form10_q.htm
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the quarterly period ended March 28,
2009
OR
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
For the transition period
from to
|
Commission File number 1-9273
PILGRIM’S PRIDE
CORPORATION
(Exact name of registrant as specified
in its charter)
Delaware
|
|
75-1285071
|
(State or other jurisdiction
of
|
|
(I.R.S.
Employer
|
incorporation or
organization)
|
|
Identification
No.)
|
|
|
|
4845 US Hwy 271 N, Pittsburg, TX
|
|
75686-0093
|
(Address of principal executive
offices)
|
|
(Zip
code)
|
|
|
|
|
Registrant’s telephone number,
including area code: (903)
434-1000
|
(Former name, former address and former
fiscal year, if changed since last report.)
Pilgrim's
Pride Corporation
March
28, 2009
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that
the registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer or a smaller reporting company. See definition of “accelerated filer,”
“large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
Accelerated Filerx Accelerated
Filer o
Non-accelerated
Filero(Do not check if a smaller reporting
company) Smaller reporting company 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
Number of shares outstanding of the
issuer’s common stock, as of May 7, 2009, was 74,055,733.
Pilgrim's
Pride Corporation
March
28, 2009
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
|
|
PART I. FINANCIAL INFORMATION
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
March
28, 2009 and September 27, 2008
|
|
|
Three
months and six months ended March 28, 2009 and March 29,
2008
|
|
|
Six
months ended March 28, 2009 and March 29, 2008
|
|
|
|
|
Item
2.
|
|
|
Item
3.
|
|
|
Item
4.
|
|
|
|
|
PART II. OTHER INFORMATION
|
|
Item
1.
|
|
|
Item
1A.
|
|
|
Item
5.
|
|
|
Item
6.
|
|
|
|
|
Pilgrim's
Pride Corporation
March
28, 2009
PART
I. FINANCIAL INFORMATION
|
|
ITEM
1. FINANCIAL STATEMENTS
|
|
PILGRIM’S
PRIDE CORPORATION
|
|
DEBTOR
AND DEBTOR-IN-POSSESSION
|
|
|
|
(Unaudited)
|
|
|
|
March
28,
2009
|
|
|
September
27,
2008
|
|
Assets:
|
|
(In
thousands)
|
|
Cash
and cash equivalents
|
|
$ |
44,956 |
|
|
$ |
61,553 |
|
Restricted
cash and cash equivalents
|
|
|
6,664 |
|
|
|
— |
|
Investment
in available-for-sale securities
|
|
|
8,126 |
|
|
|
10,439 |
|
Trade
accounts and other receivables, less allowance for doubtful
accounts
|
|
|
311,471 |
|
|
|
144,156 |
|
Inventories
|
|
|
825,520 |
|
|
|
1,036,163 |
|
Income
taxes receivable
|
|
|
22,753 |
|
|
|
21,656 |
|
Current
deferred income taxes
|
|
|
67,767 |
|
|
|
54,312 |
|
Prepaid
expenses and other current assets
|
|
|
49,595 |
|
|
|
105,071 |
|
Assets
held for sale
|
|
|
52,057 |
|
|
|
17,370 |
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,388,909 |
|
|
|
1,450,720 |
|
|
|
|
|
|
|
|
|
|
Investment
in available-for-sale securities
|
|
|
55,500 |
|
|
|
55,854 |
|
Other
assets
|
|
|
85,233 |
|
|
|
51,768 |
|
Identified
intangible assets, net
|
|
|
62,271 |
|
|
|
67,363 |
|
Property,
plant and equipment, net
|
|
|
1,573,496 |
|
|
|
1,673,004 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,165,409 |
|
|
$ |
3,298,709 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and stockholders’ equity:
|
|
|
|
|
|
|
|
|
Liabilities
not subject to compromise:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
264,456 |
|
|
|
378,887 |
|
Accrued
expenses
|
|
|
319,595 |
|
|
|
448,823 |
|
Short-term
notes payable
|
|
|
89,792 |
|
|
|
— |
|
Current
maturities of long-term debt
|
|
|
— |
|
|
|
1,874,469 |
|
Other
current liabilities
|
|
|
1,600 |
|
|
|
10,783 |
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
675,443 |
|
|
|
2,712,962 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current maturities
|
|
|
38,950 |
|
|
|
67,514 |
|
Deferred
income taxes
|
|
|
88,558 |
|
|
|
80,755 |
|
Other
long-term liabilities
|
|
|
88,540 |
|
|
|
85,737 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities not subject to compromise
|
|
|
891,491 |
|
|
|
2,946,968 |
|
|
|
|
|
|
|
|
|
|
Liabilities
subject to compromise
|
|
|
2,208,893 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
740 |
|
|
|
740 |
|
Additional
paid-in capital
|
|
|
646,824 |
|
|
|
646,922 |
|
Accumulated
deficit
|
|
|
(604,156 |
) |
|
|
(317,082 |
) |
Accumulated
other comprehensive income
|
|
|
21,617 |
|
|
|
21,161 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
65,025 |
|
|
|
351,741 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,165,409 |
|
|
$ |
3,298,709 |
|
|
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
|
|
Pilgrim's
Pride Corporation
March
28, 2009
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
DEBTOR
AND DEBTOR-IN-POSSESSION
(Unaudited)
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
|
(In
thousands, except share and per share data)
|
|
Net
sales
|
|
$ |
1,698,102 |
|
|
$ |
2,100,794 |
|
|
$ |
3,575,093 |
|
|
$ |
4,148,147 |
|
Cost
of sales
|
|
|
1,600,378 |
|
|
|
2,124,173 |
|
|
|
3,560,247 |
|
|
|
4,066,423 |
|
Asset
impairment
|
|
|
— |
|
|
|
12,022 |
|
|
|
— |
|
|
|
12,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
97,724 |
|
|
|
(35,401 |
) |
|
|
14,846 |
|
|
|
69,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
77,879 |
|
|
|
102,559 |
|
|
|
170,793 |
|
|
|
206,992 |
|
Restructuring
items, net
|
|
|
(435 |
) |
|
|
5,669 |
|
|
|
1,987 |
|
|
|
5,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
1,677,822 |
|
|
|
2,244,423 |
|
|
|
3,733,027 |
|
|
|
4,291,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
20,280 |
|
|
|
(143,629 |
) |
|
|
(157,934 |
) |
|
|
(142,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
46,444 |
|
|
|
33,772 |
|
|
|
86,012 |
|
|
|
63,712 |
|
Interest
income
|
|
|
(2,824 |
) |
|
|
(446 |
) |
|
|
(3,355 |
) |
|
|
(954 |
) |
Miscellaneous,
net
|
|
|
(2,252 |
) |
|
|
(1,161 |
) |
|
|
(3,676 |
) |
|
|
(4,024 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense, net
|
|
|
41,368 |
|
|
|
32,165 |
|
|
|
78,981 |
|
|
|
58,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before reorganization items and income
taxes
|
|
|
(21,088 |
) |
|
|
(175,794 |
) |
|
|
(236,915 |
) |
|
|
(201,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
items
|
|
|
35,355 |
|
|
|
— |
|
|
|
48,605 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(56,443 |
) |
|
|
(175,794 |
) |
|
|
(285,520 |
) |
|
|
(201,693 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
2,347 |
|
|
|
(64,293 |
) |
|
|
2,625 |
|
|
|
(57,026 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(58,790 |
) |
|
|
(111,501 |
) |
|
|
(288,145 |
) |
|
|
(144,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operation of discontinued business, net of tax
|
|
|
25 |
|
|
|
(850 |
) |
|
|
599 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued business,
net
of tax
|
|
|
— |
|
|
|
903 |
|
|
|
— |
|
|
|
903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(58,765 |
) |
|
$ |
(111,448 |
) |
|
$ |
(287,546 |
) |
|
$ |
(143,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share—basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$ |
(0.79 |
) |
|
$ |
(1.67 |
) |
|
$ |
(3.89 |
) |
|
$ |
(2.17 |
) |
Discontinued
business
|
|
|
— |
|
|
|
— |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(0.79 |
) |
|
$ |
(1.67 |
) |
|
$ |
(3.88 |
) |
|
$ |
(2.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per common share
|
|
$ |
— |
|
|
$ |
0.0225 |
|
|
$ |
— |
|
|
$ |
0.0450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
74,055,733 |
|
|
|
66,555,733 |
|
|
|
74,055,733 |
|
|
|
66,555,733 |
|
|
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
|
|
Pilgrim's
Pride Corporation
March
28, 2009
PILGRIM’S
PRIDE CORPORATION AND SUBSIDIARIES
DEBTOR
AND DEBTOR-IN-POSSESSION
(Unaudited)
|
|
|
|
Six
Months Ended
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
|
(In
thousands)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(287,546 |
) |
|
$ |
(143,777 |
) |
Adjustments
to reconcile net loss to cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
120,671 |
|
|
|
116,296 |
|
Asset
impairment
|
|
|
— |
|
|
|
12,022 |
|
Gain
on property disposals
|
|
|
(6,414 |
) |
|
|
(1,570 |
) |
Deferred
income tax expense (benefit)
|
|
|
— |
|
|
|
(56,082 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
and other receivables
|
|
|
(161,703 |
) |
|
|
36,879 |
|
Inventories
|
|
|
238,313 |
|
|
|
(154,874 |
) |
Prepaid
expenses and other current assets
|
|
|
22,373 |
|
|
|
(33,699 |
) |
Accounts
payable and accrued expenses
|
|
|
(67,612 |
) |
|
|
(18,224 |
) |
Income
taxes receivable, net
|
|
|
(1,924 |
) |
|
|
(14,723 |
) |
Other
|
|
|
(19,158 |
) |
|
|
11,977 |
|
|
|
|
|
|
|
|
|
|
Cash
used in operating activities
|
|
|
(163,000 |
) |
|
|
(245,775 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows for investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
of property, plant and equipment
|
|
|
(48,359 |
) |
|
|
(70,216 |
) |
Purchases
of investment securities
|
|
|
(12,116 |
) |
|
|
(18,466 |
) |
Proceeds
from sale or maturity of investment securities
|
|
|
8,797 |
|
|
|
13,969 |
|
Change
in restricted cash and cash equivalents
|
|
|
(6,664 |
) |
|
|
— |
|
Proceeds
from property disposals
|
|
|
8,396 |
|
|
|
18,717 |
|
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
|
(49,946 |
) |
|
|
(55,996 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from short-term notes payable
|
|
|
376,117 |
|
|
|
— |
|
Payments
on short-term notes payable
|
|
|
(286,325 |
) |
|
|
— |
|
Proceeds
from long-term debt
|
|
|
830,736 |
|
|
|
810,516 |
|
Payments
on long-term debt
|
|
|
(719,599 |
) |
|
|
(498,932 |
) |
Change
in outstanding cash management obligations
|
|
|
(3,562 |
) |
|
|
24,168 |
|
Cash
dividends paid
|
|
|
— |
|
|
|
(2,995 |
) |
Other
|
|
|
(123 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
Cash
provided by financing activities
|
|
|
197,244 |
|
|
|
332,757 |
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(895 |
) |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
(16,597 |
) |
|
|
31,027 |
|
Cash
and cash equivalents, beginning of period
|
|
|
61,553 |
|
|
|
66,168 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
44,956 |
|
|
$ |
97,195 |
|
|
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
|
|
Pilgrim's
Pride Corporation
March
28, 2009
NOTE A—CHAPTER 11
PROCEEDINGS
Chapter
11 Bankruptcy Filings
On
December 1, 2008 (the "Petition Date"), Pilgrim’s Pride Corporation and certain
of its subsidiaries (collectively, the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Texas, Fort Worth Division (the "Bankruptcy Court"). The cases are
being jointly administered under Case No. 08-45664. The Company’s operations in
Mexico and certain operations in the United States (“US”) were not included in
the filing (the “Non-filing Subsidiaries”) and will continue to operate outside
the Chapter 11 process.
Subject
to certain exceptions under the Bankruptcy Code, the Debtors’ Chapter 11 filing
automatically enjoined, or stayed, the continuation of any judicial or
administrative proceedings or other actions against the Debtors or their
property to recover on, collect or secure a claim arising prior to the Petition
Date. Thus, for example, most creditor actions to obtain possession of property
from the Debtors, or to create, perfect or enforce any lien against the property
of the Debtors, or to collect on monies owed or otherwise exercise rights or
remedies with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay.
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes reclassifications of
$1,872.1 million to reflect as current certain long-term debt under the
Company’s credit facilities that, absent the stay, would have become
automatically and immediately due and payable. Because of the bankruptcy
petition, most of the Company’s pre-petition long-term debt is included in
liabilities subject to compromise at March 28, 2009. The Company classifies
pre-petition liabilities subject to compromise as a long-term liability because
management does not believe the Company will use existing current assets or
create additional current liabilities to fund these obligations.
Chapter
11 Process
The
Debtors are currently operating as "debtors-in-possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors-in-possession, we are authorized under Chapter 11 to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the prior approval of the
Bankruptcy Court.
Pilgrim's
Pride Corporation
March
28, 2009
On
December 2, 2008, the Bankruptcy
Court granted interim approval authorizing the Company and certain of its
subsidiaries consisting of PPC Transportation Company, PFS Distribution
Company, PPC Marketing, Ltd., and Pilgrim's Pride Corporation of West Virginia,
Inc. (collectively, the "US Subsidiaries"), and To-Ricos, Ltd. and To-Ricos
Distribution, Ltd. (collectively with the US Subsidiaries, the "Subsidiaries")
to enter into that certain Post-Petition Credit Agreement (the "Initial DIP
Credit Agreement") among the Company, as borrower, the US Subsidiaries, as
guarantors, Bank of Montreal, as agent (the "DIP Agent"), and the lenders party
thereto. On December 2, 2008, the Company, the US Subsidiaries and the other
parties entered into the Initial DIP Credit Agreement, subject to final approval
of the Bankruptcy Court. On December 30, 2008, the Bankruptcy Court granted
final approval authorizing the Company and the Subsidiaries to enter into an
Amended and Restated Post-Petition Credit Agreement dated December 31, 2008 (the "DIP Credit Agreement") among the
Company, as borrower, the Subsidiaries, as guarantors, the DIP Agent, and the
lenders party thereto.
The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The commitment includes a $25 million sub-limit for swingline
loans and a $20 million sub-limit for standby letters of credit.
Outstanding borrowings under the DIP Credit Agreement will bear interest
at a per annum rate equal to 8.0% plus the greatest of (i) the prime rate as
established by the DIP Agent from time to time, (ii) the average federal
funds rate plus 0.5%, or (iii) the LIBOR rate plus 1.0%, payable
monthly. The weighted
average interest rate for the three and six months ended March 28, 2009 was
11.25% and 11.47%, respectively. The loans under the Initial DIP Credit
Agreement were used to repurchase all receivables sold under the Company's
Amended and Restated Receivables Purchase Agreement dated September 26,
2008, as amended (the
“RPA”). Loans under the DIP
Credit Agreement may be used to fund the working capital requirements of the Company and
its subsidiaries according
to a budget as approved by the required lenders under the DIP Credit Agreement.
For additional information on the RPA, see Note G—Trade Accounts and Other
Receivables.
Pilgrim's
Pride Corporation
March
28, 2009
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible inventory and eligible receivables. The borrowing base
formula is reduced by (i) pre-petition obligations under the Fourth Amended and
Restated Secured Credit Agreement dated as of February 8, 2007, among the
Company and certain of its subsidiaries, Bank of Montreal, as administrative
agent, and the lenders parties thereto, as amended, (ii) administrative and
professional expenses incurred in connection with the bankruptcy proceedings,
and (iii) the amount owed by the Company and the Subsidiaries to any person on
account of the purchase price of agricultural products or services (including
poultry and livestock) if that person is entitled to any grower's or producer's
lien or other security arrangement. The borrowing base is also limited to 2.22
times the formula amount of total eligible receivables. The DIP Credit Agreement
provides that the Company may not incur capital expenditures in excess of $150
million. The Company must also meet minimum monthly levels of EBITDAR. Under the
DIP Credit Agreement, "EBITDAR" means, generally, net income before interest,
taxes, depreciation, amortization, writedowns of goodwill and other intangibles,
asset impairment charges and other specified costs, charges, losses and gains. The DIP
Credit Agreement also provides for certain other covenants, various
representations and warranties, and events of default that are customary for
transactions of this nature. As of March 28, 2009, the applicable borrowing base was
$335.8 million and the amount available for
borrowings under the DIP Credit Agreement was $246.0 million. As of May 6, 2009, the applicable borrowing base
was $365.7
million, the amount available for borrowings
under the DIP Credit Agreement was $322.7 million and outstanding
borrowings under the DIP Credit Agreement totaled
$43.0 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders
thereunder. All obligations under the DIP Credit Agreement are unconditionally
guaranteed by the Subsidiaries and are secured by a first priority priming lien
on substantially all of the assets of the Company and the Subsidiaries, subject
to specified permitted liens in the DIP Credit
Agreement.
The DIP Credit Agreement allows the Company to provide advances to the Non-filing Subsidiaries of up to
approximately $25 million at any time outstanding. Management believes that all of the Non-filing
Subsidiaries, including
the Company’s Mexican subsidiaries, will be able to operate within this
limitation.
For additional information on the DIP
Credit Agreement, see Note
L—Short-Term Notes Payable and Long-Term Debt.
Pilgrim's
Pride Corporation
March
28, 2009
The Bankruptcy Court has approved
payment of certain of the Debtors’ pre-petition obligations, including, among
other things, employee wages, salaries and benefits, and the Bankruptcy Court
has approved the Company's payment of vendors and other providers in the
ordinary course for goods and services ordered pre-petition but received from and after the Petition
Date and other business-related payments necessary to maintain the operation of
our businesses. The Debtors have retained, subject to Bankruptcy Court approval, legal and
financial professionals to advise the Debtors on the bankruptcy proceedings and
certain other "ordinary course" professionals. From time to time, the Debtors
may seek Bankruptcy Court approval for the retention of additional
professionals.
Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.
As
required by the Bankruptcy Code, the United States Trustee for the Northern
District of Texas (the "US Trustee") appointed an official committee of
unsecured creditors (the "Creditors’ Committee"). The Creditors’ Committee and
its legal representatives have a right to be heard on all matters that come
before the Bankruptcy Court with respect to the Debtors. In addition, on
April 30, 2009, the Bankruptcy Court ordered the US Trustee to appoint an
official committee of equity holders (the "Equity Committee") to represent the
interests of Pilgrim's Pride's equity holders in the Debtors' bankruptcy cases.
There can be no assurance that the Creditors’ Committee or the Equity Committee
will support the Debtors’ positions on matters to be presented to the Bankruptcy
Court in the future or on any plan of reorganization, once proposed.
Disagreements between the Debtors and the Creditors’ Committee or the Equity
Committee could protract the Chapter 11 proceedings, negatively impact the
Debtors’ ability to operate and delay the Debtors’ emergence from the Chapter 11
proceedings.
Under
Section 365 and other relevant sections of the Bankruptcy Code, we may assume,
assume and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property and equipment, subject to
the approval of the Bankruptcy Court and certain other conditions. Any
description of an executory contract or unexpired lease in this report,
including where applicable our express termination rights or a quantification of
our obligations, must be read in conjunction with, and is qualified by, any
overriding rejection rights we have under Section 365 of the Bankruptcy
Code.
Pilgrim's
Pride Corporation
March
28, 2009
In order
to successfully exit Chapter 11, the Debtors will need to propose and obtain
confirmation by the Bankruptcy Court of a plan of reorganization that satisfies
the requirements of the Bankruptcy Code. A plan of reorganization would, among
other things, resolve the Debtors’ pre-petition obligations, set forth the
revised capital structure of the newly reorganized entity and provide for
corporate governance subsequent to exit from bankruptcy.
On March
26, 2009, the Bankruptcy Court issued an order extending the period during which
the Debtors have the exclusive right to file a plan of reorganization. Pursuant
to this order, the Debtors have the exclusive right, through September 30, 2009,
to file a plan for reorganization, and if we file a plan by that date, we will
have until November 30, 2009 to obtain the necessary acceptances of our plan. We
may file one or more motions to request further extensions of these time
periods. If the Debtors’ exclusivity period lapses, any party in interest would
be able to file a plan of reorganization for any of the Debtors. In addition to
being voted on by holders of impaired claims and equity interests, a plan of
reorganization must satisfy certain requirements of the Bankruptcy Code and must
be approved, or confirmed, by the Bankruptcy Court in order to become
effective.
The
timing of filing a plan of reorganization by us will depend on the timing and
outcome of numerous other ongoing matters in the Chapter 11 proceedings. There
can be no assurance at this time that a plan of reorganization will be confirmed
by the Bankruptcy Court or that any such plan will be implemented
successfully.
We have
incurred and will continue to incur significant costs associated with our
reorganization. The amount of these costs, which are being expensed as incurred
commencing in November 2008, are expected to significantly affect our results of
operations.
Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must generally
be satisfied in full before stockholders are entitled to receive any
distribution or retain any property under a plan of reorganization. The ultimate
recovery to creditors and/or stockholders, if any, will not be determined until
confirmation of a plan or plans of reorganization. No assurance can be given as
to what values, if any, will be ascribed in the Chapter 11 cases to each of
these constituencies or what types or amounts of distributions, if any, they
would receive. A plan of reorganization could result in holders of our
liabilities and/or securities, including our common stock, receiving no
distribution on account of their interests and cancellation of their holdings.
