UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
| |
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 x
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172023
OR
o☐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 |
| |
Delaware | 75-1285071 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | |
1770 Promontory Circle Greeley, Colorado | | 80634-9038 |
| Greeley | CO | | |
| (Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (970) 506-8000
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| |
| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common Stock, Par Valuepar value $0.01 per share | | PPC | | The NASDAQNasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes xNo o
No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes oNo x
No x
Indicate by check mark whether the Registrantregistrant (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 Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 x
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | |
| | | | | |
| Large Accelerated Filer | x
| | Accelerated Filer | | o |
| | | |
| Non-accelerated Filer | o (Do not check if a smaller reporting company) | | Smaller reporting company | | o☐ |
| | | Emerging growth company | | o☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x
The aggregate market value of the Registrant’sregistrant’s Common Stock, $0.01 par value, held by non-affiliates of the Registrantregistrant as of June 25, 20172023 was $1,203,667,109. For purposes of the foregoing calculation only, all directors, executive officers and greater than 10% beneficial owners have been deemed affiliates. Number$853,768,552. The number of shares of the Registrant’sregistrant’s Common Stock outstanding as of February 14, 201827, 2024 was 248,752,508.
236,790,798.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 20182024 Annual Meeting of Stockholders are incorporated by reference into Part III of this annual report.
PILGRIM’S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
| | | | | | | | |
| PART I | Page |
| | |
| PART I | Page |
| Item 1. | | |
| Item 1A. | | |
| Item 1B. | | |
Item 2.1C. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| PART II | |
| Item 5. | | |
| Item 6. | | |
| Item 7. | | |
| Item 7A. | | |
| Item 8. | | |
| Item 9. | | |
| Item 9A. | | |
| Item 9B. | PART III | |
| Item 9C. | | |
| PART III | |
| Item 10. | | |
| Item 11. | | |
| Item 12. | | |
| Item 13. | | |
| Item 14. | | |
| PART IV | |
| Item 15. | | |
| Item 16. | | |
| | |
PART I
Forward Looking Statements and Explanatory Note
Certain writtenThis annual report contains, and oral statements made by our Company and subsidiaries of our Companymanagement may constitutemake, certain “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made herein, in our other filings with the Securities and Exchange Commission (“SEC”), in press releases, and in certain other oral and written presentations.
Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project,” “imply,” “intend,” “should,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks uncertainties and assumptions.uncertainties. Such risks uncertainties and assumptionsuncertainties include those described under “Risk Factors” below and elsewhere in this annual report.
Actual results could differ materially from those expressed in, or implied or projected inby these forward-looking statements as a result of these factors, among others,risks and uncertainties, many of which are difficult to predict and beyond our control.
In making these The Company’s forward-looking statements wespeak only as of the date of this report or as of the date they are not undertaking,made, and specifically decline to undertake, anythe Company undertakes no obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes in information contained in previous filings or communications.its forward-looking statements. The risks described belowin this annual report are not the only risks we face, and additional risks and uncertainties may also impair our business operations. The occurrence of any one or more of the followingfactors described herein or other currently unknown factors could materially adversely affect our business and operating results.
Item 1.Business
Company Overview
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms), which was incorporated in Texas in 1968 and reincorporated in Delaware in 1986, is the successor to a partnership founded in 1946 as a retail feed store. JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owns 78.6% of our outstanding common stock. We are one of the largest chicken producers in the world with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico, and the Netherlands. We are primarily engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken and pork products to retailers, distributors and foodservice operators. We offer a wide rangeJBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owns 82.54% of products to our customers through strong national and international distribution channels. Pilgrim's fresh chicken products consist of refrigerated (non-frozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company's prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated, ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts.outstanding common stock.
We market our balanced portfolio of fresh, prepared and value-added chickenmeat products to a diverse set of over 5,500 customers across the U.S., the U.K., and Europe, Mexico and in approximately 100over 115 other countries, with no single customer accounting for more than 10% of total sales. We have become a valuable partner to our customers and a recognized industry leader by consistently providing high-quality products and services designed to meet their needs and enhance their business.countries. Our sales efforts are largely targeted towards the foodservice industry, principally chain restaurants and food processors, such as Chick-fil-A® Chick-fil-A® and retail customers, including grocery store chains and wholesale clubs, such as Kroger®Kroger®, Costco®, Publix®, and H-E-B®. in the U.S., chain restaurants such as McDonald’s® and grocery store chains such as Sainsbury’s®, Tesco® and Waitrose® in the U.K. and Europe, and grocery store chains such as Wal-Mart® in Mexico.
As a vertically integrated company, we are able to control every phase of the production process, which helps us better manage food safety and quality, as well as more effectively control margins and improve customer service. As of December 31, 2017, we operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Europe, Mexico and Puerto Rico. Our plants are strategically located to ensure that customers timely receive fresh products. With our global network of approximately 5,2004,800 growers, 3934 feed mills, 5047 hatcheries, 3639 processing plants, 1630 prepared foods cook plants, 2027 distribution centers, nine renderingten protein conversion facilities and fourfive pet food plants, we believe we are well-positioned to supply the growing demand for our products.
Our U.K. and Europe segment reflects the operations of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”), which we acquired on September 8, 2017. Moy Park is a leading and highly regarded U.K. food company, providing fresh, high quality and locally farmed poultry and convenience food products. Moy Park has operated in the U.K. and Europe retail market for over 50 years and delivers a range of fresh, ready-to-cook, coated and ready-to-eat poultry products to major retailers and large
foodservice customers throughout the United Kingdom, Ireland, France and The Netherlands. We believe that we operate one of the most efficient business models for chicken production in the U.K. and Europe.
We are one of the largest, and we believe one of the most efficient, producers and sellers of chicken in Mexico. Our presence in Mexico provides access to a market with growing demand and has enabled us to leverage our operational strengths within the region. The market for chicken products in Mexico is still developing, with most sales attributed to fresh, commodity-oriented, market price-based business. Additionally, we are an important player in the live market in Mexico. We believe our Mexico business is well-positioned to continue benefiting from these trends in the Mexican consumer market.
As of December 31, 2017, we have approximately 51,300 employees and have the capacity to process more than 45.2 million birds per week for a total of more than 13.3 billion pounds of live chicken annually. In 2017, we produced 10.0 billion pounds of chicken products, generating approximately $10.8 billion in net sales and approximately $694.6 million in net income attributable to Pilgrim’s.
On June 29, 2015, we acquired 100% of the equity of Provemex Holdings, LLC and its subsidiaries (together, “Tyson Mexico”) from Tyson Foods, Inc. and certain of its subsidiaries. Tyson Mexico is a vertically integrated poultry business based in Gómez Palacio, Durango, Mexico. The acquired business had a production capacity of 2.9 million birds per week in its three plants and employed approximately 4,400 people at the time of acquisition. The acquisition further strengthened our strategic position in the Mexico chicken market. The Tyson Mexico operations are included in our Mexico segment.
On January 6, 2017, we acquired 100% of the membership interests of GNP from Maschhoff Family Foods, LLC for a cash purchase price of $350 million, subject to customary working capital adjustments. GNP is a vertically integrated poultry business based in St. Cloud, Minnesota. The acquired business had a production capacity of 2.1 million birds per five-day work week in its two plants and employed approximately 1,500 people at the time of acquisition. The plants are located in geographic areas where Pilgrim’s did not have a presence, providing Pilgrim’s the opportunity to expand its production and customer bases. We plan to continue to leverage GNP’s operations to enhance production efficiencies. Also, the addition of GNP’s Just Bare® product lines join our existing no-antibiotics-ever and organic production capabilities, strengthening our footprint in fast-growing and higher-margin chicken segments. This acquisition further strengthens the Company’s strategic position in the U.S. chicken market. The GNP operations are included in our U.S. segment.
On September 8, 2017, we acquired 100% of the issued and outstanding shares of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”) from JBS S.A. for a cash purchase price of $301.3 million and a note payable to the seller in the amount of £562.5 million. Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 7 hatcheries and 1 rendering facility in the U.K., France, and The Netherlands, the acquired business processes 6.0 million birds per seven-day work week, in addition to producing around 456.0 million pounds of prepared foods per year. Moy Park currently has approximately 10,200 employees. The plants are located in geographic areas where Pilgrim’s is not currently present, providing Pilgrim’s the opportunity to expand its production and customer bases. The Moy Park operations constitutes our U.K. and Europe segment.
We operate on the basis of a 52/53-week fiscal year that endsending on the Sunday falling on or before December 31. Any reference we make to a particular year (for example 2017)2023) in the notes to these Consolidated Financial Statements applies to our fiscal year and not the calendar year. Fiscal 2017year 2023 was a 53-week fiscal year.
Our IndustryReportable Segments
Industry Overview
The U.S. consumes more chicken than any other protein (approximately 35.3 billion pounds projected in calendar year 2018 according to the U.S. Department of Agriculture (“USDA”)), and chicken is the second most consumed protein globally after pork. The U.S. is the world’s largest producer of chicken and is projected to produce approximately 42.0 billion pounds of ready-to-cook broiler meat in calendar year 2018, representing 20.8% of the total world production. Broilers are tender, young chickens suitable for broiling or roasting. Brazil and China produce the second and third most broiler meat, with 14.8% and 12.1% of the world market, respectively, according to the USDA.
According to the USDA, the export of U.S. chicken products increased at an average annual growth rate of 1.3% from 2007 through 2017. The U.S. is the second-largest exporter of broiler meat behind Brazil. The U.S. is projected to export 6.9 billion pounds in calendar year 2018, which would account for 27.9% of the total world exports and 16.8% of the total U.S. production, according to the USDA. The top five exporters are projected to control over 85.7% of the market in 2018.
According to the USDA, chicken production in the U.S. increased from 2007 through 2017 at a compounded annual growth rate of 1.2%. The growth in chicken demand is attributable to (i) relative affordability compared to other proteins such as beef and pork, (ii) the increasingly health conscious nature of U.S. consumers, (iii) chicken’s consistent quality and versatility and (iv) its introduction on many foodservice menus. In addition, global protein demand continues to be strong, consistent with rising standards of living and a growing middle class in developing countries around the world. USDA estimates from 2017 through 2026 show an anticipated increase of global chicken production at a compounded annual growth rate of 0.8%. We believe our relationship with JBS positions us to capture a portion of those emerging markets.
Key Industry Dynamics
Pricing. Items that influence chicken pricing in the U.S. include international demand, changes in production by other broiler producing countries, input costs and the demand associated with substitute products such as beef and pork. We believe our focus on sales mix enables us to adapt to changing supply demand dynamics by adjusting our production to maximize value. We also benefit from a shorter production lifecycle of broilers compared to other proteins. While production for cattle takes approximately 28 to 39 months from breeding to slaughter and the production for pork takes 11 to 12 months, the production lifecycle for the broiler is only ten weeks.
Feed. Broilers are fed corn and soybean meal as well as certain vitamins and minerals. Corn and soybean meal accounted for approximately 45.7% and 37.0% of our feed costs, respectively, in 2017. Broiler production is significantly more efficient from a feed perspective than cattle or hog production. Approximately two pounds of feed are required for each pound of chicken, as compared to approximately seven and 3.5 pounds for cattle and hogs, respectively. We have sought to mitigate the impact of feed price volatility on our profitability by decreasing the amount of our products that are sold under longer term fixed price contracts, broadening our product portfolio and expanding the variety of contracts within our book of business.
Competitive Strengths
We believe that our competitive strengths will enable us to maintain and grow our position as a leading chicken company and to capitalize on future favorable growth opportunities:
Leading market position in the growing chicken industry. We are one of the largest chicken producers globally and a leading chicken producer in the U.S. with an approximate 17.3% market share, based on ready-to-cook production in 2017, according to WATTPoultryUSA magazine. We believe we can maintain this prominent market position as we are one of the few producers in the chicken industry that can fully satisfy the requirements of large retailers and foodservice companies due to our broad product range, national distribution, vertically integrated operations and technical capabilities. Further, our scale of operations, balanced product portfolio and a wide range of production capabilities enable us to meet both the capacity and quality requirements of our customer base. Finally, we believe we are well-positioned with our global footprint to benefit from the growth in the U.S. chicken export market.
Broad product portfolio. We have a diversified product portfolio ranging from large to small birds and from fresh to cooked to processed chicken. In addition, our prepared foods business is focused on our most profitable product lines. We believe we are well-positioned to be the primary chicken supplier for large customers due to our ability to provide consistent supply, innovate and develop new products to address consumer desires and provide competitive pricing across a diverse product portfolio. Our balanced portfolio of fresh, prepared and value-added chicken products yields a diversified sales mix, mitigating supply and market volatility and creating more consistent gross margins.
Blue chip and diverse customer base across all industry segments. We benefit from strong relationships with leading companies in every customer segment, including Chick-fil-A®, US Foods, Kroger®, Costco®, Publix®, and H-E-B®, most of whom have been doing business with us for more than five years. We sell our products to a large and diverse customer base, with over 5,500 customers, with no single one accounting for more than 10% of total sales.
Lean and focused enterprise. We are an efficient and lean organization supported by our market-driven business strategy. We have closed, idled or sold plants and distribution centers, reduced or consolidated production at other facilities, streamlined our workforce and reduced administrative and corporate expenses. In addition, we continue to seek to make significant production improvements driven by improved yields, labor, cost savings and product mix. We utilize zero-based budgeting and plant-level profit and loss analysis, driving engagement and ownership over the results at each plant. These strategic initiatives have reduced our cost base, resulting in higher and more sustainable profits. We share corporate headquarters with JBS in Greeley, Colorado, and have integrated certain corporate functions with JBS to save costs.
Experienced management team and results-oriented corporate culture. We have a proven senior management team whose tenure in the chicken industry has spanned numerous market cycles and is among the most experienced in the industry.
Our senior management team is led by William W. Lovette, our Chief Executive Officer, who has over 30 years of experience in the chicken industry. Our management team has successfully improved and realigned our business and instilled a corporate culture focused on performance and accountability. We also benefit from management ideas, best practices and talent shared with the seasoned management team of JBS, which has over 50 years of combined experience operating protein processing facilities in South America, North America, Australia and Europe.
Relationship with JBS. We work closely with JBS management to identify areas where Pilgrim’s and JBS can achieve synergies. We share corporate headquarters with JBS in Greeley, Colorado, and have integrated certain corporate functions with JBS to save costs. In addition to cost savings through the integration of certain corporate functions and the rationalization of facilities, our relationship with JBS allows us to enjoy several advantages given its diversified international operations and strong record in commodity risk management. In addition, the expertise of JBS in managing the risk associated with volatile commodity inputs will help us to further improve our operations and manage our margins.
Business Strategy
We intend to continue growing our business and enhancing profitability by pursuing the following strategies:
Be a valued partner with our key customers. We have developed and acquired complementary markets, distributor relationships and geographic locations that have enabled us to expand our customer base and provide global distribution capabilities for all of our product lines. As a result, we believe we are one of only two U.S. chicken producers that can supply the growing demand for a broad range of price competitive standard and specialized products with well-known brand names on a nationwide basis from a single-source supplier. Additionally, we intend to leverage our innovation capabilities to develop new products along with our customers to accelerate sales and enhance the profitability of chicken products at their businesses. We plan to further enhance our industry position by optimizing our sales mix and accelerating innovation.
Relentless pursuit of operational excellence. As production and sales grow, we continue to focus on improving operating efficiencies by focusing on cost reductions, more effective processes, training and our total quality management program. Specific initiatives include:
Benchmarking live and plant costs against the industry;
Striving to be in the top 25% of the industry for yields and costs;
Fostering a culture of accountability and ownership deeper in the organization;
Conducting monthly performance reviews with senior management; and
Improving sales mix and price.
Between 2011 and 2017, these initiatives have resulted in approximately $1.1 billion of cumulative operational improvements, including from reduction of plant-related costs and improved sales mix and product yield.
Accountability and ownership culture. We have a results-oriented culture with our business strategy centered on reducing fixed costs and increasing profitability, consistent with JBS values. Our employee accountability has further increased as we have de-layered the organization through our recent restructuring and cost improvement initiatives. In addition, we continue to invest in developing our talent internally. As a result, we have a strong accountability and ownership culture. We strive to be the best managed and most respected company in our industry.
