Loan
guaranty fees
|
962 | 336 | ||||||
Lease
payments and operating expenses on airplane
|
113 | 119 |
NOTE
I—COMMITMENTS AND CONTINGENCIES
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
would
not have a material impact on our financial condition, results of operations
and
cash flows.
At
December 29, 2007, the Company had $86.6 million in letters of credit
outstanding relating to normal business transactions.
The
Company is subject to various legal proceedings and claims which arise in
the
ordinary course of 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 clothing and personal protective 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 clothing and personal protective
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.
NOTE
J—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) and
seller of other products. The following table presents certain information
regarding our segments:
Three
Months Ended
|
||||||||
December
29,
2007
|
December
30,
2006(a)
|
|||||||
(In
thousands)
|
||||||||
Net
sales to customers:
|
||||||||
Chicken:
|
||||||||
United
States
|
$ | 1,728,142 | $ | 1,030,949 | ||||
Mexico
|
120,998 | 122,909 | ||||||
Total
chicken
|
1,849,140 | 1,153,858 | ||||||
Turkey
|
53,390 | 51,850 | ||||||
Other
products:
|
||||||||
United
States
|
182,857 | 128,975 | ||||||
Mexico
|
7,824 | 2,449 | ||||||
Total
other products
|
190,681 | 131,424 | ||||||
$ | 2,093,211 | $ | 1,337,132 | |||||
Operating
income (loss):
|
||||||||
Chicken:
|
||||||||
United
States
|
$ | (19,094 | ) | $ | (11,446 | ) | ||
Mexico
|
(4,092 | ) | 1,329 | |||||
Total
chicken
|
(23,186 | ) | (10,117 | ) | ||||
Turkey
|
1,739 | 2,506 | ||||||
Other
products:
|
||||||||
United
States
|
22,771 | 4,138 | ||||||
Mexico
|
1,085 | 567 | ||||||
Total
other products
|
23,856 | 4,705 | ||||||
$ | 2,409 | $ | (2,906 | ) | ||||
Depreciation
and
amortization:(b)
|
||||||||
Chicken:
|
||||||||
United
States
|
$ | 50,203 | $ | 27,445 | ||||
Mexico
|
2,564 | 2,806 | ||||||
Total
chicken
|
52,767 | 30,251 | ||||||
Turkey
|
379 | 374 | ||||||
Other
products:
|
||||||||
United
States
|
2,715 | 2,028 | ||||||
Mexico
|
62 | 44 | ||||||
Total
other products
|
2,777 | 2,072 | ||||||
$ | 55,923 | $ | 32,697 | |||||
(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 spanning from December 27, 2006 through December 30, 2006. The operating results and cash flows of Gold Kist forthat period were not material. | ||||||||
(b)Includes amortization of capitalized financing costs of approximately $1.0 million and $0.7 million for the three-month periods ended December 29, 2007 and December 30, 2006, respectively, and amortization of intangible assets of approximately $2.6 million for the three months ended December 29, 2007. |
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Description
of the Company
Pilgrim’s
Pride is the world’s largest chicken company and has one of the best known brand
names in the chicken industry. In the United States (“US”), 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 US and Puerto Rico
and in
the northern and central regions of Mexico. We operate in three business
segments and two geographical areas.
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 US, 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 spanning from December 27, 2006 through December 30, 2006. The
operating results and cash flows of Gold Kist for that period were not
material.
Executive
Summary
Feed
ingredient prices increased substantially between the first quarter of fiscal
2007 and the first quarter of fiscal 2008 and have continued to increase
through
the date of this report. While chicken selling prices have generally
improved over the same periods, chicken selling prices have not improved
sufficiently to offset the higher costs of feed ingredients, which, along
with
deferred income tax asset valuation allowances recognized in Mexico and interest
expense recognized on borrowings incurred due to the acquisition of Gold
Kist,
were the primary contributors to our $32.3 million net loss for the first
quarter of fiscal 2008. Although the Company continues to focus
substantial efforts on increasing its sales prices in order to cover these
increased costs, there can be no assurances as to if or when it will be able
to
raise its prices sufficiently to offset these incremental costs or return
to
profitability.
In
October 2007, Mexico enacted La Ley del Impuesto Empresarial a Tasa Única
(“IETU”), a new minimum corporation tax, which will be assessed on companies
doing business in that country beginning January 1, 2008. While the Company
does
not anticipate paying taxes under IETU, the new law will affect the Company’s
tax planning strategies to fully realize its deferred tax assets under Mexico’s
regular income tax. The Company has evaluated the impact of IETU on its Mexico
operations and, because of the treatment of net operating losses under the
new
law, has established a valuation allowance for net operating losses it believes
do not meet the more likely than not realization criteria of SFAS No. 109,
Accounting for Income
Taxes;
this valuation allowance resulted in a $12.7 million charge to tax
expense.