Because of such possibilities, the value of our liabilities and securities,
including our common stock, is highly speculative. Appropriate caution should be
exercised with respect to existing and future investments in any of the
liabilities and/or securities of the Debtors. At this time there is no assurance
we will be able to restructure as a going concern or successfully propose or
implement a plan of reorganization.
Pilgrim's
Pride Corporation
March
28, 2009
On
February 11, 2009, the Bankruptcy Court issued an order granting the Company's
motion to impose certain restrictions on trading in shares of the Company's
common stock in order to preserve valuable tax attributes. This order
established notification procedures and certain restrictions on transfers of
common stock or options to purchase the common stock of the Company. The trading
restrictions apply retroactively to January 17, 2009, the date the motion was
filed, to investors beneficially owning at least 4.75% of the outstanding shares
of common stock of Pilgrim's Pride Corporation. For these purposes, beneficial
ownership of stock is determined in accordance with special US tax rules that,
among other things, apply constructive ownership concepts and treat holders
acting together as a single holder. In addition, in the future, the Company may
request that the Bankruptcy Court impose certain trading restrictions on certain
debt of, and claims against, the Company.
Going
Concern Matters
The
accompanying Consolidated Financial Statements have been prepared assuming that
the Company will continue as a going concern. However, there is substantial
doubt about the Company’s ability to continue as a going concern based on the
factors previously discussed. The Consolidated Financial Statements do not
include any adjustments related to the recoverability and classification of
recorded assets or the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern. The Company’s ability to continue as a going concern is
dependent upon, among other things, the ability of the Company to return to
historic levels of profitability and, in the near term, restructure its
obligations in a manner that allows it to obtain confirmation of a plan of
reorganization by the Bankruptcy Court.
Management
is addressing the Company’s ability to return to profitability by conducting
profitability reviews at certain facilities in an effort to reduce
inefficiencies and manufacturing costs. In April 2009, the Company reduced
headcount by approximately 115 non-production employees and announced the
upcoming closure of a processing complex in Dalton, Georgia that will reduce
headcount by approximately 280 production employees. During the second quarter
of 2009, the Company (1) announced the upcoming closures of processing complexes
in Douglas, Georgia; El Dorado, Arkansas; Farmerville, Louisiana and Franconia,
Pennsylvania, (2) closed a distribution center in Houston, Texas and (3)
reduced or consolidated production at various facilities throughout the US.
These actions will ultimately result in a headcount reduction of approximately
3,560 production employees. During the first quarter of 2009, the Company
reduced headcount by approximately 265 non-production employees and announced an
upcoming reduction in production at its processing complex in Live Oak, Florida
that will result in a headcount reduction of approximately 220 production
employees. During 2008, the Company closed processing complexes in Bossier City,
Louisiana and Clinton, Arkansas and reduced production at its operating complex
in El Dorado, Arkansas. These actions resulted in a headcount reduction of
approximately 2,300 production employees.
Pilgrim's
Pride Corporation
March
28, 2009
On
November 7, 2008, the Board of
Directors appointed a Chief Restructuring Officer
(“CRO”) for the Company. The appointment of a CRO was a
requirement included in the waivers received from the Company’s lenders on
October 27, 2008. The CRO assists the Company with cost
reduction initiatives, restructuring plans development and long-term liquidity
improvement. The CRO reports to the Board of Directors of the
Company.
In order
to emerge from bankruptcy, the Company will need to obtain alternative financing
to replace the DIP Credit Agreement and to satisfy the secured claims of its
pre-bankruptcy creditors.
Condensed
Combined Financial Information of Debtors
The
following unaudited condensed combined financial information is presented for
the Debtors as of March 28, 2009 or for the six months then ended (in
thousands):
Balance
Sheet Information:
|
|
|
|
Current
assets
|
|
$ |
1,447,889 |
|
Identified
intangible assets
|
|
|
62,271 |
|
Investment
in subsidiaries
|
|
|
170,856 |
|
Property,
plant and equipment, net
|
|
|
1,444,672 |
|
Other
assets
|
|
|
89,165 |
|
|
|
|
|
|
Total
assets
|
|
$ |
3,214,863 |
|
|
|
|
|
|
Current
liabilities
|
|
$ |
564,211 |
|
Long-term
liabilities
|
|
|
340,250 |
|
|
|
|
|
|
Liabilities
not subject to compromise
|
|
|
904,461 |
|
Liabilities
subject to compromise
|
|
|
2,208,893 |
|
|
|
|
|
|
Total
liabilities
|
|
|
3,113,354 |
|
Stockholders’
equity
|
|
|
101,509 |
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
3,214,863 |
|
|
|
|
|
|
Statement
of Operations Information:
|
|
|
|
|
Net
sales
|
|
$ |
3,249,502 |
|
Gross
loss
|
|
|
(6,998 |
) |
Operating
loss
|
|
|
(165,356 |
) |
Reorganization
items
|
|
|
48,605 |
|
Income
from equity affiliates
|
|
|
713 |
|
Net
loss
|
|
|
(287,546 |
) |
|
|
|
|
|
Statement
of Cash Flows Information:
|
|
|
|
|
Cash
used in operating activities
|
|
$ |
(97,613 |
) |
Cash
used in investing activities
|
|
|
(43,518 |
) |
Cash
provided by financing activities
|
|
|
122,857 |
|
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
B—BASIS OF PRESENTATION
Consolidated
Financial Statements
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 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 accounting principles generally accepted in the US 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 and six months ended March 28, 2009 are not necessarily
indicative of the results that may be expected for the year ending September 26,
2009. For further information, refer to the consolidated financial statements
and footnotes thereto included in Pilgrim’s Annual Report on Form 10-K for the
year ended September 27, 2008.
The
Company operates on the basis of a 52/53-week fiscal year that ends on the
Saturday closest to September 30. The reader should assume any reference we make
to a particular year (for example, 2009) in this report applies to our fiscal
year and not the calendar year.
As a
result of sustained losses and our Chapter 11 proceedings, the realization of
assets and satisfaction of liabilities, without substantial adjustments and/or
changes in ownership, are subject to uncertainty. Given this uncertainty, there
is substantial doubt about our ability to continue as a going
concern.
The accompanying Consolidated Financial
Statements do not purport to reflect or provide for the consequences of our
Chapter 11 proceedings. In particular, the financial statements do not
purport to show (i) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities;
(ii) as to pre-petition liabilities,
the amounts that may be allowed for claims or contingencies, or the status and
priority thereof; (iii) as to shareowners’ equity
accounts, the effect of any changes that may be made in our capitalization; or
(iv) as to operations, the effect of
any changes that may be made to our business.
Pilgrim's
Pride Corporation
March
28, 2009
In accordance with accounting principles generally accepted
in the United
States (“GAAP”), we have applied American Institute of
Certified Public Accountants’ Statement of Position (“SOP”) 90-7, Financial Reporting
by Entities in Reorganization under the Bankruptcy Code, in preparing the Consolidated
Financial Statements. SOP 90-7 requires that the financial statements, for
periods subsequent to the Chapter 11 filing, distinguish transactions and
events that are directly associated with the reorganization from the ongoing
operations of the business. Accordingly, certain expenses (including
professional fees), realized gains and losses and provisions for losses that are
realized or incurred in the bankruptcy proceedings are recorded in
reorganization items on the accompanying Consolidated Statements of Operations.
In addition, pre-petition obligations that may be impacted by the bankruptcy
reorganization process have been classified on the Consolidated Balance Sheet at
March 28, 2009 in Liabilities
subject to
compromise. These liabilities are reported at the
amounts expected to be allowed by the Bankruptcy Court, even if they may be
settled for lesser amounts. For information on the bankruptcy reorganization
process, see Note A—Chapter 11
Proceedings.
While operating as debtors-in-possession
under Chapter 11 of the Bankruptcy Code, the Debtors may sell or otherwise
dispose of or liquidate assets or settle liabilities, subject to the approval of
the Bankruptcy Court or otherwise as permitted in the ordinary course of
business, in amounts other than those reflected in the Consolidated Financial
Statements. Moreover, a plan of reorganization could materially change the
amounts and classifications in the historical Consolidated Financial
Statements.
The
consolidated financial statements include the accounts of Pilgrim’s Pride
Corporation and its majority owned subsidiaries. We eliminate all significant affiliate
accounts and transactions upon consolidation.
The
Company re-measures the financial statements of its Mexican subsidiaries as if
the US dollar were the functional currency. Accordingly, we translate assets and
liabilities, other than non-monetary assets, of the Mexican subsidiaries at
current exchange rates. We translate non-monetary assets using the historical
exchange rate in effect on the date of each asset’s acquisition. We translate
income and expenses at average exchange rates in effect during the period.
Currency exchange gains or losses are included in the line item Other Expenses (Income) in
the Consolidated Statements of Operations.
Pilgrim's
Pride Corporation
March
28, 2009
Quality
of Investments
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
significant amounts of structured investment vehicles, auction rate securities,
collateralized debt obligations, credit derivatives, hedge funds investments,
fund of funds investments or perpetual preferred securities. Certain
postretirement funds in which the Company participates hold significant amounts
of mortgage-backed securities. However, none of the mortgages collateralizing
these securities are considered subprime.
Recently
Adopted Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS No. 157 applies under
other accounting pronouncements that require or permit fair value measurements
and was effective for fiscal years beginning after November 15, 2007. In
February 2008, the FASB issued FASB Staff Position (“FSP”) FAS157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13, which excluded SFAS No. 13, Accounting for Leases, and
other accounting pronouncements that address fair value measurements for
purposes of lease classification or measurement under SFAS No. 13. In February
2008, the FASB also issued FSP FAS157-2, Effective Date of FASB Statement No.
157, which delayed the effective date of SFAS No. 157 for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, to fiscal years beginning after November 15, 2008.
On
September 28, 2008, the Company adopted the portion of SFAS No. 157 that
was not delayed, and since the Company’s existing fair value measurements are
consistent with the guidance of SFAS No. 157, the partial adoption of SFAS No.
157 did not have a material impact on the Company’s consolidated financial
statements. The adoption of the deferred portion of SFAS No. 157 on September
27, 2009 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
October 2008, the FASB issued FSP FAS157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active, which
clarified the application of SFAS No. 157 when the market for a
financial asset was not active. FSP FAS157-3 was effective upon issuance,
including reporting for prior periods for which financial statements had not
been issued. The adoption of FSP FAS157-3 for the Company’s interim reporting
period ending on December 27, 2008 did not have a material impact on the
Company’s consolidated financial statements.
Pilgrim's
Pride Corporation
March
28, 2009
See Note
F—Fair Value Measurements for expanded disclosures about fair value
measurements.
Accounting
Pronouncements Issued But Not Yet Adopted
In
December 2007, the FASB issued 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 (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) 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 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. Thus, we cannot accurately
predict the effect SFAS No. 141(R) will have on future acquisitions at this
time.
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 (i) identifies, labels and presents in its consolidated
statement of financial position the ownership interests in subsidiaries held by
parties other than itself, (ii) 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, (iii) accounts
for changes in its ownership interest while it retains a controlling financial
interest in a subsidiary, (iv) initially measures any retained noncontrolling
equity investment in a subsidiary that is deconsolidated, and (v) 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 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 position,
financial performance or cash flows.
Pilgrim's
Pride Corporation
March
28, 2009
In
April 2008, the FASB issued FSP FAS142-3, Determination of the Useful Life of
Intangible Assets. FSP FAS142-3 amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the
useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible
Assets. FSP FAS142-3 must be applied prospectively to intangible assets
acquired after the effective date. The Company will apply the guidance of this
FSP to intangible assets acquired after September 26, 2009.
In
December 2008, the FASB issued FSP FAS132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets. FSP FAS132(R)-1 amends SFAS No.
132(R), Employers’ Disclosures
about Pensions and Other Postretirement Benefits, to provide guidance on
an employer’s disclosures about plan assets of a defined benefit pension or
other postretirement plan, including disclosures about investment policies and
strategies, categories of plan assets, fair value measurements of plan assets
and significant concentrations of risk. The Company will apply the guidance of
this FSP to its postretirement benefit plan assets effective September 27,
2009.
In April
2009, the FASB issued three separate Staff Positions in response to the current
economic downturn in the United States. FSP FAS157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, provides
additional guidance for estimating fair value in accordance with SFAS No. 157,
Fair Value
Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. FSP
FAS115-2 and FAS124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, amends the other-than-temporary
impairment guidance in US GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. FSP FAS107-1 and APB28-1, Interim Disclosures about Fair Value
of Financial Instruments, amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. The Company will apply the guidance of
these Staff Positions in its interim financial reporting period ending on June
27, 2009. The Company does not expect the adoption of these Staff Positions will
have a material impact on its financial position, financial performance or cash
flows.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
C—REORGANIZATION ITEMS
SOP 90-7
requires separate disclosure of reorganization items such as realized gains and
losses from the settlement of pre-petition liabilities, provisions for losses
resulting from the reorganization and restructuring of the business, as well as
professional fees directly related to the process of reorganizing the Debtors
under Chapter 11. The Debtors’ reorganization items for the three and six months
ended March 28, 2009 consist of the following:
|
|
Three
Months Ended
March
28, 2009
|
|
|
Six
Months Ended
March
28, 2009
|
|
|
|
(In
thousands)
|
|
Professional
fees directly related to reorganization (a)
|
|
$ |
14,716 |
|
|
$ |
20,120 |
|
DIP
Credit Agreement related expenses
|
|
|
4,500 |
|
|
|
11,375 |
|
Other
(b)
|
|
|
16,139 |
|
|
|
17,110 |
|
|
|
|
|
|
|
|
|
|
Total
reorganization items
|
|
$ |
35,355 |
|
|
$ |
48,605 |
|
|
|
|
|
|
|
|
|
|
(a)
|
Professional
fees directly related to the reorganization include post-petition fees
associated with advisors to the Debtors, the statutory committee of
unsecured creditors and certain secured creditors. Professional fees are
estimated by the Debtors and will be reconciled to actual invoices when
received.
|
|
|
(b)
|
Other
expenses includes (1) severance, live flock impairment and inventory
disposal costs related to the upcoming closures of facilities in Douglas,
Georgia; El Dorado, Arkansas; Farmerville, Louisiana and Franconia,
Pennsylvania, (2) severance costs related to the closed distribution
center in Houston, Texas, the Operations management reduction-in-force
action in February 2009 and reduced or consolidated production at various
facilities throughout the US and (3) fees associated with the termination
of the RPA on December 3,
2008.
|
Net cash
paid for reorganization items for the three and six months ended March 28, 2009
totaled $11.7 million and $19.3 million, respectively. For the three months
ended March 28, 2009, this represented payment of professional fees directly
related to reorganization totaling $6.7 million, DIP Credit Agreement related
expenses totaling $4.5 million and severance payments totaling $0.5 million. For
the six months ended March 28, 2009, this represented payment of DIP Credit
Agreement related expenses totaling $11.4 million, professional fees directly
related to the reorganization totaling $6.7 million, fees associated with the
termination of the RPA totaling $0.7 million and severance payments of $0.5
million.
In April
2009, the Company reduced headcount by approximately 115 non-production
employees and announced the upcoming closure of a processing complex in Dalton,
Georgia that will reduce headcount by approximately 280 production
employees.
For additional information on costs related to (1) the upcoming
closures of our facilities in Douglas, Georgia; El Dorado, Arkansas;
Farmerville, Louisiana and Franconia, Pennsylvania and (2) severance costs
related to the closed distribution center in Houston, Texas, the Operations
management reduction-in-force action in February 2009 and reduced or
consolidated production at various facilities throughout the US, see Note E—Restructuring
Activities.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
D—DISCONTINUED BUSINESS
The
Company sold certain assets of its turkey business for $18.6 million and recorded a gain of
$1.5 million ($0.9 million, net of tax) during the second quarter of 2008. This business was composed
of substantially our entire former turkey segment. The results of this business
are included in the line item Income from operation of
discontinued business, net of tax in the Consolidated Statements of
Operations for all periods presented.
For a
period of time, we continued to generate operating results and cash flows
associated with our discontinued turkey business. These activities were
transitional in nature. We entered into a short-term co-pack agreement with the
acquirer of the discontinued turkey business under which they processed turkeys
for sale to our customers through the end of 2008. We had no remaining turkey
inventories as of March 28, 2009 and do not expect to recognize additional
operating results related to our discontinued turkey business. For the period of
time until we have collected funds on the sale of these turkeys and settled
liabilities, we will continue to report cash flows associated with our
discontinued turkey business, although at a substantially
reduced level.
Neither
our continued involvement in the distribution and sale of these turkeys or the
co-pack agreement conferred upon us the ability to influence the operating
and/or financial policies of the turkey business under its new
ownership.
No debt was assumed by the acquirer of
the discontinued turkey business or required to be repaid as a result of the
disposal transaction. We elected to allocate to the discontinued turkey
operation other
consolidated interest that was not
directly attributable to or related to other operations of the Company based on
the ratio of net assets to be sold or discontinued to the sum of the total net
assets of the Company plus consolidated debt. Interest allocated to the
discontinued business in the three and six months ended March 29, 2008 totaled
$0.2 million and $0.6
million, respectively. We
did not allocate interest to the discontinued business in the three and six
months ended March 28, 2009.
Pilgrim's
Pride Corporation
March
28, 2009
The
following amounts related to our turkey business were segregated from continuing
operations and included in the line item Income from operation of
discontinued business, net of tax in the Consolidated Statements of
Operations:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
|
(In
thousands)
|
|
Net
sales (sales deductions)
|
|
$ |
— |
|
|
$ |
10,154 |
|
|
$ |
25,788 |
|
|
$ |
56,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operation of discontinued business before income
taxes
|
|
$ |
40 |
|
|
$ |
(1,366 |
) |
|
$ |
962 |
|
|
$ |
(22 |
) |
Income
tax expense (benefit)
|
|
|
(15 |
) |
|
|
(516 |
) |
|
|
(363 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from operation of discontinued business, net of tax
|
|
$ |
25 |
|
|
$ |
(850 |
) |
|
$ |
599 |
|
|
$ |
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued business before income taxes
|
|
$ |
— |
|
|
$ |
1,450 |
|
|
$ |
— |
|
|
$ |
1,450 |
|
Income
tax expense
|
|
|
— |
|
|
|
547 |
|
|
|
— |
|
|
|
547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of discontinued business, net of tax
|
|
$ |
— |
|
|
$ |
903 |
|
|
$ |
— |
|
|
$ |
903 |
|
The
following assets and liabilities related to our turkey business have been
segregated and included in Prepaid expenses and other
current assets
and Other current
liabilities, as appropriate, in the consolidated balance sheets as of
March 28, 2009 and September 27, 2008.
|
|
March
28,
2009
|
|
|
September
27,
2008
|
|
|
|
(In
thousands)
|
|
Trade
accounts and other receivables, less allowance
for
doubtful accounts
|
|
$ |
204 |
|
|
$ |
5,881 |
|
Inventories
|
|
|
— |
|
|
|
27,638 |
|
|
|
|
|
|
|
|
|
|
Current
assets of discontinued business
|
|
$ |
204 |
|
|
$ |
33,519 |
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
49 |
|
|
$ |
7,737 |
|
Accrued
expenses
|
|
|
1,551 |
|
|
|
3,046 |
|
|
|
|
|
|
|
|
|
|
Current
liabilities of discontinued business
|
|
$ |
1,600 |
|
|
$ |
10,783 |
|
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
E—RESTRUCTURING ACTIVITIES
Through
the second quarter of 2009 and in 2008, the Company completed the following
restructuring activities:
Second Quarter
2009
·
|
Announced
the upcoming closures of processing complexes in Douglas, Georgia; El
Dorado, Arkansas and Franconia,
Pennsylvania,
|
·
|
Announced
the upcoming closure of a processing complex in Farmerville, Louisiana,
subject to a potential sale of the
complex,
|
·
|
Closed
a distribution center in Houston, Texas,
and
|
·
|
Reduced
or consolidated production at various facilities throughout the
US.
|
First Quarter
2009
·
|
Reduced
its workforce by approximately 265 non-production employees, including the
resignations of the former Chief Executive Officer and former Chief
Operating Officer.
|
Fourth Quarter
2008
·
|
Closed
a processing complex in Clinton,
Arkansas,
|
·
|
Idled
a processing complex in Bossier City, Louisiana,
and
|
·
|
Closed
a distribution center in El Paso,
Texas.
|
Third Quarter
2008
·
|
Transferred
certain operations previously performed at a processing complex in El
Dorado, Arkansas to other complexes,
and
|
·
|
Closed
an administrative office building in Duluth,
Georgia.
|
Second Quarter
2008
·
|
Closed
a processing complex in Siler City, North Carolina,
and
|
·
|
Closed
six distribution centers in Pompano Beach, Florida; Plant City, Florida;
Oskaloosa, Iowa; Jackson, Mississippi; Cincinnati, Ohio and Nashville,
Tennessee.
|
Pilgrim's
Pride Corporation
March
28, 2009
Significant
actions that occurred in the second quarter of 2009 were approved by the
Bankruptcy Court, when required under the Bankruptcy Code, as part of the
Company’s reorganization efforts. These actions began in January 2009 and are
expected to be completed in June 2009. Significant actions that occurred from
the second quarter of 2008 through the first quarter of 2009 were approved by
the Company’s Board of Directors as part of a plan intended to curtail losses
amid record-high costs for corn, soybean meal and other feed ingredients and an
oversupply of chicken in the US. These actions began in March 2008 and were
completed in March 2009. The affected processing complexes and distribution
centers employed approximately 6,080 individuals. Virtually all of these
production employees, along with the approximately 265 non-production employees
mentioned above, were impacted by the restructuring activities.