Reportable Business Segment
We operate in three reportable business segments: U.S., U.K. and Europe, and Mexico. As a producer and seller of chicken products we eitherWe produce or purchase chicken for resale chicken products through our operations in the U.S., the U.KU.K. and continental Europe, and Mexico.Mexico and pork products through our operations in the U.K. We conduct separate operations in the U.S., the U.K. and, the Republic of Ireland, continental Europe, Puerto Rico and Mexico; however, for geographic reporting purposes, we include Puerto Rico with our U.S. operations. See “Note 21. Business Segment and Geographic Reporting”20. Reportable Segments” of our Consolidated and Combined Financial Statements included in this annual report for additional information.
Foreign Operations Risks
Our foreign operations pose special risks to our business and operations. A discussion of foreign operations risks is included in “Item 1A. Risk Factors."
Products and Markets
Our primary product types are fresh chicken products, prepared chicken products and value-added export chicken products. We sell our fresh chicken products to the foodservice and retail markets. Fresh Products Overview.Our fresh chicken products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinatedfrozen whole chickens, breast fillets, mini breast fillets and prepackaged case-ready chicken.chicken, and in the U.K., primary pork cuts, added value pork and pork ribs. Our case-ready chicken includes various combinations of freshly refrigerated, whole chickens, and chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer’s fresh meat counter. OurAdditionally, we are an
important player in the live chicken market in Mexico. In 2023, our fresh chickenproduct sales accounted for 83.0%80.8%, 20.7%, and 84.3% of our total U.S. chicken, U.K. and Europe, and Mexico product sales, in 2017.respectively.
We also sellPrepared Products Overview. Our prepared chicken products includinginclude 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 aremay be breaded and/or non-breaded and either pre-marinated or non-marinated.marinated. Our prepared chickenproducts include processed sausages, bacon, slow cooked, smoked meat, gammon joints, ready-to-cook variety of meat products, pre-packed meats, sandwich and deli counter meats, pulled pork balls, meatballs and coated foods. In 2023, our prepared foods products sales accounted for 13.9%9.8%, 67.8%, and 10.0% of our total U.S., U.K. and Europe, and Mexico chicken and pork sales, in 2017.respectively.
Export and other chickenExported Products Overview.Exported products primarily consist of whole chickens and chicken parts sold either refrigerated for distributors in the U.S. or frozen for distribution to export markets. We sell U.S.-produced chicken productsmarkets and in the U.K., primary pork cuts, hog heads and trotters frozen for exportdistribution to Mexico, the Middle East, Asia, countries within the Commonwealth of Independent States (the “CIS”) and other worldexport markets. In the U.S., prices of these products are negotiated daily or weekly and are generally related to market prices quoted by the USDA or other public price reporting services. Prices for2023, our export sales are determined by supply and demand and local market conditions. In certain newly accessed international markets, we have established premium brands, which allow us to market our products at a premium to commodity price levels within those regions. Our export and other chicken productsproduct sales accounted for 3.1%5.3% and 9.1% of our total U.S. chickenand U.K. and Europe product sales, in 2017.respectively.
Our primary customer markets consist of the foodservice and retail channels, as well as selected export and other markets.
Market Overview.Our foodservice market principally consists of chain restaurants, food processors, broad-line distributors and certain other institutions located throughout the continental U.S. Within this market, we service frozen, fresh and corporate accounts. Fresh and frozen chicken products are usually pre-cut to customer specifications and are often marinated to enhance value and product differentiation. Corporate accounts include further-processed and value-added products supplied to select foodservice customers, improving their ability to manage product consistency and quality in a cost efficient manner. We believe we are positioned to be the primary or secondary supplier to national and international chain restaurants who require multiple suppliers of chicken products. Additionally, we believe we are well suited to be the sole supplier for many regional chain restaurants. Regional chain restaurants often offer better margin opportunities and a growing base of business. We believe that our full-line product capabilities, high-volume production capacities, research and development expertise and extensive distribution and marketing experience are competitive strengths compared to smaller and non-vertically integrated producers.
institutions. Our retail market consists primarily of grocery store chains, wholesale clubs and other retail distributors. Our retail market products consist primarily of branded, prepackaged cut-up and whole chicken and chicken parts. We concentrate our efforts in this market on creating value for our customers through category management and supporting key customers in expanding their private label sales programs. Additionally, for many years, we have invested in both trade and retail marketing designed to establish high levels of brand name awareness and consumer preference. We utilize numerous advertising and marketing techniques to develop and strengthen trade and consumer awareness and increase brand loyalty for consumer products marketed under the Gold Kist®, County Post®, Pierce Chicken®, Pilgrim’s Pride®, Pilgrim’s® brands, and Moy Park®. We believe our efforts to achieve and maintain brand awareness and loyalty help to achieve greater price premiums than would otherwise be the case in certain markets and support and expand our product distribution. We actively seek to identify and address consumer preferences by using sophisticated qualitative and quantitative consumer research techniques in key geographic markets to discover and validate new product ideas, packaging designs and methods.
Our export and other chicken market consists primarily of customers who purchase for distribution in the U.S., U.K. and continental Europe, or for export to Mexico, the Middle East, Asia, countries within the CIS and other worldinternational markets. Our value-added export
Net Sales for Primary Product Lines and other chicken products, with the exception of our exported prepared chicken products, consist of whole chickens and chicken parts sold in bulk, or value-added form, either refrigerated or frozen. We believe that U.S. chicken exports will continue to grow as worldwide demand increases for high-quality, low-cost meat protein sources. We expect that worldwide demand for higher-margin prepared food products will increase over the next several years and believe our strategy of value-added export growth positions us to take advantage of this expected demand.Markets
Historically, we have targeted international markets to generate additional demand for our dark chicken meat, for which there has been less demand in the U.S. than for white chicken meat. We have expanded our portfolio to provide prepared chicken products tailored for export to the international divisions of our U.S. chain restaurant customers, as well as newly identified customers in regions not previously accessed. Through our relationship with JBS, we have developed an international distribution channel focused on growing our tailored export program and expanding value-added products, such as all-vegetable-fed whole
griller birds, chicken franks and further processed thigh meat. Utilizing the extensive sales network of JBS, we believe that we can accelerate the sales of value-added chicken products into these international channels.
The following table sets forth, for the periods beginning with 2013,2021, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types.
| | | | | | | | | | | | | | | | | | | |
| Years Ended | | |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 | | |
| (In thousands) | | |
| U.S. reportable segment: | | | | | | | |
| Fresh products | $ | 8,105,269 | | | $ | 8,624,421 | | | $ | 7,264,448 | | | |
| Prepared foods | 978,423 | | | 1,107,734 | | | 898,614 | | | |
| Export | 533,205 | | | 552,823 | | | 459,371 | | | |
| Other products | 410,846 | | | 463,372 | | | 491,446 | | | |
| Total U.S. reportable segment | 10,027,743 | | | 10,748,350 | | | 9,113,879 | | | |
| U.K. and Europe reportable segment: | | | | | | | |
| Fresh products | 1,074,900 | | | 908,882 | | | 1,151,330 | | | |
| Prepared foods | 3,525,359 | | | 3,104,347 | | | 2,214,180 | | | |
| Export | 472,656 | | | 712,685 | | | 458,588 | | | |
| Other products | 130,406 | | | 148,824 | | | 109,964 | | | |
| Total U.K. and Europe reportable segment | 5,203,321 | | | 4,874,738 | | | 3,934,062 | | | |
| Mexico reportable segment: | | | | | | | |
| Fresh products | 1,796,670 | | | 1,587,809 | | | 1,515,453 | | | |
| Prepared foods | 212,651 | | | 167,589 | | | 128,208 | | | |
| Other products | 121,832 | | | 89,891 | | | 85,856 | | | |
| Total Mexico reportable segment | 2,131,153 | | | 1,845,289 | | | 1,729,517 | | | |
| Total net sales | $ | 17,362,217 | | | $ | 17,468,377 | | | $ | 14,777,458 | | | |
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In thousands) |
| U.S. chicken: | | | | | | | | | |
| Fresh chicken | $ | 5,700,503 |
| | $ | 4,627,137 |
| | $ | 4,701,943 |
| | $ | 4,703,993 |
| | $ | 4,123,089 |
|
| Prepared chicken | 950,378 |
| | 1,269,010 |
| | 1,672,693 |
| | 1,787,389 |
| | 2,046,746 |
|
| Export and other chicken | 213,595 |
| | 313,827 |
| | 358,877 |
| | 620,082 |
| | 715,969 |
|
| Total U.S. chicken | 6,864,476 |
| | 6,209,974 |
| | 6,733,513 |
| | 7,111,464 |
| | 6,885,804 |
|
| U.K. and Europe chicken: | | |
|
| | | | | | |
| Fresh chicken | 846,575 |
| | 811,127 |
| | 240,815 |
| | — |
| | — |
|
| Prepared chicken | 792,284 |
| | 794,880 |
| | 241,589 |
| | — |
| | — |
|
| Export and other chicken | 318,699 |
| | 283,276 |
| | 67,903 |
| | — |
| | — |
|
| Total U.K. and Europe chicken | 1,957,558 |
| | 1,889,283 |
| | 550,307 |
| | — |
| | — |
|
| Mexico chicken | 1,303,656 |
| | 1,245,644 |
| | 1,016,200 |
| | 900,360 |
| | 864,454 |
|
| Total chicken | 10,125,690 |
| | 9,344,901 |
| | 8,300,020 |
| | 8,011,824 |
| | 7,750,258 |
|
| Other products: | | | | | | | | | |
| U.S. | 578,746 |
| | 461,429 |
| | 409,841 |
| | 535,572 |
| | 614,409 |
|
| U.K. and Europe | 38,761 |
| | 58,158 |
| | 22,261 |
| | — |
| | — |
|
| Mexico | 24,666 |
| | 14,076 |
| | 20,550 |
| | 35,969 |
| | 46,481 |
|
| Total other products | 642,173 |
| | 533,663 |
| | 452,652 |
| | 571,541 |
| | 660,890 |
|
| Total net sales | $ | 10,767,863 |
| | $ | 9,878,564 |
| | $ | 8,752,672 |
| | $ | 8,583,365 |
| | $ | 8,411,148 |
|
Grains. The following table sets forth, beginningCompany utilizes various raw materials in its operations, including corn, soybean meal and wheat, along with 2013,various other ingredients from which the percentage of net U.S. chicken sales attributable to eachCompany produces its own formulated feeds. In 2023, corn, soybean meal and wheat accounted for approximately 43.9%, 38.1% and 4.1% of our primary product lines and the markets serviced with those products. We based the table and related discussion on our internal sales reports and their classification of product types and customers.
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | |
| U.S. chicken: | | | | | | | | | |
| Fresh chicken | 83.0 | | 74.5 | | 69.8 | | 66.2 | | 59.9 |
| Prepared chicken | 13.9 | | 20.4 | | 24.9 | | 25.1 | | 29.7 |
| Export and other chicken | 3.1 | | 5.1 | | 5.3 | | 8.7 | | 10.4 |
| Total U.S. chicken | 100.0 | | 100.0 | | 100.0 | | 100.0 | | 100.0 |
United States Operations
Product Types
Fresh Chicken Overview. Fresh chicken is an important component of our sales and accounted for $5,700.5 million, or 83.0%, of our total U.S. chicken sales in 2017 and $4,123.1 million, or 59.9%, in 2013. Most fresh chicken products are sold to established customers, based upon certain weekly or monthly market prices reported by the USDA and other public price reporting services, plus a markup, which is dependent upon the customer’s location, volume, product specifications and other factors. We believe our practices with respect to sales of fresh chicken are generally consistent with those of our competitors. The majority of these products are sold pursuant to agreements with varying terms that set a price according to formulas based on underlying chicken price markets, subject in many cases to minimum and maximum prices.
Prepared Chicken Overview. In 2017, $950.4 million, or 13.9%, of our U.S. chicken sales were in prepared chicken products to foodservice customers and retail distributors, as compared to $2,046.7 million, or 29.7%, in 2013. The production and sale in the U.S. of prepared chicken products reduce the impact of thefeed costs, of feed ingredients on our profitability. Feed ingredient costs are the single largest component of our U.S. cost of sales, representing approximately 30.8% of our U.S. cost of sales in 2017.respectively. The production of feed ingredients is positively or negatively affected primarily by the global level of supply, inventories, demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. As further processing is performed, feed ingredient costs become a decreasing percentage of a product’s total production cost, thereby reducing their impact on our profitability. Products sold in this form enable usWe attempt to charge a premium, reducemitigate the impact of feed ingredient costsprice
volatility on our profitability and improve and stabilizeby decreasing the amount of our profit margins.
We establish prices for our prepared chicken products based primarily upon perceived value to the customer, production costs and prices of competing products. The majority of these productsthat are sold pursuant to agreementsunder longer term fixed-price contracts, broadening our product portfolio and expanding the variety of contracts within our book of business. To also manage this risk, we purchase derivative financial instruments. The Company has long-standing relationships with varying terms that either set a fixed price for short-term periods or set a price according to formulas based on an underlying commodity market such as corn and chicken price forecasts, subject in many cases to minimum and maximum prices. Many times, these prices are dependent upon the customer’s location, volume, product specificationsits sources of grain and other factors.feed ingredients and expects to have an adequate supply for its present needs.
ExportLive chicks. The Company’s chicken operations purchase one-day old chicks from a few major breeders. These chicks, when mature, serve as the grandparent and Other Chicken Overview. Our export andparent stock of the broilers that these operations process for consumption. Should breeder stock from its present suppliers not be available for any reason, the Company believes that it could obtain adequate breeder stock from other chicken products consist of whole chickens and chicken parts sold primarily in bulk, nonbranded form, either refrigerated to distributorssuppliers in the U.S. or frozen for distribution to export markets, and branded and nonbranded prepared chicken products for distribution to export markets. In 2017,regions in which it operates.
Live pigs. The Company’s pork operations in the U.K. maintain a pig production base that makes up approximately $213.6 million, or 3.1%, of our total U.S. chicken sales were attributable to U.S. chicken export and other chicken products, as compared to $716.0 million, or 10.4%, in 2013.
Markets for Other Products
Presently, this category includes chicken by-products, which we convert into protein products and sell primarily to manufacturers of pet foods. In addition, many of our U.S. feed mills produce and sell some livestock feeds to local dairy farmers and livestock producers.
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | |
| U.K. and Europe chicken: | | | | | | | | | |
| Fresh chicken | 43.2 | | 42.9 | | 43.8 | | — | | — |
| Prepared chicken | 40.5 | | 42.1 | | 43.9 | | — | | — |
| Export and other chicken | 16.3 | | 15.0 | | 12.3 | | — | | — |
| Total U.K. and Europe chicken | 100.0 | | 100.0 | | 100.0 | | — | | — |
United Kingdom and Europe Operations
Background
On September 8, 2017, a subsidiary34.2% of the total number of pigs processed by the Company acquired 100%each year. Additionally, the Company’s pork operations procure live pigs for slaughter within a few days of purchase from numerous independent farmers throughout the U.K. Live pigs sourced from independent farmers make up approximately 65.8% of the issued and outstanding sharestotal number of Moy Park from JBS S.A. in a common-control transaction for cash and a note payable topigs processed by the seller. Moy Park is oneCompany each year. Although we generally expect adequate supply of the top-ten food companieslive pigs in the U.K., Northern Ireland's largest private sector businessthere may be periods of imbalance in supply and one of Europe's leading poultry producers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 7 hatcheriesdemand.
Trademarks
We own registered trademarks which are used in connection with our business. The trademarks are important to the overall marketing and 1 rendering facility in the U.K., France, and the Netherlands, Moy Park processes 6.0 million birds per seven-day work week, in addition to producing around 456.0 million pounds of prepared foods per year.
Our Moy Park operations, with plants in the U.K., France and The Netherlands generated approximately 18.2%branding of our net salesproducts. All major trademarks in 2017. Weour business are one of the largest producers and sellers of chicken in the U.K.. We believe that we operate one of the most efficient business models for chicken production in the U.K. and Europe.
During 2016 and 2017, we invested approximately £20 million in a new poultry hatchery facility in Newark, England with an egg set capacity of 2.9 million eggs per week. The first birds were hatched from the facility in September 2017.
Product Types
registered. In the United Kingdom, Moy Park’s fresh chicken sales primarily consist of refrigerated and frozen whole chickens, breast fillets and bone-in chicken parts. In the United Kingdom, Ireland, France and The Netherlands, Moy Park produces further processed and prepared chicken products for sale to customers in retail, foodservice, agricultural and international distribution channels. Moy Park also sells a range of ready-to-cook, coated and ready-to-eat chicken products to major retailers and large foodservice customers. Moy Park maintains a new product development team and an executive chef to continue to develop new ideas for value added products across its range, and share those insights with its customers in order to drive sales. Moy Park has included new innovative products in its portfolio every year during the last five years with a growing new product development pipeline.
