Rica Foods, Inc.

240 Crandon Boulevard, Suite 115
Key Biscayne, Florida
U.S.A.
Telephone: (305) 365-9694
Fax: (305) 365-9399
Web site: http://www.ricafoods.com

Public Company
Incorporated: 1986 as CCR, Inc.
Employees: 3,500
Sales: $123.6 million (2000)
Stock Exchanges: American
Ticker Symbol: RCF
NAIC: 311615 Poultry Processing

Rica Foods, Inc. is the U.S. parent company of what is essentially a poultry business located in Costa Rica. With corporate headquarters in Key Biscayne, Florida, Rica Foods is composed of two subsidiaries, both operating in Costa Rica. Rica Foods is the largest producer of poultry products in Costa Rica and quickly becoming one of the largest in all of Central America and the Caribbean. The company has also gained a toehold in South America with the acquisition of a Brazilian poultry business. Rica Foods produces and markets some 600 products in three general categories. Broiler chicken is sold under a number of labels to institutional customers: schools, hospitals, grocery stores, and restaurants. In Costa Rica, the company supplies such major restaurant franchises as Burger King, Subway, Kentucky Fried Chicken, Pizza Hut, and Taco Bell. Furthermore, McDonald’s has selected Rica Foods to supply chicken to all of its Central America operations. The most profitable category for the company, however, is chicken byproducts, which include sausages, bologna, chicken nuggets and patties, frankfurters, salami, and pate. These products are sold under multiple brand names to supermarkets. The Kimby brand is Costa Rica’s top seller of chicken byproducts. Rica Foods also mixes unused portions of chickens with other products to produce animal feed for cows, pigs, and horses, as well as domestic pets. The company’s animal feed brands are targeted both to the high-scale breeder market and pet stores and supermarkets in Costa Rica. Rica Foods is the country’s leading supplier of animal feed, with 28 percent of the market. Rica Foods has also operated a restaurant chain in Costa Rica, but in 2000 elected to sell off the operation, although it retained the restaurants as customers. Finally, Rica Foods exports its chicken products, primarily to nearby countries in Central America. Exports are the means by which Rica Foods hopes to build itself into a major corporation.

Corporate Ancestor Dates to 1986

The corporation that became Rica Foods existed for ten years under a variety of names and was involved in a myriad of businesses. The company was originally incorporated in Utah in 1986 as CCR, Inc. for the general purpose of “investing in any and all types of assets, properties, and businesses.” CCR made a public offering of stock in 1987. It became a holding company for three subsidiaries in 1988: W.T. Young Construction Company, Inc.; Young Trucking, Inc.; and C.C. Crane Corporation. In 1989 CCR would expand into other areas. It became involved in education with the acquisition of Direct Communications, Inc., an Oklahoma business that was licensed to market and distribute voice communications to U.S. colleges and universities. CCR formed a subsidiary, Colortex Industries, after purchasing O’Ryan Carpets for $7.9 million.

In 1991 CCR sold C.C. Crane and liquidated the Colortex operation. In October the company completed the acquisition of Cambridge Academy, Inc. in an exchange of stock. Cambridge was a nationally accredited home study high school. Its president, James K. Isenhour, now became the chief executive officer and chairman of the board of CCR. Trained as an electrician, he had worked in the electrical contracting business since the age of 23. In 1979 he was one of the founders of Cambridge Academy and in 1981 became president of the organization while simultaneously serving as the chief executive officer of Sea Coast Electric, Inc., a private family corporation. His wife, Tanzee Nahas, also served as a director of Cambridge Academy and would eventually replace him as president of the organization.

Under Isenhour, CCR augmented its educational business in July 1992 when it acquired Quantum Learning Systems Inc. for $7.2 million in stock. Quantum was a Florida corporation that developed and produced educational programs. A month later, CCR used stock to acquire Current Concept Seminars, Inc., which developed and produced educational programs. By the end of 1992 CCR would sell Direct Communications to Gulf Ventures, Inc. for $300,000.

In 1994 CCR sold off its trucking and construction subsidiaries for $2 million, electing to focus on its education business, as well as some real estate ventures. The company was reincorporated in 1994 in Nevada and changed its name to Quantum Learning Systems. Whatever mix of businesses this enterprise focused on, however, failed to prove successful. The company posted a net loss of $671,534 in fiscal 1995, followed by a net loss of $856,554 in fiscal 1996.