The
net
loss of $32.3 million for the first quarter of fiscal 2008 is $23.6 million
greater than the net loss of $8.7 million for the first quarter of fiscal
2007. This increase in net loss occurred primarily because of the
increased cost of feed ingredients between the two periods, the deferred
tax
asset valuation allowances established by our Mexico operations as a result
of
IETU and increased interest expense related to the acquisition of Gold Kist.
Feed ingredient costs rose 24.4% in the US and 15.3% in Mexico over the same
period last year principally because of higher corn and soybean meal prices.
Our
average chicken selling prices in the US and Mexico increased 9.8% and 1.4%,
respectively, over the same period last year mainly because of improved market
pricing. Total pounds sold in the US were up 52.7% from the same period last
year mainly because of the Gold Kist acquisition. Total pounds sold in Mexico
were down 2.9% from the same period last year.
Business
Environment
Profitability
in the poultry industry is materially affected by the commodity prices of
chicken, turkey and feed ingredients that, in turn, are influenced by a variety
of supply and demand factors. As a result, the chicken and turkey
industries are subject to cyclical earnings fluctuations. Cyclical
earnings fluctuations can be mitigated somewhat by (a) business strategy,
(b)
product mix, (c) sales and marketing plans and (d) 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
US of prepared foods products reduces the impact of feed ingredient costs
on our
profitability. Feed ingredient purchases are the single largest
component of our cost of sales. They represented 36.5% of our consolidated
cost
of sales in the first quarter of fiscal 2008. The production of feed
ingredients is affected primarily by weather patterns throughout the world,
the
level of supply inventories, demand for feed ingredients, and the agricultural
policies of the US and foreign governments. The costs of corn and
soybean meal, our primary feed ingredients, increased significantly between
the
first quarter of fiscal 2007 and 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. Feed ingredient costs become a decreasing percentage of a
product’s total production cost as further processing is performed, 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.
Since
a
significant portion of US chicken production is exported, the commodity
prices
of chicken and turkey can be adversely affected by disruptions in export
markets. Material disruptions in recent years included the negative
impact that concerns over avian influenza had on international demand for
poultry products. Disruptions may also be caused by restrictions on
imports of US-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. Both Russia and Japan have
restricted the importation of US-produced poultry for both of these reasons
in
recent periods. In July 2003, the US and Mexico entered into a
safeguard agreement with regard to imports into Mexico of chicken leg quarters
from the US. Under this agreement, a tariff rate for chicken leg quarters
of
98.8% of the sales price was established. This tariff was imposed because
of
concerns that the duty-free importation of such products as provided by
the
North American Free Trade Agreement would injure Mexico’s poultry industry. This
tariff rate was eliminated on January 1, 2008. As a result of the
elimination of this tariff, we expect greater amounts of chicken to be
imported
into Mexico from the US. This could negatively affect the profitability
of
Mexican chicken producers, including our Mexico operations. Because disruptions
in poultry export markets are often political, no assurances can be given
as to
when the existing disruptions will be alleviated or that new ones will
not
arise.
Business
Segments
We
operate in three reportable business segments as (1) a producer and seller
of
chicken products, (2) a producer and seller of turkey products and (3)
a seller
of other products. The following table presents certain information
regarding our segments:
Three
Months Ended
|
||||||||
December
29,
2007
|
December
30,
2006(a)
|
|||||||
(In
thousands)
|
||||||||
Net
sales to customers:
|
||||||||
Chicken:
|
||||||||
United
States
|
$ | 1,728,142 | $ | 1,030,949 | ||||
Mexico
|
120,998 | 122,909 | ||||||
Total
chicken
|
1,849,140 | 1,153,858 | ||||||
Turkey
|