In recent years, Moy Park has built strong brands with high levels of brand recognition in the markets in which such brands are sold, including “Moy Park,” “Castle Lea,” “O’Kane Limited” and the Moy Park’s “Jamie Oliver” range. Moy Park believes the development of its brands are important as it provides customers with confidence in the quality and consistency of its products. Brand marketing is focused on establishing its brands through consistent quality and product innovation as well as developing relationships with key customers. Moy Park believes that its brandspart, our success can be expanded throughout Europe, which providesattributed to the opportunityexistence and continued protection of these trademarks. As long as the Company continues to sell higher margin products inuse its traditional markets.
Markets
Customers for Moy Park’s fresh and further processed and prepared chicken products include: national and regional retailers (including grocery supermarket chains, independent grocers and club stores) and wholesale distributors; international retailers and wholesale distributors; and the foodservice industry, including foodservice distributors, fast food and other restaurants.
Mexico Operations
Background
Our Mexico operations generated approximately 12.1% of our net sales in 2017. Wetrademarks, they are one of the largest producers and sellers of chicken in Mexico. We believe that we operate onerenewed indefinitely. Some of the more efficient business modelssignificant owned or licensed trademarks used by the Company or its affiliates are Pilgrim’s®, Just BARE®, Gold’n Pump®, Gold Kist®, Country Pride®, Pierce Chicken®, Pilgrim’s® Mexico, Savoro, To-Ricos, Del Dia®, Moy Park, O’Kane, Richmond, Fridge Raiders and Denny.
Seasonality
The demand for chicken production in Mexico.
On June 29, 2015, we acquired, indirectly through certain of our Mexican subsidiaries, 100% of the equity of Tyson Mexico from Tyson Foods, Inc. and certain of its subsidiaries for cash. Tyson Mexico is a vertically integrated poultry business based in Gómez Palacio, Durango, Mexico. The acquired business has a production capacity of 2.9 million birds per week in its three plants. The acquisition further strengthened our strategic position in the Mexico chicken market.
During 2014 and 2015, we invested approximately $12.5 million in the first phase of a new poultry processing complex in Veracruz, Mexico. We initiated live production operations at this facility in September 2015.
Product Types
While the market for chicken products in Mexico is less developed than in the U.S., with sales attributed to fewer, simpler products, we believe we have been successful in differentiating our products through high-quality client service and product improvements. Additionally, we are an important player in the live market in Mexico.
Markets
We sell our chicken products generally is greatest during the spring and summer months and lowest during the winter months. The demand for our pork products generally is higher during the summer and peaks during the winter primarily due to wholesalers, large restaurant chains, fast food accounts and supermarket chains, and also engage in direct retail distribution in selected markets. Our largest presence is by far in the central states of the country where we have been able to gain market share. Our presence in Mexico reaches approximately 75.4% of the population.holiday season.
Key Customers
Our two largest customers, which operate in the U.S., together accounted for approximately 11.0%13.2% and 11.6%12.8% of our consolidated net sales in 20172023 and 2016,2022, respectively. No single customer accounted for ten percent or more of our consolidated net sales in either 20172023 or 2016.2022.
Competition
The chicken industry is highly competitive. We are one of the largest chicken producers in the world and we believe our relationship with JBS enhances our competitive position. In the U.S. and Mexico, we compete principally with other vertically integrated poultry companies. However, there is some competition with non-vertically integrated further processorspork industries in the U.S.
prepared chicken business. We believe vertical integration generally provides significant, long-term cost, the U.K., continental Europe and quality advantages over non-vertically integrated further processors.
In general, theMexico are highly competitive. The competitive factors in the U.S. chicken industryour business include price, product quality, product development, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the U.S. retail market, weWe believe that productbeing a vertically integrated chicken company and having a fully integrated supply chain in the pork business provides us with long-term cost and quality advantages over non-vertically integrated and other processors. We utilize numerous advertising and marketing techniques to develop and strengthen trade and consumer awareness and increase brand awareness, customer serviceloyalty for consumer products. We believe our efforts to achieve and price are the primary bases of competition. In the foodservice market, competition is based on consistent quality, product development, service and price. The export market is competitive on a global level based on price, product quality, product tailoring, brand identification and customer service. Competitive factors vary by market and may be impacted further by trade restrictions, sanitary and phyto-sanitary issues,maintain brand awareness and loyalty help to achieve greater price premiums than would otherwise be the case in certain markets and support and expand our product distribution. We actively seek to identify and address consumer preferences by using sophisticated qualitative and quantitative consumer research techniques in key geographic markets to discover and validate new product ideas, packaging designs and methods. Although poultry and pork are relatively inexpensive in comparison with other meats, we compete indirectly with the producers of other meats and fish, since changes in the relative strength or weaknessprices of the U.S. dollar against local currencies. We believe that product customization, service and price are the most critical competitive factors for export sales.
In Mexico, where product differentiation has traditionally been limited, we believe product quality and price have been the most critical competitive factors.these foods may alter consumer buying patterns.
Regulation and Environmental Matters
The chicken, industry ispork and prepared foods industries are subject to government regulation, particularly in the health, workplace safety and environmental areas, including provisions relating to the discharge of materials into the environment, treatment and disposal of agricultural and food processing wastes, the use and maintenance of refrigeration systems, ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment and other operations, storm water, air emissions, treatment, storage and disposal of wastes, handling of hazardous substances and remediation of contaminated soil, surface water and groundwater, by the Centers for Disease Control, the United States Department of Agriculture (“CDC”USDA”), the USDA, the Food and Drug Administration (“FDA”), the Environmental Protection Agency (“EPA”), the Occupational Safety and Health Administration (“OSHA”) and state and local regulatory authorities in the U.S. and by similar
governmental agencies in the U.K., the Republic of Ireland, continental Europe and Mexico. Our chicken processing facilities in the U.S. are subject to on-site examination, inspection and regulation by the USDA. The FDA inspects the production of our feed mills in the U.S. Our Mexican food processing facilities and feed mills in the U.K., continental Europe and Mexico are subject to on-site examination, inspection and regulation by government agencies that perform functions similar to those performed by the USDA and FDA.
Our operations are subject to extensive regulation by theThe EPA, and other state and localenvironmental authorities relating to handling and discharge of waste water, storm water, air emissions, treatment, storage and disposal of wastes, handling of hazardous substances and remediation of contaminated soil, surface water and groundwater. Moy Park’s operations in the U.K., the Republic of Ireland, continental Europe and Europe are subject to a number of local, national and regional laws and other requirements relating to the protection of the environment and the safety and health of personnel and the public. Our Mexican operations also are subject to extensive regulation by Mexican environmental authorities. The EPA, Mexican, U.K. and European environmental authoritiesMexico, and/or other U.S. or Mexican state and local authorities may, from time to time, adopt revisions to environmental rules and regulations, and/or changes in the terms and conditions of our environmental permits, with which we must comply. Compliance with existing or new environmental requirements, including more stringent limitations imposed or expected in recently-renewed or soon-to be renewed environmental permits, may require capital expenditures and operating expenses which may be significant.
In the U.K., all poultry farms which exceed a threshold size of 40,000 birds placed are required to carry out activities in compliance with their environmental permits and they must use Best Available Techniques in order to achieve a high level of environmental protection. Our operationspork sites are also subject to regulationindependently audited and certified by the EPA, OSHA and other state, federal and local regulatory authorities regarding the treatment and disposal of agricultural and food processing wastes, the use and maintenance of refrigeration systems, including ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment, and other operations.
SomeBritish Retail Consortium standard. Many of our facilities have been operatingpork sites are additionally certified by farm-to-fork traceability schemes including Royal Society for many years,the Prevention of Cruelty to Animals Assured, Soil Association, Organic Farmers and were built before current environmental, healthGrowers and safety standards were imposed and/or in areas that recently have become subject to residential and commercial development pressures. We are upgrading wastewater treatment facilities at a number of our facilities, either pursuant to consent agreements with regulatory authorities or on a voluntary basis in anticipation of future permit requirements. We do not anticipate that the capital expenditures associated with these upgrades, which will be spread over a number of years, will be material.Assured Food Standards.
We have from time to time had incidents at our plants involving worker health and safety. These have included ammonia releases due to mechanical failures in chiller systems and worker injuries and fatalities involving processing equipment and vehicle accidents. We have taken preventive measures in response.Human Capital Resources
Some of our properties have been impacted by contamination from spills or other releases, and we have incurred costs to remediate such contamination. In addition, in the past we acquired businesses with operations such as pesticide and fertilizer production that involved greater use of hazardous materials and generation of more hazardous wastes than our current operations. While many of those operations have been sold or closed, some environmental laws impose strict and, in certain circumstances, joint and several liability for costs of investigation and remediation of contaminated sites on current and former owners and operators of the sites, and on persons who arranged for disposal of wastes at such sites. In addition, current owners or operators of such contaminated sites may seek to recover cleanup costs from us based on past operations or contractual indemnifications. See “Item 1A. Risk Factors” for risks associated with compliance with existing or changing environmental requirement.
We anticipate increased regulation by the USDA concerning food safety, by the FDA concerning the use of medications in feed and by the EPA and various other state agencies concerning discharges to the environment. Although we do not currently anticipate that such increased regulation will have a material adverse effect upon us, new environmental, health and safety requirements that are more stringent than we anticipate, stricter interpretations of existing environmental requirements, or obligations related to the investigation or clean-up of contaminated sites may materially affect our business or operations in the future.
Employees
As of December 31, 2017,2023, we employed approximately 30,900 personsover 61,200 persons. Our success is largely dependent on the skills, experience and efforts of our employees. We rely on an adequate number of skilled employees to serve in critical production roles, such as processing workers and operations supervisors. In managing our business, we focus on a number of human capital measures or objectives, which are rooted in our core values and include the following items:
Health and Safety. A core tenet of our Company is the promotion of a safe and healthy working environment. Key examples of our focus and commitment include:
•We engage with our team members through the use of safety committees and other safety initiatives to improve the overall safety of the workplace and advance a safety first culture.
•We train team members on how to identify physical hazards, conduct focused daily, monthly and annual physical hazard assessments at all facilities, ensure that identified physical hazards are logged and ensure timely remediation.
•Leveraging third-party experts, we conduct regular ergonomic assessments, ensure that identified ergonomic issues are logged and ensure timely remediation.
•We conduct safety audits of all facilities on an annual basis. These audits include auditing the physical state of the plant, policies, safety culture and our occupational health clinics.
•Our efforts in 2023 have resulted in year-over-year reductions in severe injuries and days away restricted or transferred of 25% and 8%, respectively.
Diversity and Inclusion. We believe that promoting diversity and inclusion among our workforce helps to create a trusting and productive workplace. We encourage the management teams at each facility to hire from the local regions in which they are located. In addition:
•Our Equal Employment Opportunity Policy (“EEO Policy”) affirms our commitment to employ and support employees of all races, religions, colors, national origins, sexes, sexual orientations, gender identities and ages. Through the EEO Policy, we have been involved in diversity hiring initiatives and partnered with universities with an aim of recruiting from a diverse talent pool.
•We track our progress in our efforts to promote diversity and inclusion. For example, in 2023, women comprised 41%, 40% and 37% of our total workforce in the U.S., approximately 10,200 persons in Mexico and approximately 10,200 persons in the U.K. and Europe. Approximately 37.8%Europe, and Mexico, respectively, and 70% of our total workforce in the U.S. were minorities.
•Our management team members are expected to attend People First leadership training, which includes a model dedicated to training and awareness on diversity and inclusion.
•We provide workshops on diversity and inclusion for our employees and we engage in targeted recruitment at 35 of the Company’snation’s largest historically black colleges and universities.
Retention and Career Development. We are committed to retaining talented employees wereat both production and management levels by offering competitive compensation and benefits, as well as leadership training and development opportunities.
•We strive to provide competitive pay to our team members and reward top performers. Our benefits offerings include a minimum paid time off and paid sick leave for salaried employees, life and disability insurance and Company-matching retirement plans.
•We have extensive leadership training programs, such as our Supervisor Development Program, created to help identify and develop production workers into frontline supervisors, the aforementioned People First Program, designed to equip frontline supervisors with the behavioral and technical skills needed to effectively lead their production teams and our Summit Program, designed to improve the skill set of our senior leadership team. We have found that recognizing our employees’ efforts through training for continued advancement strengthens their performance and helps with our goals to achieve business results. Our employees completed over 332,000 training hours during 2023 and over 326,000 training hours during 2022.
Community Support. We are focused on supporting the communities in which we operate and serve.
•Hometown Strong Initiative. Hometown Strong, which we launched in 2020, is an initiative to help the communities in which we operate respond to the unexpected challenges on society. We believe the Hometown Strong initiative has provided consequential investment projects and helped communities prepare for unanticipated challenges and build for the future. Since inception, we have committed to Hometown Strong donations of $20 million.
•Tomorrow Fund. The Tomorrow Fund, which we launched in 2019, is a scholarship program designed to support the collegiate scholastic pursuits of our employees and their direct dependents. The Tomorrow Fund awards certain employees scholarships to an eligible university of their choice.
•Better Futures. Better Futures, which we launched in 2021, is the largest privately funded free community college program in rural America, offering free community college to our team members and their dependents. So far, over 1,634 team members or dependents have signed up and 390 have started their selected academic pathway.
Employee Relations. We respect our team members’ rights of association, including by joining labor unions and collective bargaining.Approximately 35.2% of our workforce are covered underby a collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2018 or later. We have not experienced any labor-related work stoppage at any location in over ten years. We believe our relationshipagreement. For additional information, see “Item 1A. Risk Factors - Our performance depends on favorable labor relations with our employees and union leadership is satisfactory. At any given time, we will likely beour compliance with labor laws. Any deterioration of those relations or increase in some stage of contract negotiationslabor costs due to our compliance with various collective bargaining units. In the absence of agreements, we may become subject to labor disruption at one or more of these locations, whichlaws could have an adverse effect on our financial results.
Trademarks
We own registered trademarks which are used in connection with our activity inadversely affect our business. The trademarks are important to the overall marketing and branding of our products. All major trademarks in our business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks.
Seasonality
The demand for our chicken products generally is greatest during the spring and summer months and lowest during the winter months.
Financial Information about Foreign Operations
We have foreign operations in Mexico, the U.K. and Europe. Geographic financial information is set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For additional information, see “Note 21. Business Segment and Geographic Reporting” of our Consolidated and Combined Financial Statements included in this annual report.
Available Information
The Company’s Internet website is www.pilgrims.com. The Company makes available, free of charge, through its Internet website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, directors and officers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SecuritiesSEC. The Company may use its website as a distribution channel of material company information. Financial and Exchange Commission. The public may read and copy any materials thatother important information regarding the Company files with the Securitiesis routinely posted on and Exchange Commission at its Public Reference Room at 100 F Street, NE, Washington, DC 20549 and may obtain information about the operation of the Public Information Room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
In addition, the Company makes available,accessible through its Internet website, the Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines and the written charter of the Audit Committee, each of which is available in print to any stockholder who requests it by contacting the Secretary of the Companywebsite at 1770 Promontory Circle, Greeley, Colorado 80634-9038. http://ir.pilgrims.com. Information contained on the Company’s website is not included as part of, or incorporated by reference into, this annual report.
Information about our Executive Officers
Set forth below is certain information relating to our current executive officers:
| | | | | | | | | | | |
| Name | Age | Background and Experience | Dates |
| Fabio Sandri | 52 | | | | |
Name | | Age | | Positions |
William W. Lovette | | 58 |
| | President and Chief Executive Officer | September 2020 to Present |
Fabio SandriMatthew Galvanoni | 51 | 46 |
| | Chief Financial Officer | March 2021 to Present |
William W. Lovette joined Pilgrim’s as President andFabio Sandri was named the Chief Executive Officer on January 3, 2011. He brings more than 30 years of industry leadership experience to Pilgrim’s. Hein September 2020 and previously served two years as President and Chief Operating Officer of Case Foods, Inc. Before joining Case Foods, Inc., Mr. Lovette spent 25 years with Tyson Foods in various roles in senior management, including President of its International Business Unit, President of its Foodservice Business Unit and Senior Group Vice President of Poultry and Prepared Foods. Mr. Lovette earned a B.S. degree from Texas A&M University. In addition, he is a graduate of Harvard Business School’s Advanced Management Program.