Results
of operations for the three and six months ended March 28, 2009 included
restructuring charges totaling $7.5 million and $11.6 million, respectively,
related to these actions. All of these restructuring charges, with the exception
of certain lease continuation costs, have resulted in cash expenditures or will
result in cash expenditures within one year. Results of operations for the three
and six months ended March 28, 2009 also included adjustments totaling $3.8
million and $5.1 million, respectively, that reduced the accrued costs. These
adjustments included the elimination of accrued severance costs in excess of
actual severance costs incurred for several of the 2008 restructuring actions
during both the first and second quarters of 2009, the assumption of the Duluth,
Georgia lease obligation by an outside party during the second quarter of 2009
and the elimination of accrued other restructuring costs in excess of actual
other restructuring costs incurred for several of the 2008 restructuring actions
during the second quarter of 2009.
The following table sets forth
restructuring activity that occurred during the six months ended March 28,
2009:
|
|
Accrued
Lease
Obligation
|
|
|
Accrued
Severance and Employee Retention
|
|
|
Accrued
Other Restructuring Costs
|
|
|
Restructuring-
Related Inventory Reserves
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
September
27, 2008
|
|
$ |
4,466 |
|
|
$ |
2,694 |
|
|
$ |
5,651 |
|
|
$ |
1,212 |
|
|
$ |
14,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals
|
|
|
372 |
|
|
|
3,647 |
|
|
|
60 |
|
|
|
— |
|
|
|
4,079 |
|
Payment
|
|
|
(330 |
) |
|
|
(4,288 |
) |
|
|
(705 |
) |
|
|
(715 |
) |
|
|
(6,038 |
) |
Adjustments
|
|
|
— |
|
|
|
(1,269 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
27, 2008
|
|
|
4,508 |
|
|
|
784 |
|
|
|
5,006 |
|
|
|
497 |
|
|
|
10,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals
|
|
|
— |
|
|
|
7,484 |
|
|
|
— |
|
|
|
4,937 |
|
|
|
12,421 |
|
Payment
|
|
|
(98 |
) |
|
|
(129 |
) |
|
|
(309 |
) |
|
|
(285 |
) |
|
|
(821 |
) |
Adjustments
|
|
|
(2,574 |
) |
|
|
(446 |
) |
|
|
(790 |
) |
|
|
(212 |
) |
|
|
(4,022 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
28, 2009
|
|
$ |
1,836 |
|
|
$ |
7,693 |
|
|
$ |
3,907 |
|
|
$ |
4,937 |
|
|
$ |
18,373 |
|
Costs
incurred in the second quarter of 2009 are classified as reorganization items.
Consistent with the Company's previous practice and because management believes
costs incurred in the first quarter of 2009 are related to ceasing production at
previously announced facilities and not directly related to the Company's
ongoing production, they are classified as a component of operating income
(loss) below gross profit.
Pilgrim's
Pride Corporation
March
28, 2009
The Company recognized impairment
charges totaling $12.0 million during the second quarter of 2008 to
reduce the carrying amounts of certain property, plant, equipment and other
assets located at or related to facilities closed in 2008 to their estimated
fair values. Consistent with our previous practice and because management
believes the realization of the carrying amounts of the affected assets was
directly related to the Company's production activities, the charges were
reported as a component of gross profit (loss).
In April
2009, the Company reduced headcount by approximately 115 non-production
employees and announced the upcoming closure of a processing complex in Dalton,
Georgia that will reduce headcount by approximately 280 production
employees.
We
continue to review and evaluate various restructuring and other alternatives to
streamline our operations, improve efficiencies and reduce costs. Such
initiatives may include selling assets, idling facilities, consolidating
operations and functions, relocating or reducing production and voluntary and
involuntary employee separation programs. Any such actions may require us to
obtain the pre-approval of our lenders under our DIP Credit Agreement and the
Bankruptcy Court. In addition, such actions will subject the Company to
additional short-term costs, which may include facility shutdown costs, asset
impairment charges, lease commitment costs, employee retention and severance
costs and other closing costs.
NOTE
F—FAIR VALUE MEASUREMENTS
Effective
September 28, 2008, the Company adopted SFAS No. 157, Fair Value Measurements. This
standard established a framework for measuring fair value and required enhanced
disclosures about fair value measurements. SFAS No. 157 clarified that fair
value is an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants. SFAS No. 157 also required disclosure about how fair value
was determined for assets and liabilities and established a hierarchy for which
these assets and liabilities must be grouped, based on significant levels of
inputs as follows:
Level
1
|
Quoted
prices in active markets for identical assets or
liabilities;
|
|
|
Level
2
|
Quoted
prices in active markets for similar assets and liabilities and inputs
that are observable for the asset or liability; or
|
|
|
Level
3
|
Unobservable
inputs, such as discounted cash flow models or
valuations.
|
The
determination of where assets and liabilities fall within this hierarchy is
based upon the lowest level of input that is significant to the fair value
measurement.
Pilgrim's
Pride Corporation
March
28, 2009
As of
March 28, 2009, the Company held certain items that are required to be measured
at fair value on a recurring basis. These included cash equivalents, short-term
investments in available-for-sale securities and long-term investments in
available-for-sale securities. Cash equivalents, with the exception of one Level
3 fund-of-funds investment, consist of short-term, highly liquid,
income-producing investments such as money market funds and other funds that
have maturities of 90 days or less which are traded in active markets.
Short-term investments in available-for-sale securities consist of short-term,
highly liquid, income-producing investments such as municipal debt securities
that have maturities of greater than 90 days but less than one year which are
traded in active markets. Long-term investments in available-for-sale securities
consist of income-producing investments such as municipal debt securities,
corporate debt securities and equity securities that have maturities of greater
than one year which are traded in active markets.
The
following items are measured at fair value on a recurring basis at March 28,
2009:
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
Cash
equivalents
|
|
$ |
14,078 |
|
|
$ |
— |
|
|
$ |
1,004 |
|
|
$ |
15,082 |
|
Restricted
cash equivalents
|
|
|
6,664 |
|
|
|
— |
|
|
|
— |
|
|
|
6,664 |
|
Short-term
investments in available-for-sale securities
|
|
|
8,126 |
|
|
|
— |
|
|
|
— |
|
|
|
8,126 |
|
Long-term
investments in available-for-sale securities
|
|
|
55,500 |
|
|
|
— |
|
|
|
— |
|
|
|
55,500 |
|
The
following table presents the Company’s activity for assets measured at fair
value on a recurring basis using significant unobservable inputs (Level 3) as
defined in SFAS No. 157 for the three and six months ended March 28,
2009:
|
|
Fund
of
Funds
|
|
|
Auction
Rate Securities
|
|
|
Total
|
|
|
|
(In
thousands)
|
|
Balance
at September 27, 2008
|
|
$ |
1,197 |
|
|
$ |
2,425 |
|
|
$ |
3,622 |
|
Included
in other comprehensive income
|
|
|
(210 |
) |
|
|
— |
|
|
|
(210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 27, 2008
|
|
$ |
987 |
|
|
$ |
2,425 |
|
|
$ |
3,412 |
|
Sale
of securities
|
|
|
— |
|
|
|
(2,425 |
) |
|
|
(2,425 |
) |
Included
in other comprehensive income
|
|
|
17 |
|
|
|
— |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 28, 2009
|
|
|
1,004 |
|
|
|
— |
|
|
|
1,004 |
|
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
G—TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade
accounts and other receivables, less allowance for doubtful accounts, consisted
of the following components:
|
|
March
28, 2009
|
|
|
September
27, 2008
|
|
|
|
(In
thousands)
|
|
Trade
accounts receivable
|
|
$ |
300,534 |
|
|
$ |
135,003 |
|
Other
receivables
|
|
|
17,437 |
|
|
|
13,854 |
|
|
|
|
|
|
|
|
|
|
Receivables,
gross
|
|
|
317,971 |
|
|
|
148,857 |
|
Allowance
for doubtful accounts
|
|
|
(6,500 |
) |
|
|
(4,701 |
) |
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
$ |
311,471 |
|
|
$ |
144,156 |
|
In
connection with the Company's
Amended and Restated Receivables Purchase Agreement dated September 26, 2008, as amended, the Company
sold, on a revolving basis, certain of its trade receivables to a special
purpose entity (“SPE”) wholly owned by the Company, which in turn sold a
percentage ownership interest to third parties. The SPE was a separate corporate
entity and its assets were available first and foremost to satisfy the claims of
its creditors. The gross proceeds resulting from the sales were included in cash
flows from operating activities in the Consolidated Statements of Cash Flows.
On December 3, 2008, the
RPA was terminated and all receivables thereunder were repurchased with proceeds
of borrowings under the DIP Credit Agreement. The loss recognized on the sold
receivables during the six months ended March 28, 2009 was not
material.
NOTE
H—INVENTORIES
Inventories
consisted of the following components:
|
|
March
28,
2009
|
|
|
September
27,
2008
|
|
|
|
(In
thousands)
|
|
Chicken:
|
|
|
|
|
|
|
Live
chicken and hens
|
|
$ |
310,847 |
|
|
$ |
385,511 |
|
Feed
and eggs
|
|
|
211,267 |
|
|
|
265,959 |
|
Finished
chicken products
|
|
|
283,586 |
|
|
|
365,123 |
|
|
|
|
|
|
|
|
|
|
Total
chicken inventories
|
|
|
805,700 |
|
|
|
1,016,593 |
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
Commercial
feed, table eggs, retail farm store and other
|
|
$ |
17,112 |
|
|
$ |
13,358 |
|
Distribution
inventories (other than chicken products)
|
|
|
2,708 |
|
|
|
6,212 |
|
|
|
|
|
|
|
|
|
|
Total
other products inventories
|
|
|
19,820 |
|
|
|
19,570 |
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$ |
825,520 |
|
|
$ |
1,036,163 |
|
Inventories
included a lower-of-cost-or-market allowance of $5.4 million and $26.6 million
at March 28, 2009 and September 27, 2008, respectively.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
I—IDENTIFIED INTANGIBLE ASSETS
Identified
intangible assets, net consisted of the following components:
|
|
Useful
Life
(Years)
|
|
|
Original
Cost
|
|
|
Accumulated
Amortization
|
|
|
Carrying
Amount
|
|
|
|
|
|
|
(In
thousands)
|
|
March
28, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
|
3–15 |
|
|
$ |
39,271 |
|
|
$ |
(19,248 |
) |
|
$ |
20,023 |
|
Customer
relationships
|
|
|
13 |
|
|
|
51,000 |
|
|
|
(8,827 |
) |
|
|
42,173 |
|
Non-compete
agreement
|
|
|
3 |
|
|
|
300 |
|
|
|
(225 |
) |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
90,571 |
|
|
$ |
(28,300 |
) |
|
$ |
62,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
names
|
|
|
|
|
|
$ |
39,271 |
|
|
$ |
(16,168 |
) |
|
$ |
23,103 |
|
Customer
relationships
|
|
|
|
|
|
|
51,000 |
|
|
|
(6,865 |
) |
|
|
44,135 |
|
Non-compete
agreement
|
|
|
|
|
|
|
300 |
|
|
|
(175 |
) |
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$ |
90,571 |
|
|
$ |
(23,208 |
) |
|
$ |
67,363 |
|
We
recognized amortization expense of $2.5 million during both the three months
ended March 28, 2009 and March 29, 2008. We recognized amortization expense
of $5.1 million during both the six months ended March 28, 2009 and March 29,
2008.
We test intangible assets subject to
amortization for impairment and estimate their fair values using the same
assumptions and techniques we employ on property, plant and
equipment. For information on possible future impairment of identified
intangible assets carrying amounts, see Note J—Property, Plant and
Equipment.
NOTE
J—PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment, net consisted of the following components:
|
|
March
28,
2009
|
|
|
September
27,
2008
|
|
|
|
(In
thousands)
|
|
Land
|
|
$ |
111,085 |
|
|
$ |
111,567 |
|
Buildings,
machinery and equipment
|
|
|
2,468,902 |
|
|
|
2,465,608 |
|
Autos
and trucks
|
|
|
61,149 |
|
|
|
64,272 |
|
Construction-in-progress
|
|
|
55,975 |
|
|
|
74,307 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, gross
|
|
|
2,697,111 |
|
|
|
2,715,754 |
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation
|
|
|
(1,123,615 |
) |
|
|
(1,042,750 |
) |
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
$ |
1,573,496 |
|
|
$ |
1,673,004 |
|
We
recognized depreciation expense related to our continuing operations of $55.7
million and $56.4 million during the three months ended March 28, 2009 and March
29, 2008, respectively.
Pilgrim's
Pride Corporation
March
28, 2009
We
recognized depreciation expense related to our continuing operations of $111.8
million and $108.4 million during the six months ended March 28, 2009 and March
29, 2008, respectively. We also recognized depreciation charges related to our
discontinued turkey business of $0.3 million and $0.7 million during the
three and six months ended March 29, 2008, respectively. We did not incur
depreciation charges related to our discontinued turkey business in the three
and six months ended March 28, 2009.
At the
present time, the Company’s forecasts indicate that it can recover the carrying
value of its operating assets based on the projected cash flows of the
operations. A key assumption in management’s forecast is that the Company’s
sales volumes will generate historical margins as supply and demand between
commodities and chicken and other animal-based proteins become more balanced.
However, the exact timing of the return to historical margins is not certain,
and if the return to historical margins is delayed, impairment charges could
become necessary in the future.
The
Company currently classifies certain assets related to its processing complex in
Farmerville, Louisiana and its distribution centers in El Paso, Texas and Plant
City, Florida as assets held for sale. At March 28, 2009 and September 27, 2008,
the Company reported assets held for sale totaling $52.1 million and $17.4
million, respectively, on its Consolidated Balance Sheets. The Company has
received an offer to purchase the processing complex in Farmerville, Louisiana
for $80.0 million, subject to a price adjustment for associated inventory and
other reimbursements.
The
Company closed its processing complexes in Bossier City, Louisiana and Clinton,
Arkansas in the first quarter of 2009 and announced plans in the second quarter
of 2009 to close its processing complexes in Douglas, Georgia; El Dorado,
Arkansas, and Franconia, Pennsylvania in the subsequent quarter. Although the
Company plans to conduct an auction of each of these assets at this time,
management is not certain whether any bids acceptable to the Company will be
received or that the Board of Directors would determine that divestiture of
these assets is in the best interest of the bankruptcy estate. Management is
therefore not certain that it can or will divest of these assets within one year
and, accordingly, has not classified them as assets held for sale. The Company
continues to depreciate these assets. At March 28, 2009, the carrying amount of
these idled assets was $97.6 million based on depreciable value of $149.7
million and accumulated depreciation of $52.1 million.
Management
does not believe that the aggregate carrying amount of the assets held for sale
or the assets in the process of being idled is significantly impaired at the
present time. However, should the carrying amounts of these assets exceed the
bids received, if any, in the upcoming auctions, impairment charges could become
necessary.
In April
2009, the Company announced the upcoming closure of its processing complex in
Dalton, Georgia. The Company will recognize the carrying amount of the property,
plant and equipment related to this complex as idled assets during third quarter
of 2009.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
K—ACCRUED EXPENSES
Accrued
expenses not subject to compromise consisted of the following
components:
|
|
March
28, 2009
|
|
|
September
27, 2008
|
|
|
|
(In
thousands)
|
|
Compensation
and benefits
|
|
$ |
114,699 |
|
|
$ |
118,803 |
|
Interest
and debt maintenance
|
|
|
12,898 |
|
|
|
35,488 |
|
Self
insurance
|
|
|
99,656 |
|
|
|
170,787 |
|
Other
|
|
|
92,342 |
|
|
|
123,745 |
|
|
|
|
|
|
|
|
|
|
Total
accrued expenses
|
|
$ |
319,595 |
|
|
$ |
448,823 |
|
For information on accrued restructuring costs, see Note E—Restructuring Activities. For
information on accrued expenses subject to compromise, see Note M—Liabilities
Subject to Compromise.
NOTE
L—SHORT-TERM NOTES PAYABLE AND LONG-TERM DEBT
Short-term
notes payable and long-term debt consisted of the following
components:
|
Maturity
|
|
March
28,
2009
|
|
|
September
27,
2008
|
|
|
|
|
(In
thousands)
|
|
Short-term
notes payable:
|
|
|
|
|
|
|
|
Post-petition
credit facility with notes payable at 8.00% plus the greatest of the
facility agent's prime rate, the average federal funds rate plus 0.50%, or
LIBOR plus 1.00%
|
2009
|
|
$ |
89,792 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt:
|
|
|
|
|
|
|
|
|
|
Senior
unsecured notes, at 7 5/8%
|
2015
|
|
$ |
400,000 |
|
|
$ |
400,000 |
|
Senior
subordinated unsecured notes, at 8 3/8%
|
2017
|
|
|
250,000 |
|
|
|
250,000 |
|
Secured
revolving credit facility with notes payable at LIBOR plus 1.25% to LIBOR
plus 2.75%
|
2013
|
|
|
216,247 |
|
|
|
181,900 |
|
Secured
revolving credit facility with notes payable at LIBOR plus 1.65% to LIBOR
plus 3.125%
|
2011
|
|
|
38,950 |
|
|
|
51,613 |
|
Secured
revolving/term credit facility with four notes payable at LIBOR plus a
spread, one note payable at 7.34% and one note payable at
7.56%
|
2016
|
|
|
1,126,398 |
|
|
|
1,035,250 |
|
Other
|
Various
|
|
|
33,861 |
|
|
|
23,220 |
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
|
2,065,456 |
|
|
|
1,941,983 |
|
Current
maturities of long-term debt
|
|
|
|
— |
|
|
|
(1,874,469 |
) |
Long-term
debt subject to compromise
|
|
|
|
(2,026,506 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current maturities
|
|
|
$ |
38,950 |
|
|
$ |
67,514 |
|
Pilgrim's
Pride Corporation
March
28, 2009
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes reclassifications of
$1,872.1 million to reflect as current certain long-term debt under the
Company’s credit facilities that, absent the stay, would have become
automatically and immediately due and payable. Because of the bankruptcy
petition, most of the Company’s pre-petition long-term debt is included in
liabilities subject to compromise at March 28, 2009. The Company classifies
pre-petition liabilities subject to compromise as a long-term liability because
management does not believe the Company will use existing current assets or
create additional current liabilities to fund these obligations.
On
December 2, 2008, the Bankruptcy Court granted interim approval authorizing the
Company and the US Subsidiaries to enter into the Initial DIP Credit Agreement
with the DIP Agent and the lenders party thereto. On December 2, 2008, the
Company, the US Subsidiaries and the other parties entered into the Initial DIP
Credit Agreement, subject to final approval of the Bankruptcy Court. On December 30, 2008, the Bankruptcy Court granted
final approval authorizing the Company and the Subsidiaries to enter into the
DIP Credit Agreement dated
December 31, 2008 among the
Company, as borrower, the Subsidiaries, as guarantors, the DIP Agent, and the
lenders party thereto.
The DIP
Credit Agreement provides for an aggregate commitment of up to $450 million,
which permits borrowings on a revolving basis. The commitment includes a $25
million sub-limit for swingline loans and a $20 million sub-limit for standby
letters of credit. Outstanding borrowings under the DIP Credit Agreement will
bear interest at a per annum rate equal to 8.0% plus the greatest of (i) the
prime rate as established by the DIP Agent from time to time, (ii) the average
federal funds rate plus 0.5%, or (iii) the LIBOR rate plus 1.0%, payable
monthly. The weighted average interest rate for the three and six months ended
March 28, 2009 was 11.25% and 11.47%, respectively. The loans under the Initial
DIP Credit Agreement were used to repurchase all receivables sold under the
Company's RPA. Loans under the DIP Credit Agreement may be used to fund the
working capital requirements of the Company and its subsidiaries according to a
budget as approved by the required lenders under the DIP Credit Agreement. For
additional information on the RPA, see Note G—Trade Accounts and Other
Receivables.
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible inventory and eligible receivables. The borrowing base
formula is reduced by (i) pre-petition obligations under the Fourth Amended and
Restated Secured Credit Agreement dated as of February 8, 2007, among the
Company and certain of its subsidiaries, Bank of Montreal, as administrative
agent, and the lenders parties thereto, as amended, (ii) administrative and
professional expenses incurred in connection with the bankruptcy proceedings,
and (iii) the amount owed by the Company and the Subsidiaries to any person on
account of the purchase price of agricultural products or services (including
poultry and livestock) if that person is entitled to any grower's or producer's
lien or other security arrangement. The borrowing base is also limited to 2.22
times the formula amount of total eligible receivables. The DIP Credit Agreement
provides that the Company may not incur capital
Pilgrim's
Pride Corporation
March
28, 2009
expenditures in excess of $150 million.