53,390 | 51,850 | ||||||
Other
products:
|
||||||||
United
States
|
182,857 | 128,975 | ||||||
Mexico
|
7,824 | 2,449 | ||||||
Total
other products
|
190,681 | 131,424 | ||||||
$ | 2,093,211 | $ | 1,337,132 | |||||
Operating
income (loss):
|
||||||||
Chicken:
|
||||||||
United
States
|
$ | (19,094 | ) | $ | (11,446 | ) | ||
Mexico
|
(4,092 | ) | 1,329 | |||||
Total
chicken
|
(23,186 | ) | (10,117 | ) | ||||
Turkey
|
1,739 | 2,506 | ||||||
Other
products:
|
||||||||
United
States
|
22,771 | 4,138 | ||||||
Mexico
|
1,085 | 567 | ||||||
Total
other products
|
23,856 | 4,705 | ||||||
$ | 2,409 | $ | (2,906 | ) | ||||
Depreciation
and
amortization:(b)
|
||||||||
Chicken:
|
||||||||
United
States
|
$ | 50,203 | $ | 27,445 | ||||
Mexico
|
2,564 | 2,806 | ||||||
Total
chicken
|
52,767 | 30,251 | ||||||
Turkey
|
379 | 374 | ||||||
Other
products:
|
||||||||
United
States
|
2,715 | 2,028 | ||||||
Mexico
|
62 | 44 | ||||||
Total
other products
|
2,777 | 2,072 | ||||||
$ | 55,923 | $ | 32,697 | |||||
(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 spanning from December 27, 2006 through December 30, 2006. The operating results and cash flows of Gold Kist forthat period were not material. | ||||||||
(b)Includes amortization of capitalized financing costs of approximately $1.0 million and $0.7 million for the three-month periods ended December 29, 2007 and December 30, 2006, respectively, and amortization of intangible assets of approximately $2.6 million for the three months ended December 29, 2007. |
The
following table presents certain items as a percentage of net sales for
the
periods indicated:
Three
Months Ended
|
||||||||
December
29,
2007
|
December
30,
2006
|
|||||||
Net
sales
|
100.0 | % | 100.0 | % | ||||
Cost
of sales
|
94.9 | 95.1 | ||||||
Gross
profit
|
5.1 | 4.9 | ||||||
Selling,
general and administrative expense
|
5.0 | 5.1 | ||||||
Operating
income (loss)
|
0.1 | (0.2 | ) | |||||
Interest
expense
|
1.4 | 1.0 | ||||||
Interest
income
|
— | (0.1 | ) | |||||
Loss
before income taxes
|
(1.2 | ) | (1.1 | ) | ||||
Net
loss
|
(1.5 | ) | (0.7 | ) |
Results
of Operations
Fiscal
First Quarter 2008 Compared to Fiscal First Quarter 2007
Net
sales. Net
sales for the first quarter of fiscal 2008 increased $756.1 million, or
56.5%,
over the first quarter of fiscal 2007. The following table provides net
sales
information:
Source
|
Fiscal
Quarter Ended
December
29,
2007
|
Change
from Fiscal Quarter Ended December 30, 2006
|
|||||||||||||
Amount
|
Percentage
|
||||||||||||||
(In
millions, except percentages)
|
|||||||||||||||
Chicken:
|
|||||||||||||||
United
States
|
$ | 1,728.1 | $ | 697.2 | 67.6 | % |
(a)
|
||||||||
Mexico
|
121.0 | (1.9 | ) | (1.6 | ) % |
(b)
|
|||||||||
Total
chicken
|
1,849.1 | 695.3 | 60.3 | % | |||||||||||
Turkey
|
53.4 | 1.5 | 3.0 | % |
(c)
|
||||||||||
Other
products:
|
|||||||||||||||
United
States
|
182.9 | 53.9 | 41.8 | % |
(d)
|
||||||||||
Mexico
|
7.8 | 5.4 | 219.5 | % |
(e)
|
||||||||||
Total
other products
|
190.7 | 59.3 | 45.1 | % | |||||||||||
Total
net sales
|
$ | 2,093.2 | $ | 756.1 | 56.5 | % | |||||||||
(a)US chicken sales for the first quarter of fiscal 2008 increased from the same period last year primarily as the result of a 52.7% increase in volume resulting mainly from 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 a greater percentage of higher-margin, value-added products. | |||||||||||||||
(b)Mexico chicken sales in the current quarter decreased from the first quarter of fiscal 2007 primarily because of a 2.9% decrease in pounds sold offset by a 1.4% increase in revenue per pound sold. | |||||||||||||||
(c)Turkey sales increased principally because of a 5.0% increase in revenue per pound sold offset by a 2.0% decrease in pounds sold. | |||||||||||||||
(d)US sales of other products increased mainly as the result of the acquisition of Gold Kist on December 27, 2006 and improved pricing on our rendering output. Rendering is the process of converting poultry byproducts into raw materials for grease, animal feed, biodiesel and feed-stock for the chemical industry. | |||||||||||||||
(e)Mexico sales of other products increased principally because of both higher sales volumes and higher selling prices for commercial feed. |
Gross
profit. Gross profit increased $42.3 million, or 64.6%, in the
first quarter of fiscal 2008 compared to the first quarter of fiscal 2007.