Pipasa Acquires Quantum Learning Systems in 1996

In April 1996 Quantum Learning Systems reached an agreement with the Costa Rican Pipasa corporation. First the Quantum subsidiaries were sold to the Isenhour controlled InterCoastal Financial Corporation in exchange for 50,000 shares of common stock. In effect, the original CCR corporation, since reincorporated in Utah and renamed, was now just a shell entity that Pipasa acquired to gain America legal standing and access to the U.S. capital markets. For their trouble, Isenhour and the other shareholders of Quantum gained a stake in the new corporation, renamed Costa Rica International, Inc., and its wholly owned subsidiary involved in the Costa Rican poultry industry. Costa Rica International then established a nominal headquarters in Miami, Florida, which had become a financial capital for many Latin American and Caribbean companies, and began trading its stock on the NASDAQ SmallCap Market.

Calixto Chaves, who founded Pipasa in 1969, became president and chief executive officer of Costa Rica International, with his family holding a controlling interest in the company’s stock. A 1991 merger with eight other companies made Pipasa the largest poultry company in Costa Rica, with a 50 percent market share. Chaves was politically connected and a well-respected businessman in the country. He founded and served as president of Aero Costa Rica, a private Costa Rican airline. He also sat on the board of a number of Latin American companies. From 1982 to 1986 he served in the Costa Rican Ministry of Industry, Energy and Mines, and was then named Minister of Natural Resources. In 1994 he served as an advisor to the President of Costa Rica and the Ministry of Economic Business Affairs.

The establishment of Costa Rico International in the United States was in many ways a testament to the progress made by Costa Rica in the previous 50 years. Unlike many of its neighbors, Nicaragua to the north and Panama to the south, troubled by revolution and political corruption, Costa Rico had established a stable democracy, the result of the country’s adoption of a modern constitution in 1948. At that time, Costa Rica also abolished the army, which in Latin America had all too often become a disruptive political force. Rather then investing in arms, the country spent its money on social services and development, and made efforts to lessen the reliance of its economy on the export of coffee and bananas. With a literacy rate of 94 percent, Costa Rica was attracting foreign investors by the mid-1990s. A major breakthrough came in 1996 when Intel chose Costa Rica over Mexico as the site for a $500 million semiconductor assembly and testing facility. Although hardly a threat to Silicon Valley, Costa Rica embraced high technology. Its businessmen began to use the Internet to sell coffee and promote tourism and other products. Some 150 small companies sprang up and began exporting software programs. Moreover, the country’s liberal immigration laws and desirable lifestyle were attracting a large number of Americans and others nationalities, who also established businesses that helped drive the economy. Also unlike its neighbors, Costa Rica was posting large gains in its gross national product and enjoying low unemployment rates.

For Chaves and Costa Rica International, the move to tap the U.S. equity market was a way to grow the company’s poultry business into a regional concern. Advantageously located in Central America, Costa Rica was in a perfect location to efficiently serve neighboring countries as well as the Carribean. Chicken consumption worldwide was on the rise, but there appeared to be even more opportunity in Central America. Whereas, on average Costa Ricans ate 19 kiligrams of chicken a year, the neighboring countries of El Salvador, Guatemala, Nicaragua, and Honduras consumed just 8.25 kiligrams per person. The demand for chicken would surely grow and Chaves wanted to be in a position to take advantage of it.

Costa Rica International Becomes Rica Foods, Inc. in 1998

In 1997 Costa Rica International purchased the poultry and animal feed businesses of Coopemntecillos R.L. The following year it acquired As De Oros, Costa Rica’s second largest poultry producer, controlling 19 percent of the market. Costa Rica International then now controlled almost 70 percent of the country’s poultry business. Several months later, Costa Rica International announced that it would change its name to Rica Foods, Inc., a move that management felt would better reflect its core business. Pipasa and As de Oros would function as two subsidiaries of the company. Also in 1998, Rica Foods announced that Pipasa reached an agreement to export some poultry products to Hong Kong for a five month period, a move that the company hope would lead to further exports to Asia. For the fiscal year 1998, Rica Foods would generate $98.97 million in revenues and post a $1.1 million profit.

Company Perspectives:

Rica Foods, Inc. is the parent corporation of the largest producers of poultry products in Costa Rica and becoming among the largest in Central America and the Caribbean.

In 1999 Rica Foods began trading its stock on the American Stock Exchange, a further effort to gain prestige in order to raise capital to fuel growth. The price of its stock opened at $10.50. In July 1999, As de Oros joined Pipasa in exporting products by signing an agreement to supply pet food to a major Dominican Republic supermarket chain. For the year, Rica Foods would see its 1999 sales reach $118.55 million, resulting in a $3 million net profit.