Fabio Sandri has served as theour Chief Financial Officer for Pilgrim’s sincefrom June 2011.2011 to March 2021. From April 2010 to June 2011, Mr. Sandri served as the Chief Financial Officer of Estacio Participações, the private post-secondary educational institution in Brazil. From November 2008 until April 2010, he was the Chief Financial Officer of Imbra SA, a provider of dental services based in Sao Paolo, Brazil. Commencing in 2005 through October 2008, he was employed by Braskem S.A., a New York Stock Exchange-listed petrochemical company headquartered in Camaçari, Brazil, first from 2005 to 2007 as its strategy director, then from 2007 until his departure as its corporate controller. He earned his Masters inMaster’s of Business Administration degree in 2001 from the Wharton School at the
University of Pennsylvania and a degree in electrical engineering in 1993 from Escola Politécnica da Universidade de São Paulo.
Matthew Galvanoni was named the Chief Financial Officer in February 2021, effective March 2021. Prior to his appointment to the Company, Mr. Galvanoni served as Vice President, Finance, of Ingredion Incorporated, a leading global ingredients solution company, since 2016. Mr. Galvanoni joined Ingredion in 2012, serving in the role of Global Corporate Controller and Chief Accounting Officer, where he managed the company’s accounting-related and external financial reporting responsibilities. Mr. Galvanoni started his career at PricewaterhouseCoopers LLP in 1994 and subsequently held several financial leadership positions at Exelon Corporation, where he most recently served as Assistant Corporate Controller. Mr. Galvanoni graduated from the University of Illinois with a Bachelor’s of Accounting degree and later received a Master’s of Business Administration degree from the Kellogg School of Management at Northwestern University. Item 1A.Risk Factors
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this annual report on Form 10-K. Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance. While we believe we have identified and discussed below all risk factors affecting our business that we believe are material, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future.
Business and Operational Risk Factors
Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients, chicken and chicken.pork.
Profitability in the chicken industryand pork industries is materially affected by the commodity prices of feed ingredients and the market prices of chicken and pork, which are determined by supply and demand factors. As a result, the chicken industry isand pork industries are subject to cyclical earnings fluctuations.
The price of feed ingredients is positively or negatively affected primarily by the global level of supply inventories and demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. In particular, weather patterns often change agricultural conditions in an unpredictable manner. A significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens and pigs or deliver products. More recently, feed prices have been impacted by increased demand both domestically for ethanol and globally for protein production, as well as grain production levels outside the U.S. We have recently benefited from low market prices for feed ingredients, but market prices for feed ingredients remain volatile. Consequently, there can be no assurance that the price of corn or soybean mealgrains will not continue to rise as a result of, among other things, increasing demand for these products around the world and alternative uses of these products, such as ethanol and biodiesel production.
Volatility in feed ingredient prices has had, and may continue to have, a materially adverse effect on our operating results, which has resulted in, and may continue to result in, additional noncash expenses due to impairment of the carrying amounts of certain of our assets. We periodically seek, to the extent available, to enter into advance purchase commitments or financial derivative contracts for the purchase of feed ingredients in an effort to manage our feed ingredient costs. The use of these instruments may not be successful. In addition, we have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase exposures as cash flow hedges. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Unexpected changes in the fair value of these instruments could adversely affect the results of our operations. Although we have soughtattempt to mitigate the impact of feed price volatility on our profitability by decreasing the amount of our products that are sold under longer term fixed pricefixed-price contracts, these changes will not eliminate the impact of changes in feed ingredient prices on our profitability and would prevent us from profiting on such contracts during times of declining market prices of chicken.for chicken and/or pork.
Outbreaks of livestock diseases in general, and poultry and pig diseases in particular, including avian influenza and African swine fever, can significantly and adversely affect our ability to conduct our operations and the demand for our products.
We take precautions designed to ensure that our flocks and herds are healthy and that our processing plants and other facilities operate in a sanitary and environmentally-sound manner. However, events beyond our control, such as the outbreaks of disease, either in our own flocks and herds or elsewhere, could significantly affect the demand for our products or our ability to conduct our operations.
Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our fresh chicken, fresh pork or other products to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks.flocks or herds. This could also result in the cancellation of orders by our customers and create
adverse publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation and prospects.
For example, there was substantial publicity in 2015 regarding highly pathogenic avian influenza (“HPAI”) H5 in the Pacific, Central, and Mississippi flyways (or migratory bird paths) of North America. The disease was found in wild birds, as well as in a few backyard and commercial poultry flocks. The CDC considers the risk to people from these HPAI H5 infections to be low. No human cases of these HPAI H5 viruses have been detected. In its response effort, the USDA coordinated closely with state officials in affected and bordering states and other federal departments on avian influenza surveillance, reporting and control efforts. The USDA also coordinated with Canada on the HPAI H5 findings that were close to the northern U.S. border. Furthermore, there was substantial publicity in 2012 and 2013 regarding a highly pathogenic strain of avian influenza, known as H7N3, which affected several states in central Mexico. There was also substantial publicity in 2013 regarding a low pathogenic strain of avian influenza, known as H7N9, which affected eastern and northern China in and around the cities of Shanghai and Beijing.
There have been recent outbreaks of other low pathogenicboth high- and low-pathogenic strains of avian influenza in the U.S. and the U.K., and in Mexico outbreaks of both high and low-pathogenic strains of avian influenza are a fairly common occurrence. Historically, the outbreaks of low pathogenic strains of avian influenza have not generated the same level of concern, or received the same level of publicity or been accompanied by the same reduction in demand for poultry products in certain countries as that associated with highly pathogenic strains such as HPAI H5 and H7N3 or highly infectious strains such as H7N9. Even if no further highly pathogenic or highly contagious strains of avian influenza are confirmed in the U.S., the U.K. and Europe or Mexico, there can be no assurance that outbreaks of these strains in other countries will not materially adversely affect international demand for U.S.-produced poultry internationally and/or U.S.-produced, the U.K. and Europe produced or Mexico-produced poultry domestically,in our operating countries, and, if any of these strains were to spread to either the U.S., the U.K. and Europe or Mexico, there can be no assurance that it would not significantly affect our ability to conduct our operations and/or demand for our products, in each case in a manner having a material adverse effect on our business, reputation and/or prospects.
Previous outbreaks of African swine fever in China and its subsequent spread across the world had a significant effect on both the global supply of pork and on pork prices. Given its island status, the U.K. has an element of built-in biosecurity, but there are risks, mainly as a result of human movement of infected meat from the European Union. In the event of an outbreak of African Swine Fever in the U.K., we believe the Company’s risks are limited to infection. However, there can be no assurance that it would not significantly affect our ability to conduct our operations and/or demand for our products, in each case in a manner having a material adverse effect on our business, reputation and/or prospects.
If our poultry products become contaminated, we may be subject to product liability claims and product recalls. Such product liability claims or product recalls can adversely affect our business reputation, expose us to increased scrutiny by federal and state regulators and may not be fully covered by insurance.
Poultry and pork products may be subject to contamination by disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella, generic E.coli, Yersinia enterocolitica and generic E.coli.Staphylococcusaureus. These pathogens are generally found in the environment and as a result, there is a risk that, as a result of food processing, they could be present in our processed poultry products. These pathogens can also be introduced as a result of improper handling at the further processing, foodservice or consumer level. These risks may be controlled, although not eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling once the product has been shipped. Illness and death may result if the pathogens are not eliminated at the further processing, foodservice or consumer level. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation andand/or prospects.
Product liability claims or product recalls can adversely affect our business reputation, expose us to increased scrutiny by federal and state regulators and may not be fully covered by insurance.
The packaging, marketing and distribution of food products entail an inherent risk of product liability and product recall and the resultant adverse publicity. We may be subject to significant liability if the consumption of any of our products causes injury, illness or death.
We could be required to recall certain products in the event of contamination or damage to the products. In addition to the risks of product liability or product recall due to deficiencies caused by our production or processing operations, we may encounter the same risks if any third party tampers with our products. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future. Any claims that may be made may create adverse publicity that would have a material adverse effect on our ability to market our products successfully or on our business, reputation, prospects, financial condition and results of operations.
If our poultry products become contaminated, spoiled, are tampered with or are mislabeled, we may be subject to product liability claims and product recalls. There can be no assurance that any litigation or reputational injury associated withA widespread product recalls will notrecall could result in significant losses due to the cost of a recall, the destruction of product inventory and lost sales due to the unavailability of product for a period of time. Such a product recall also could result in adverse publicity, damage to our reputation and a loss of consumer confidence in our products, which could have a material adverse effect on our ability to market our products successfully or on our business reputation, prospects, financial condition and results of operations.results.
We currently maintain insurance with respect to certain of these risks, including product liability insurance, business interruption insurance and general liability insurance, but in many cases such insurance is expensive, difficult to obtain and no assurance can be given that such insurance can be maintained in the future on acceptable terms, or in sufficient amounts to protect us against losses due to any such events, or at all. Moreover, even though our insurance coverage may be designed to protect us
from losses attributable to certain events, it may not adequately protect us from liability and expenses we incur in connection with such events.
Our foreign operations and commerce in international markets pose special risks to our business and operations and subject us to additional regulatory frameworks and compliance costs.
We have significant operations and assets located in Mexico, the U.K., the Republic of Ireland, and continental Europe and may participate in or acquire operations and assets in other foreign countries in the future. Foreign operations are subject to a number of special risks such as currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and changes in laws and policies, including tax laws and laws governing foreign-owned operations. Currency exchange rate fluctuations have adversely affected us in the past. Exchange rate fluctuations or one or more other risks may have a material adverse effect on our business or operations in the future. Our operations in Mexico, the U.K., the Republic of Ireland, and continental Europe are conducted through subsidiaries organized under non-U.S. laws. Claims of creditors of our subsidiaries, including trade creditors, will generally have priority as to the assets of our subsidiaries over our claims. Additionally, the ability of these subsidiaries to make payments and distributions to us can be limited by terms of subsidiary financing arrangements and will be subject to, among other things, the laws applicable to these subsidiaries. In the past, these laws have not had a material adverse effect on the ability of these subsidiaries to make these payments and distributions. However, laws such as these may have a material adverse effect on the ability of these subsidiaries to make these payments and distributions in the future.
Our operations in foreign jurisdictions also subject us to additional regulatory frameworks, which can increase costs of compliance and subject us to possible fines and penalties, some of which could be significant. In some cases, foreign regulatory frameworks are more stringent or complex than similar regimes in the United States. For example, the European Union’s Deforestation Regulation (the “EUDR”), which generally becomes effective on December 30, 2024, will require companies trading in cattle, cocoa, coffee, oil palm, rubber, soya, and wood, as well as products derived from these commodities, to conduct extensive diligence on the value chain to ensure the goods do not result from recent deforestation, forest degradation, or breaches of local laws in order to sell such products in the European Union market. The EUDR, and other current or proposed regulations in the European Union and elsewhere, are likely to increase our compliance costs, could depress sales in such markets if our products are not in compliance by applicable effective dates, and could result in fines and penalties or reputational harm if we do not fully comply.
Additionally, to conduct our operations, we regularly move data across national borders (including data related to business, financial, marketing and regulatory matters) and must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. For example, in 2018, the European Union (the “E.U.”) recently commenced enforcement of the General Data Protection Regulation (the “GDPR”). The GDPR imposes significant additional compliance obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. The GDPR grants enforcement powers to certain E.U. regulators including extra-territorial powers in some cases. These enforcement powers enable regulators to conduct investigations and dawn raids, to issue penalties up to the greater of €20 million or 4% of worldwide turnover for the most serious violations, and to require changes to the way that organizations (including the Company) use personal data. Due to the geographic scope of our operations, the GDPR may increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to minimize the risk of non-compliance with applicable privacy laws and regulations. Privacy laws such as the GDPR and similar laws and regulations are increasing in complexity and number, change frequently and sometimes conflict. In particular, as the E.U. states reframe their national legislation to harmonize with the GDPR, we will need to monitor compliance with all relevant E.U. member states’ laws and regulations, including where permitted derivations from the GDPR are introduced. Additional laws may be enacted in U.S. states or at the U.S. federal level. Compliance with such existing, proposed and recently enacted laws and regulations can be costly and may necessitate the review and implementation of policies and processes relating to our collection, security, and use of data; any failure to comply with these regulatory standards could subject us to legal and reputational risks including proceedings against the Company by governmental entities or others, fines and penalties, damage to our reputation and credibility and could have a negative impact on our business and results of operations.
Historically, we have targeted international markets to generate additional demand for our products. In particular, given the general preference for white chicken meat by U.S. and U.K. consumers, we have targeted international markets for the sale of certain dark chicken meat and parts, such as chicken paws, which are generally not consumed in the U.S. or U.K. We have also targeted international markets for excess primary pork cuts and parts, such as hog heads and trotters, which are generally not consumed in the U.K. As part of this initiative, we have created a significant international distribution network into several markets in Mexico, the Middle East and Asia. Our success in these markets may be, and our success in recent periods has been, adversely affected by disruptions in export markets. A significant risk is disruption due to import restrictions and tariffs, other trade protection measures, and import or export licensing requirements regarding food products imposed by foreign countries. Significant political or regulatory developments in the jurisdictions in which we sell our products, such as those stemming from the presidential administration in the U.S., are difficult to predict and may have a material adverse effect on us. For example, the implementation of new tariff schemes by various governments, such as those implemented by the U.S.
and China in recent years, could increase the costs of our operations and ultimately increase the cost of products sold from one country into another country. In addition, disruptions may be caused by outbreaks of diseases, either in our flocks and herds or elsewhere in the world, and resulting changes in consumer preferences. One or more of these or other disruptions in the international markets and distribution channels could adversely affect our business.
Competition in the chicken and pork industries with other vertically integrated chicken or pork companies may make us unable to compete successfully in this industry, which could adversely affect our business.
Both the chicken and pork industries are highly competitive. In the U.S., Mexico, the U.K., the Republic of Ireland, and continental Europe, we primarily compete with other vertically integrated chicken and pork companies. In general, the competitive factors in these industries include price, product quality, product development, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the foodservice market, competition is based on consistent quality, product development, service and price. In the U.S. retail market, competition is based on product quality, brand awareness, customer service and price. Further, there is some competition with non-vertically integrated further processors in the prepared chicken business. In the Mexico retail and foodservice markets, where product differentiation has traditionally been limited, product quality and price have been the most critical competitive factors. In the U.K., the Republic of Ireland, and continental Europe retail and food service markets, key competitive factors include price, delivering consistent levels of the highest quality, service level and delivering strong innovation. The fresh U.K. and continental Europe market is almost exclusively retailer private label. The U.K. fresh market is almost exclusively sourced from within the U.K., making vertical integration a prerequisite for operating in that market. The U.K. prepared foods market is less exclusively sourced from within the U.K. so vertical integration is less of a consideration and competition is opened up to other processors, some of whom produce or source from abroad. Our success depends in part on our ability to manage costs and be efficient in the highly competitive poultry and pork industries, and our failure to manage costs and be efficient could materially and adversely affect our business, financial condition and results of operations.
Media campaigns related to food production; regulatory and customer focus on environmental, social and governance responsibility; and recent increased focus and attention by the U.S. government on market dynamics in the meat processing industry could expose us to additional costs or risks.
Individuals or organizations can use social media platforms to publicize inappropriate or inaccurate stories or perceptions about the food production industry or our company. Such practices could cause damage to the reputations of our company and/or the food production industry in general. This damage could adversely affect our financial results. In addition, regulators, stockholders, customers and other interested parties have focused increasingly on the environmental, social and governance practices of companies. This has led to an increase in regulations and may continue to cause us to be subject to additional regulations in the future. Our customers or other interested parties may also require us to implement certain environmental, social or governance procedures or standards before doing or continuing to do business with us. Also, the U.S. government has increased its focus on market dynamics within the meat industry. The U.S. government has inquired with the meat processing industry on matters such as market pricing to end consumers and market dynamics associated with the relationship between meat processors and the farming community. This increased attention on environmental, social and governance practices could cause us to incur additional compliance costs, divert management attention from operating our business, impair our access to capital among certain investors and subject us to litigation risk for disclosures we make and practices we adopt regarding these issues. This in turn could have a material adverse effect on our business, financial condition and results of operations.
We are increasingly dependent on information technology, and our business and reputation could suffer if we are unable to protect our information technology systems against, or effectively respond to, cyber-attacks, to other cyber security incidents or breaches, or if our information technology systems are otherwise disrupted.