The
following table provides gross profit information:
Percentage
of Net Sales
|
|||||||||||||||||||||
Fiscal
Quarter
Ended
December
29,
2007
|
Fiscal
Quarter
Ended
December
29, 2007
|
Fiscal
Quarter
Ended
December
30, 2006
|
|||||||||||||||||||
Change
From Fiscal Quarter Ended December 30, 2006
|
|||||||||||||||||||||
Components
|
Amount
|
Percentage
|
|||||||||||||||||||
(In millions, except percentages)
|
|||||||||||||||||||||
Net
sales
|
$ | 2,093.2 | $ | 756.1 | 56.5 | % | 100.0 | % | 100.0 | % | |||||||||||
Cost
of sales
|
1,985.4 | 713.8 | 56.1 | % | 94.9 | % | 95.1 | % |
(a)
|
||||||||||||
Gross
profit
|
$ | 107.8 | $ | 42.3 | 64.6 | % | 5.1 | % | 4.9 | % |
(b)
|
||||||||||
(a)Cost of sales incurred in the first quarter of fiscal 2008 increased when compared to the same period last year primarily because of the acquisition of Gold Kist on December 27, 2006 and increased quantities and costs of energy and feed ingredients. We also experienced in the first quarter of fiscal 2008, 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 mainly because of higher feed ingredient costs. | |||||||||||||||||||||
(b)Gross profit as a percent of net sales generated in the first quarter of fiscal 2008 improved 0.2 percentage points from the same period last year because of improved pricing on our rendering output due to increased demand for the raw materials used to produce biodiesel and other alternative fuels. |
Operating
income
(loss). Operating income for the first quarter of fiscal 2008
increased $5.3 million, or 182.8% compared to the first quarter of fiscal
2007. The following tables provide operating income information:
Fiscal
Quarter Ended
|
Change
from Fiscal Quarter Ended
|
|||||||||||
December
29,
2007
|
December
30,
2006
|
|||||||||||
Source
|
Amount
|
Percentage
|
||||||||||
(In
million, except percentages)
|
||||||||||||
Chicken:
|
||||||||||||
United
States
|
$ | (19.1 | ) | $ | (7.7 | ) | (67.5 | ) % | ||||
Mexico
|
(4.1 | ) | (5.4 | ) | (415.4 | ) % | ||||||
Total
chicken
|
(23.2 | ) | (13.1 | ) | (129.7 | ) % | ||||||
Turkey
|
1.7 | (0.8 | ) | (32.0 | ) % | |||||||
Other
products:
|
||||||||||||
United
States
|
22.8 | 18.7 | 456.1 | % | ||||||||
Mexico
|
1.1 | 0.5 | 83.3 | % | ||||||||
Total
other products
|
23.9 | 19.2 | 408.5 | % | ||||||||
Total
operating income
|
$ | 2.4 | $ | 5.3 | 182.8 | % |
Percentage
of Net Sales
|
|||||||||||||||||||||
Fiscal
Quarter
Ended
December
29,
2007
|
Fiscal
Quarter
Ended
December
29, 2007
|
Fiscal
Quarter
Ended
December
30, 2006
|
|||||||||||||||||||
Change
From Fiscal Quarter Ended December 30, 2006
|
|||||||||||||||||||||
Components
|
Amount
|
Percentage
|
|||||||||||||||||||
(In
millions, except percentages)
|
|||||||||||||||||||||
Gross
profit
|
$ | 107.8 | $ | 42.3 | 64.6 | % | 5.1 | % | 4.9 | % | |||||||||||
Selling,
general and administrative expense
|
105.4 | 37.0 | 54.1 | % | 5.0 | % | 5.1 | % |
(a)
|
||||||||||||
Operating
loss
|
$ | 2.4 | $ | 5.3 | 182.8 | % | 0.1 | % | (0.2 | ) % |
(b)
|
||||||||||
(a)Selling, general and administrative expense incurred in the first quarter of fiscal 2008 increased from the same period last year primarily because of the acquisition of Gold Kist on December 27, 2006. | |||||||||||||||||||||
(b)Operating income as a percentage of net sales generated in the first quarter of fiscal 2008 increased 0.3 percentage points when compared to the same period last year primarily because of increases in the average selling prices of chicken, improved pricing on our rendering output due to increased demand for the raw materials used to produce biodiesel and other alternative fuels and improved product mix partially offset by increased feed, production and freight costs and the other factors described above. |
Interest
expense. Interest expense
increased 118.0% to $30.3 million in the first quarter of fiscal 2008 from
$13.9
million for the first quarter of fiscal 2007 primarily because of increased
borrowings related to the acquisition of Gold Kist and a decrease in amounts
of
interest capitalized during the quarter. As a percentage of sales,
interest expense in the first quarter of fiscal 2008 increased to 1.4% from
1.0%
in the first quarter of fiscal 2007.
Interest
income. Interest income decreased from $1.3 million in the
first quarter of fiscal 2007 to $0.5 million in the first quarter of fiscal
2008
because of a reduced average level of investment during the current quarter
in
available for sale securities.
Miscellaneous,
net. Consolidated miscellaneous income increased from $1.0
million in the first quarter of fiscal 2007 to $2.9 million in the first quarter
of fiscal 2008 primarily because of an increase in investment income and
improvement in currency exchange results due to an increase in the average
exchange rate between the Mexican peso and the US dollar during those two
periods.
Income
tax
expense. Income tax expense in the first quarter of fiscal
2008 was $7.8 million compared to income tax benefit of $5.8 million in the
first quarter of fiscal 2007. The increase in income tax expense
resulted primarily from tax expense of $12.7 million recognized in the current
quarter by our Mexico operations mainly because of a valuation allowance we
established for net operating losses we believe do not meet the more likely
than
not realization criteria of SFAS No. 109 due to the treatment of the net
operating losses under IETU. This was partially offset by larger
pretax loss incurred in the first quarter of fiscal 2008 than was incurred
in
the same period last year.