The Company must also meet minimum monthly levels of EBITDAR. Under the DIP
Credit Agreement, "EBITDAR" means, generally, net income before interest, taxes,
depreciation, amortization, writedowns of goodwill and other intangibles, asset
impairment charges and other specified costs, charges, losses and gains. The DIP
Credit Agreement also provides for certain other covenants, various
representations and warranties, and events of default that are customary for
transactions of this nature. As of March 28, 2009, the applicable borrowing base was
$335.8 million and the amount available for
borrowings under the DIP Credit Agreement was $246.0 million. As of May 6, 2009, the applicable borrowing base
was $365.7 million, the amount available for borrowings
under the DIP Credit Agreement was $322.7 million and outstanding borrowings under the
DIP Credit Agreement totaled $43.0 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders
thereunder. All obligations under the DIP Credit Agreement are unconditionally
guaranteed by the Subsidiaries and are secured by a first priority priming lien
on substantially all of the assets of the Company and the Subsidiaries, subject
to specified permitted liens in the DIP Credit Agreement.
Under the
terms of the DIP Credit Agreement and applicable bankruptcy law, the Company may
not pay dividends on the common stock while it is in bankruptcy. Any payment of
future dividends and the amounts thereof will depend on our emergence from
bankruptcy, our earnings, our financial requirements and other factors deemed
relevant by our Board of Directors at the time.
During the first six months of 2009, the
Company borrowed $616.7 million and repaid $525.6 million under the secured
revolver/term credit agreement expiring in 2016, borrowed $214.1 million and repaid $179.7 million under the secured revolving
credit facility expiring in 2013, borrowed $376.1 million and repaid $286.3 million under the DIP Credit Agreement and
repaid $14.4 million under other
facilities.
On
November 30, 2008, certain non-Debtor Mexico subsidiaries of the Company (the
"Mexico Subsidiaries") entered into a Waiver Agreement and Second Amendment to
Credit Agreement (the "Waiver Agreement") with ING Capital LLC, as agent (the
"Mexico Agent"), and the lenders signatory thereto (the "Mexico Lenders"). Under
the Waiver Agreement, the Mexico Agent and the Mexico Lenders waived any default
or event of default under the Credit Agreement dated as of September 25, 2006,
by and among the Company, the Mexico Subsidiaries, the Mexico Agent and the
Mexico Lenders, the administrative agent, and the lenders parties thereto (the
"ING Credit Agreement"), resulting from the Company's filing of its bankruptcy
petition with the Bankruptcy Court. Pursuant to the Waiver Agreement,
outstanding amounts under the ING Credit Agreement, which expires in 2011, now
bear interest at a rate per annum equal to: the LIBOR Rate, the Base Rate, or
the TIIE Rate, as applicable, plus the Applicable Margin (as those terms are
defined in the ING Credit Agreement). While the Company is operating in Chapter
11, the Waiver Agreement provides for an Applicable Margin for LIBOR loans, Base
Rate loans, and TIIE loans of 6.0%, 4.0%, and 5.8%, respectively. The Waiver
Agreement further amended the ING Credit Agreement to require the Company to
make a
mandatory prepayment of the
revolving loans, in an aggregate
Pilgrim's
Pride Corporation
March
28, 2009
amount
equal to 100% of the net cash proceeds received by any Mexico Subsidiary, as
applicable, in excess of thresholds specified in the ING Credit Agreement (i)
from the occurrence of certain asset sales by the Mexico Subsidiaries; (ii) from
the occurrence of any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceedings of, any
property or asset of any Mexico Subsidiary; or (iii) from the incurrence of
certain indebtedness by a Mexico Subsidiary. Any such mandatory prepayments will
permanently reduce the amount of the commitment under the ING Credit Agreement.
In connection with the Waiver Agreement, the Mexico Subsidiaries pledged
substantially all of their receivables, inventory, and equipment and certain
fixed assets. The Mexico Subsidiaries are excluded from the US bankruptcy
proceedings.
The filing of the bankruptcy petitions
constituted an event of default under the secured credit agreement expiring in 2013 and the secured
revolver/term credit agreement expiring in 2016 (together, the “Secured Debt”)
as well as the
7 5/8% Senior Notes due 2015, the 8 3/8%
Senior Subordinated Notes due 2017 and the 9 1/4% Senior Subordinated Notes due
2013 (together, the
“Unsecured Debt”). The
aggregate principal amount owed under
these credit agreements and notes was approximately $1,999.6 million as of March 28,
2009. As a result of such event of
default, all obligations under these agreements became automatically and immediately
due and payable, subject to an automatic stay of any action to collect, assert,
or recover a claim against the Company and the application of applicable
bankruptcy law. As a result of the
Company's Chapter 11 filing, after December 1, 2008, the Company accrued
interest incurred on the Secured Debt at the default rate, which is two percent
above the interest rate otherwise applicable under the associated credit
agreements. Although the agreements related to the Unsecured Debt call for the
accrual of interest after December 1, 2008 at a default rate that is two percent
above the interest rate otherwise applicable under the associated note
agreements, the Company has elected to accrue interest incurred on the Unsecured
Debt, for accounting purposes, at the interest rate otherwise applicable under
the associated note agreements until such time, if any, that the Bankruptcy
Court approves the payment of interest or default interest incurred on the
Unsecured Debt. Had the Company accrued interest incurred on the Unsecured Debt
at the default rate, it would have recognized additional interest expense
totaling $3.3 million and $4.4 million in the three and six months ended March
28, 2009.
In June
1999, the Camp County Industrial Development Corporation issued $25 million of
variable-rate environmental facilities revenue bonds supported by letters of
credit obtained by us under our secured revolving credit facility expiring in
2013. The revenue bonds become due in 2029. Prior to our bankruptcy filing,
the proceeds were available for the Company to draw from over the construction
period in order to construct new sewage and solid waste disposal facilities at a
poultry by-products plant in Camp County, Texas. The original proceeds from the
issuance of the revenue bonds continue to be held by the trustee of the
bonds until we draw on the proceeds for the construction of the
facility. We had not drawn on the proceeds or commenced construction of the
facility prior to our bankruptcy filing. The filing of the bankruptcy petitions
constituted an event of default under these bonds. As a result of the event of
default, the trustee has the right to accelerate all obligations under the bonds
such that they become immediately due and payable, subject to an automatic stay
of any action to collect, assert, or recover a claim against the Company and the
application of applicable bankruptcy law. In December 2008, the
Pilgrim's
Pride Corporation
March
28, 2009
holders of the bonds tendered the bonds
for remarketing, which was
not successful. As a
result, the trustee,
on behalf of the holders of
the bonds, drew upon the letters of credit
supporting the bonds. The resulting reimbursement obligation was converted
to borrowings under the secured revolving credit facility expiring in 2013
and secured by our domestic chicken inventories. On January 29, 2009, we obtained
approval from the Bankruptcy Court to use the original proceeds of the bond
offering held by the trustee to repay and cancel
the revenue bonds. We received the proceeds of the bond
offering from the trustee in March 2009 and immediately repaid and cancelled the
revenue bonds.
NOTE
M—LIABILITIES SUBJECT TO COMPROMISE
Liabilities
subject to compromise refers to both secured and unsecured obligations that will
be accounted for under a plan of reorganization. Generally, actions to enforce
or otherwise effect payment of pre-Chapter 11 liabilities are stayed. SOP 90-7
requires pre-petition liabilities that are subject to compromise to be reported
at the amounts expected to be allowed, even if they may be settled for lesser
amounts. These liabilities represent the estimated amount expected to be allowed
on known or potential claims to be resolved through the Chapter 11 process, and
remain subject to future adjustments arising from negotiated settlements,
actions of the Bankruptcy Court, rejection of executory contracts and unexpired
leases, the determination as to the value of collateral securing the claims,
proofs of claim, or other events. Liabilities subject to compromise also include
certain items that may be assumed under the plan of reorganization, and as such,
may be subsequently reclassified to liabilities not subject to compromise. The
Company has included secured debt as a liability subject to compromise as
management believes that there remains uncertainty to the terms under a plan of
reorganization since the filing recently occurred. At hearings held in December
2008, the Court granted final approval of many of the Debtors’ “first day”
motions covering, among other things, human capital obligations, supplier
relations, insurance, customer relations, business operations, certain tax
matters, cash management, utilities, case management and retention of
professionals. Obligations associated with these matters are not classified as
liabilities subject to compromise.
In
accordance with SOP 90-7, debt issuance costs should be viewed as valuations of
the related debt. When the debt has become an allowed claim and the allowed
claim differs from the net carrying amount of the debt, the recorded amount
should be adjusted to the amount of the allowed claim (thereby adjusting
existing debt issuance costs to the extent necessary to report the debt at this
allowed amount). Through May 2, 2009, the Bankruptcy Court had not classified
any of the Debtors’ outstanding debt as allowed claims. Therefore, the Company
has classified the Debtors’ outstanding debt as Liabilities subject to
compromise on the Consolidated Balance Sheet. The Company has not
adjusted debt issuance costs, totaling $22.6 million at March 28, 2009, related
to the Debtors’ outstanding debt. The Company may be required to expense these
amounts or a portion thereof as reorganization items if the Bankruptcy Court
ultimately determines that a portion of the debt is subject to
compromise.
Pilgrim's
Pride Corporation
March
28, 2009
The
Debtors have rejected certain pre-petition executory contracts and unexpired
leases with respect to the Debtors’ operations with the approval of the
Bankruptcy Court and may reject additional ones in the future. Damages resulting
from rejection of executory contracts and unexpired leases are generally treated
as general unsecured claims and will be classified as liabilities subject to
compromise. Holders of pre-petition claims are required to file proofs of claims
by the “general bar date” of June 1, 2009. A bar date is the date by which
certain claims against the Debtors must be filed if the claimants wish to
receive any distribution in the Chapter 11 cases. Creditors were notified of the
general bar date and the requirement to file a proof of claim with the
Bankruptcy Court. Differences between liability amounts estimated by the Debtors
and claims filed by creditors will be investigated and, if necessary, the
Bankruptcy Court will make a final determination of the allowable claim. The
determination of how liabilities will ultimately be treated cannot be made until
the Bankruptcy Court approves a Chapter 11 plan of reorganization. Accordingly,
the ultimate amount or treatment of such liabilities is not determinable at this
time.
Liabilities
subject to compromise consisted of the following:
|
|
March
28,
2009
|
|
|
|
(In
thousands)
|
|
Accounts
payable
|
|
$ |
52,697 |
|
Accrued
expenses
|
|
|
129,689 |
|
Secured
long-term debt
|
|
|
1,369,511 |
|
Unsecured
long-term debt
|
|
|
656,996 |
|
|
|
|
|
|
Total
liabilities subject to compromise
|
|
$ |
2,208,893 |
|
Liabilities
subject to compromise includes trade accounts payable related to pre-petition
purchases, all of which were not paid. As a result, the Company’s cash flows
from operations were favorably affected by the stay of payment related to these
accounts payable.
NOTE
N—INCOME TAXES
The
Company recorded income tax expense of $2.6 million, a (1%) effective tax rate,
for the six months ended March 28, 2009, compared to an income tax benefit of
$57.0 million, a 28% effective tax rate, for the six months ended March 29,
2008. The income tax benefit decreased from the prior year as a result of the
Company's decision to record a valuation allowance against net deferred tax
assets, including net operating losses and credit carryforwards, in the US and
Mexico.
The
Company maintains valuation allowances when it is more likely than not that all
or a portion of a deferred tax asset may not be realized. Changes in valuation
allowances from period to period are included in the tax provision in the period
of change. We evaluate the recoverability of our deferred income tax assets by
assessing the need for a valuation allowance on a quarterly basis. If we
determine that it is more likely than not that our deferred income tax assets
will be recovered, the valuation allowance will be reduced.
Pilgrim's
Pride Corporation
March
28, 2009
With few
exceptions, the Company is no longer subject to US federal, state or local
income tax examinations for years prior to 2003 and is no longer subject to
Mexico income tax examination for years prior to 2005. We are currently under
audit by the Internal Revenue Service for the tax years 2003 through 2006. While
we expect certain claims made by US federal, state or local taxing authorities
will be allowed, it is not practicable at this time to estimate the amount of
significant payments, if any, to be made within the next 12 months.
NOTE
O—COMPREHENSIVE LOSS
Components
of comprehensive loss include:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
|
(In
thousands)
|
|
Net
loss
|
|
$ |
(58,765 |
) |
|
$ |
(111,448 |
) |
|
$ |
(287,546 |
) |
|
$ |
(143,777 |
) |
Unrealized
gain (loss) on securities, net of income tax impact
|
|
|
280 |
|
|
|
(518 |
) |
|
|
457 |
|
|
|
(686 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$ |
(58,485 |
) |
|
$ |
(111,966 |
) |
|
$ |
(287,089 |
) |
|
$ |
(144,463 |
) |
Unrealized
gain (loss) on securities is presented net of deferred income tax liability of
approximately $149,000 and $245,000 for the three and six months ended March 28,
2009, respectively and net of deferred income tax benefit of approximately
$281,000 and $373,000 for the three and six months ended March 29, 2008,
respectively.
NOTE
P—DERIVATIVE FINANCIAL INSTRUMENTS
In
October 2008, the Company suspended the use of derivative financial instruments
in response to its current financial condition. We immediately settled all
outstanding derivative financial instruments and recognized losses in the first
quarter of 2009 totaling $21.4 million that were recorded through cost of
sales.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
Q—RELATED PARTY TRANSACTIONS
Lonnie
“Bo” Pilgrim, the Senior Chairman, and certain entities related to Mr. Pilgrim
are, collectively, the major stockholder of the Company (the “major
stockholder”).
Cash
transactions with the major stockholder or related entities are summarized
below.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28, 2009
|
|
|
March
29, 2008
|
|
|
March
28, 2009
|
|
|
March
29, 2008
|
|
|
|
(In
thousands)
|
|
Loan
guaranty fees
|
|
$ |
— |
|
|
$ |
1,165 |
|
|
$ |
1,473 |
|
|
$ |
2,127 |
|
Contract
grower pay
|
|
$ |
303 |
|
|
$ |
260 |
|
|
$ |
482 |
|
|
$ |
520 |
|
Lease
payments on commercial egg property
|
|
$ |
187 |
|
|
$ |
188 |
|
|
$ |
375 |
|
|
$ |
375 |
|
Other
sales to major stockholder
|
|
$ |
141 |
|
|
$ |
190 |
|
|
$ |
341 |
|
|
$ |
353 |
|
Lease
payments and operating expenses on airplane
|
|
$ |
— |
|
|
$ |
123 |
|
|
$ |
68 |
|
|
$ |
235 |
|
Pilgrim
Interests, Ltd., an entity related to Lonnie “Bo” Pilgrim, guarantees a portion
of the Company's debt obligations. In consideration of such guarantees, the
Company has paid Pilgrim Interests, Ltd. a quarterly fee equal to 0.25% of
one-half of the average aggregate outstanding balance of such guaranteed debt.
Pursuant to the terms of the DIP
Credit Agreement, the Company may no longer pay any loan guarantee fees without the consent of
the lenders party thereto.
At March 28, 2009, the Company had classified accrued loan guaranty fees
totaling $3.5 million as Liabilities subject
to compromise.
The
Company leased an airplane from its major stockholder under an operating lease
agreement that was renewable annually. On November 18, 2008, we cancelled this
aircraft lease.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
R—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 March
28, 2009, the Company was party to outstanding standby letters of credit
totaling $68.8 million that affected the amount of funds available for
borrowing under the secured revolving credit facility expiring in 2013. At the
same date, the Company was not a party to any outstanding letters of credit that
would have affected the amount of funds available for borrowing under the DIP
Credit Agreement.
The
Company is subject to various legal proceedings and claims which arise in the
ordinary course of business. In the Company’s opinion, it has made appropriate
and adequate accruals for claims where necessary; 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.
On
December 1, 2008, the Debtors filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The cases are being
jointly administered under Case No. 08-45664. The Debtors continue to operate
their business as "debtors-in-possession" under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court. As of the date of the
Chapter 11 filing, virtually all pending litigation against the Company
(including the actions described below) is stayed as to the Company, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, also subject to certain exceptions, to recover on
pre-petition claims against the Debtors. At this time it is not possible to
predict the outcome of the Chapter 11 filings or their effect on our
business. Below is a summary of the most significant claims outstanding against
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 are two identical claims brought against certain
executive officers and employees of the Company and the Pilgrim’s Pride Compensation
Committee seeking unspecified damages under section 502 of the Employee Retirement
Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132. Each of these actions
was brought by individual participants in the Pilgrim’s Pride Stock
Investment Plan, individually and on behalf of a putative class, alleging that the individual defendants
breached fiduciary duties to plan participants and beneficiaries. Although the Company is not a named
defendant in these actions, our bylaws require us to indemnify our current and
former directors and officers from any liabilities and expenses incurred by them
in connection with actions they took in good faith while serving as an officer
or director. The likelihood of an unfavorable outcome or the amount or
range of any possible loss to the Company cannot be determined at this
time.
Pilgrim's
Pride Corporation
March
28, 2009
Among the
claims presently pending against the Company are two identical claims seeking
unspecified damages, each brought by a stockholder, individually and on behalf
of a putative class, alleging violations of certain antifraud provisions of the
Securities Exchange Act of 1934. The Company intends to defend vigorously
against the merits of these actions. The likelihood of an unfavorable outcome or
the amount or range of any possible loss to the Company cannot be determined at
this time.
Other
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
US Department of Labor to ascertain compliance with various wage and hour
issues, including the compensation of employees for the time spent on activities
such as donning and doffing clothing and personal protective equipment. Due, in
part, to the government investigation and the recent US 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.
US
Immigration and Customs Enforcement (“ICE”) recently investigated allegations of
identity theft within our workforce. With our cooperation, ICE arrested
approximately 350 of our employees in 2008 believed to have engaged in identity
theft at five of our facilities. No assurances can be given that further
enforcement efforts by governmental authorities against our employees or the
Company will not disrupt a portion of our workforce or our operations at one or
more of our facilities, thereby negatively impacting our business.
Pilgrim's
Pride Corporation
March
28, 2009
NOTE
S—BUSINESS SEGMENTS
Subsequent
to the sale of our turkey operations, we operate in two reportable business
segments as (1) a producer and seller of chicken products and (2) a seller of
other products. The following table presents certain information regarding our
segments:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
|
(In
thousands)
|
|
Net
sales to customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
1,476,292 |
|
|
$ |
1,722,967 |
|
|
$ |
3,063,257 |
|
|
$ |
3,451,109 |
|
Mexico
|
|
|
109,066 |
|
|
|
127,312 |
|
|
|
245,117 |
|
|
|
248,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
1,585,358 |
|
|
|
1,850,279 |
|
|
|
3,308,374 |
|
|
|
3,699,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
105,583 |
|
|
|
243,907 |
|
|
|
250,367 |
|
|
|
434,296 |
|
Mexico
|
|
|
7,161 |
|
|
|
6,608 |
|
|
|
16,352 |
|
|
|
14,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
112,744 |
|
|
|
250,515 |
|
|
|
266,719 |
|
|
|
448,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,698,102 |
|
|
$ |
2,100,794 |
|
|
$ |
3,575,093 |
|
|
$ |
4,148,147 |
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
10,929 |
|
|
$ |
(156,562 |
) |
|
$ |
(167,707 |
) |
|
$ |
(175,656 |
) |
Mexico
|
|
|
11,804 |
|
|
|
(3,720 |
) |
|
|
3,854 |
|
|
|
(7,812 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
22,733 |
|
|
|
(160,282 |
) |
|
|
(163,853 |
) |
|
|
(183,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(4,739 |
) |
|
|
33,464 |
|
|
|
4,174 |
|
|
|
56,235 |
|
Mexico
|
|
|
1,851 |
|
|
|
880 |
|
|
|
3,732 |
|
|
|
1,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
(2,888 |
) |
|
|
34,344 |
|
|
|
7,906 |
|
|
|
58,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairment
|
|
|
— |
|
|
|
(12,022 |
) |
|
|
— |
|
|
|
(12,022 |
) |
Restructuring
items, net
|
|
|
435 |
|
|
|
(5,669 |
) |
|
|
(1,987 |
) |
|
|
(5,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,280 |
|
|
$ |
(143,629 |
) |
|
$ |
(157,934 |
) |
|
$ |
(142,959 |
) |
Depreciation
and amortization(a)(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
54,349 |
|
|
$ |
53,875 |
|
|
$ |
107,958 |
|
|
$ |
104,332 |
|
Mexico
|
|
|
2,387 |
|
|
|
2,618 |
|
|
|
4,824 |
|
|
|
5,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
56,736 |
|
|
|
56,493 |
|
|
|
112,782 |
|
|
|
109,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
3,722 |
|
|
|
3,501 |
|
|
|
7,776 |
|
|
|
5,900 |
|
Mexico
|
|
|
55 |
|
|
|
63 |
|
|
|
113 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
3,777 |
|
|
|
3,564 |
|
|
|
7,889 |
|
|
|
6,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,513 |
|
|
$ |
60,057 |
|
|
$ |
120,671 |
|
|
$ |
115,601 |
|
|
|
Pilgrim's
Pride Corporation
March
28, 2009
(a)
|
Includes
amortization of capitalized financing costs of $1.8 million, $1.1 million,
$3.3 million and $2.1 million recognized in the second quarter of 2009,
the second quarter of 2008, the first six months of 2009 and the first six
months of 2008, respectively.
|
|
|
(b)
|
Includes
amortization of intangible assets of $2.5 million, $2.5 million, $5.1
million and $5.1 million recognized in the second quarter of 2009,
the second quarter of 2008, the first six months of 2009 and the first six
months of 2008, respectively.
|
|
|
(c)
|
Excludes
depreciation costs incurred by our discontinued turkey business of $0.3
million and $0.7 million during the three and six months ended March 29,
2008, respectively.
|
Pilgrim's
Pride Corporation
March
28, 2009
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Description
of the Company
Pilgrim's Pride Corporation (referred to herein as “Pilgrim’s
Pride,” “the Company,” “we,” “us,” “our,” or similar terms) is one the largest chicken companies in the United States (“US”), Mexico and Puerto Rico. Our fresh chicken retail line is sold in
the southeastern,
central, southwestern and western regions of the US, throughout Puerto Rico, and in the northern and central regions of Mexico. Our prepared chicken products meet the needs of some of the
largest customers in the food service industry across the US. Additionally, the Company exports commodity chicken
products to 80 countries. As a vertically integrated company, we control every
phase of the production of our products. We operate feed mills, hatcheries, processing
plants and distribution centers in 14 US states, Puerto Rico and Mexico. Pilgrim’s Pride operates in two
business segments—Chicken and Other Products.