The proper functioning of our information systems is critical to the successful operation of our business. We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information, to manage a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements. We also depend on our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers, and suppliers.Although our information systems are protected with robust backup systems, including physical and software safeguards and remote processing capabilities, information systems by their nature are still vulnerable to cyber-attacks, natural disasters, power losses, unauthorized access, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their relationship with us or could encounter system disruptions or attacks of their own. If critical information systems fail or these systems or related software or services are otherwise unavailable, our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of Company and customer data could be adversely affected. Cyber-attacks and other cyber incidents are occurring more frequently and are constantly evolving in nature and sophistication.
We have experienced and expect to continue to experience actual or attempted cyber-attacks of our information technology systems or networks. To date, none of these actual or attempted cyber-attacks has had a material effect on our operations or financial condition. For example, we determined on May 30, 2021 that we were the target of an organized cybersecurity attack (the “Cyberattack”) affecting some of the servers supporting our global IT systems. Upon learning of the intrusion, we contacted federal officials and activated our cybersecurity protocols, including voluntarily shutting down all affected systems to isolate the intrusion, limit the potential infection and preserve core systems. Restoring systems critical to production was prioritized. In addition, the encrypted backup servers, which were not affected by the Cyberattack, allowed for a return to full operations within two days. We incurred a loss of approximately $10.0 million related to the Cyberattack during the second quarter of 2021, which included an allocation of $2.4 million of the total $11.0 million ransom paid by our parent company. Our response, IT systems and encrypted backup servers allowed for a rapid recovery from the Cyberattack. As a result, the loss of food produced was limited to less than one day of production. We continue to cooperate with government officials regarding this incident. We are not aware of any evidence that any customer, supplier, employee or financial data has been compromised or misused as a result of the Cyberattack.
Our failure to maintain our cyber-security measures and keep abreast of new and evolving threats may make our systems vulnerable. The rapid evolution and increased adoption of new technologies, such as artificial intelligence, may intensify our cybersecurity risks. The potential consequences of a material cyber-security incident include reputational damage, litigation with third parties, regulatory actions, disruption of plant operations, and increased cyber-security protection and remediation costs. There can be no assurance that we will be able to prevent all of the rapidly evolving forms of increasingly sophisticated and frequent cyber-attacks. Moreover, our efforts to address network security vulnerabilities may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which would cause harm to our business operations. The vulnerability of our systems and our failure to identify or respond timely to cyber incidents could have an adverse effect on our operations and reputation and expose us to liability or regulatory enforcement actions.
Our operations are subject to general risks of litigation.
We are involved on an ongoing basis in litigation relating to alleged antitrust violations or arising in the ordinary course of business or otherwise. Trends in litigation may include class actions involving consumers, shareholders, employees or injured persons, and claims relating to commercial, labor, employment, antitrust, securities or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with certainty, and adverse litigation trends and outcomes could result in material damages, which could adversely affect our financial condition and results of operations.
For example, between September 2, 2016 and October 13, 2016, a series of purported class action lawsuits were brought against PPC and other defendants by and on behalf of direct and indirect purchasers of broiler chickens alleging violations of antitrust and unfair competition laws. The complaints seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the period of January 2008 to 2019. For additional information on this and other litigation matters, see Part II, Item 8, Notes to Consolidated Financial Statements, “Note 21. Commitments and Contingencies” in this annual report. The consequences of the litigation matters PPC faces are inherently uncertain, and adverse actions, judgments or settlements in some or all of these matters has resulted and may in the future result in materially adverse monetary damages, fines, penalties, or injunctive relief against PPC. Any claims or litigation, even if fully indemnified or insured, could damage PPC’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.
We may not be able to successfully integrate the operations of companies we acquire including Moy Park or GNP, or benefit from growth opportunities.
We intendcontinue to pursue additional selected growth opportunitiesselective acquisitions of complementary businesses, such as Pilgrim’s Food Masters, which we acquired in 2021. Inherent in any future acquisitions are certain risks such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our operating results, particularly during the future.period immediately following such acquisitions. Additional debt or equity capital may be required to complete future acquisitions, and there can be no assurance that we will be able to raise the required capital. These opportunities including the Moy Park acquisition and the GNP acquisition, may expose us to successor liability relating to actions involving any acquired entities, their respective management or contingent liabilities incurred prior to our involvement and will expose us to liabilities associated with ongoing operations, in particular to the extent we are unable to adequately and safely manage such acquired operations. A material liability associated with these types of opportunities, or our failure to successfully integrate any acquired entities into our business, could adversely affect our reputation and have a material adverse effect on us.
Undisclosed liabilities from our acquisitions may harm our financial condition and operating results. If we make acquisitions in the future, these transactions may be structured in such a manner that would result in our assumption of undisclosed liabilities or liabilities not identified during our pre-acquisition due diligence. These obligations and liabilities could adversely affect our financial condition and operating results.
We may not be able to successfully integrate any growth opportunities we may undertake in the future including the Moy Park acquisition and the GNP acquisition, or successfully implement appropriate operational, financial and administrative systems and controls to achieve the benefits that we expect to
result therefrom. These risks include: (1) failure of the acquired entities to achieve expected results; (2) possible inability to retain or hire key personnel of the acquired entities; and (3) possible inability to achieve expected synergies and/or economies of scale. In addition, the process of integrating businesses could cause interruption of, or loss of momentum in, the activities of our existing business. The diversion of our management’s attention, the lack of experience in operating in the geographical market of the acquired business and any delays or difficulties encountered in connection with the integration of these businesses could adversely affect our business, results of operations prospects and the market price of the notes.
Competition in the chicken industry with other vertically integrated poultry companies may make us unable to compete successfully in this industry, which could adversely affect our business.
The chicken industry is highly competitive. In the U.S. and Mexico, we primarily compete with other vertically integrated chicken companies.
In general, the competitive factors in the U.S. chicken industry include price, product quality, product development, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the foodservice market, competition is based on consistent quality, product development, service and price. In the U.S. retail market, we believe that competition is based on product quality, brand awareness, customer service and price. Further, there is some competition with non-vertically integrated further processors in the prepared chicken business. In Mexico, where product differentiation has traditionally been limited, we believe product quality and price have been the most critical competitive factors.prospects.
The consolidation of customers and/or the loss of one or more of our largest customers could adversely affect our business.
Our two largest customers accounted for approximately 11.0% of our net sales in 2017. Our business could suffer significant setbacks in revenues and operating income if we lost one or more of our largest customers, or if our customers’ plans and/or markets should change significantly.
Our foreign operations pose special risks to our business and operations.
We have significant operations and assets located in Mexico and Europe and may participate in or acquire operations and assets in other foreign countries in the future. Foreign operations are subject to a number of special risks such as currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and changes in laws and policies, including tax laws and laws governing foreign-owned operations.
Currency exchange rate fluctuations have adversely affected us in the past. Exchange rate fluctuations or one or more other risks may have a material adverse effect on our business or operations in the future.
Our operations in Mexico are conducted through subsidiaries organized under the laws of Mexico. Claims of creditors of our subsidiaries, including trade creditors, will generally have priority as to the assets of our subsidiaries over our claims. Additionally, the ability of our Mexican subsidiaries to make payments and distributions to us may be limited by the terms of our Mexico credit facility and will be subject to, among other things, Mexican law. In the past, these laws have not had a material adverse effect on the ability of our Mexican subsidiaries to make these payments and distributions. However, laws such as these
may have a material adverse effect on the ability of our Mexican subsidiaries to make these payments and distributions in the future.
The terms of Moy Park’s indenture restrict Moy Park’s ability and the ability of certain of Moy Park’s subsidiaries to, among other things, make payments and distributions to us. These restrictions may have a material adverse effect on Moy Park’s ability to make these payments and distributions in the future.
Disruptions in international markets and distribution channels could adversely affect our business.
Historically, we have targeted international markets to generate additional demand for our products. In particular, given U.S. customers’ general preference for white meat, we have targeted international markets for the sale of dark chicken meat, specifically leg quarters, which are a natural by-product of our U.S. operations’ concentration on prepared chicken products. As part of this initiative, we have created a significant international distribution network into several markets in Mexico, the Middle East, Asia and countries within the Commonwealth of Independent States (the “CIS”). Our success in these markets may be, and our success in recent periods has been, adversely affected by disruptions in chicken export markets. For example, dozens of countries, including Mexico, Canada, China, Angola and South Korea, imposed either partial or full bans on the importation of poultry produced in the U.S. after an outbreak of HPAI H5 avian influenza was confirmed in 2015. Additionally, China imposed anti-dumping and countervailing duties on the U.S. chicken producers in 2010, which have deterred Chinese importers from purchases of U.S.-origin chicken products. Russia also banned the importation of chicken and other agricultural products from the U.S. and certain other western countries in August 2014 in retaliation for sanctions imposed by the U.S. and Europe on Russia over its actions in Ukraine.
A significant risk is disruption due to import restrictions and tariffs, other trade protection measures, and import or export licensing requirements. In addition, disruptions may be caused by outbreaks of disease such as avian influenza, either in our flocks or elsewhere in the world, and resulting changes in consumer preferences.
One or more of these or other disruptions in the international markets and distribution channels could adversely affect our business.
Regulation, present and future, is a constant factor affecting our business.
Our operations will continue to be subject to federal, state and local governmental regulation, including in the health, safety and environmental areas. Changes in laws or regulations or the application thereof regarding areas such as wage and hour and environmental compliance may lead to government enforcement actions and resulting litigation by private litigants.
In addition, unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may also materially affect our business or operations in the future.
New immigration legislation or increased enforcement efforts in connection with existing immigration legislation could cause the costs of doing business to increase, cause us to change the way we conduct our business or otherwise disrupt our operations.
Immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new federal immigration legislation is enacted or if states in which we do business enact immigration laws, such laws may contain provisions that could make it more difficult or costly for us to hire U.S. citizens and/or legal immigrant workers. Additionally, there may be uncertainty as to the position the U.S. will take with respect to immigration following the 2016 U.S. presidential election and related change in the U.S. political agenda. In such case, we may incur additional costs to run our business or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, operating results and financial condition. Also, despite our past and continuing efforts to hire only U.S. citizens and/or persons legally authorized to work in the U.S., we may be unable to ensure that all of our employees are U.S. citizens and/or persons legally authorized to work in the U.S. No assurances can be given that enforcement efforts by governmental authorities will not disrupt a portion of our workforce or operations at one or more facilities, thereby negatively impacting our business. Also, no assurance can be given that further enforcement efforts by governmental authorities will not result in the assessment of fines that could adversely affect our financial position, operating results or cash flows.
Loss of essential employees could have a significant negative impact on our business.
Our success is largely dependent on the skills, experience, and efforts of our management and other employees. The loss of the services of one or more members of our senior management or of numerous employees with essential skills could have a
negative effect on our business, financial condition and results of operations. If we are not able to retain or attract talented, committed individuals to fill vacant positions when needs arise, it may adversely affect our ability to achieve our business objectives.
Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.
As of December 31, 2017, we employed approximately 30,900 persons in the U.S.,approximately 10,200 persons in Mexico and approximately 10,200 persons in the U.K. and Europe. Approximately 37.8% of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2018 or later. We have not experienced any labor-related work stoppage at any location in over ten years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of agreements, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.
Extreme weather, natural disasters or other events beyond our control could negatively impact our business.
Bioterrorism, fire, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of our flocks, production or availability of feed ingredients, or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have an adverse effect on our financial results.
We may face significant costs for compliance with existing or changing environmental, health and safety requirements and for potential environmental obligations relating to current or discontinued operations.
Our operations are subject to extensive and increasingly stringent federal, state, local and foreign laws and regulations pertaining to the protection of the environment, including those relating to the discharge of materials into the environment, the handling, treatment and disposal of wastes and remediation of soil and groundwater contamination. Failure to comply with these requirements could have serious consequences for us, including criminal as well as civil and administrative penalties, claims for property damage, personal injury and damage to natural resources and negative publicity. Compliance with existing or changing environmental requirements, including more stringent limitations imposed or expected to be imposed in recently-renewed or soon-to be renewed environmental permits, will require capital expenditures for installation of new or upgraded pollution control equipment at some of our facilities.
Operations at many of our facilities require the treatment and disposal of wastewater, stormwater and agricultural and food processing wastes, the use and maintenance of refrigeration systems, including ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment, and other operations that potentially could affect the environment, health and safety. Some of our facilities have been operating for many years, and were built before current environmental standards were imposed, and/or in areas that recently have become subject to residential and commercial development pressures. Failure to comply with current and future environmental, health and safety standards could result in the imposition of fines and penalties, and we have been subject to such sanctions from time to time. We are upgrading wastewater treatment facilities at a number of these locations, either pursuant to consent agreements with regulatory authorities or on a voluntary basis in anticipation of future permit requirements.
In the past, we have acquired businesses with operations such as pesticide and fertilizer production that involved greater use of hazardous materials and generation of more hazardous wastes than our current operations. While many of those operations have been sold or closed, some environmental laws impose strict and, in certain circumstances, joint and several liability for costs of investigation and remediation of contaminated sites on current and former owners and operators of the sites, and on persons who arranged for disposal of wastes at such sites. In addition, current owners or operators of such contaminated sites may seek to recover cleanup costs from us based on past operations or contractual indemnifications.
New environmental, health and safety requirements, stricter interpretations of existing requirements, or obligations related to the investigation or clean-up of contaminated sites, may materially affect our business or operations in the future.
JBS USA beneficially owns a majority of our common stock and has the ability to control the vote on most matters brought before the holders of our common stock.
JBS USA beneficially owns a majority of the shares and voting power of our common stock and is entitled to appoint a majority of the members of our Board of Directors. As a result, JBS USA will, subject to restrictions on its voting power and actions in a stockholders agreement between JBS USA and us and our organization documents, have the ability to control our
management, policies and financing decisions, elect a majority of the members of our Board of Directors at the annual meeting and control the vote on most matters coming before the holders of our common stock.
Under the stockholders agreement between JBS USA and us, JBS USA has the ability to elect up to six members of our Board of Directors and the other holders of our common stock have the ability to elect up to three members of our Board of Directors. If the percentage of our outstanding common stock owned by JBS USA exceeds 80%, then JBS USA would have the ability to elect one additional member of our Board of Directors while the other holders of our common stock would have the ability to elect one less member of our Board of Directors.
J&F Investimentos S.A. is investigating improper payments made in Brazil in connection with admissions of illicit conduct to the Brazilian Federal Prosecutor’s Office and the outcome of this investigation and related investigations by the Brazilian government could have a material adverse effect on us.
On May 3, 2017, certain officers of J&F Investimentos S.A. (“J&F,” and the companies controlled by J&F, the “J&F Group”) (including two former directors of the Company), a company organized in Brazil and an indirect controlling stockholder of the Company, entered into plea bargain agreements (the "Plea Bargain Agreements") with the Brazilian Federal Prosecutor's Office (Ministério Público Federal) ("MPF") in connection with certain illicit conduct involving improper payments made to Brazilian politicians, government officials and other individuals in Brazil committed by or on behalf of J&F and certain J&F Group companies. The details of such illicit conduct are set forth in separate annexes to the Plea Bargain Agreements, and include admissions of improper payments to politicians and political parties in Brazil over the last 10 years in exchange for receiving, or attempting to receive, favorable treatment for certain J&F Group companies in Brazil.
Pursuant to the terms of the Plea Bargain Agreements, the MPF agreed to grant immunity to the officers in exchange for such officers agreeing, among other considerations, to: (1) pay fines totaling R$225.0 million; (2) cooperate with the MPF, including providing supporting evidence of the illicit conduct identified in the annexes to the Plea Bargain Agreements; and (3) present any previously undisclosed illicit conduct within 120 days following the execution of the Plea Bargain Agreements as long as the description of such conduct had not been omitted in bad faith. In addition, the Plea Bargain Agreements provide that the MPF may terminate any Plea Bargain Agreement and request that the Supreme Court of Brazil (Supremo Tribunal Federal) ("STF") ratify such termination if any illicit conduct is identified that was not included in the annexes to the Plea Bargain Agreements.