Liquidity
and Capital Resources
The
following table presents our available sources of liquidity as of December
29,
2007:
Facility
|
Amount
|
||||||||||||
Source
of Liquidity
|
Amount
|
Outstanding
|
Available
|
||||||||||
(In
millions)
|
|||||||||||||
Cash
and cash equivalents
|
$ | — | $ | — | $ | 94.7 | |||||||
Investments
in available-for-sale securities
|
— | — | 8.8 | ||||||||||
Receivables
purchase agreement
|
300.0 | 265.6 | 18.6 |
(a)
|
|||||||||
Debt
facilities:
|
|||||||||||||
Revolving
credit facilities
|
350.0 | 112.6 | 150.8 |
(b)(c)
|
|||||||||
Revolving/term
facility
|
550.0 | — | 550.0 |
(c)
|
|||||||||
(a)The aggregate amount of receivables sold plus the remaining receivables available for saledeclined from $300.0 million at September 29, 2007 to $284.2million at December 29, 2007. | |||||||||||||
(b)At December 29, 2007, the Company had $86.6 million in letters of credit outstanding relating to normal business transactions. | |||||||||||||
(c)At February 4, 2008, total availability under these debt facilities is $535.5 million. |
At
December 29, 2007, our working capital increased $61.2 million to $440.3 million
and our current ratio increased to 1.48 to 1 compared with working capital
of
$379.1 million and a current ratio of 1.42 to 1 at September 29, 2007 primarily
because of the working capital changes discussed below.
Trade
accounts and other receivables increased $0.2 million, or 0.1%, to $130.4
million at December 29, 2007 from $130.2 million at September 29,
2007.
Inventories
increased $65.3 million, or 6.8%, to $1.0272 billion at December 29, 2007 from
$961.9 million at September 29, 2007. This increase resulted from
higher finished chicken products and live inventories primarily due to higher
feed ingredient prices.
Accounts
payable increased $56.4 million, or 14.0%, to $458.7 million at December 29,
2007 from $402.3 million at September 29, 2007 primarily because of the
increased cost of feed ingredients and fuel.
Accrued
liabilities decreased $36.0 million, or 7.2%, to $464.0 million at December
29,
2007 from $500.0 million at September 29, 2007 principally because of a
reduction in interest payable on notes payable due to the timing of our
semi-annual interest payments and amortization of acquisition-related
liabilities such as unfavorable sales contracts and unfavorable lease
contracts.
Cash
used
in operating activities was $35.2 million and $5.7 million for the three months
ended December 29, 2007 and December 30, 2006, respectively. The
increase in cash used in operating activities was primarily the result of
changes in working capital items.
Cash
used
in investing activities was $43.1 million and $36.8 million for the first
quarters of fiscal 2008 and fiscal 2007, respectively. Capital expenditures
of
$42.7 million and $39.4 million for the three months ended December 29, 2007
and
December 30, 2006, respectively, were primarily incurred for the routine
replacement of equipment and to improve efficiencies, expand capacity, and
reduce costs. We anticipate spending approximately $225.0 million to
$250.0 million in fiscal 2008 for the routine replacement of equipment, capacity
expansion and new automation to improve efficiencies. We expect to
finance such expenditures with cash on hand, operating cash flows if available,
and existing revolving/term and revolving credit facilities. Cash was used
to
purchase investment securities totaling $3.3 million in the first quarter of
fiscal 2008 and $140.4 million in the first quarter of fiscal 2007. Cash
proceeds in the first quarter of fiscal 2008 and the first quarter of fiscal
2007 from the sale or maturity of investment securities were $2.8 million and
$108.4 million, respectively. In the first quarter of fiscal 2007, we
received cash totaling $34.1 million related to the acquisition of Gold
Kist.
Cash
provided by financing activities was $106.8 million and $32.6 million for the three
months ended December 29, 2007 and December 30, 2006,
respectively. Cash proceeds in the first quarters of fiscal 2008 and
fiscal 2007 from long-term debt were $298.0 million and $99.8 million,
respectively. Cash was used to repay long-term debt totaling $212.3
million in the first quarter of fiscal 2008 and $90.7 million in the first
quarter of fiscal 2007. Cash proceeds in the first quarters of fiscal
2008 and fiscal 2007 from changes in outstanding cash management obligations
were $22.5 million and $25.0 million,
respectively.
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 $26million
per year, and to maintain
various fixed charge, leverage, current and debt-to-equity ratios. At December 29, 2007,
the Company has
fully complied with these covenants.
We
are a
party to many routine contracts in which we provide general indemnities in
the
normal course of business to third parties for various risks. We have
not recorded a liability for any of these indemnities as the likelihood of
payment in each case is considered remote.
There
were no material changes during the three months ended December 29, 2007,
outside the ordinary course of business, in the specified contractual
obligations presented in the Company’s Annual Report on Form 10-K for fiscal
2007.
Off-Balance
Sheet Arrangements
In
connection with the Receivables Purchase Agreement dated June 26, 1998, as
amended, (the “Agreement”) 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. The aggregate amount of Pooled Receivables sold plus
the
remaining Pooled Receivables available for sale under this Agreement
declined from
$300.0
million at September 29, 2007
to $284.2
million at December 29, 2007.