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
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.
We
operate on the basis of a 52/53-week fiscal year that ends on the Saturday
closest to September 30. The reader should assume any reference we make to a
particular year (for example, 2009) in this report applies to our fiscal year
and not the calendar year.
Executive
Summary
The
Company continued to face an extremely challenging business environment in the
second quarter of 2009. We reported a net loss of $58.8 million, or $0.79 per
common share, for the quarter, which included a positive gross margin of $97.7
million, and a net loss of $287.5 million, or $3.88 per common share, for
the first six months of 2009, which included a positive gross margin of $14.8
million. As of March 28, 2009, the Company’s accumulated deficit aggregated
$604.1 million. During the first six months of 2009, the Company used
$93.8 million of cash in operations. At March 28, 2009, we had cash and
cash equivalents totaling $45.0 million. In addition, the
Company incurred reorganization costs of $35.4 million in the second quarter of
2009 and $48.6 million in the first six months of 2009. These costs included (i)
financing fees associated with the Amended and Restated Post-Petition
Credit Agreement (the "DIP Credit Agreement") among the Company, as borrower,
the Subsidiaries, as guarantors, the DIP Agent, and the lenders party
thereto, (ii) professional fees charged for post-petition reorganization
services and (iii) fees related to the termination of the Company’s Amended and Restated Receivables
Purchase Agreement dated September 26, 2008, as amended (the “RPA”).
Pilgrim's
Pride Corporation
March
28, 2009
Market
prices for feed ingredients decreased in the first six months of 2009 after
reaching unprecedented levels in the last half of 2008. Market prices for feed
ingredients remain volatile, however, and there can be no assurance that they
will not increase materially. Pursuant to a covenant in the DIP Credit
Agreement, we agreed that we would not enter into any hedging arrangements or
other derivative financial instruments without the prior written approval of
lenders holding more than 50% of the commitments under the DIP Credit Agreement,
except for commodity derivative instruments entered into at the request or
direction of a customer, and in any case, only with financial institutions in
connection with bona fide activities in the ordinary course of business and not
for speculative purposes.
The
following table compares the highest and lowest prices reached on nearby futures
for one bushel of corn and one ton of soybean meal during the past four years,
for each quarter in 2008 and for the second and first quarters of
2009:
|
|
Corn
|
|
|
Soybean
Meal
|
|
|
|
Highest
Price
|
|
|
Lowest
Price
|
|
|
Highest
Price
|
|
|
Lowest
Price
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter
|
|
$ |
4.28 |
|
|
$ |
3.38 |
|
|
$ |
326.00 |
|
|
$ |
264.80 |
|
First
Quarter
|
|
|
5.24 |
|
|
|
2.90 |
|
|
|
302.00 |
|
|
|
237.00 |
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
|
7.50 |
|
|
|
4.86 |
|
|
|
455.50 |
|
|
|
312.00 |
|
Third
Quarter
|
|
|
7.63 |
|
|
|
5.58 |
|
|
|
427.90 |
|
|
|
302.50 |
|
Second
Quarter
|
|
|
5.70 |
|
|
|
4.49 |
|
|
|
384.50 |
|
|
|
302.00 |
|
First
Quarter
|
|
|
4.57 |
|
|
|
3.35 |
|
|
|
341.50 |
|
|
|
254.10 |
|
2007
|
|
|
4.37 |
|
|
|
2.62 |
|
|
|
286.50 |
|
|
|
160.20 |
|
2006
|
|
|
2.68 |
|
|
|
1.86 |
|
|
|
204.50 |
|
|
|
155.80 |
|
2005
|
|
|
2.63 |
|
|
|
1.91 |
|
|
|
238.00 |
|
|
|
146.60 |
|
Market
prices for chicken products have stabilized since the end of 2008 but remain
below historic levels and have not yet improved sufficiently to offset the costs
of feed ingredients. Many producers within the industry, including Pilgrim’s
Pride, cut production in 2008 in an effort to correct the general oversupply of
chicken in the US, and this has had and continues to have a positive effect on
prices for chicken products. Despite these production cuts, there can be no
assurance that chicken prices will not decrease due to such factors as weakening
demand for breast meat from food service providers and lower prices for chicken
leg quarters for the export market as a result of weakness in world economies
and restrictive credit markets.
Pilgrim's
Pride Corporation
March
28, 2009
We continue to review and evaluate
various restructuring and other alternatives to streamline our operations,
improve efficiencies and reduce costs. Such initiatives may include selling
assets, idling facilities, consolidating operations and functions, relocating or
reducing production and voluntary and involuntary employee separation programs.
Any such actions may require us to obtain the pre-approval of our lenders under
our DIP Credit Agreement
and the Bankruptcy Court.
In addition, such actions will subject the Company to additional short-term
costs, which may include facility shutdown costs, asset impairment charges, lease
commitment costs, employee retention and severance costs and other closing
costs. Certain of these restructuring activities will result in reduced
capacities and sales volumes and may have a disproportionate impact on our
income relative to the cost savings.
On
January 27, 2009, the Bankruptcy Court approved the employment agreement between
the Company and Don Jackson. Dr. Jackson now serves as the Company's President
and Chief Executive Officer and as a member of the Company’s Board of Directors.
In connection with his appointment, on January 27, 2009, Dr. Jackson was granted
an equity award of 3,085,656 shares of the Company's common stock, which are
subject to vesting requirements, and a sign-on bonus of $3,000,000, which may be
subject to repayment, each as provided in his employment agreement.
Chapter
11 Bankruptcy Filings
On
December 1, 2008 (the "Petition Date"), Pilgrim’s Pride Corporation and certain
of its subsidiaries (collectively, the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Texas, Fort Worth Division (the "Bankruptcy Court"). The cases are
being jointly administered under Case No. 08-45664. The Company’s operations in
Mexico and certain operations in the US were not included in the filing (the
“Non-filing Subsidiaries”) and will continue to operate outside of the Chapter
11 process.
Effective
December 1, 2008, the New York
Stock Exchange delisted our common stock as a result of the
Company's filing of its Chapter 11 petitions. Our common stock is now quoted on
the Pink Sheets Electronic Quotation Service under the ticker symbol
"PGPDQ.PK."
The
filing of the Chapter 11 petitions constituted an event of default under
certain of our debt obligations, and those debt obligations became automatically
and immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result, the accompanying Consolidated Balance
Sheet as of September 27, 2008 includes reclassifications of
$1,872.1 million to reflect as current certain long-term debt under the
Company’s credit facilities that, absent the stay, would have become
automatically and immediately due and payable. Because of the bankruptcy
petition, most of the Company’s pre-petition long-term debt is included in
liabilities subject to compromise at March 28, 2009. The Company classifies
pre-petition liabilities subject to compromise as a long-term liability because
management does not believe the Company will use existing current assets or
create additional current liabilities to fund these obligations.
Pilgrim's
Pride Corporation
March
28, 2009
Chapter
11 Process
The
Debtors are currently operating as "debtors-in-possession" under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable
provisions of the Bankruptcy Code and orders of the Bankruptcy Court. In
general, as debtors-in-possession, we are authorized under Chapter 11 to
continue to operate as an ongoing business, but may not engage in transactions
outside the ordinary course of business without the prior approval of the
Bankruptcy Court.
On
December 2, 2008, the Bankruptcy
Court granted interim approval authorizing the Company and certain of its
subsidiaries consisting of PPC Transportation Company, PFS Distribution
Company, PPC Marketing, Ltd., and Pilgrim's Pride Corporation of West Virginia,
Inc. (collectively, the "US Subsidiaries"), and To-Ricos, Ltd. and To-Ricos
Distribution, Ltd. (collectively with the US Subsidiaries, the "Subsidiaries")
to enter into a Post-Petition Credit Agreement (the "Initial DIP Credit
Agreement") among the Company, as borrower, the US Subsidiaries, as guarantors,
Bank of Montreal, as agent, and the lenders party thereto. On December 2, 2008,
the Company, the US Subsidiaries and the other parties entered into the Initial
DIP Credit Agreement, subject to final approval of the Bankruptcy Court. On
December 30, 2008, the Bankruptcy Court granted
final approval authorizing the Company and the Subsidiaries to enter into the
DIP Credit Agreement dated
December 31, 2008.
The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The commitment includes a $25 million sub-limit for swingline
loans and a $20 million sub-limit for standby letters of credit.
Outstanding borrowings under the DIP Credit Agreement will bear interest
at a per annum rate equal to 8.0% plus the greatest of (i) the prime rate as
established by the DIP Agent from time to time, (ii) the average federal
funds rate plus 0.5%, or (iii) the LIBOR rate plus 1.0%, payable
monthly. The weighted
average interest rate for the three and six months ended March 28, 2009 was
11.25% and 11.47%, respectively. The loans under the Initial DIP Credit
Agreement were used to repurchase all receivables sold under the Company's RPA.
Loans under the DIP Credit Agreement may be used to fund the working capital
requirements of the Company and its subsidiaries according to a budget as
approved by the required lenders under the DIP Credit Agreement. For additional
information on the RPA, see "Liquidity and Capital
Resources."
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible inventory and eligible receivables. The borrowing base
formula is reduced by (i) pre-petition obligations under the Fourth Amended and
Restated Secured Credit Agreement dated as of February 8, 2007, among the
Company and certain of its subsidiaries, Bank of Montreal, as administrative
agent, and the lenders parties thereto, as amended, (ii) administrative and
professional expenses incurred in connection with the bankruptcy proceedings,
and (iii) the amount owed by the Company and the Subsidiaries to any person on
account of the purchase price of agricultural products or services (including
poultry and livestock) if that person is entitled to any grower's or producer's
lien or other security arrangement. The borrowing base is also limited to 2.22
times the formula amount of total eligible receivables. The DIP Credit Agreement
provides that the Company may not incur capital expenditures in excess of $150
million. The Company must also meet minimum monthly levels of EBITDAR. Under the
DIP Credit Agreement, "EBITDAR" means, generally, net income before interest, taxes,
Pilgrim's
Pride Corporation
March
28, 2009
depreciation, amortization, writedowns
of goodwill and other intangibles, asset impairment charges and other specified
costs, charges, losses and gains. The DIP
Credit Agreement also provides for certain other covenants, various
representations and warranties, and events of default that are customary for
transactions of this nature. As of March 28, 2009, the applicable borrowing base was
$335.8 million and the amount available for
borrowings under the DIP Credit Agreement was $246.0 million. As of May 6, 2009, the applicable borrowing base
was $365.7 million, the amount available for borrowings
under the DIP Credit Agreement was $322.7 million and outstanding borrowings under the
DIP Credit Agreement totaled $43.0 million.
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders
thereunder. All obligations under the DIP Credit Agreement are unconditionally
guaranteed by the Subsidiaries and are secured by a first priority priming lien
on substantially all of the assets of the Company and the Subsidiaries, subject
to specified permitted liens in the DIP Credit
Agreement.
The DIP Credit Agreement allows the Company to provide advances to the Non-filing Subsidiaries of up to
approximately $25 million at any time outstanding. Management believes that all of the Non-filing
Subsidiaries, including
the Company’s Mexican subsidiaries, will be able to operate within this
limitation.
For additional information on the DIP
Credit Agreement, see "Liquidity and Capital
Resources."
The Bankruptcy Court has approved
payment of certain of the Debtors’ pre-petition obligations, including, among
other things, employee wages, salaries and benefits, and the Bankruptcy Court
has approved the Company's payment of vendors and other providers in the
ordinary course for goods and services ordered pre-petition but received from and after the Petition
Date and other business-related payments necessary to maintain the operation of
our businesses. The Debtors have retained, subject to Bankruptcy Court approval, legal and
financial professionals to advise the Debtors on the bankruptcy proceedings and
certain other "ordinary course" professionals. From time to time, the Debtors
may seek Bankruptcy Court approval for the retention of additional
professionals.
Pilgrim's
Pride Corporation
March
28, 2009
Shortly
after the Petition Date, the Debtors began notifying all known current or
potential creditors of the Chapter 11 filing. Subject to certain exceptions
under the Bankruptcy Code, the Debtors’ Chapter 11 filing automatically
enjoined, or stayed, the continuation of any judicial or administrative
proceedings or other actions against the Debtors or their property to recover
on, collect or secure a claim arising prior to the Petition Date. Thus, for
example, most creditor actions to obtain possession of property from the
Debtors, or to create, perfect or enforce any lien against the property of the
Debtors, or to collect on monies owed or otherwise exercise rights or remedies
with respect to a pre-petition claim are enjoined unless and until the
Bankruptcy Court lifts the automatic stay. Vendors are being paid for goods
furnished and services provided after the Petition Date in the ordinary course
of business.
As
required by the Bankruptcy Code, the United States Trustee for the Northern
District of Texas (the "US Trustee") appointed an official committee of
unsecured creditors (the "Creditors’ Committee"). The Creditors’ Committee and
its legal representatives have a right to be heard on all matters that come
before the Bankruptcy Court with respect to the Debtors. In addition, on April
30, 2009, the Bankruptcy Court ordered the US Trustee to appoint an official
committee of equity holders (the "Equity Committee") to represent the interests
of Pilgrim's Pride's equity holders in the Debtors' bankruptcy cases. There can
be no assurance that the Creditors’ Committee or the Equity Committee will
support the Debtors’ positions on matters to be presented to the Bankruptcy
Court in the future or on any plan of reorganization, once proposed.
Disagreements between the Debtors and the Creditors’ Committee or the Equity
Committee could protract the Chapter 11 proceedings, negatively impact the
Debtors’ ability to operate and delay the Debtors’ emergence from the Chapter 11
proceedings.
Under
Section 365 and other relevant sections of the Bankruptcy Code, we may assume,
assume and assign, or reject certain executory contracts and unexpired leases,
including, without limitation, leases of real property and equipment, subject to
the approval of the Bankruptcy Court and certain other conditions. Any
description of an executory contract or unexpired lease in this report,
including where applicable our express termination rights or a quantification of
our obligations, must be read in conjunction with, and is qualified by, any
overriding rejection rights we have under Section 365 of the Bankruptcy
Code.
In order
to successfully exit Chapter 11, the Debtors will need to propose and obtain
confirmation by the Bankruptcy Court of a plan of reorganization that satisfies
the requirements of the Bankruptcy Code. A plan of reorganization would, among
other things, resolve the Debtors’ pre-petition obligations, set forth the
revised capital structure of the newly reorganized entity and provide for
corporate governance subsequent to exit from bankruptcy.
Pilgrim's
Pride Corporation
March
28, 2009
On March
26, 2009, the Bankruptcy Court issued an order extending the period during which
the Debtors have the exclusive right to file a plan of reorganization. Pursuant
to this order, the Debtors have the exclusive right, through September 30, 2009,
to file a plan for reorganization, and if we file a plan by that date, we will
have until November 30, 2009 to obtain the necessary acceptances of our plan. We
may file one or more motions to request further extensions of these time
periods. If the Debtors’ exclusivity period lapses, any party in interest would
be able to file a plan of reorganization for any of the Debtors. In addition to
being voted on by holders of impaired claims and equity interests, a plan of
reorganization must satisfy certain requirements of the Bankruptcy Code and must
be approved, or confirmed, by the Bankruptcy Court in order to become
effective.
The
timing of filing a plan of reorganization by us will depend on the timing and
outcome of numerous other ongoing matters in the Chapter 11 proceedings. There
can be no assurance at this time that a plan of reorganization will be confirmed
by the Bankruptcy Court or that any such plan will be implemented
successfully.
We have
incurred and will continue to incur significant costs associated with our
reorganization. The amount of these costs, which are being expensed as incurred
commencing in November 2008, are expected to significantly affect our results of
operations.
Under the
priority scheme established by the Bankruptcy Code, unless creditors agree
otherwise, pre-petition liabilities and post-petition liabilities must generally
be satisfied in full before stockholders are entitled to receive any
distribution or retain any property under a plan of reorganization. The ultimate
recovery to creditors and/or stockholders, if any, will not be determined until
confirmation of a plan or plans of reorganization. No assurance can be given as
to what values, if any, will be ascribed in the Chapter 11 cases to each of
these constituencies or what types or amounts of distributions, if any, they
would receive. A plan of reorganization could result in holders of our
liabilities and/or securities, including our common stock, receiving no
distribution on account of their interests and cancellation of their holdings.
Because of such possibilities, the value of our liabilities and securities,
including our common stock, is highly speculative. Appropriate caution should be
exercised with respect to existing and future investments in any of the
liabilities and/or securities of the Debtors. At this time there is no assurance
we will be able to restructure as a going concern or successfully propose or
implement a plan of reorganization.
Pilgrim's
Pride Corporation
March
28, 2009
On
February 11, 2009, the Bankruptcy Court issued an order granting the Company's
motion to impose certain restrictions on trading in shares of the Company's
common stock in order to preserve valuable tax attributes. This order
established notification procedures and certain restrictions on transfers of
common stock or options to purchase the common stock of the Company. The trading
restrictions apply retroactively to January 17, 2009, the date the motion was
filed, to investors beneficially owning at least 4.75% of the outstanding shares
of common stock of Pilgrim's Pride Corporation. For these purposes, beneficial
ownership of stock is determined in accordance with special US tax rules that,
among other things, apply constructive ownership concepts and treat holders
acting together as a single holder. In addition, in the future, the Company may
request that the Bankruptcy Court impose certain trading restrictions on certain
debt of, and claims against, the Company.
Going
Concern Matters
The
accompanying Consolidated Financial Statements have been prepared assuming that
the Company will continue as a going concern. However, there is substantial
doubt about the Company’s ability to continue as a going concern based on the
factors previously discussed. The Consolidated Financial Statements do not
include any adjustments related to the recoverability and classification of
recorded assets or the amounts and classification of liabilities or any other
adjustments that might be necessary should the Company be unable to continue as
a going concern. The Company’s ability to continue as a going concern is
dependent upon, among other things, the ability of the Company to return to
historic levels of profitability and, in the near term, restructure its
obligations in a manner that allows it to obtain confirmation of a plan of
reorganization by the Bankruptcy Court.
Management
is addressing the Company’s ability to return to profitability by conducting
profitability reviews at certain facilities in an effort to reduce
inefficiencies and manufacturing costs. In April 2009, the Company reduced
headcount by approximately 115 non-production employees and announced the
upcoming closure of a processing complex in Dalton, Georgia that will reduce
headcount by approximately 280 production employees. During the second quarter
of 2009, the Company (1) announced the upcoming closures of processing complexes
in Douglas, Georgia; El Dorado, Arkansas; Farmerville, Louisiana and Franconia,
Pennsylvania, (2) closed a distribution center in Houston, Texas and (3)
reduced or consolidated production at various facilities throughout the US.
These actions will ultimately result in a headcount reduction of approximately
4,450 production employees. During the first quarter of 2009, the Company
reduced headcount by approximately 265 non-production employees and announced an
upcoming reduction in production at its processing complex in Live Oak, Florida
that will result in a headcount reduction of approximately 220 production
employees. During 2008, the Company closed processing complexes in Bossier City,
Louisiana and Clinton, Arkansas and reduced production at its operating complex
in El Dorado, Arkansas. These actions resulted in a headcount reduction of
approximately 2,300 production employees.
Pilgrim's
Pride Corporation
March
28, 2009
On
November 7, 2008, the Board of
Directors appointed a Chief Restructuring Officer
(“CRO”) for the Company. The appointment of a CRO was a
requirement included in the waivers received from the Company’s lenders on
October 27, 2008. The CRO assists the Company with cost
reduction initiatives, restructuring plans development and long-term liquidity
improvement. The CRO reports to the Board of Directors of the
Company.