On June 5, 2017, J&F, in its role as the controlling shareholder of the J&F Group, entered into a leniency agreement (the "Leniency Agreement") with the MPF, whereby J&F assumed responsibility for the conduct that was described in the annexes to the Plea Bargain Agreements. In connection with the Leniency Agreement, J&F has agreed to pay a fine of R$10.3 billion, adjusted for inflation, over a 25- year period. In exchange, the MPF agreed not to initiate or propose any criminal, civil or administrative actions against J&F, the companies of the J&F Group or those officers of J&F with respect to such conduct. Pursuant to the terms of the Leniency Agreement, if the Plea Bargain Agreement is annulled by the STF, then the Leniency Agreement may also be terminated by the Fifth Chamber of Coordination and Reviews of the MPF or, solely with respect to the criminal related provisions of the Leniency Agreement, by the 10th Federal Court of the Federal District in Brasilia, the authorities responsible for the ratification of the Leniency Agreement.
On August 24, 2017, the Fifth Chamber ratified the Leniency Agreement. On September 8, 2017, the 10th Federal Court ratified the Leniency Agreement. In compliance with the terms of the Leniency Agreement, J&F is conducting an internal investigation involving improper payments made in Brazil by or on behalf of J&F, certain companies of the J&F Group and certain officers of J&F (including two former directors of the Company). J&F has engaged outside advisors to assist in conducting the investigation, including an assessment as to whether any of the misconduct disclosed to Brazilian authorities had any connection to the Company, or resulted in a violation of U.S. law. The internal investigation is ongoing and the Company is fully cooperating with J&F in connection with the investigation. We cannot predict when the investigation will be completed or the results of the investigation, including the outcome or impact of any government investigations or any resulting litigation.
On September 8, 2017, at the request of the MPF, the STF issued an order temporarily revoking the immunity from prosecution previously granted to Joesley Mendonça Batista and another executive of J&F in connection with the Plea Bargain Agreements. The MPF requested the revocation of their immunity following public disclosure of certain voice recordings involving them in which they discussed certain alleged illicit activities the MPF claims were not covered by the annexes to their respective Plea Bargain Agreements. On September 10, 2017, Joesley Mendonça Batista voluntarily turned himself into police in Brazil. On September 11, 2017, the 10th Federal Court suspended its ratification of the criminal provisions of the Leniency Agreement as a result of the STF's temporary revocation of Joesley Mendonça Batista immunity under his Plea Bargain Agreement. On October 11, 2017, Judge Vallisney de Souza of the 10th Federal Court revalidated the criminal provisions of the Leniency Agreement.
We cannot predict whether the Plea Bargain Agreements will be upheld or terminated by the STF, and, if terminated, whether the Leniency Agreement will be also terminated by either the Fifth Chamber and/or the 10th Federal Court, and to what
extent. If the Leniency Agreement is terminated, in whole or in part, as a result of any Plea Bargain Agreement being terminated, this may materially adversely affect the public perception or reputation of the J&F Group, including the Company, and could have a material adverse effect on the J&F Group's business, financial condition, results of operations and prospects. Furthermore, the termination of the Leniency Agreement may cause the termination of certain stabilization agreements entered into by JBS S.A. and certain of its subsidiaries, which would permit the lenders of the debt that is the subject to the terms of the stabilization agreements to accelerate their debt, which could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).
Separately, Wesley Mendonça Batista (the former Chief Executive Officer of JBS S.A.) was arrested on September 13, 2017, as a result of a separate investigation by Brazil’s federal police alleging that Joesley Mendonça Batista and Wesley Mendonça Batista carried out insider trading transactions involving the sale of shares of JBS S.A. and foreign exchange futures contracts prior to the announcement of the Plea Bargain Agreements. The Securities and Exchange Commission of Brazil (Comissão de Valores Mobiliários) is also investigating these insider trading transactions. On September 21, 2017, the Brazilian federal police formally requested that the federal prosecutor bring charges against Joesley Mendonça Batista and Wesley Mendonça Batista as a result of this investigation. These investigations, possible indictments and any further developments in this matter may materially adversely affect the public perception or reputation of JBS S.A. and its subsidiaries (including the Company) and could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).
Our operations are subject to general risks of litigation.
We are involved on an ongoing basis in litigation relating to alleged antitrust violations or arising in the ordinary course of business or otherwise. For example, between September 2, 2016 and October 13, 2016, ten purported class action lawsuits were brought against Pilgrim’s and 13 other producers by and on behalf of direct and indirect purchasers of broiler chickens. The complaints, which were filed with the U.S. District Court for the Northern District of Illinois, seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the period of January 2008 to the present. See “Item 3. Legal Proceedings.” Trends in litigation may include class actions involving consumers, shareholders, employees or injured persons, and claims relating to commercial, labor, employment, antitrust, securities or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with certainty, and adverse litigation trends and outcomes could result material damages, which could adversely affect our financial condition and results of operations.
We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act and the UK Bribery Act.
We are subject to a number of anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act.
The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or improperly providing anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or keeping business and/or other benefits. Some of these laws have legal effect outside the jurisdictions in which they are adopted under certain circumstances. The FCPA also requires maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Under the FCPA, companies operating in the United States may be held liable for actions taken by their strategic or local partners or representatives.
The UK Bribery Act is broader in scope than the FCPA in that it directly prohibits commercial bribery (i.e. bribing others than government officials) in addition to bribery of government officials and it does not recognize certain exceptions, notably for facilitation payments, that are permitted by the FCPA. The UK Bribery Act also has wide jurisdiction. It covers any offense committed in the United Kingdom, but proceedings can also be brought if a person who has a close connection with the United Kingdom commits the relevant acts or omissions outside the United Kingdom. The UK Bribery Act defines a person with a close connection to include British citizens, individuals ordinarily resident in the United Kingdom and bodies incorporated in the United Kingdom.
The UK Bribery Act also provides that any organization that conducts part of its business in the United Kingdom, even if it is not incorporated in the United Kingdom, can be prosecuted for the corporate offense of failing to prevent bribery by an associated person, even if the bribery took place entirely outside the United Kingdom and the associated person had no connection with the United Kingdom. Other jurisdictions in which we operate have adopted similar anti-corruption, anti-bribery and anti-kickback laws to which we are subject. Civil and criminal penalties may be imposed for violations of these laws.
Although the code of ethics and standards of conduct adopted by JBS S.A. in late 2015 requires our employees to comply with the FCPA and the UK Bribery Act, we are still implementing a formal compliance program and policies that cover our employees and consultants. We operate in some countries which are viewed as high risk for corruption. Despite our ongoing efforts to ensure compliance with the FCPA, the UK Bribery Act and similar laws, there can be no assurance that our directors, officers,
employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations, will comply with those laws and our anti-corruption policies, and we may be ultimately held responsible for any such non-compliance. If we or our directors or officers violate anti-corruption laws or other laws governing the conduct of business with government entities (including local laws), we or our directors or officers may be subject to criminal and civil penalties or other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, results of operations and prospects.
We depend on contract growers and independent producers to supply us with livestock.
We contract primarily with independent contract growers to raise the live chickens processed in our poultry operations. If we do not attract and maintain contracts with growers or maintain marketing and purchasing relationships with independent producers, our production operations could be negatively affected.
Changes in consumer preference could negatively impact our business.
The food industry in general is subject to changing consumer trends, demands and preferences. Trends within the food industry change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have an adverse effect on our financial results.
The consolidation of customers could negatively impact our business.
Our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated in recent years, and consolidation is expected to continue throughout the U.S. and in other major markets. These consolidations have produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price increases, and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also may use shelf space currently used for our products for their own private label products. Because of these trends, our volume growth could slow or we may need to lower prices or increase promotional spending for our products, any of which could adversely affect our financial results.
We are increasingly dependent on information technology, andOur two largest customers together accounted for approximately 13.2% of our consolidated net sales in 2023. Our business and reputation could suffer significant setbacks in revenues and operating income if we are unable to protectlost one or more of our information technology systems against, or effectively respond to, cyber-attacks, other cyber incidents or security breacheslargest customers, or if our information technology systems are otherwise disrupted.customers’ plans and/or markets should change significantly.
We depend on contract growers and independent producers to supply us with livestock.
We contract primarily with independent contract growers to raise the live chickens and pigs processed in our operations. If we do not attract and maintain contracts with growers or maintain marketing and purchasing relationships with independent producers, our production operations could be negatively affected.
Changes in consumer preference could negatively impact our business.
The proper functioning of our information systemsfood industry in general is criticalsubject to changing consumer trends, demands and preferences. Trends within the successful operation of our business. Although our information systems are protected with robust backup systems, including physicalfood industry change often, and software safeguards and remote processing capabilities, information systems are still vulnerable to natural disasters, power losses, unauthorized access, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their relationship with us. If critical information systems fail or these systems or related software or services are otherwise unavailable, our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of Company and customer data could be adversely affected.
Cyber-attacks and other cyber incidents are occurring more frequently and are constantly evolving in nature and sophistication. Our failure to maintain our cyber-security measures and keep abreast of new and evolving threats may make our systems vulnerable. The vulnerability of our systems and our failure to identify or respond timelyand react to cyber incidentschanges in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have an adverse effect on our financial results. For example, consumer concerns related to human health, climate change, resource conservation and animal welfare of animal-based protein sources have driven consumer interest in plant-based protein sources. Because we primarily produce chicken and pork products, we may be limited in our ability to respond to changes in consumer preferences towards other animal-based proteins or away from animal-based proteins entirely.
We strive to respond to consumer preferences and expectations, but we may not be successful in our efforts. We could be adversely affected if consumers lose confidence in the quality of certain food products or ingredients. Prolonged negative perceptions of certain food products or ingredients could influence consumer preferences and acceptance of some of our products and marketing programs. Continued negative perceptions and failure to satisfy consumer preferences could materially and adversely affect our product sales, financial condition and results of operations. Our Pilgrim’s Food Masters business has a number of iconic brands with significant value. While we have recently increased the market share of our Just Bare® and Pilgrim’s® brands in the U.S. market. Maintaining and continually enhancing the value of these brands is critical to the success of our business. Brand value is based in large part on consumer perceptions. Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products. Brand value could diminish significantly due to a number of factors, including consumer perception that we have acted in an irresponsible manner, adverse publicity about our products (whether or not valid), our failure to maintain the quality of our products, the failure of our products to deliver consistently positive consumer experiences or the products becoming unavailable to consumers.
Climate change may have a long-term adverse impact on our business and results of operations.
Global average temperatures are gradually increasing due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere, which may contribute to significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Decreased agricultural productivity in certain regions of the world as a result of changing weather patterns may limit the availability or increase the cost of key agricultural commodities and natural resources, as well as raw materials such as corn, soybean meal and other feed ingredients, which are important sources of ingredients for our products, and could impact the food security of communities around the world. Increased frequency or duration of extreme weather conditions could also impair production capabilities, disrupt our supply chain or impact demand for our products. Increasing concern over climate change also may adversely impact demand for our products due to changes in
consumer preferences and result in additional legal or regulatory requirements designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment. In addition, climate change could affect our ability to procure needed commodities at costs and in quantities we currently experience and may require us to make additional unplanned capital expenditures. Increased energy or compliance costs and expenses due to increased legal or regulatory requirements could be prohibitively costly and may cause disruptions in, or an increase in the costs associated with, the running of our production facilities. Furthermore, compliance with any such legal or regulatory requirements may require us to make significant changes to our business operations and strategy, which will likely incur substantial time, attention and costs. Even if we make changes to align ourselves with such legal or regulatory requirements, we may still be subject to significant fines if such laws and regulations are interpreted and applied in a manner inconsistent with our practices. The effects of climate change and legal or regulatory initiatives to address climate change could have a long-term adverse impact on our business and results of operations. We currently have outstanding Senior Notes that are linked to our achievement of targeted reductions in Scope 1 and 2 greenhouse gas emissions intensity by 2025. If we fail to meet these targeted reductions in 2025, the interest rate applied to these Senior Notes will increase. Finally, from time to time we establish and publicly announce goals and targets to reduce our carbon footprint. If we fail to achieve, fail to specify or improperly report on our progress toward achieving our carbon emissions reduction goals and targets, we could be subject to lawsuits, investigations, government actions, or other claims made by public or private entities, each of which could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, the resulting negative publicity from any such allegations could adversely affect consumer preference for our products.
Legal and Regulatory Risk Factors
Regulation, present and future, is a constant factor affecting our business.
Our operations will continue to be subject to or otherwise affected by federal, state and local governmental legislation and regulation, including in the health, safety and environmental areas. Changes in laws or regulations or the application thereof regarding areas such as wage and hour and environmental compliance may lead to government enforcement actions and resulting litigation by private litigants. In addition, unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may also materially affect our business or operations in the future. For example, the USDA amended the Packers and Stockyards Act to require new disclosures that live poultry dealers must provide to contract growers.
Immigration
Immigration reform continues to attract significant attention in the public arena and the U.S. Congress. Despite our past and continuing efforts to hire only U.S. citizens and/or persons legally authorized to work in the U.S., we may be unable to ensure that all of our employees and contractors are persons legally authorized to work in the U.S. No assurances can be given that enforcement efforts by governmental authorities will not disrupt a portion of our workforce or operations at one or more facilities, thereby negatively impacting our business. Also, no assurance can be given that further enforcement efforts by governmental authorities will not result in the assessment of fines that could adversely affect our financial position, operating results or cash flows.
Environmental, Health and Safety
Our operations are subject to extensive and increasingly stringent federal, state, local and foreign laws and regulations pertaining to the protection of the environment, including those relating to the discharge of materials into the environment, the handling, treatment and disposal of wastes, and the remediation of soil and groundwater contamination. Failure to comply with these requirements could have serious consequences for us, including criminal as well as civil and administrative penalties, claims for property damage, personal injury and damage to natural resources and negative publicity. Compliance with existing or changing environmental requirements, including more stringent limitations imposed or expected to be imposed in recently-renewed or soon to be renewed environmental permits, may require capital expenditures for installation of new or upgraded pollution control equipment at some of our facilities.
Operations at many of our facilities require the treatment and disposal of wastewater, stormwater and agricultural and food processing wastes, the use and maintenance of refrigeration systems, including ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment, and other operations that potentially could affect the environment, health and safety. Some of our facilities have been operating for many years, and were built before current environmental standards were imposed, and/or are in areas that recently have become subject to residential and commercial development pressures. Failure to comply with current and future environmental, health and safety standards could result in the imposition of fines and penalties, and we have been subject to such sanctions from time to time. We are upgrading wastewater treatment facilities at a number of these locations, either pursuant to consent agreements with regulatory authorities or on a voluntary basis in anticipation of future permit requirements. For example, the EPA has proposed Meat and Poultry Products Effluent Guidelines and Standards, which may increase requirements and necessitate further upgrades to existing facilities.
In the past, we have acquired businesses with operations such as pesticide and fertilizer production that involved greater use of hazardous materials and generation of more hazardous wastes than our current operations. While many of those operations have been sold or closed, some environmental laws impose strict and, in certain circumstances, joint and several liability for costs of investigation and remediation of contaminated sites on current and former owners and operators of the sites, and on persons who arranged for disposal of wastes at such sites. In addition, current owners or operators of such contaminated sites may seek to recover cleanup costs from us based on past operations or contractual indemnifications.
Additionally, we have from time to time had incidents at our plants involving worker health and safety. These have included ammonia releases due to mechanical failures in chiller systems and worker injuries and fatalities involving processing equipment and vehicle accidents. We have taken preventive measures in response; however, we can make no assurance that similar incidents will not arise in the future. New environmental, health and safety requirements, stricter interpretations of existing requirements, or obligations related to the investigation or clean-up of contaminated sites, may materially affect our business or operations in the future.
Anti-Corruption
We are subject to a number of anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the U.K. Bribery Act (“UKBA”). The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or improperly providing anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or keeping business and/or other benefits. Some of these laws have legal effect outside the jurisdictions in which they are adopted under certain circumstances. The FCPA also requires maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Under the FCPA, companies operating in the U.S. may be held liable for actions taken by their strategic or local partners or representatives.
The UKBA is broader in scope than the FCPA in that it directly prohibits commercial bribery (i.e. bribing individuals or organizations other than government officials) in addition to bribery of government officials and it does not recognize certain exceptions, notably for facilitation payments, that are permitted by the FCPA. The UKBA also has wide jurisdiction. It covers any offense committed in the U.K., but proceedings can also be brought if a person who has a close connection with the U.K. commits the relevant acts or omissions outside the U.K. It defines a person with a close connection to include British citizens, individuals ordinarily resident in the U.K. and bodies incorporated in the U.K. The UKBA also provides that any organization that conducts part of its business in the U.K., even if it is not incorporated in the U.K., can be prosecuted for the corporate offense of failing to prevent bribery by an associated person, even if the bribery took place entirely outside the U.K. and the associated person had no connection with the U.K.