The
outstanding amount of Pooled
Receivables sold and the remaining Pooled Receivables available for sale under
this Agreement at December 29, 2007 were $265.6 million and
$18.6 million, respectively. The loss on the sold receivables
during the quarter ended December 29, 2007 was not
material.
Accounting
Pronouncements
Discussion
regarding our
pending adoption of Statement of Financial Accounting Standards (“SFAS”)
No. 141(R), Business
Combinations, and SFAS No. 160, Noncontrolling Interests
in
Consolidated Financial Statements—an amendment of ARB No. 51, is included
in Note A of the notes to our consolidated financial statements included
elsewhere in this Quarterly Report.
Critical
Accounting Policies
During
the three months ended December 29, 2007:
§
|
We
did not change any of our existing critical accounting
policies;
|
§
|
No
existing accounting policies became critical accounting policies
because
of an increase in the materiality of associated transactions or changes
in
the circumstances to which associated judgments and estimates relate;
and
|
§
|
There
were no significant changes in the manner in which critical accounting
policies were applied or in which related judgments and estimates
were
developed, except for the required adoption of Financial Accounting
Standards Board Interpretation No. 48, Accounting for
Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109,
effective September 30, 2007.
|
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Feed
Ingredients
We
purchase certain commodities, primarily corn and soybean meal, for use as
ingredients in the feed we either sell commercially or consume in our live
operations. As a result, our earnings are affected by changes in the
price and availability of such feed ingredients. As market conditions
dictate, we will from time to time lock in future feed ingredient prices using
a
variety of natural
hedges
and derivative instruments such as forward purchase agreements with suppliers
and futures contracts.
We
do not
use such financial instruments for trading purposes and are not a party to
any
leveraged derivatives. Market risk is estimated as a hypothetical 10%
increase in the weighted-average cost of our primary feed ingredients as
of
December 29, 2007. Based on our feed consumption during the three
months ended December 29, 2007, such an increase would have resulted in an
increase to cost of sales of approximately $72.6 million, excluding the impact
of any hedging in that period. A 10% change in ending feed ingredient
inventories at December 29, 2007 would be $7.4 million, excluding any
potential impact on the production costs of our chicken and turkey
inventories.
Interest
Rates
Our
earnings are affected by changes in interest rates due to the impact those
changes have on our variable-rate debt instruments and the fair value of
our
fixed-rate debt instruments. During the quarter ended December 29, 2007,
the Company borrowed $298.0
million and
repaid $211.5 million under its variable-rate domestic revolving credit
facility expiring in 2013. Our variable-rate debt instruments represented
approximately 38.5% of our long-term debt at December 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 $1.4 million
for
the first quarter of fiscal 2008. These amounts are determined by considering
the impact of the hypothetical interest rates on our variable-rate long-term
debt at December 29, 2007. At December 29, 2007, we do not believe the fair
value of our fixed-rate debt instruments has materially changed since September
29, 2007.
Foreign
Currency
Our
earnings are also affected by foreign currency 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. We are also exposed to the
effect of potential currency exchange rate fluctuations to the extent that
amounts are repatriated from Mexico to the US. However, we currently
anticipate that the 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 financial condition and results of
operations in several ways, including potential economic recession in Mexico
as
the result of a devaluation in their currency. The impact on our
financial condition and results of operations resulting from a hypothetical
change in the exchange rate between the US dollar and the Mexican peso cannot
be
reasonably estimated. Foreign currency exchange gains and losses,
representing the change in the US dollar value of the net monetary assets
of our
Mexico subsidiaries denominated in Mexican pesos, was a gain of $0.1 million
in
the first three months of fiscal 2008 compared to a loss of $1.5 million
for the
first three months of fiscal 2007. On December 29, 2007, the
applicable exchange rate closed at 10.86 Mexican pesos to 1 US dollar. On
September 29, 2007, the applicable exchange rate closed at 10.93 Mexican
pesos
to 1 US dollar. No assurance can be given as to how future movements
in the Mexican peso could affect our future financial condition or results
of
operations.
Investment
Quality
The
Company and certain retirement plans that it sponsors invest in a variety
of
financial instruments. In response to the continued turbulence in global
financial markets, we have analyzed our portfolios of investments and,
to the
best of our knowledge, none of our investments, including money market
funds
units, commercial paper and municipal securities, have been downgraded
because
of this turbulence, and neither we nor any fund in which we participate
hold
more than negligible amounts of structured investment vehicles, mortgage
backed
securities, collateralized debt obligations, credit derivatives, hedge
funds
investments, fund of funds investments or perpetual preferred
securities.