In order
to emerge from bankruptcy, the Company will need to obtain alternative financing
to replace the DIP Credit Agreement and to satisfy the secured claims of its
pre-bankruptcy creditors.
Pilgrim's
Pride Corporation
March
28, 2009
Business
Segments
Subsequent
to the sale of our turkey operations, we operate in two reportable business
segments as (1) a producer and seller of chicken products and (2) a seller of
other products. The following table presents certain information regarding our
segments:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
March
28,
2009
|
|
|
March
29,
2008
|
|
|
|
(In
thousands)
|
|
Net
sales to customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
1,476,292 |
|
|
$ |
1,722,967 |
|
|
$ |
3,063,257 |
|
|
$ |
3,451,109 |
|
Mexico
|
|
|
109,066 |
|
|
|
127,312 |
|
|
|
245,117 |
|
|
|
248,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
1,585,358 |
|
|
|
1,850,279 |
|
|
|
3,308,374 |
|
|
|
3,699,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
105,583 |
|
|
|
243,907 |
|
|
|
250,367 |
|
|
|
434,296 |
|
Mexico
|
|
|
7,161 |
|
|
|
6,608 |
|
|
|
16,352 |
|
|
|
14,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
112,744 |
|
|
|
250,515 |
|
|
|
266,719 |
|
|
|
448,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,698,102 |
|
|
$ |
2,100,794 |
|
|
$ |
3,575,093 |
|
|
$ |
4,148,147 |
|
Operating
income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
10,929 |
|
|
$ |
(156,562 |
) |
|
$ |
(167,707 |
) |
|
$ |
(175,656 |
) |
Mexico
|
|
|
11,804 |
|
|
|
(3,720 |
) |
|
|
3,854 |
|
|
|
(7,812 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
22,733 |
|
|
|
(160,282 |
) |
|
|
(163,853 |
) |
|
|
(183,468 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(4,739 |
) |
|
|
33,464 |
|
|
|
4,174 |
|
|
|
56,235 |
|
Mexico
|
|
|
1,851 |
|
|
|
880 |
|
|
|
3,732 |
|
|
|
1,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
(2,888 |
) |
|
|
34,344 |
|
|
|
7,906 |
|
|
|
58,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairment
|
|
|
— |
|
|
|
(12,022 |
) |
|
|
— |
|
|
|
(12,022 |
) |
Restructuring
items, net
|
|
|
435 |
|
|
|
(5,669 |
) |
|
|
(1,987 |
) |
|
|
(5,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
20,280 |
|
|
$ |
(143,629 |
)
|
|
$ |
(157,934 |
) |
|
$ |
(142,959 |
) |
Depreciation
and amortization(a)(b)(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
54,349 |
|
|
$ |
53,875 |
|
|
$ |
107,958 |
|
|
$ |
104,332 |
|
Mexico
|
|
|
2,387 |
|
|
|
2,618 |
|
|
|
4,824 |
|
|
|
5,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
56,736 |
|
|
|
56,493 |
|
|
|
112,782 |
|
|
|
109,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
3,722 |
|
|
|
3,501 |
|
|
|
7,776 |
|
|
|
5,900 |
|
Mexico
|
|
|
55 |
|
|
|
63 |
|
|
|
113 |
|
|
|
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
3,777 |
|
|
|
3,564 |
|
|
|
7,889 |
|
|
|
6,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,513 |
|
|
$ |
60,057 |
|
|
$ |
120,671 |
|
|
$ |
115,601 |
|
|
|
Pilgrim's
Pride Corporation
March
28, 2009
(a)
|
Includes
amortization of capitalized financing costs of $1.8 million, $1.1 million,
$3.3 million and $2.1 million recognized in the second quarter of 2009,
the second quarter of 2008, the first six months of 2009 and the first six
months of 2008, respectively.
|
|
|
(b)
|
Includes
amortization of intangible assets of $2.5 million, $2.5 million, $5.1
million and $5.1 million recognized in the second quarter of 2009,
the second quarter of 2008, the first six months of 2009 and the first six
months of 2008, respectively.
|
|
|
(c)
|
Excludes
depreciation costs incurred by our discontinued turkey business of $0.3
million and $0.7 million during the three and six months ended March 29,
2008, respectively.
|
The
following table presents certain items as a percentage of net sales for the
periods indicated:
|
|
Percentage
of Net Sales
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
March
28, 2009
|
|
|
March
29, 2008
|
|
|
March
28, 2009
|
|
|
March
29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
Cost
of sales
|
|
|
94.2
|
% |
|
|
101.1
|
% |
|
|
99.6
|
% |
|
|
98.0
|
% |
Asset
impairment
|
|
|
—
|
% |
|
|
0.6
|
% |
|
|
—
|
% |
|
|
0.3
|
% |
Gross
profit (loss)
|
|
|
5.8
|
% |
|
|
(1.7 |
)
% |
|
|
0.4
|
% |
|
|
1.7
|
% |
Selling,
general and administrative (“SG&A”) expenses
|
|
|
4.6
|
% |
|
|
4.9
|
% |
|
|
4.8
|
% |
|
|
5.0
|
% |
Restructuring
charges, net
|
|
|
—
|
% |
|
|
0.2
|
% |
|
|
—
|
% |
|
|
0.1
|
% |
Operating
income (loss)
|
|
|
1.2
|
% |
|
|
(6.8 |
)
% |
|
|
(4.4 |
)
% |
|
|
(3.4 |
)
% |
Interest
expense
|
|
|
2.7
|
% |
|
|
1.6
|
% |
|
|
2.4
|
% |
|
|
1.5
|
% |
Reorganization
items
|
|
|
2.1
|
% |
|
|
—
|
% |
|
|
1.4
|
% |
|
|
—
|
% |
Loss
from continuing operations before income taxes
|
|
|
(3.3 |
)
% |
|
|
(8.4 |
)
% |
|
|
(8.0 |
)
% |
|
|
(4.9 |
)
% |
Loss
from continuing operations
|
|
|
(3.5 |
)
% |
|
|
(5.3 |
)
% |
|
|
(8.1 |
)
% |
|
|
(3.5 |
)
% |
Net
loss
|
|
|
(3.5 |
)
% |
|
|
(5.3 |
)
% |
|
|
(8.0 |
)
% |
|
|
(3.5 |
)
% |
Pilgrim's
Pride Corporation
March
28, 2009
Results
of Operations
Second
Quarter 2009 Compared to Second Quarter 2008
Net sales. Net
sales for the second quarter of 2009 decreased $402.7 million, or 19.2%, from
the second quarter of 2008. The following table provides net sales
information:
|
|
|
|
|
Change
from Second Quarter 2008
|
|
|
|
|
Second
|
|
|
|
|
|
Source
|
|
Quarter
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(In
thousands, except percent data)
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
1,476,292 |
|
|
$ |
(246,675 |
) |
|
|
(14.3 |
)
% |
(a)
|
Mexico
|
|
|
109,066 |
|
|
|
(18,246 |
) |
|
|
(14.3 |
)
% |
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
1,585,358 |
|
|
|
(264,921 |
) |
|
|
(14.3 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
105,583 |
|
|
|
(138,324 |
) |
|
|
(56.7 |
)
% |
(c)
|
Mexico
|
|
|
7,161 |
|
|
|
553 |
|
|
|
8.4
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
112,744 |
|
|
|
(137,771 |
) |
|
|
(55.0 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
1,698,102 |
|
|
$ |
(402,692 |
) |
|
|
(19.2 |
)
% |
|
|
(a)
|
US
chicken sales generated in the second quarter of 2009 decreased 14.3% from
US chicken sales generated in the second quarter of 2008. Sales volume
decreased 14.6% primarily because of previously announced production
cutbacks. Net revenue per pound sold increased 0.3% from the prior year
primarily because of increased sales prices on a majority of product
lines.
|
|
|
(b)
|
Mexico
chicken sales generated in the second quarter of 2009 decreased 14.3% from
Mexico chicken sales generated in the second quarter of 2008. Sales volume
decreased 12.5% from the prior year and net revenue per pound sold
decreased 2.1% from the prior year primarily because of decreased sales of
live chicken.
|
|
|
(c)
|
US
sales of other products generated in the second quarter of 2009 decreased
56.7% from US sales of other products generated in the second quarter of
2008 mainly as the result of reduced sales volumes on commercial eggs and
protein conversion products partially offset by increased sales prices on
protein conversion products. The decrease in protein conversion products
sales volumes resulted primarily from the ongoing impact of a fire
suffered by one of Company’s protein conversion facilities in late 2008.
Protein conversion is the process of converting poultry byproducts into
raw materials for grease, animal feed, biodiesel and feed-stock for the
chemical industry.
|
Pilgrim's
Pride Corporation
March
28, 2009
Gross profit
(loss). Gross profit (loss) results increased by $133.1
million, or 376.0%, from gross loss of $35.4 million incurred in the second
quarter of 2008 to gross profit of $97.7 million incurred in the second quarter
of 2009. The following table provides gross profit (loss)
information.
|
|
|
|
|
Change
from
|
|
|
Percent
of Net Sales
|
|
|
|
|
Second
|
|
|
|
|
|
Second
|
|
|
Second
|
|
|
|
|
Quarter
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Components
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In
thousands, except percent data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,698,102 |
|
|
$ |
(402,692 |
) |
|
|
(19.2 |
)
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
|
Cost
of sales
|
|
|
1,600,378 |
|
|
|
(523,795 |
) |
|
|
(24.7 |
)
% |
|
|
94.2
|
% |
|
|
101.1
|
% |
(a)
|
Asset
impairment
|
|
|
— |
|
|
|
(12,022 |
) |
|
|
(100.0 |
)
% |
|
|
—
|
% |
|
|
0.6
|
% |
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
97,724 |
|
|
$ |
133,125 |
|
|
|
376.0
|
% |
|
|
5.8
|
% |
|
|
(1.7 |
)
% |
(c)
|
|
(a)
|
Cost
of sales incurred by the US operations during the second quarter of 2009
decreased $492.2 million from cost of sales incurred by the US operations
during the second quarter of 2008. This decrease occurred because of
production cutbacks, decreased feed ingredient purchases and decreased
feed ingredient prices during the quarter. Cost of sales incurred by the
Mexico operations during the second quarter of 2009 decreased $31.6
million from cost of sales incurred by the Mexico operations during the
second quarter of 2008 primarily because of decreased net sales and
decreased feed ingredient costs.
|
|
|
(b)
|
The
Company incurred charges totaling $12.0 million, composed of inventory and
property, plant and equipment impairment costs, related to restructuring
actions taken in the second quarter of 2008.
|
|
|
(c)
|
Gross
profit as a percent of net sales generated in the second quarter of 2009
increased 7.5 percentage points from gross profit as a percent of sales
generated in the second quarter of 2008 primarily because of production
cutbacks and decreased feed ingredient costs during the
quarter.
|
Operating income
(loss). Operating income (loss) results increased by
$163.9 million, or 114.1%, from an operating loss of $143.6 million
generated for the second quarter of 2008 to operating income of $20.3 million
incurred in the second quarter of 2009. The following tables provide operating
income (loss) information.
|
|
|
|
|
Change
from Second Quarter 2008
|
|
|
|
Second
|
|
|
|
|
|
|
|
Source
|
|
Quarter
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(In
thousands, except percent data)
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
10,929 |
|
|
$ |
167,491 |
|
|
|
107.0
|
% |
Mexico
|
|
|
11,804 |
|
|
|
15,524 |
|
|
|
417.3
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
22,733 |
|
|
|
183,015 |
|
|
|
114.2
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
(4,739 |
) |
|
|
(38,203 |
) |
|
|
(114.2 |
)
% |
Mexico
|
|
|
1,851 |
|
|
|
971 |
|
|
|
110.3
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
(2,888 |
) |
|
|
(37,232 |
) |
|
|
(108.4 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairment
|
|
|
— |
|
|
|
12,022 |
|
|
|
100.0
|
% |
Restructuring
items, net
|
|
|
435 |
|
|
|
6,104 |
|
|
|
107.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating loss
|
|
$ |
20,280 |
|
|
$ |
163,909 |
|
|
|
114.1
|
% |
Pilgrim's
Pride Corporation
March
28, 2009
Income taxes. The
Company recorded income tax expense of $2.3 million for the three months ended
March 28, 2009, compared to an income tax benefit of $64.3 million for the three
months ended March 29, 2008. The income tax benefit decreased over prior year as
a result of the Company's decision to record a valuation allowance against net
deferred tax assets, including net operating losses and credit carryforwards, in
the US and Mexico.
Loss from operation of discontinued
business. The Company generated income from the operation of
its discontinued turkey business of $40,000 ($25,000, net of tax) in the second
quarter of 2009 compared to a loss of $1.4 million ($0.8 million, net of tax) in
the second quarter of 2008. Net sales generated by the discontinued turkey
business in the second quarter of 2008 were $10.2 million. There were no net
sales generated by the discontinued turkey business in the second quarter of
2009.
Gain on disposal of discontinued
business. In March 2008, the Company sold certain assets of
its discontinued turkey business and recognized a gain of $1.5 million ($0.9
million, net of tax).
First
Six Months of 2009 Compared to First Six Months of 2008
Net sales. Net
sales for the first six months of 2009 decreased $573.1 million, or 13.8%, from
the first six months of 2008. The following table provides net sales
information:
|
|
|
|
|
Change
from First Six Months
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Six Months
|
|
|
|
|
|
Source
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(In
thousands, except percent data)
|
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
3,063,257 |
|
|
$ |
(387,852 |
) |
|
|
(11.2 |
)
% |
(a)
|
Mexico
|
|
|
245,117 |
|
|
|
(3,193 |
) |
|
|
(1.3 |
)
% |
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
3,308,374 |
|
|
|
(391,045 |
) |
|
|
(10.6 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
250,367 |
|
|
|
(183,929 |
) |
|
|
(42.4 |
)
% |
(c)
|
Mexico
|
|
|
16,352 |
|
|
|
1,920 |
|
|
|
13.3
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
266,719 |
|
|
|
(182,009 |
) |
|
|
(40.6 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net sales
|
|
$ |
3,575,093 |
|
|
$ |
(573,054 |
) |
|
|
(13.8 |
)
% |
|
|
(a)
|
US
chicken sales generated in the first six months of 2009 decreased 11.2%
from US chicken sales generated in the first six months of 2008. Sales
volume decreased 12.6% primarily because of previously announced
production cutbacks. Net revenue per pound sold increased 1.5% from the
prior year primarily because of increased sales prices on a majority of
product lines.
|
|
|
(b)
|
Mexico
chicken sales generated in the first six months of 2009 decreased 1.3%
from Mexico chicken sales generated in the first six months of 2008. Sales
volume increased 3.0% from the prior year and net revenue per pound sold
decreased 4.1% from the prior year primarily because of increased sales of
live chicken.
|
|
|
(c)
|
US
sales of other products generated in the first six months of 2009
decreased 42.4% from US sales of other products generated in the first six
months of 2008 mainly as the result of reduced sales volumes on commercial
eggs and protein conversion products partially offset by increased sales
prices on protein conversion products. The decrease in protein conversion
products sales volumes resulted primarily from the ongoing impact of a
fire suffered by one of Company’s protein conversion facilities in late
2008. Protein conversion is the process of converting poultry byproducts
into raw materials for grease, animal feed, biodiesel and feed-stock for
the chemical industry.
|
Pilgrim's
Pride Corporation
March
28, 2009
Gross profit
(loss). Gross profit decreased by $54.9 million, or 78.7%,
from $69.7 million in the first six months of 2008 to $14.8 million in the first
six months of 2009. The following table provides gross profit (loss)
information.
|
|
|
|
|
|
|
|
Percent
of Net Sales
|
|
|
|
|
|
|
|
Change
from
|
|
|
First
|
|
|
First
|
|
|
|
|
First
Six
|
|
|
First
Six Months 2008
|
|
|
Six
|
|
|
Six
|
|
|
|
|
Months
|
|
|
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
Components
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In
thousands, except percent data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
3,575,093 |
|
|
$ |
(573,054 |
) |
|
|
(13.8 |
)
% |
|
|
100.0
|
% |
|
|
100.0
|
% |
|
Cost
of sales
|
|
|
3,560,247 |
|
|
|
(506,176 |
) |
|
|
(12.4 |
)
% |
|
|
99.6
|
% |
|
|
98.0
|
% |
(a)
|
Asset
impairment
|
|
|
— |
|
|
|
(12,022 |
) |
|
|
(100.0 |
)
% |
|
|
—
|
% |
|
|
0.3
|
% |
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
$ |
14,846 |
|
|
$ |
(54,856 |
) |
|
|
(78.7 |
)
% |
|
|
0.4
|
% |
|
|
1.7
|
% |
(c)
|
|
(a)
|
Cost
of sales incurred by the US operations during the first six months of 2009
decreased $493.6 million from cost of sales incurred by the US operations
during the first six months of 2008. This decrease occurred because of
production cutbacks, decreased feed ingredient purchases and decreased
feed ingredient prices during the first six months of 2009 offset by an
aggregate net loss of $21.4 million which the Company recognized during
the first quarter of 2009 on derivative financial instruments executed in
previous quarters to manage its exposure to changes in corn and soybean
meal prices. The Company recognized an aggregate net gain of $13.2 million
during the first six months of 2008 on derivative financial instruments.
Cost of sales incurred by the Mexico operations during the first six
months of 2009 increased $12.6 million from cost of sales incurred by the
Mexico operations during the first six months of 2008 primarily because
increased feed ingredient costs.
|
|
|
(b)
|
The
Company incurred charges totaling $12.0 million, composed of inventory and
property, plant and equipment impairment costs, related to restructuring
actions taken in the first six months of 2008.
|
|
|
(c)
|
Gross
profit as a percent of net sales generated in the first six months of 2009
decreased 1.3 percentage points from gross profit as a percent of sales
generated in the first six months of 2008 primarily because of the net
loss recognized on derivative financial instruments during the first
quarter of 2009.
|
Pilgrim's
Pride Corporation
March
28, 2009
Operating income
(loss). Operating loss incurred increased $15.0 million,
or 10.5%, from $142.9 million for the first six months of 2008 to $157.9
million for the first six months of 2009. The following tables provide operating
income (loss) information:
|
|
|
|
|
Change
from First Six Months
|
|
|
|
|
|
|
2008
|
|
|
|
First
Six Months
|
|
|
|
|
Source
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
(In
thousands, except percent data)
|
|
Chicken:
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
(167,707 |
) |
|
$ |
7,949 |
|
|
|
4.5
|
% |
Mexico
|
|
|
3,854 |
|
|
|
11,666 |
|
|
|
149.3
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
chicken
|
|
|
(163,853 |
) |
|
|
19,615 |
|
|
|
10.7
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
products:
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
|
4,174 |
|
|
|
(52,061 |
) |
|
|
(92.6 |
)
% |
Mexico
|
|
|
3,732 |
|
|
|
1,767 |
|
|
|
89.9
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other products
|
|
|
7,906 |
|
|
|
(50,294 |
) |
|
|
(86.4 |
)
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
impairment
|
|
|
— |
|
|
|
12,022 |
|
|
|
100.0
|
% |
Restructuring
items, net
|
|
|
(1,987 |
) |
|
|
3,682 |
|
|
|
64.9
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating loss
|
|
$ |
(157,934 |
) |
|
$ |
(14,975 |
) |
|
|
(10.5 |
)
% |
|
|
|
|
|
|
|
|
Percent
of Net Sales
|
|
|
|
|
|
|
|
Change
from
|
|
|
First
|
|
|
First
|
|
|
|
|
First
Six
|
|
|
First
Six Months 2008
|
|
|
Six
|
|
|
Six
|
|
|
|
|
Months
|
|
|
|
|
|
Months
|
|
|
Months
|
|
|
Components
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(In
thousands, except percent data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
14,846 |
|
|
$ |
(54,856 |
) |
|
|
(78.7 |
)
% |
|
|
0.4
|
% |
|
|
1.7
|
% |
|
SG&A
expenses
|
|
|
170,793 |
|
|
|
(36,199 |
) |
|
|
(17.5 |
)
% |
|
|
4.8
|
% |
|
|
5.0
|
% |
(a)
|
Restructuring
items, net
|
|
|
1,987 |
|
|
|
(3,682 |
) |
|
|
(64.9 |
)
% |
|
|
—
|
% |
|
|
0.1
|
% |
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
$ |
(157,934 |
) |
|
$ |
(14,975 |
) |
|
|
(10.5 |
)
% |
|
|
(4.4 |
)
% |
|
|
(3.4 |
)
% |
(c)
|
|
(a)
|
SG&A
expenses incurred by the US operations during the first six months of 2009
decreased 17.6% from SG&A expenses incurred by the US operations
during the first six months of 2008 primarily because of reductions in
employee compensation and related benefit costs resulting from
restructuring actions taken in 2008 and 2009.
|
|
|
(b)
|
The
Company incurred charges totaling $2.0 million, composed primarily of
severance costs, related to restructuring actions taken in the first six
months of 2009 partially offset by the elimination of accrued severance
costs in excess of actual severance costs incurred for several of the 2008
restructuring actions during the second quarter of 2009, the assumption of
the Duluth, Georgia lease obligation by an outside party during the second
quarter of 2009 and the elimination of accrued other restructuring costs
in excess of actual other restructuring costs incurred for several of the
2008 restructuring actions during the second quarter of 2009. The Company
incurred charges totaling $5.7 million, composed of severance and facility
shutdown costs, related to restructuring actions taken in the first six
months of 2008.
|
|
|
(c)
|
Operating
loss as a percent of net sales generated in the first six months of 2009
increased 1.0 percentage point from operating loss as a percent of sales
generated in the first six months of 2008 primarily because of
deterioration in gross profit performance and charges related to 2008
restructuring actions.
|
Interest expense. Interest expense
increased 34.8% to $86.0 million in the first six months of 2009 from $63.8
million in the first six months of 2008 primarily because of increased
borrowings. As a percentage of sales, interest expense in the first six months
of 2009 increased to 2.4% from 1.5% in the first six months of
2008.