Other jurisdictions in which we operate have adopted similar anti-corruption, anti-bribery and anti-kickback laws to which we are subject. Civil and criminal penalties may be imposed for violations of these laws.
Despite our ongoing efforts to ensure compliance with the FCPA, the UKBA and similar laws, there can be no assurance that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations, have previously complied or will comply with those laws and our anti-corruption policies or that our compliance program will be sufficient to prevent or detect bribery, and we may be ultimately held responsible for any such non-compliance. If we or our directors or officers violate anti-corruption laws or other laws governing the conduct of business with government entities (including local laws), we or our directors or officers may be subject to criminal and civil penalties or other remedial measures, which could harm our reputation and exposehave a material adverse impact on our business, financial condition, results of operations and prospects. Any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, results of operations and prospects.
Labor and Employment Risk Factors
Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.
As of December 31, 2023, we employed approximately 61,200 persons. Approximately 35.2% of our workforce are covered by a collective bargaining agreement. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2024 or later. We have not experienced any labor-related work stoppage at any location in over ten years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of an agreement, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.
Loss of essential employees or material increase in employee turnover could have a significant negative impact on our business.
Our success is largely dependent on the skills, experience, and efforts of our management and other employees. The loss of the services of one or more members of our senior management or of numerous employees with essential skills could have a negative effect on our business, financial condition and results of operations. If we are not able to retain or attract talented, committed individuals to fill vacant positions when needs arise, it may adversely affect our ability to achieve our business objectives.
We also rely on an adequate supply of skilled employees at our processing and food facilities. Trained and experienced personnel in our industry are in high demand, and we have experienced high turnover and difficulty retaining employees with appropriate training and skills. We cannot predict whether we will be able to attract, motivate and maintain an adequate skilled workforce necessary to operate our existing and future facilities efficiently, or that labor expenses will not increase as a result of a shortage in the supply of skilled personnel, thereby adversely impacting our financial performance. While our industry generally operates with high employee turnover, any material increases in employee turnover rates or any widespread employee dissatisfaction could also have a material adverse effect on our business, financial condition and results of operations.
Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.
We and our third-party vendors have experienced increased labor shortages at some of our production facilities and other locations. Several factors have had and may continue to have adverse effects on the labor force available to us and our third-party vendors, including government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and work authorization. Labor shortages and increased turnover rates within the Company and our third-party vendors have led to and could in the future lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity and could result in downtime of our production facilities. An overall or prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation for any of the foregoing reasons could have a material adverse impact on our operations, results of operations, reputation, liquidity or cash flows.
If we are unable to attract, hire or retain key team members or a highly skilled and diverse global workforce, it could have a negative impact on our business, financial condition or results of operations.
Our continued growth requires us to liabilityattract, hire, retain and develop key team members, including our executive officers and senior management team, and maintain a highly skilled and diverse global workforce. We compete to attract and hire highly skilled team members and our own team members are highly sought after by our competitors and other companies. Competition could cause us to lose talented team members, and unplanned turnover could deplete our institutional knowledge and result in increased costs due to increased competition for team members. In addition, our compensation arrangements may not always be successful in attracting new employees or regulatory enforcement actions.retaining our existing team members.
Stock Ownership and Financial Risk Factors
JBS USA beneficially owns a majority of our common stock and has the ability to control the vote on most matters brought before the holders of our common stock.
JBS USA Food Company Holdings (“JBS USA Holdings”) beneficially owns a majority of the shares and voting power of our common stock and is entitled to appoint a majority of the members of our Board of Directors. As a result, subject to restrictions on voting power and actions in the stockholders agreement and our organization documents, JBS USA Holdings has and will have the ability to control our management, policies and financing decisions, elect a majority of the members of our Board of Directors at the annual meeting and control the vote on most matters coming before the holders of our common stock. Under the stockholders agreement, JBS USA Holdings has the ability to elect up to seven members of our Board of Directors and the other holders of our common stock have the ability to elect up to two members of our Board of Directors. Moreover, our ultimate controlling shareholders may serve as members of our Board of Directors or as members of the board of directors or other senior management positions at any JBS companies.
JBS USA Holdings may have interests that are different from other shareholders and may vote in a way that may be adverse to our other shareholders’ interests. JBS USA Holding’s concentration of ownership could also have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent our shareholders from realizing a premium over the market price for their common stock.
Our future financial and operating flexibility may be adversely affected by significant leverage.
On a consolidated basis, as of December 31, 2017,2023, we had approximately $865.2 million in secured indebtedness, $1,844.2 million$3.4 billion of unsecured indebtedness and had the ability to borrow approximately $750.1 million$1.1 billion under our credit agreements. Significant amounts of cash flow will be necessary to make payments of interest and repay the principal amount of such indebtedness.
The degree to which we are leveraged could have important consequences because:
Itbecause (1) it could affect our ability to satisfy our obligations under our credit agreements;
Aagreements, (2) a substantial portion of our cash flow from operations is required to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;
Ourpurposes, (3) our ability to obtain additional financing and to fund working capital, capital expenditures and other general corporate requirements in the future may be impaired;
We (4) we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
Ourdisadvantage, (5) our flexibility in planning for, or reacting to, changes in our business may be limited;
Itlimited, (6) it may limit our ability to pursue acquisitions and sell assets;assets and
It (7) it may make us more vulnerable in the event of a continued or new downturn in our business or the economy in general.
Our ability to make payments on and to refinance our debt, including our credit facilities, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to various business factors (including, among others, the commodity prices of feed ingredients, chicken and chicken)pork) and general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
There can be no assurance that we will be able to generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities in an amount sufficient to enable us to pay our debt obligations, including obligations under our credit facilities, or to fund our other liquidity needs. We may need to refinance all or a portion of their debt on or before maturity. There can be no assurance that we will be able to refinance any of their debt on commercially reasonable terms or at all.
Impairment in the carrying value of goodwill or other identifiable intangible assets could negatively affect our operating results.
We have a significant amount of goodwill and identifiable intangible assets on our Consolidated and Combined Balance Sheet.Sheets. Under the accounting principles generally accepted accounting principles,in the U.S. (“U.S. GAAP”), goodwill and other identifiable intangible assets with indefinite lives must be evaluated for impairment annually or more frequently if events indicate it is warranted. If the carrying value of our reporting units exceeds their current fair value as determined based on the discounted future cash flows of the related business, the goodwill is considered impaired and is reduced to fair value by a non-cash charge to earnings. For indefinite-lived intangible assets, an impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value of that intangible asset. Identified intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Events and conditions that could result in impairment in the value of our goodwill and other identifiable intangible assets include changes in the industry in which we operate, particularly the impact of a downturn in the global economy or the economies of geographic regions or countries in which we operate, as well as competition, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term sales or profitability.
Media campaignsGeneral Risk Factors
Weak or unstable national or global economic conditions, including inflation, could negatively impact our business.
Our business may be adversely affected by:
•weak or volatile national or global economic conditions, including inflation;
•unfavorable currency exchange rates and interest rates;
•the lack of availability of credit on reasonable terms;
•restricted access to capital markets;
•changes in consumer spending rates and habits;
•unemployment and underemployment; and
•a tight energy supply and high energy costs.
Our business could be negatively affected if efforts and initiatives of the governments of the United States and other countries to manage and stimulate the economy fail or result in worsening economic conditions. Deteriorating economic conditions could negatively affect consumer demand for protein generally or our products specifically, consumers’ ability to afford our products, consumer habits with respect to how they spend their food dollars, and the cost and availability of raw materials we need.
Disruptions in credit and other financial markets caused by deteriorating or weak national and international economic conditions could, among other things:
•make it more difficult for us, our customers or our growers or prospective growers to obtain financing and credit on reasonable terms;
•cause lenders to change their practice with respect to the industry generally or our company specifically in terms of granting credit extensions and terms;
•impair the financial condition of our customers, suppliers or growers making it difficult for them to meet their obligations and supply raw material; or
•impair the financial condition of our insurers, making it difficult or impossible for them to meet their obligations to us.
Our business may be negatively impacted by economic or other consequences from Russia’s war against Ukraine and the sanctions imposed as a response to that action.
We face risks related to the ongoing Russia-Ukraine war that began in February 2022. The impact of the ongoing war and sanctions will not be limited to businesses that operate in Russia and Ukraine and may negatively impact other global economic markets including where we operate. The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in some countries, and disrupted trade and supply chains. The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.
The impact on the agriculture markets falls into two main categories: (1) the effect on Ukrainian crop production, present risks.as the region is key in global grain production; and (2) the duration of the disruption in trade flows. Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply. The duration of the war and related volatility makes global markets extremely sensitive to growing-season weather in other global grain producing regions and has led to a large risk premium in futures prices. Moreover, Russia’s suspension of the Black Sea Grain Initiative in June 2023 may further pressure on trade flows in the region. The continued volatility in the global markets, in part as a result of the war, has adversely impacted our costs by driving up prices, raising inflation and increasing pressure on the supply of feed ingredients and energy products throughout the global markets.
Individuals or organizations can use social media platforms to publicize inappropriate or inaccurate stories or perceptions aboutIn addition, the food production industry or our company. Such practices could cause damage toU.S. government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls. The impact of these measures, now and in the reputations of our company and/or the food production industry in general. This damagefuture, could adversely affect our financial results.business, supply chain or customers.
AssumptionFinally, there may be increased risk of unknown liabilities in acquisitions may harmcyberattack as a result of the ongoing conflict. We have not seen any new or heightened risk of potential cyberattacks since the outbreak of the Russia-Ukraine war.
Extreme weather, natural disasters or other events beyond our control as well as interruption by man-made problems such as power disruptions could negatively impact our business.
Bioterrorism, fire, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of our flocks, production or availability of feed ingredients, or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have an adverse effect on our financial conditionresults. Moreover, climate change, including the impact of global warming, has resulted in risks that include changes in weather conditions, extreme weather events and operating results.
Acquisitions may be structured in such a manner that would result in the assumption of unknown liabilities not disclosed by the seller or uncovered during pre-acquisition due diligence. For example, our acquisition of GNP was structuredadverse impacts on agricultural production, as an equity purchase in which we effectively assumedwell as potential regulatory compliance risks, all of the liabilities of GNP including liabilities that may be unknown. Such unknown obligations and liabilities could harm our financial condition and operating results.
We may pursue additional opportunities to acquire complementary businesses, which could further increase leverage and debt service requirements and could adversely affect our financial situation if we fail to successfully integrate the acquired business.
We intend to continue to pursue selective acquisitions of complementary businesses in the future. Inherent in any future acquisitions are certain risks such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our operating results particularly during the period immediately following such acquisitions. Additional debt or equity capital may be required to complete future acquisitions,of operations, financial condition and there can be no assurance that we will be able to raise the required capital. Furthermore, acquisitions involveliquidity.
A significant power outage could have a number of risks and challenges, including:
•Diversion of management’s attention;
•The need to integrate acquired operations;
•Potential loss of key employees and customers of the acquired companies;
•Lack of experience in operating in the geographical market of the acquired business; and
•An increase in our expenses and working capital requirements.
Any of these and other factors could adversely affect our ability to achieve anticipated cash flows at acquired operations or realize other anticipated benefits of acquisitions.
The vote by the U.K. electorate in favor of having the U.K. exit the European Union could adverselymaterial adverse impact on our business, results of operations, and financial condition.
In a referendum held Although we maintain incident management and disaster response plans, in the U.K. on June 23, 2016,event of a majoritymajor disruption caused by a man-made problem such as a power disruption, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of those voting voteddata security and loss of critical data, and our insurance may not cover such events or may be insufficient to compensate us for the U.K.potentially significant losses we may incur.
Item 1B.Unresolved Staff Comments
None.
Item 1C.Cybersecurity
Cybersecurity Risk, Strategy and Governance
The Company maintains a robust cybersecurity infrastructure to leavesafeguard our operations, networks and data through comprehensive security measures including our technology tools, internal management and external service providers.
The Company’s Chief Information Officer (“CIO”) is responsible for assessing, identifying, and managing the European Union (referred torisks from cybersecurity threats. Our CIO has significant experience in information technology and many of our information technology team members hold qualifications in technology security positions. We maintain a cross-functional Cybersecurity Committee, as “Brexit”). For now, the U.K. remainswell as a memberGlobal Security Committee consisting of the European Unioninformation technology professionals and there willsecurity managers from each country in which we have operations.
We have both policies and procedures that align with the National Institute of Standards and Technology Cybersecurity Framework. Our information security program includes, among other aspects, vulnerability management, antivirus and malware protection, encryption and access control, and employee training. Our CIO, together with our Global Security Committee, reviews emerging threats, controls, and procedures as part of assessing, identifying, and managing risks. Risks identified by our cybersecurity program are analyzed to determine the potential impact on us and the likelihood of occurrence. Such risks are continuously monitored to ensure that the circumstances and severity of such risks have not be any immediate change in either European Union or U.K. lawchanged.
We also endeavor to apprise employees of emerging risks and require them to undergo regular security awareness trainings and supplemental trainings as a consequenceneeded. Additionally, we conduct periodic internal exercises to gauge the effectiveness of the vote. European Union law does not govern contractstrainings and assess the U.K. is not part of the European Union’s monetary union. However, Brexit vote signals the beginning of a lengthy process under which the terms of the U.K.’s withdrawal from, and future relationship with, the European Union will be negotiated and legislation to implement the U.K.’s withdrawal from the European Union will be enacted. The ultimate impact of Brexit vote will depend on the terms that are negotiated in relation to the U.K.’s future relationship with the European Union. Although the timetableneed for U.K. withdrawal is not at all clear at this stage, it is likely that the withdrawal of the U.K. from the European Union will take more than two years to be negotiated and conclude.additional training.
Brexit could impair our ability to transact business in the U.K. and in countries in the European Union. Brexit has already and could continue to adversely affect European and/or worldwide economic and market conditions and could continue to contribute to instability in the global financial markets. The long-term effects of Brexit will depend in part on any agreements the U.K. makes to retain access to markets in the European Union following the U.K.’s withdrawal from the European Union. In addition, we expectengage independent third-party cybersecurity providers for testing and vulnerability detection. We regularly engage with third-party vendors to perform external penetration testing, which identifies potential threats and reduces the impact and/or likelihood of these threats. Our employees perform similar intrusion tests and internal and external scans to help improve and harden the company’s security posture. We also conduct security assessments of our IT vendors and certain business partners and maintain cyber incident response plans that Brexit could leadare periodically reviewed and updated by our IT Security and Cyber Defense Teams and leveraged table top exercised performed by our IT teams. The incident response plan ties into our Cybersecurity Committee processes for review to legal uncertaintyensure the required reporting of material incidents to the Board of Directors, as applicable.
Our Board of Directors, primarily through the Audit Committee, oversees management’s approach to managing cybersecurity risks as part of its risk management oversight. The Audit Committee holds periodic discussions with management regarding the Company’s guidelines and potentially divergent national lawspolicies with respect to cybersecurity risks and regulations asreceives regular reports from the U.K. determines which European Union lawsCIO regarding such risks and the steps management has taken to replicatemonitor and control any exposure resulting from such risks.
As of the date of this report, we are not aware of any risks from cybersecurity threats that have materially affected or replace. If the U.K. wereare reasonably likely to significantly alter its regulations affecting the food industry, we could face significant new costs. It may also be time-consuming and expensive for us to altermaterially affect our internal operations in order to comply with new regulations. Additionally, Moy Park’sbusiness strategy, results of operations, may be adversely affected if the U.K. is unable to secure replacement trade agreements and arrangements on terms as favorable as those currently enjoyed by the U.K. Anyor financial condition.