Forward
Looking Statements
Statements
of our intentions, beliefs, expectations or predictions for the future,
denoted
by the words "anticipate," "believe," "estimate," "expect," "project,"
“plan,”
"imply," "intend," "foresee" and similar expressions, are forward-looking
statements that reflect our current views about future events and are subject
to
risks, uncertainties and assumptions. Such risks, uncertainties and
assumptions include the following:
§
|
Matters
affecting the poultry industry generally, including fluctuations
in the
commodity prices of feed ingredients, chicken and
turkey;
|
§
|
Additional
outbreaks of avian influenza or other diseases, either in our
own flocks
or elsewhere, affecting our ability to conduct our operations
and/or
demand for our poultry products;
|
§
|
Contamination
of our products, which has previously and can in the future lead
to
product liability claims and product
recalls;
|
§
|
Exposure
to risks related to product liability, product recalls, property
damage
and injuries to persons, for which insurance coverage is expensive,
limited and potentially inadequate;
|
§
|
Management
of our cash resources, particularly in light of our substantial
leverage;
|
§
|
Restrictions
imposed by, and as a result of, our substantial
leverage;
|
§
|
Changes
in laws or regulations affecting our operations or the application
thereof;
|
§
|
New
immigration legislation or increased enforcement efforts in connection
with existing immigration legislation that cause our costs of
business to
increase, cause us to change the way in which we do business
or otherwise
disrupt our operations;
|
§
|
Competitive
factors and pricing pressures or the loss of one or more of our
largest
customers;
|
§
|
Inability
to consummate, or effectively integrate, any acquisition or realize
the
associated cost savings and operating
synergies;
|
§
|
Currency
exchange rate fluctuations, trade barriers, exchange controls,
expropriation and other risks associated with foreign
operations;
|
§
|
Disruptions
in international markets and distribution channels;
and
|
§
|
The
impact of uncertainties of litigation as well as other risks
described
herein and under “Risk Factors” in our Annual Report on Form 10-K filed
with the Securities and Exchange
Commission.
|
Actual
results could differ materially from those projected in these forward-looking
statements as a result of these factors, among others, many of which are
beyond
our control.
In
making
these statements, we are not undertaking, and specifically decline to
undertake,
any obligation to address or update each or any factor in future filings
or
communications regarding our business or results, and we are not undertaking
to
address how any of these factors may have caused changes to information
contained in previous filings or communications. Although we have
attempted to list comprehensively these important cautionary risk factors,
we
must caution investors and others that other factors may in the future
prove to
be important and affecting our business or results of operations.
An
evaluation was performed under the supervision and with the participation
of the
Company’s management, including the Senior Chairman of the Board of Directors
and the 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”)) as of the end of the period covered by this Quarterly Report on
Form 10-Q. Based on that evaluation, the Company’s management,
including the Senior Chairman of the Board of Directors and the Chief
Financial
Officer, concluded that 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, and the Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
In
connection with the evaluation described above, the Company’s management,
including the Senior Chairman of the Board of Directors and the Chief
Financial
Officer, identified no change in the Company's internal control over
financial
reporting that occurred during the Company’s fiscal quarter ended December 29,
2007, and that has materially affected, or is reasonably likely to materially
affect, the Company’s internal controls over financial
reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
As
described in more detail in the Company's Annual Report on Form 10-K
filed on
November 19, 2007, on July 1, 2002, three individuals, on behalf of themselves
and a putative class of chicken growers, filed a 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.” Plaintiffs 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 PSA 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, contending that the Company
and
Tyson are involved in a conspiracy to violate federal antitrust laws.
On January
3, 2006, the Court entered an order severing the plaintiffs’ PSA and antitrust
claims. After severance, the plaintiffs voluntarily withdrew their request
for
class certification of the PSA claims, and the Court subsequently entered
an
order prohibiting the plaintiffs from filing any additional class-action
claims
against Pilgrim’s Pride in this lawsuit. On January 3, 2006, Plaintiffs brought
their antitrust claims in an action styled "Cody Wheeler, et al. vs.
Pilgrim's
Pride Corporation, et al.," 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. On September
28, 2007, the Court issued an order denying plaintiffs’ request to certify a
class action. Plaintiffs filed a Petition for Permission to Appeal on
October
15, 2007 with the U.S. Court of Appeals for the Fifth Circuit, which
was denied
on December 7, 2007. Both of the Wheeler cases now involve only individual
claims, and the Company intends to defend vigorously against these individual
claims. The Company does not believe these matters will have a material
impact
on its financial condition, results of operations and cash flows, and
the
Company does not intend to provide updates regarding these cases in its
future
periodic reports.
As
described in more detail in the Company's Annual Report on Form 10-K
filed on
November 19, 2007, 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, and the Court dismissed all of the claims
of a third
plaintiff in their entirety. On May 15, 2007, the Court issued its order
denying
Plaintiffs’ Motion for Class Certification in its entirety. Only six individual
cases remain in this matter, and the Company intends to defend vigorously
against these individual claims. The Company does not believe these matters
will
have a material impact on its financial condition, results of operations
and
cash flows, and the Company does not intend to provide updates regarding
these
cases in its future periodic reports.
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 clothing and personal protective 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 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; “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 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 condition, results of operations or cash flows.
ITEM
1A. RISK FACTORS
In
addition to the other information set forth in this Quarterly Report,
you should
carefully consider the risks discussed in our 2007 Annual Report
on Form 10-K,
including under the heading "Item 1A. Risk Factors", which risks
could
materially affect the Company’s business, financial condition or future results.