Pilgrim's
Pride Corporation
March
28, 2009
Miscellaneous,
net. Consolidated miscellaneous income decreased from $4.0
million in the first six months of 2008 to $3.2 million in the first six months
of 2009 primarily because of unfavorable currency exchange results due to a
decrease in the average exchange rate between the Mexican peso and the US dollar
during those two periods.
Reorganization
items. The Company incurred reorganization costs of $48.6
million in the first six months of 2009. These costs included (1) financing fees
associated with the DIP Credit Agreement; (2) professional fees charged for
reorganization services; (3) severance, live flock impairment and inventory
disposal costs related to the upcoming closures of facilities in Douglas,
Georgia; El Dorado, Arkansas; Farmerville, Louisiana and Franconia,
Pennsylvania, (4) severance costs related to both the closed distribution
center in Houston, Texas, the Operations management reduction-in-force action in
February 2009 and reduced or consolidated production at various facilities
throughout the US and (5) fees related to the termination of the
RPA.
Income taxes. The
Company recorded income tax expense of $2.6 million for the six months ended
March 28, 2009, compared to an income tax benefit of $57.0 million for the six
months ended March 29, 2008. The income tax benefit decreased over prior year as
a result of the Company's decision to record a valuation allowance against net
deferred tax assets, including net operating losses and credit carryforwards, in
the US and Mexico.
Loss from operation of discontinued
business. The Company generated income from the operation of
its discontinued turkey business of $1.0 million ($0.6 million, net of tax) in
the first six months of 2009 compared to a loss of $22,000 ($13,000, net of tax)
in the first six months of 2008. Net sales generated by the discontinued turkey
business in the first six months of 2009 and the first six months of 2008 were
$25.8 million and $56.0 million, respectively.
Gain on disposal of discontinued
business. In March 2008, the Company sold certain assets of
its discontinued turkey business and recognized a gain of $1.5 million ($0.9
million, net of tax).
Pilgrim's
Pride Corporation
March
28, 2009
Liquidity
and Capital Resources
The
following table presents our available sources of liquidity as of March 28,
2009:
|
|
Facility
|
|
|
Amount
|
|
|
|
|
|
Source
of Liquidity
|
|
Amount
|
|
|
Outstanding
|
|
|
Available
|
|
|
|
|
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
45.0 |
|
|
Investments
in available-for-sale securities
|
|
|
— |
|
|
|
— |
|
|
|
8.1 |
|
|
Debt
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIP
Credit Agreement expiring 2009
|
|
|
450.0 |
|
|
|
89.8 |
|
|
|
246.0 |
|
(a)(b)
|
Revolving
credit facility expiring 2011
|
|
|
39.0 |
|
|
|
39.0 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Actual borrowings by the Company
under the DIP Credit Agreement are subject to a borrowing base, which is a
formula based on certain eligible inventory and eligible
receivables. The borrowing base at March 28, 2009 was
$335.8 million.
|
|
|
(b)
|
At
May 6, 2009, total funds available for borrowing under the DIP Credit
Agreement were $322.7 million and outstanding borrowings under the DIP
Credit Agreement totaled $43.0
million.
|
At March
28, 2009, the Company had $216.2 million outstanding under its revolving credit
facility expiring in 2013 and $1,126.4 million outstanding under its
revolver/term credit agreement expiring in 2016. At that time, the Company was
party to outstanding standby letters of credit totaling $68.8 million. The
filing of the Chapter 11 petitions constituted an event of default under, among
other of our debt obligations, the revolving credit facility expiring in 2013
and the revolver/term credit agreement expiring in 2016. Outstanding obligations
under these facilities became automatically and immediately due and payable,
subject to an automatic stay of any action to collect, assert, or recover a
claim against the Company and the application of applicable bankruptcy law.
Funds are no longer available for borrowing under these two
facilities.
Debt
Obligations
As
previously discussed, on December 1, 2008, the Debtors filed voluntary petitions
in the Bankruptcy Court seeking reorganization relief under the Bankruptcy Code.
The filing of the Chapter 11 petitions constituted an event of default
under certain of our debt obligations, and those debt obligations became
automatically and immediately due and payable, subject to an automatic stay of
any action to collect, assert, or recover a claim against the Company and the
application of applicable bankruptcy law. As a result, the accompanying
Consolidated Balance Sheet as of September 27, 2008 includes reclassifications
of $1,872.1 million to reflect as current certain long-term debt under the
Company’s credit facilities that, absent the stay, would have become
automatically and immediately due and payable. Because of the bankruptcy
petition, most of the Company’s pre-petition long-term debt is included in Liabilities subject to
compromise at March 28, 2009. The Company classifies pre-petition
liabilities subject to compromise as a long-term liability because management
does not believe the Company will use existing current assets or create
additional current liabilities to fund these obligations.
Pilgrim's
Pride Corporation
March
28, 2009
On
December 2, 2008, the Bankruptcy
Court granted interim approval authorizing the Company and the Subsidiaries to
enter into the Initial DIP Credit Agreement with the DIP Agent and the
lenders party thereto. On
December 2, 2008, the Company, the
US Subsidiaries and the other parties entered into the Initial DIP Credit
Agreement, subject to final approval of the Bankruptcy Court. On December
30, 2008, the Bankruptcy Court granted
final approval authorizing the Company and the Subsidiaries to enter into the
DIP Credit Agreement dated
December 31, 2008 among the
Company, as borrower, the Subsidiaries, as guarantors, the DIP Agent, and the
lenders party thereto.
The DIP Credit Agreement provides for an
aggregate commitment of up to $450 million, which permits borrowings on a
revolving basis. The commitment includes a $25 million sub-limit for swingline
loans and a $20 million sub-limit for standby letters of credit.
Outstanding borrowings under the DIP Credit Agreement will bear interest
at a per annum rate equal to 8.0% plus the greatest of (i) the prime rate as
established by the DIP Agent from time to time, (ii) the average federal
funds rate plus 0.5%, or (iii) the LIBOR rate plus 1.0%, payable
monthly. The weighted
average interest rate for the three and six months ended March 28, 2009 was
11.25% and 11.47%, respectively. The loans under the Initial DIP Credit
Agreement were used to repurchase all receivables sold under the Company's RPA.
Loan under the DIP Credit Agreement may be used to fund the working capital
requirements of the Company and its subsidiaries according to a budget as
approved by the required lenders under the DIP Credit Agreement. For additional
information on the RPA, see "Off-Balance Sheet
Arrangements."
Actual borrowings by the Company under
the DIP Credit Agreement are subject to a borrowing base, which is a formula
based on certain eligible inventory and eligible receivables. The borrowing base
formula is reduced by (i) pre-petition obligations under the Fourth Amended and
Restated Secured Credit Agreement dated as of February 8, 2007, among the
Company and certain of its subsidiaries, Bank of Montreal, as administrative
agent, and the lenders parties thereto, as amended, (ii) administrative and
professional expenses incurred in connection with the bankruptcy proceedings,
and (iii) the amount owed by the Company and the Subsidiaries to any person on
account of the purchase price of agricultural products or services (including
poultry and livestock) if that person is entitled to any grower's or producer's
lien or other security arrangement. The borrowing base is also limited to 2.22
times the formula amount of total eligible receivables. The DIP Credit Agreement
provides that the Company may not incur capital expenditures in excess of $150
million. The Company must also meet minimum monthly levels of EBITDAR. Under the
DIP Credit Agreement, "EBITDAR" means, generally, net income before interest,
taxes, depreciation, amortization, writedowns of goodwill and other intangibles,
asset impairment charges and other specified costs, charges, losses and gains. The DIP
Credit Agreement also provides for certain other covenants, various
representations and warranties, and events of default that are customary for
transactions of this nature. As of March 28, 2009, the applicable borrowing base was
$335.8 million and the amount available for
borrowings under the DIP Credit Agreement was $246.0 million. As of May 6, 2009, the applicable borrowing base
was $365.7 million, the amount available for borrowings
under the DIP Credit Agreement was $322.7 million and outstanding borrowings under the
DIP Credit Agreement totaled $43.0 million.
Pilgrim's
Pride Corporation
March
28, 2009
The principal amount of outstanding
loans under the DIP Credit Agreement, together with accrued and unpaid interest
thereon, are payable in full at maturity on December 1, 2009, subject to
extension for an additional six months with the approval of all lenders
thereunder. All obligations under the DIP Credit Agreement are unconditionally
guaranteed by the Subsidiaries and are secured by a first priority priming lien
on substantially all of the assets of the Company and the Subsidiaries, subject
to specified permitted liens in the DIP Credit
Agreement.
Under the
terms of the DIP Credit Agreement and applicable bankruptcy law, the Company may
not pay dividends on the common stock while it is in bankruptcy. Any payment of
future dividends and the amounts thereof will depend on our emergence from
bankruptcy, our earnings, our financial requirements and other factors deemed
relevant by our Board of Directors at the time.
During the first six months of 2009, the
Company borrowed $616.7 million and repaid $525.6 million under the secured
revolver/term credit agreement expiring in 2016, borrowed $214.1 million and repaid $179.7 million under the secured revolving
credit facility expiring in 2013, borrowed $376.1 million and repaid $286.3 million under the DIP Credit Agreement and
repaid $14.4 million under other
facilities.
On
November 30, 2008, certain non-Debtor Mexico subsidiaries of the Company (the
"Mexico Subsidiaries") entered into a Waiver Agreement and Second Amendment to
Credit Agreement (the "Waiver Agreement") with ING Capital LLC, as agent (the
"Mexico Agent"), and the lenders signatory thereto (the "Mexico Lenders"). Under
the Waiver Agreement, the Mexico Agent and the Mexico Lenders waived any default
or event of default under the Credit Agreement dated as of September 25, 2006,
by and among the Company, the Mexico Subsidiaries, the Mexico Agent and the
Mexico Lenders, the administrative agent, and the lenders parties thereto (the
"ING Credit Agreement"), resulting from the Company's filing of its bankruptcy
petition with the Bankruptcy Court. Pursuant to the Waiver Agreement,
outstanding amounts under the ING Credit Agreement now bear interest at a rate
per annum equal to: the LIBOR Rate, the Base Rate, or the TIIE Rate, as
applicable, plus the Applicable Margin (as those terms are defined in the ING
Credit Agreement). While the Company is operating in Chapter 11, the Waiver
Agreement provides for an Applicable Margin for LIBOR loans, Base Rate loans,
and TIIE loans of 6.0%, 4.0%, and 5.8%, respectively. The Waiver Agreement
further amended the ING Credit Agreement, which expires in 2011, to require the
Company to make a mandatory prepayment of the revolving loans, in an aggregate
amount equal to 100% of the net cash proceeds received by any Mexico Subsidiary,
as applicable, in excess of thresholds specified in the ING Credit Agreement (i)
from the occurrence of certain asset sales by the Mexico Subsidiaries; (ii) from
the occurrence of any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceedings of, any
property or asset of any Mexico Subsidiary; or (iii) from the incurrence of
certain indebtedness by a Mexico Subsidiary. Any such mandatory prepayments will
permanently reduce the amount of the commitment under the ING Credit
Agreement. In connection with the Waiver Agreement, the Mexico
Subsidiaries pledged substantially all of their receivables, inventory, and
equipment and certain fixed assets. The Mexico Subsidiaries are excluded from
the US bankruptcy proceedings.
Pilgrim's
Pride Corporation
March
28, 2009
The filing of the bankruptcy petitions
constituted an event of default under the secured credit agreement expiring in
2013 and the secured revolver/term credit agreement expiring in 2016 (together,
the “Secured Debt”) as well as the 7 5/8% Senior Notes due 2015, the 8 3/8%
Senior Subordinated Notes due 2017 and the 9 1/4% Senior Subordinated Notes due
2013 (together, the “Unsecured Debt”). The aggregate principal amount owed under
these credit agreements and notes was approximately $1,999.6 million as of March 28,
2009. As a result of such event of
default, all obligations under these agreements became automatically and
immediately due and payable, subject to an automatic stay of any action to
collect, assert, or recover a claim against the Company and the application of
applicable bankruptcy law. As a result of the Company's Chapter 11
filing, after December 1, 2008, the Company accrued interest incurred on the
Secured Debt at the default rate, which is two percent above the interest rate
otherwise applicable under the associated credit agreements. Although the
agreements related to the Unsecured Debt call for the accrual of interest after
December 1, 2008 at a default rate that is two percent above the interest rate
otherwise applicable under the associated note agreements, the Company has
elected to accrue interest incurred on the Unsecured Debt, for accounting
purposes, at the interest rate otherwise applicable under the associated note
agreements until such time, if any, that the Bankruptcy Court approves the
payment of interest or default interest incurred on the Unsecured Debt. Had the
Company accrued interest incurred on the Unsecured Debt at the default rate, it
would have recognized additional interest expense totaling $3.3 million and $4.4
million in the three and six months ended March 28, 2009.
Off-Balance
Sheet Arrangements
In June
1999, the Camp County Industrial Development Corporation issued $25 million of
variable-rate environmental facilities revenue bonds supported by letters of
credit obtained by us under our secured revolving credit facility expiring in
2013. The revenue bonds become due in 2029. Prior to our bankruptcy filing,
the proceeds were available for the Company to draw from over the construction
period in order to construct new sewage and solid waste disposal facilities at a
poultry by-products plant in Camp County, Texas. The original proceeds from the
issuance of the revenue bonds continue to be held by the trustee of the
bonds until we draw on the proceeds for the construction of the
facility. We had not drawn on the proceeds or commenced construction of the
facility prior to our bankruptcy filing. The filing of the bankruptcy petitions
constituted an event of default under these bonds. As a result of the event of
default, the trustee has the right to accelerate all obligations under the bonds
such that they become immediately due and payable, subject to an automatic stay
of any action to collect, assert, or recover a claim against the Company and the
application of applicable bankruptcy law. In December 2008, the holders of
the bonds tendered the bonds for remarketing, which was not successful. As a
result, the trustee,
on behalf of the holders of
the bonds, drew upon the letters of credit
supporting the bonds. The resulting reimbursement obligation was converted
to borrowings under the secured revolving credit facility expiring in 2013
and secured by our domestic chicken inventories. On January 29, 2009, we
obtained approval from the Bankruptcy Court to use the original proceeds of the
bond offering held by the trustee to repay and cancel
the revenue bonds. We
received the proceeds of the bond offering from the trustee in March 2009 and
immediately repaid and cancelled the revenue bonds.
Pilgrim's
Pride Corporation
March
28, 2009
In
connection with the RPA, the Company sold, on a revolving basis, certain of its
trade receivables to a special purpose entity (“SPE”) wholly owned by the
Company, which in turn sold a percentage ownership interest to third parties.
The SPE was a separate corporate entity and its assets were available first and
foremost to satisfy the claims of its creditors. The gross
proceeds resulting from the sales were included in cash flows from operating
activities in the Consolidated Statements of Cash Flows. The loss
recognized on the sold receivables during the six months ended March 28, 2009
was not material. On
December 3, 2008, the RPA was terminated and all receivables thereunder
were repurchased with proceeds of borrowings under the DIP Credit
Agreement.
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.
Historical
Flow of Funds
Cash used
in operating activities was $163.0 million and $245.7 million for the six months
ended March 28, 2009 and March 29, 2008, respectively. The decrease in cash used
in operating activities was primarily the result of favorable changes in both
operating assets and liabilities and deferred tax benefits partially offset by
the significantly larger net loss incurred in the first six months of 2009 as
compared to the net loss incurred in the first six months of 2008.
Our
working capital position increased $1,975.7 million to a surplus of $713.5
million and a current ratio of 2.05 compared with a deficit of
$1,262.2 million and a current ratio of 0.53 at September 27, 2008
primarily because of a significant decrease in current maturities of long-term
debt and the other working capital changes discussed below. Current maturities
of long-term debt decreased from $1,874.5 million at September 27, 2008 to $0 at
March 28, 2009 as most long-term debt was classified as liabilities subject to
compromise because of the bankruptcy proceedings.
Trade
accounts and other receivables increased $167.3 million, or 116.1%, to $311.5
million at March 28, 2009 from $144.2 million at September 27, 2008. This
increase resulted primarily from our repurchase of receivables originally sold
under the RPA. On December 3,
2008, the RPA was
terminated and all receivables thereunder were repurchased with proceeds of
borrowings under the DIP Credit Agreement.
Inventories
decreased $210.7 million, or 20.3%, to $825.5 million at March 28, 2009 from
$1,036.2 million at September 27, 2008 due to lower feed ingredient prices and
several actions taken by the Company. These actions include the Company’s
previously announced production cutbacks and plant closures that resulted in
reduced live flock inventories, feed inventories, and packaging and other
supplies inventories. Additionally, the Company made a concerted effort early in
the year to sell down surplus inventories in order to generate
cash.
Pilgrim's
Pride Corporation
March
28, 2009
Prepaid
expenses and other current assets decreased $22.2 million, or 31.0%, to $49.4
million at March 28, 2009 from $71.6 million at September 27, 2008. This
decrease occurred primarily because the Company suspended the use of derivative
financial instruments in response to its current financial condition. We settled
all outstanding derivative financial instruments in October 2008.
Accounts
payable decreased $114.4 million, or 30.2%, to $264.5 million at March 28, 2009
from $378.9 million at September 27, 2008. This decrease occurred for various
reasons, including lower feed ingredient prices, the impact of the Company’s
previously announced production cutbacks and because certain vendors with which
the Company previously maintained open trade accounts required prepayments for
all future deliveries after learning about the Company’s current financial
condition. At March 28, 2009, we classified accounts payable totaling $52.7
million as liabilities subject to compromise because of the
bankruptcy.
Accrued
expenses decreased $129.2 million, or 28.8%, to $319.6 million at March 28, 2009
from $448.8 million at September 27, 2008. This decrease resulted from
reductions in the accrued balances for marketing, restructuring, severance and
utilities costs. At March 28, 2009, we classified accrued expenses totaling
$129.7 million as liabilities subject to compromise because of the
bankruptcy.
Cash used
in investing activities was $49.9 million and $56.0 million for the first six
months of 2009 and 2008, respectively. Capital expenditures of $48.4 million and
$70.2 million for the six months ended March 28, 2009 and March 29, 2008,
respectively, were primarily incurred for the routine replacement of equipment
and to improve efficiencies and reduce costs. Capital expenditures for 2009 will
be restricted to routine replacement of equipment in our current operations in
addition to important projects we began in 2008 and will not exceed the $150
million amount allowed under the DIP Credit Agreement. Cash was used to purchase
investment securities totaling $12.1 million and $18.5 million in the first six
months of 2009 and 2008, respectively. Cash proceeds in the first six months of
2009 and 2008 from the sale or maturity of investment securities were $8.8
million and $14.0 million, respectively. Restricted cash increased $6.7 million
in the first six months of 2009 to collateralize a standby letter of credit
guaranteeing certain self insurance obligations. Cash proceeds from property
disposals for the six months ended March 28, 2009 and March 29, 2008 were
$8.4 million and $18.7 million, respectively.
Pilgrim's
Pride Corporation
March
28, 2009
Cash
provided by financing activities was $197.2 million and $332.8 million for the six months
ended March 28, 2009 and March 29, 2008, respectively. Cash proceeds in the
first six months of 2009 from short-term notes payable were $376.1 million. Cash
was used to repay short-term notes payable totaling $286.3 million in the first
six months of 2009. Cash proceeds in the first six months of 2009 and 2008 from
long-term debt were $830.7 million and $810.5 million, respectively. Cash was
used to repay long-term debt totaling $719.6 million and $498.9 million in the
first six months of 2009 and 2008, respectively. Cash used in the first six
months of 2009 because of a decrease in outstanding cash management obligations
totaled $3.6 million. Cash provided in the first six months of 2008 because of
an increase in outstanding cash management obligations totaled $24.2 million.
Cash was used for other financing activities totaling $0.1 million in the
first six months of 2009. Cash was used to pay dividends totaling $3.0 million
in the first six months of 2008.
The only
material changes during the six months ended March 28, 2009, outside the
ordinary course of business, in the specified contractual obligations presented
in the Company’s Annual Report on Form 10-K for 2008 were the borrowings and
repayments under the DIP Credit Agreement. At March 28, 2009, payments due in
less than one year on obligations under the DIP Credit Agreement totaled $89.8
million.