Rica Foods began the year 2000 with great hopes. The company dominated its home territory and was using that success as a way to expand into emerging markets. In a forward-looking move, Rica Foods announced it would develop a poultry biotech research division, which would establish joint venture agreements with universities in the hopes of creating new revenue streams. In this vein, Pipasa acquired Karpatos S.A., a company that treated chicken manure in order to lessen the ecological effect on chicken farms, producing six types of products, including fertilizer to the Costa Rican banana industry. Combined, Pipasa and As de Oros generated 500 metric tons of manure waste each year that could thus be treated. Rica Foods also continued to search for potential takeover targets in other countries to gain market share. In May 2000 it acquired Indavinsa, a Nicaraguan poultry and animal feed concentrate company. At the same time, Chaves announced that Rica Foods was eager to enter the large Brazilian market, which held tremendous growth potential. Rica Foods also looked to the Internet in 2000. It announced that it would invest in Poul-tryFirst.com, a business-to-business Web site that would provide a catalog and auction environment for both buyers and sellers of poultry products. The company was owned by Chaves’ son, Jose Pablo Chaves. In November 2000, Rica Foods announced that it planned to acquire 60 percent of Bounty Fresh, a company that marketed and sold fresh produce in the United States. With more than 13 years experience in exporting to Asia, Bounty Fresh provided Rica Foods with resources complimentary to its own distribution network. Then in December 2000, Rica Foods announced the acquisition of Core Etuba, SRL, a fully integrated poultry company.

By the end of 2000, however, Rica Foods had to reevaluate its position. Its stock, which had traded in the neighborhood of $30 in June, began to slide. By September it was trading around $15. When the company announced in December that its earnings for 2000 would be flat over the previous year, the stock quickly fell to the $6 range. Chaves attributed the decline to a depressed U.S. stock market in general, maintaining that the fundamentals of Rica Foods remained sound and that investors would eventually recognize the company’s potential. For fiscal year 2000, Rica Foods announced that it generated revenues of $123.6 million, up 4.28 percent over the previous year, with a profit of $2.9 million. The U.S. economy, and in turn the economy of Costa Rica, were clearly not experiencing the heady growth of the late 1990s. When the company announced poor first quarter results for 2001, its stock took a further hit, falling to the $3.50 range. It had acquired an American corporate identity to gain access to the U.S. stock market, and now it had to accept the uncertainties of being a publicly traded U.S. company. Clearly, Rica Foods had to put some of its more ambitious plans on hold. It backed out of the PoultryFirst.com and Bounty Fresh deals. It did decide, however, to complete its Brazilian acquisition. Rica Food’s core business remained strong, and any effort to expanded the company’s market base still appeared to be a sound strategy.

Principal Subsidiaries

Corporación Pipasa, S.A.; Corporación As de Oros, S.A.

Principal Competitors

Industrias Bochoco SA de CV; ConAgra Foods Inc.; Pilgrim’s Pride Corporation; Tyson Foods Inc.

Key Dates:

1986:

CCR, Inc. is incorporated in Utah.

1994:

The corporate name is changed to Quantum Learning Systems.

1996:

In a transfer of assets, the corporation becomes Costa Rica International with one subsidiary: Corporación Pipasa, S.A.

1998:

The company acquires Corporación As de Oros, S.A. and changes its name to Rica Foods, Inc.

1999:

Stock begins trading on American Stock Exchange.

2000:

Company acquires Brazilian poultry company, Avicola Core Etuba, SRL.

Further Reading

Ayala, Diego, “Costa Rica Stabilizes,” Global Finance, July 2000, p. 71.

“Costa Rica International Announces Name Change and 62% Revenue Increase,” PR Newswire, August 24, 1998.

“Costa Rica International, Inc. Acquires Corporación As De Oros, S.A., The Second Largest Poultry Producer in Costa Rica,” PR Newswire, March 6, 1998.

“Costa Rica Remakes Itself,” USA Today, May 11, 2000, p. 15A.

Duggan, Ed, “Rica Foods to Buy Poultry Producer,” South Florida Business Journal, December 8, 2000, p. 16A.

——, “Rica Foods Warns 2000 Earnings Flat,” South Florida Business Journal, January 5, 2001, p. 14.

Fakler, John T., “Chaves Can’t Explain Rica Foods Decline,” South Florida Business Journal, December 29, 2000, p. 16.

Muellner, Alexis, and John T. Fakler, “Rica to Acquire Nicaraguan Company,” South Florida Business Journal, October 27, 2000,p. 26A.

“Rica Foods Expresses Concern Over Stock Price,” Daily Business Review (Miami), December 22, 2000, p. A14.

“Rica Foods’ Subsidiary, Corp. PIPASA, Begins Exports to Asia,” PR Newswire, October 19, 1998.

“Rica Foods Transfers to AMEX From Nasdaq Small Cap Market,” PR Newswire, May 13, 1999.

Smith, Rod, “Rica to Acquire Firm in Nicaragua, Expand Into Brazil,” Foodstuffs, May 15, 2000, p. 6.

Williams, Mike, “Costa Rica is Paradise Found For Expatriates,” The Atlanta Journal-Constitution, August 20, 2000, p. C7.

—Ed Dinger