These risks are not the only risks facing the Company. Additional
risks and
uncertainties not currently known to the Company or that it currently
deems to
be immaterial also may materially adversely affect the Company's
business,
financial condition or future results.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Pilgrim’s
Pride Corporation held its Annual Meeting of Shareholders on January
30,
2008. The meeting was held to elect thirteen Directors for the
ensuing year; to ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for the fiscal year
ending September 29, 2008; and to transact such other business as
was properly
brought before the meeting. There were 575,553,568 votes received,
constituting 98.94% of the 581,722,607 votes outstanding on the record
date and
entitled to vote.
With
regard to the election of Directors for the ensuing year, the following
votes
were cast:
Nominee
|
For
|
Withheld
|
||
Lonnie
“Bo” Pilgrim
|
564,771,137
|
10,782,431
|
||
J.
Clinton Rivers
|
565,511,226
|
10,042,342
|
||
Richard
A. Cogdill
|
564,957,490
|
10,596,058
|
||
Lonnie
Ken Pilgrim
|
564,773,589
|
10,779,979
|
||
James
G. Vetter, Jr.
|
565,635,383
|
9,918,185
|
||
S.
Key Coker
|
574,133,222
|
1,420,346
|
||
Vance
C. Miller, Sr.
|
574,103,914
|
1,449,654
|
||
Donald
L. Wass, Ph.D.
|
574,103,925
|
1,449,643
|
||
Charles
L. Black
|
574,113,069
|
1,440,499
|
||
Blake
D. Lovette
|
567,920,023
|
7,633,545
|
||
Linda
Chavez
|
574,128,955
|
1,424,613
|
||
Keith
W. Hughes
|
574,145,297
|
1,408,271
|
All
Directors were elected by the above results.
With
regard to ratifying the appointment of Ernst & Young LLP as the Company’s
independent auditors for fiscal 2008, the following votes were
cast:
For
|
Against
|
Abstain
|
Broker
Non Votes
|
|||
575,433,753
|
93,669
|
26,146
|
0
|
ITEM
6. EXHIBITS
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated
by reference
from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the
fiscal year ended October 2, 2004 filed on November 24,
2004).
|
|
3.2
|
Amended
and Restated Corporate Bylaws of the Company (incorporated
by reference
from Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on
December 4, 2007).
|
|
4.1
|
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).
|
|
4.2
|
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).
|
|
4.3
|
Form
of 7 5/8% Senior Note due 2015 (included in Exhibit 4.2
to the Company’s
Current Report on Form 8-K filed on January 24, 2007
and incorporated by
reference from Exhibit 4.3 to the Company’s Current Report on Form 8-K
filed on January 24, 2007).
|
|
4.4
|
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).
|
|
4.5
|
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).
|
|
4.6
|
Form
of 8 3/8% Subordinated Note due 2017 (included in Exhibit
4.5 to the
Company’s Current Report on Form 8-K filed on January 24, 2007
and
incorporated by reference from Exhibit 4.6 to the Company’s Current Report
on Form 8-K filed on January 24, 2007).
|
|
12
|
Computation
of Ratio of Earnings to Fixed Charges.*
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002.*
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley
Act of 2002.*
|
|
32.1
|
Certification
of Principal Executive Officer of Pilgrim's Pride Corporation
pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
32.2
|
Certification
of Chief Financial Officer of Pilgrim's Pride Corporation
pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
*
Filed herewith
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has
duly caused this report to be signed on its behalf by the undersigned
thereunto
duly authorized.
PILGRIM’S
PRIDE CORPORATION
|
||
/s/
Richard A. Cogdill
|
||
Date:
|
February
4, 2008
|
Richard
A. Cogdill
|
Chief
Financial and Accounting Officer
|
||
3.1
|
Certificate
of Incorporation of the Company, as amended (incorporated
by reference
from Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the
fiscal year ended October 2, 2004 filed on November 24,
2004).
|
|
3.2
|
Amended
and Restated Corporate Bylaws of the Company (incorporated
by reference
from Exhibit 3.1 of the Company’s Current Report on Form 8-K filed on
December 4, 2007).
|
|
4.1
|
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).
|
|
4.2
|
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).
|
|
4.3
|
Form
of 7 5/8% Senior Note due 2015 (included in Exhibit 4.2
to the Company’s
Current Report on Form 8-K filed on January 24, 2007 and
incorporated by
reference from Exhibit 4.3 to the Company’s Current Report on Form 8-K
filed on January 24, 2007).
|
|
4.4
|
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).
|
|
4.5
|
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).
|
|
4.6
|
Form
of 8 3/8% Subordinated Note due 2017 (included in Exhibit
4.5 to the
Company’s Current Report on Form 8-K filed on January 24, 2007
and
incorporated by reference from Exhibit 4.6 to the Company’s Current Report
on Form 8-K filed on January 24, 2007).
|
|
Computation
of Ratio of Earnings to Fixed Charges.*
|
||
Certification
of 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 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
|
36