Accounting
Pronouncements
Discussion regarding our
pending adoption of Statement of Financial Accounting Standards (“SFAS”)
No. 141(R), Business
Combinations, SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51, Financial Accounting
Standards Board Staff Position (“FSP”) FAS142-3, Determination of the Useful Life of
Intangible Assets, and FSP FAS132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, is included in Note B—Basis of
Presentation to our Consolidated Financial Statements included elsewhere in this
report.
Critical
Accounting Policies
During
the six months ended March 28, 2009, (i) we did not change any of our existing
critical accounting policies, (ii) 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 (iii) there were no significant changes in
the manner in which critical accounting policies were applied or in which
related judgments and estimates were developed.
Pilgrim's
Pride Corporation
March
28, 2009
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. In the past, we have from time to time
attempted to minimize our exposure to the changing price and availability of
such feed ingredients using various techniques, including, but not limited to,
(i) executing purchase agreements with suppliers for future physical
delivery of feed ingredients at established prices and (ii) purchasing or
selling derivative financial instruments such as futures and options. Pursuant
to a covenant in the DIP Credit Agreement, we agreed that we would not enter
into any derivative financial instruments without the prior written approval of
lenders holding more than 50% of the commitments under the DIP Credit Agreement,
except for commodity derivative instruments entered into at the request or
direction of a customer, and in any case, only with financial institutions in
connection with bona fide activities in the ordinary course of business and not
for speculative purposes.
Market
risk is estimated as a hypothetical 10% increase in the weighted-average cost of
our primary feed ingredients as of March 28, 2009. Based on our feed consumption
during the six months ended March 28, 2009, such an increase would have resulted
in an increase to cost of sales of approximately $125.1 million, excluding the
impact of any feed ingredients derivative financial instruments in that period.
A 10% change in ending feed ingredients inventories at March 28, 2009 would be
$7.3 million, excluding any potential impact on the production costs of our
chicken 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. Our variable-rate debt instruments represented
56.9% of our long-term debt at March 28, 2009. Holding other variables constant,
including levels of indebtedness, a 25-basis-points increase in interest rates
would have increased our interest expense by $1.5 million for the first six
months of 2009. These amounts are determined by considering the impact of the
hypothetical interest rates on our variable-rate long-term debt at March 28,
2009. Due to our current financial condition, our public fixed-rate debt is
trading at a substantial discount. As of March 28, 2009, the most recent trades
of our 7 5/8% senior unsecured notes and 8 3/8% senior subordinated unsecured
notes were executed at average prices of $67.46 per $100.00 par value and $41.82
per $100.00 par value, respectively. Management expects that the fair value of
our non-public fixed-rate debt has also decreased, but cannot reliably estimate
the fair value at this time.
Pilgrim's
Pride Corporation
March
28, 2009
Foreign
Currency
Our
earnings are also affected by foreign currency exchange rate fluctuations
related to the Mexican peso net monetary position of our Mexican 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 because of devaluation of their currency. The
impact on our financial position 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
Mexican subsidiaries denominated in Mexican pesos, was a gain of $0.2 million in
the first six months of 2009 and a gain of $0.4 million in the first six months
of 2008. The average exchange rates for the first six months of 2009 and 2008
were 13.66 Mexican pesos to 1 US dollar and 10.84 Mexican pesos to 1 US dollar,
respectively. No assurance can be given as to how future movements in the
Mexican peso could affect our future financial condition or results of
operations.
Quality
of Investments
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
significant amounts of structured investment vehicles, auction rate securities,
collateralized debt obligations, credit derivatives, hedge funds investments,
fund of funds investments or perpetual preferred securities. Certain
postretirement funds in which the Company participates hold significant amounts
of mortgage-backed securities. However, none of the mortgages collateralizing
these securities are considered subprime.
Pilgrim's
Pride Corporation
March
28, 2009
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 chicken industry generally, including fluctuations in the
commodity prices of feed ingredients and
chicken;
|
§
|
Actions
and decisions of our creditors and other third parties with interests in
our Chapter 11 proceedings;
|
§
|
Our
ability to obtain court approval with respect to motions in the Chapter 11
proceedings prosecuted from time to
time;
|
§
|
Our
ability to develop, prosecute, confirm and consummate a plan of
reorganization with respect to the Chapter 11
proceedings;
|
§
|
Our
ability to obtain and maintain commercially reasonable terms with vendors
and service providers;
|
§
|
Our
ability to maintain contracts that are critical to our
operations;
|
§
|
Our
ability to retain management and other key
individuals;
|
§
|
Our ability to successfully enter
into, obtain court approval of and close anticipated asset sales under
Section 363 of the Bankruptcy
Code;
|
§
|
Certain
of the Company's restructuring activities, including selling assets,
idling facilities, reducing production and reducing workforce, will result
in reduced capacities and sales volumes and may have a disproportionate
impact on our income relative to the cost
savings.
|
§
|
Risks
associated with third parties seeking and obtaining court approval to
terminate or shorten the exclusivity period for us to propose and confirm
a plan of reorganization, to appoint a Chapter 11 trustee or to convert
the cases to Chapter 7 cases;
|
§
|
Risk
that the amounts of cash from operations together with amounts available
under our DIP Credit
Agreement will not be sufficient to fund our
operations;
|
§
|
Management
of our cash resources, particularly in light of our bankruptcy proceedings
and our substantial leverage;
|
§
|
Restrictions
imposed by, and as a result of, our bankruptcy proceedings and our
substantial leverage;
|
§
|
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;
|
§
|
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;
|
Pilgrim's
Pride Corporation
March
28, 2009
§
|
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 2008 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.
Pilgrim's
Pride Corporation
March
28, 2009
ITEM 4. CONTROLS AND PROCEDURES
As of
March 28, 2009, 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
connection with the evaluation described above, the Company’s management,
including the Senior Chairman of the Board, Chief Executive Officer and Chief
Financial Officer, identified no other change in the Company’s internal control
over financial reporting that occurred during the Company’s quarter ended March
28, 2009 and that has materially affected, or is reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
Pilgrim's
Pride Corporation
March
28, 2009
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
On
December 1, 2008, the Debtors filed voluntary petitions for reorganization under
Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The cases are being
jointly administered under Case No. 08-45664. The Debtors continue to operate
their business as "debtors-in-possession" under the jurisdiction of the
Bankruptcy Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court. As of the date of the
Chapter 11 filing, virtually all pending litigation against the Company
(including the actions described below) is stayed as to the Company, and absent
further order of the Bankruptcy Court, no party, subject to certain exceptions,
may take any action, also subject to certain exceptions, to recover on
pre-petition claims against the Debtors. At this time it is not possible to
predict the outcome of the Chapter 11 filings or their effect on our business or
the actions described below.
On December 17, 2008, Kenneth Patterson
filed suit in the United States District Court for the Eastern District of
Texas, Marshall Division, against Lonnie “Bo” Pilgrim, Lonnie “Ken” Pilgrim,
Clifford E. Butler, J. Clinton Rivers, Richard A. Cogdill, Renee N. DeBar,
Pilgrim’s Pride Compensation Committee and other unnamed defendants. The
complaint, brought pursuant to section 502 of the Employee Retirement Income
Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132, alleges that the individual
defendants breached fiduciary duties to participants and beneficiaries of the
Pilgrim’s Pride Stock Investment Plan (the “Plan”), as administered through the
Retirement Savings Plan, and the To-Ricos, Inc. Employee Savings and Retirement
Plan (collectively, and together with the Plan, the “Plans”). The allegations in
the complaint are similar to the allegations made in the Alcaldo case discussed
below. Patterson further alleges that he purports to represent a class of all
persons or entities who were participants in or beneficiaries of the Plan at any
time between May 5, 2008 through the present and whose accounts held Company
stock or units in Pilgrim’s Pride stock. The complaint seeks actual damages in
the amount of any losses the Plan suffered, to be allocated among the
participants’ individual accounts as benefits due in proportion to the accounts’
diminution in value, attorneys’ fees, an order for equitable restitution and the
imposition of constructive trust, and a declaration that each of the defendants
have breached their fiduciary duties to the Plan participants. Although the
Company is not a named defendant in this action, our bylaws require us to
indemnify our current and former directors and officers from any liabilities and
expenses incurred by them in connection with actions they took in good faith
while serving as an officer or director. The likelihood of an unfavorable
outcome or the amount or range of any possible loss to the Company cannot be
determined at this time. On
January 23, 2009, Patterson filed a motion to consolidate the subsequently
filed, similar Smalls case, which is discussed below, into this
action. The
defendants filed a dispositive motion seeking to dismiss the Patterson complaint
on April 16, 2009. Mr. Patterson will be allowed a response brief under the
rules, and the defendants will be allowed to submit a reply.
Pilgrim's
Pride Corporation
March
28, 2009
On January 2, 2009, Denise M. Smalls
filed suit in the United States District Court for the Eastern District of
Texas, Marshall Division, against Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim,
Clifford E. Butler, J. Clinton Rivers, Richard A. Cogdill, Renee N. DeBar,
Pilgrim’s Pride Compensation Committee and other unnamed defendants. The
complaint and the allegations are similar to those filed in the Patterson case
discussed above. Smalls alleges that she purports to represent a class of all
persons or entities who were participants in or beneficiaries of the Plan at any
time between May 5, 2008 through the present and whose accounts held Company
stock or units in Pilgrim’s Pride stock. The complaint seeks actual damages in
the amount of any losses the Plan suffered, to be allocated among the
participants’ individual accounts as benefits due in proportion to the accounts’
diminution in value, attorneys’ fees; an order for equitable restitution and the
imposition of constructive trust; and a declaration that each of the defendants
have breached their fiduciary duties to the Plan participants. Although the
Company is not a named defendant in these actions, our bylaws require us to
indemnify our current and former directors and officers from any liabilities and
expenses incurred by them in connection with actions they took in good faith
while serving as an officer or director. The likelihood of an unfavorable
outcome or the amount or range of any possible loss to the Company cannot be
determined at this time.
The Company recently filed a motion in
the Bankruptcy Court to extend the bankruptcy stay to include individual
employees and officers named as defendants in cases concerning the
Company, including the
Patterson case and the
Smalls case. The motion was
denied without prejudice to the Company commencing an adversary proceeding as to
each of these cases in order to seek the relief requested. The Company intends to defend vigorously against the merits
of these actions and any attempts by either Mr. Patterson or Ms. Smalls to certify a class
action.
On
October 29, 2008, Ronald Alcaldo filed suit in the U.S. District Court for the
Eastern District of Texas, Marshall Division, styled Ronald Alcaldo, Individually and On
Behalf of All Others Similarly Situated v. Pilgrim's Pride Corporation, et
al, against the Company and individual defendants Lonnie “Bo” Pilgrim,
Lonnie Ken Pilgrim, J. Clinton Rivers, Richard A. Cogdill and Clifford E. Butler
(collectively, the "Defendants"). The complaint alleges that the Defendants
violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder, by allegedly failing to disclose
that "(a) the Company’s hedges to protect it from adverse changes in costs were
not working and in fact were harming the Company’s results more than helping;
(b) the Company’s inability to continue to use illegal workers would adversely
affect its margins; (c) the Company’s financial results were continuing to
deteriorate rather than improve, such that the Company’s capital structure was
threatened; (d) the Company was in a much worse position than its
competitors due to its inability to raise prices for consumers sufficient to
offset cost increases, whereas it competitors were able to raise prices to
offset higher costs affecting the industry; and (e) the Company had not made
sufficient changes to its business to succeed in the more difficult industry
conditions." Mr. Alcaldo further alleges that he purports to represent a class
of all persons or entities who acquired the common stock of the Company from May
5, 2008 through September 24, 2008. The complaint seeks unspecified injunctive
relief and an unspecified amount of damages. On November 21, 2008, the Defendants
filed a Motion to Dismiss and Brief in Support Thereof, asserting that Alcaldo
failed to identify any misleading statements, failed to adequately plead
scienter against any Defendants, failed to adequately plead loss causation,
failed to adequately plead controlling person liability and, as to the omissions that Alcaldo
alleged the Defendants
Pilgrim's
Pride Corporation
March
28, 2009
did not make, the Defendants alleged
that the omissions were, in fact, disclosed. On December 1, 2008, the Company filed a Notice of
Suggestion of Bankruptcy. The Company intends to defend vigorously
against the merits of this action. The likelihood of an unfavorable outcome or
the amount or range of any possible loss to the Company cannot be determined at
this time.
On November 13, 2008, Chad Howes filed
suit in the U.S. District Court for the Eastern District of Texas, Marshall
Division, against the Company and individual defendants Lonnie “Bo” Pilgrim,
Lonnie Ken Pilgrim, J. Clinton Rivers, Richard A. Cogdill and Clifford E.
Butler. The allegations in the Howes complaint are identical to those in the
Acaldo complaint, as are the class allegations
and relief sought. The defendants have not yet been served with
the Howes complaint.
On December 29, 2008, the Pennsylvania
Public Fund Group filed a Motion to Consolidate the Howes case into the Acaldo
case, and filed a Motion to be Appointed Lead Plaintiff and for Approval of Lead
Plaintiff's Selection of Lead Counsel and Liaison Counsel. Also on that date,
the Pilgrim's Investor Group (of which Acaldo is a part) filed a Motion
to Consolidate the two cases and a Motion to be Appointed Lead
Plaintiff. The Pilgrim's Investor Group has
subsequently filed a Notice of Non-Opposition to the Pennsylvania Public Fund
Group's Motion for Appointment of Lead Plaintiff. Chad Howes did not seek to be
appointed Lead Plaintiff.
The Company recently filed a motion in
the Bankruptcy Court to extend the bankruptcy stay to include individual
employees and officers named as defendants in cases concerning the Company,
including the Alcaldo case and the Howes case. The motion was denied without
prejudice to the Company commencing an adversary proceeding as to each of these
cases in order to seek the relief requested. No discovery has commenced in either
the Alcaldo case or the Howes case, and neither case has been set for
trial. The
Company intends to defend vigorously against the merits of these actions and any attempts by the lead plaintiff to certify a class action. The
likelihood of an unfavorable outcome or the amount or range of any possible loss
to the Company cannot be determined at this time.
The Wage
and Hour Division of the US 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 activities such as
donning and doffing clothing and personal protective equipment. Due, in part, to
the government investigation and the recent US 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 US 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
Pilgrim's
Pride Corporation
March
28, 2009
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 US District Court for the Northern District of Georgia,
Atlanta Division, filed on May 21, 2007; Kristin Roebuck et al v. Pilgrim’s
Pride Corporation, in the US District Court, Athens, Georgia, Middle District,
filed on May 23, 2007; and Elaine Chao v. Pilgrim’s Pride Corporation, in the US
District Court, Dallas, Texas, Northern District, filed on August 6, 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. On March 13, 2008, the Court issued an opinion and
order finding that plaintiffs and potential class members are similarly situated
and conditionally certifying the class for a collective action. On May 14, 2008,
the Court issued its order modifying and approving the court-authorized notice
for current and former employees to opt into the class. Persons who choose to
opt into the class were to do so within 90 days after the date on which the
first notice was mailed. The opt-in period is now closed. As of October 2, 2008,
approximately 12,605 plaintiffs had opted into the class.
Plaintiffs recently moved the
court for leave to amend the consolidated
complaint to add certain Company officers. The Company filed a Notice of
Suggestion of Bankruptcy before any response to that motion was filed. The
court has not yet ruled on the
plaintiffs’ motion. Likewise, the
court has not issued an order in response
to the Company’s notice. The Company recently filed a
motion in the Bankruptcy Court to extend the bankruptcy stay to
include individual employees and officers named as defendants in cases
concerning the Company,
including this lawsuit.
The motion was denied
without prejudice to the Company, commencing an adversary proceeding as to this
case in order to seek the relief requested in the motion. The Company intends to assert a
vigorous defense to the litigation. The likelihood of an unfavorable
outcome or the amount or range of any possible loss to the Company cannot be
determined at this time.
Pilgrim's
Pride Corporation
March
28, 2009
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 US District
Court for the Northern District of Georgia, Gainesville Division, filed on
December 21, 2006; Harris v. Gold Kist, Inc., in the US District Court for the
Northern District of Georgia, Newnan Division, filed on December 21, 2006;
Blanke v. Gold Kist, Inc., in the US District Court for the Southern District of
Georgia, Waycross Division, filed on December 21, 2006; Clarke v. Gold Kist,
Inc., in the US District Court for the Middle District of Georgia, Athens
Division, filed on December 21, 2006; Atchison v. Gold Kist, Inc., in the US
District Court for the Northern District of Alabama, Middle Division, filed on
October 3, 2006; Carlisle v. Gold Kist, Inc., in the US District Court for the
Northern District of Alabama, Middle Division, filed on October 2, 2006; Benbow
v. Gold Kist, Inc., in the US District Court for the District of South Carolina,
Columbia Division, filed on October 2, 2006; Bonds v. Gold Kist, Inc., in the US
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 Pride 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 an agreement between the
parties, which was approved by Court-order on June 6, 2007, these cases have
been consolidated with the Benbow case. On that date,
Plaintiffs were authorized to send notice to individuals regarding the pending
lawsuits and were instructed that individuals had three months to file consents
to opting in as plaintiffs in the consolidated cases. The opt-in period is now
closed. To date, there are approximately 3,006 named plaintiffs and opt-in
plaintiffs in the consolidated cases. The parties have engaged in limited
discovery. The Company recently filed a Notice of Suggestion of
Bankruptcy. In response, the Court issued an order formally staying
the case. The Company intends to assert a vigorous defense to the
litigation. The likelihood of an unfavorable outcome or the amount or range of
ultimate liability 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.
In
addition to the other information set forth in this Quarterly Report, you should
carefully consider the risks discussed in our 2008 Annual Report on Form 10-K,
including under the heading "Item 1A. Risk Factors", which, along with risks
disclosed in this report, are all the risks we believe 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.
Pilgrim's
Pride Corporation
March
28, 2009
As
previously announced, the Company filed voluntary Chapter 11 petitions on
December 1, 2008. The Chapter 11 cases are being jointly administered under case
number 08-45664. The Company has and intends to continue to post important
information about the restructuring, including monthly operating reports and
other financial information required by the Bankruptcy Court, on the Company's
website www.pilgrimspride.com under the
“Investors-Reorganization” caption. The Company intends to use its website as a
means of complying with its disclosure obligations under SEC Regulation FD.
Information is also available via the Company's restructuring information line
at (888) 830-4659.
Pilgrim's
Pride Corporation
March
28, 2009
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3.1
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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).
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3.2
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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).
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4.1
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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).
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4.2
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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).
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4.3
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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).
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4.4
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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).
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4.5
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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).
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4.6
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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).
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10.1
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Amended and Restated Post-Petition
Credit Agreement dated December 31, 2008, among the Company, as
borrower, certain subsidiaries of the Company, as guarantors, Bank of Montreal,
as agent, and the lenders party thereto (incorporated by
reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed on January 6, 2009).
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Pilgrim's
Pride Corporation
March
28, 2009
10.2
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Amended and Restated Employment
Agreement dated January 27, 2009, between the Company and
Don
Jackson (incorporated by
reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed on January 30, 2009).…
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10.3
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First
Amendment to Amended and Restated Post-Petition Credit Agreement, dated as
of February 26, 2009, among
the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of Montreal,
as agent, and the lenders party thereto (incorporated by reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on
March 4, 2009).
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12
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Computation
of Ratio of Earnings to Fixed Charges.*
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31.1
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Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
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31.2
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Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
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31.3
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
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32.1
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Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
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32.2
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Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
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32.3
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Certification
of Chief Financial Officer of Pilgrim's Pride Corporation pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
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*
Filed herewith
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… Represents a management contract
or compensation plan
arrangement
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Pilgrim's
Pride Corporation
March
28, 2009
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.
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PILGRIM’S
PRIDE CORPORATION
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/s/
Richard A. Cogdill
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Date:
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May
7, 2009
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Richard
A. Cogdill
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Chief
Financial and Accounting Officer
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Pilgrim's
Pride Corporation
March
28, 2009
3.1
|
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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).
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3.2
|
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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).
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|
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4.1
|
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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).
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4.2
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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).
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4.3
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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).
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4.4
|
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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).
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4.5
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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).
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4.6
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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).
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10.1
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Amended and Restated Post-Petition
Credit Agreement dated December 31, 2008, among the Company, as
borrower, certain subsidiaries of the Company, as guarantors, Bank of Montreal,
as agent, and the lenders party thereto (incorporated by
reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed on January 6, 2009).
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Pilgrim's
Pride Corporation
March
28, 2009
10.2
|
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Amended and Restated Employment
Agreement dated January 27, 2009, between the Company and
Don
Jackson (incorporated by
reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K
filed on January 30, 2009).…
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10.3
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First
Amendment to Amended and Restated Post-Petition Credit Agreement, dated as
of February 26, 2009, among
the Company, as borrower, certain subsidiaries of the Company, as guarantors, Bank of Montreal,
as agent, and the lenders party thereto (incorporated by reference
from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on
March 4, 2009).
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Computation
of Ratio of Earnings to Fixed Charges.*
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Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
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Certification
of Co-Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*
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Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
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Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
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Certification
of Co-Principal Executive Officer of Pilgrim's Pride Corporation pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.*
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Certification
of Chief Financial Officer of Pilgrim's Pride Corporation pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.*
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*
Filed herewith
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… Represents a management contract
or compensation plan
arrangement
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