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
Operating Facilities
Our main operating facilities are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Facilities | | | | | |
| | Owned | | Leased | | Total | | Capacity(a) | | Unit of Measure | Average Capacity Utilization |
| Chicken Operations: | | | | | | | | | | | |
| Fresh processing facilities | | 35 | | | 1 | | | 36 | | | 8.4 million | | Birds per day | 92.2 | % |
| Prepared foods facilities | | 12 | | | 2 | | | 14 | | | 562,257 | | | Tons per year | 80.0 | % |
| Hatcheries | | 45 | | | 2 | | | 47 | | | 3.1 billion | | Eggs per year | 92.6 | % |
Other operation facilities(b) | | 48 | | | 1 | | | 49 | | | 16.0 million | | Tons per year | 73.3 | % |
| Grain elevator | | 1 | | | — | | | 1 | | | 8.6 million | | Bushels per year | 24.8 | % |
| Pork Operations: | | | | | | | | | | | |
| Fresh processing facilities | | 2 | | | — | | | 2 | | | 7,425 | | | Pigs per day | 90.8 | % |
| Prepared foods facilities | | 7 | | | — | | | 7 | | | 250,319 | | | Tons per year | 69.0 | % |
Other operation facilities(c) | | 2 | | | — | | | 2 | | | 9,583 | | | Pigs per year | 100.0 | % |
Lamb Operations(d): | | | | | | | | | | | |
| Fresh processing facilities | | 1 | | | — | | | 1 | | | 3,625 | | | Lambs per day | 74.9 | % |
| Prepared foods facilities | | 1 | | | — | | | 1 | | | 487,077 | | | Tons per year | 82.2 | % |
| Prepared Meals Operations: | | | | | | | | | | | |
| Prepared foods facilities | | 5 | | | 3 | | | 8 | | | 276,373 | | | Tons per year | 73.3 | % |
| Distribution Centers and Other | | 10 | | | 17 | | | 27 | | | N/A | | | N/A |
|
| | | | | | | | | | | | | | |
| | | Operating | | Idled | | Capacity(a) | | Unit of measure | | Average Capacity Utilization(b) |
| Legacy Pilgrim’s Facilities: | | | | | | | | | | |
| U.S. Facilities | | | | | | | | | | |
| Fresh processing plants | | 25 |
| | 6 |
| | 6.6 million |
| | Birds per day | | 83.4 | % |
| Prepared foods cook plants | | 4 |
| | 2 |
| | 393.7 million |
| | Pounds per year | | 82.4 | % |
| Feed mills | | 26 |
| | 2 |
| | 11.4 million |
| | Tons per year | | 84.5 | % |
| Hatcheries | | 32 |
| | 3 |
| | 2.3 billion |
| | Eggs per year | | 83.6 | % |
| Rendering | | 4 |
| | 2 |
| | 381,408 |
| | Tons per year | | 69.5 | % |
| Pet food processing | | 4 |
| | — |
| | 79,144 |
| | Tons per year | | 47.0 | % |
| Freezers | | 1 |
| | 1 |
| | 125,000 |
| | Square feet | | N/A |
|
| Grain elevator | | 1 |
| | — |
| | 4.0 million |
| | Bushels put through per year | | 100.0 | % |
| U.K. and Europe Facilities | | | | | | | | | | |
| Fresh processing plants | | 4 |
| | — |
| | 0.9 million |
| | Birds per day | | 94.3 | % |
| Prepared foods cook plants | | 10 |
| | 1 |
| | 456.0 million |
| | Pounds per year | | 80.7 | % |
| Feed mills | | 3 |
| | — |
| | 0.7 million |
| | Tons per year | | 100.0 | % |
| Hatcheries | | 7 |
| | 1 |
| | 433.7 million |
| | Eggs per year | | 91.0 | % |
| Rendering | | 1 |
| | — |
| | 17,784 |
| | Tons per year | | 93.1 | % |
| Puerto Rico Facilities | | | | | | | | | | |
| Fresh processing plant | | 1 |
| | — |
| | 0.1 million |
| | Birds per day | | 68.2 | % |
| Feed mill | | 1 |
| | — |
| | 0.1 million |
| | Tons per year | | 61.5 | % |
| Hatchery | | 1 |
| | — |
| | 27.0 million |
| | Eggs per year | | 54.9 | % |
| Rendering | | 1 |
| | — |
| | 8,204 |
| | Tons per year | | 38.0 | % |
| Distribution center | | 1 |
| | — |
| | N/A |
| | | | N/A |
|
| Mexico Facilities | | | | | | | | | | |
| Fresh processing plants | | 6 |
| | — |
| | 1.1 million |
| | Birds per day | | 86.3 | % |
| Prepared foods cook plants | | 2 |
| | — |
| | 27.8 million |
| | Kilograms per year | | 84.1 | % |
| Feed mills | | 9 |
| | — |
| | 2.3 million |
| | Tons per year | | 76.2 | % |
| Hatcheries | | 10 |
| | — |
| | 515.6 million |
| | Eggs per year | | 98.1 | % |
| Rendering | | 3 |
| | — |
| | 54,240 |
| | Tons per year | | 65.3 | % |
| Distribution centers | | 19 |
| | — |
| | N/A |
| | | | N/A |
|
| |
(a) | Capacity and utilization numbers do not include idled facilities. |
| |
(b) | Due to Hurricane Maria, our Puerto Rico Facilities only operated for approximately 38 weeks in 2017, greatly reducing the reported average capacity utilization for the year. |
(b)Other Facilities and Information
In the U.S., our corporate offices share a building with JBS in Greeley, Colorado. We own a building in Richardson, Texas, which houses our computer data center. We also own office buildings in Broadway, Virginia, and Pittsburg, Texas, which house additional administrative, sales and marketing, research and development, and other support functions. We lease building space in St. Cloud, Minnesota, which houses GNP administrative, sales and marketing, and other support functions. We also lease office buildings in Bentonville, Arkansas, Boulder, Colorado and Cincinnati, Ohio for members of our sales team and building space in Carrollton, Texas, which houses a second computer data center.
In Mexico, we own an office building in Gómez Palacio, Durango and lease an office building in Santiago de Querétaro, Querétaro, both of which house our Mexican administrative functions. We also lease office space in Mexico City that houses our Mexican marketing office.
In the U.K., we lease an office building in Craigavon, U.K., which houses administrative, sales, marketing and other support functions. We also lease space in Ballymena, U.K. that houses a research and development lab.
Most of our U.S. property, plant and equipment are pledged as collateral on our U.S. credit facilities. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 3.Legal Proceedings
Tax Claims and Proceedings
In 2009, the IRS asserted claims against the Companyfacilities in the Bankruptcy Court for the Northern District of Texas, Fort Worth Division, or the Bankruptcy Court, totaling $74.7 million. Following a series of objectionschicken operations include feed mills, protein conversion and motions of opposition filed by both parties with the Bankruptcy Court, the Company worked with the IRS through the normal processesrendering facilities, and procedures that are available to resolve the IRS’ claims. On December 12, 2012, the Company entered into two Stipulation of Settled Issues agreements with the IRS, or the Stipulations. The first Stipulation related to the Company’s 2003, 2005, and 2007 tax years and resolved all of the material issuespet food facilities in the case. The second Stipulation related to the Company as the successor in interest to Gold Kist Inc., or Gold Kist, for the tax years ended June 30, 2005 and September 30, 2005, and resolved all substantive issuesU.S.
(c)Other facilities in the case. These Stipulations accounted for approximately $29.3 million ofpork operations include company-owned pig farms in the claims and should resultU.K.
(d)Facilities in no additional tax due. The Company is currently working with the IRS to finalize the complete tax calculations associated with the Stipulations.
A Mexico subsidiary of the Company is currently appealing an unfavorable tax adjustment proposed by Mexican Tax Authorities due to an examination of a specific transaction undertaken by the Mexico subsidiary during tax years 2009 and 2010. At the time of the transaction the Company obtained a “should” level opinion from outside legal counsel representing no additional tax due as a result of the transaction. However, in February 2018, the Company received a new assessment from external legal counsel indicating an unfavorable outcome to the Company as reasonably possible. Amounts under appeallamb operations are $24.3 million and $16.1 million for tax years 2009 and 2010, respectively. No loss has been recorded for these amounts at this time.
Other Claims and Proceedings
Between September 2, 2016 and October 13, 2016, a series of purported class action lawsuits styled as In re Broiler Chicken Antitrust Litigation, Case No. 1:16-cv-08637 were filed with the U.S. District Court for the Northern District of Illinois against the Company and 13 other producers by and on behalf of direct and indirect purchasers of broiler chickens alleging violations of federal and state antitrust and unfair competition laws. The complaints seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the periodacquisition of January 2008 to the present. The plaintiffs have filed three consolidated amended complaints: one on behalf of direct purchasersRandall Parker Foods and two on behalf of distinct groups of indirect purchasers. The defendants, including the Company, filed motions to dismiss these actions. On November 20, 2017, the court denied all pending motions to dismiss with the exception of certain state-law claims by indirect purchasers that were dismissed or narrowed in scope. Discovery is proceeding and is currently scheduled to be complete by June 13, 2019. In December 2017 and January 2018 four individual complaints (Affiliated Foods, Inc. v. Claxton Poultry Farms, Inc., Case No. 1:17-cv-08850; Winn Dixie Stores, Inc. v. Koch Foods, Inc., Case No. 1:18-cv-00245; Sysco Corp. v. Tyson Foods Inc., et al; Case No. 1:18-cv-00700; and U.S. Foods Inc.v. Tyson Foods Inc., et al; Case No. 1:18-cv-00702) were filed, mirroring the class action complaints. The class complaints were answered in January 2018. A schedule for answers to the individual complaints will be set and the court has indicated it intends to coordinate scheduling for the individual complaints with the class complaints to the greatest extent possible.
On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of the Company’s stock between February 21, 2014 and October 6, 2016, filed a class action complaintare in the U.S. District Court for the DistrictU.K.
Table of Colorado against the Company and its named executive officers. The complaint alleges, among other things, that the Company’s SEC filings contained statements that were rendered materially false and misleading by the Company’s failure to disclose that (i) the Company colluded with several of its industry peers to fix prices in the broiler-chicken market as alleged in the In re Broiler Chicken Antitrust Litigation, (ii) its conduct constituted a violation of federal antitrust laws, (iii) the Company’s revenues during the class period were the result of illegal conduct and (iv) that the Company lacked effective internal control over financial reporting, as well as stating that the Company’s industry was anticompetitive. On April 4, 2017, the court appointed another stockholder, George James Fuller, as lead plaintiff. On April 26, 2017, the court set a briefing schedule for the filing of an amended complaint and the defendants’ motion to dismiss. On May 11, 2017, the plaintiff filed an amended complaint, which extended the end date of the putative class period to November 17, 2016. Defendants moved to dismiss on June 12, 2017, and the plaintiff filed its opposition on July 12, 2017. Defendants filed their reply on August 1, 2017. The Colorado Court’s decision on the motion is pending.Contents
On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against the Company and four other producers in the Eastern District of Oklahoma alleging, among other things, a conspiracy to reduce competition for grower services and depress the price paid to growers. Plaintiffs allege violations of the Sherman Act and Packers and Stockyards Act and seek, among other relief, treble damages. The complaint was consolidated with a subsequently filed consolidated amended class action complaint styled as In re Broiler Chicken Grower Litigation, Case No. CIV-17-033-RJS. The defendants, including the Company, jointly moved to dismiss the consolidated amended complaint on September 9, 2017. During oral argument on January 19, 2018, the court considered and granted other defendants’ motions challenging jurisdiction and, as a result, granted the plaintiffs time to determine whether they will proceed forward with the case or dismiss the lawsuit. The plaintiffs have until Friday, February 2, 2018 to inform the district court of their plan course of action, and oral argument on remaining motions will be scheduled as necessary. In addition, on August 29, 2017, the Company filed a Motion to Enforce Confirmation Order Against Growers in the U.S. Bankruptcy Court in the Eastern district of Texas, seeking an order enjoining the In re Broiler Chicken Grower Litigation plaintiffs from pursuing the class action against the Company. A hearing on this motion was held in October 2017 and a second was scheduled for February 13, 2018. A court decision on this motion is pending.
On March 9, 2017, a stockholder derivative action styled as DiSalvio v. Lovette, et al., No. 2017 cv. 30207, was brought against all of the Company’s directors and its Chief Financial Officer, Fabio Sandri, in the District Court for the County of Weld in Colorado. The complaint alleges, among other things, that the named defendants breached their fiduciary duties by failing to prevent the Company and its officers from engaging in an antitrust conspiracy as alleged in the In re Broiler Chicken Antitrust Litigation, and issuing false and misleading statements as alleged in the Hogan class action litigation. On April 17, 2017, a related stockholder derivative action styled Brima v. Lovette, et al., No. 2017 cv. 30308, was brought against all of the Company’s directors and its Chief Financial Officer in the District Court for the County of Weld in Colorado. The Brima complaint contains largely the same allegations as the DiSalvio complaint. On May 4, 2017, the plaintiffs in both the DiSalvio and Brima actions moved to (i) consolidate the two stockholder derivative cases, (ii) stay the consolidated action until the resolution of the motion to dismiss in the Hogan putative securities class action, and (iii) appoint co-lead counsel. The court granted the motion on May 8, 2017, staying the proceedings pending resolution of the motion to dismiss in the Hogan action.
On January 10, 2018 a shareholder derivative action was filed in the U.S. District Court for the District of Colorado against the the Company, as nominal defendant, as well as the Company’s directors, its Chief Financial Officer, and majority shareholder JBS S.A. in Raul v. Nogueira de Souza, et al., Civil Action No. 18-cv-00069. The complaint alleges, among other things, that (i) defendants permitted the Company to omit material information from its proxy statements filed in 2014 through 2017 related to the conduct of former directors Wesley Mendonça Batista and Joesley Mendonça Batista and (ii) the individual defendants and JBS breached their fiduciary duties by failing to prevent the Company and its officers from engaging in an antitrust conspiracy as alleged in the Broiler Litigation and issuing false and misleading statements as alleged in the Hogan class action litigation. The defendants are currently in discussions with counsel for the Raul plaintiffs regarding the possibility of consolidating the Raul action with the consolidated state court derivative action, which is currently stayed, or in the alternative, determining a motion to dismiss briefing schedule.
On January 25, 2018, a stockholder derivative action styled as Sciabacucchi v. JBS S.A.et al., was brought against all of the Company’s directors, JBS S.A., JBS USA Holding and several members of the Batista family, in the Court of Chancery of the State of Delaware. The complaint alleges, among other things, that the named defendants breached their fiduciary duties in connection with the Moy Park acquisition.Item 3.Legal Proceedings
The Company believes it has strong defenses in each of the above litigations and intends to contest them vigorously. The Company cannot predict the outcome of these actions nor when they will be resolved. If the plaintiffs were to prevail in any of these litigations, the Company could be liable for damages, which could be material and could adversely affect its financial condition or results of operations.
J&F Investigation
On May 3, 2017, certain officers of J&F Investimentos S.A. (“J&F,” and the companies controlled by J&F, the “J&F Group”) (including two former directors of the Company), a company organized in Brazil and an indirect controlling stockholder of the Company, entered into plea bargain agreements (the "Plea Bargain Agreements") with the Brazilian Federal Prosecutor's Office (Ministério Público Federal) ("MPF") in connection with certain illicit conduct involving improper payments made to Brazilian politicians, government officials and other individuals in Brazil committed by or on behalf of J&F and certain J&F Group companies. The details of such illicit conduct are set forth in separate annexes to the Plea Bargain Agreements, and include admissions of improper payments to politicians and political parties in Brazil over the last 10 years in exchange for receiving, or attempting to receive, favorable treatment for certain J&F Group companies in Brazil.
Pursuant to the terms of the Plea Bargain Agreements, the MPF agreed to grant immunity to the officers in exchange for such officers agreeing, among other considerations, to: (1) pay fines totaling R$225.0 million; (2) cooperate with the MPF,
including providing supporting evidence of the illicit conduct identified in the annexes to the Plea Bargain Agreements; and (3) present any previously undisclosed illicit conduct within 120 days following the execution of the Plea Bargain Agreements as long as the description of such conduct had not been omitted in bad faith. In addition, the Plea Bargain Agreements provide that the MPF may terminate any Plea Bargain Agreement and request that the Supreme Court of Brazil (Supremo Tribunal Federal) ("STF") ratify such termination if any illicit conduct is identified that was not included in the annexes to the Plea Bargain Agreements.
On June 5, 2017, J&F, in its role as the controlling shareholder of the J&F Group, entered into a leniency agreement (the "Leniency Agreement") with the MPF, whereby J&F assumed responsibility for the conduct that was described in the annexes to the Plea Bargain Agreements. In connection with the Leniency Agreement, J&F has agreed to pay a fine of R$10.3 billion, adjusted for inflation, over a 25- year period. In exchange, the MPF agreed not to initiate or propose any criminal, civil or administrative actions against J&F, the companies of the J&F Group or those officers of J&Finformation required with respect to such conduct. Pursuantthis item can be found in Part II, Item 8, Notes to the terms of the Leniency Agreement, if the Plea Bargain AgreementConsolidated Financial Statements, “Note 21. Commitments and Contingencies” in this annual report and is annulledincorporated by the STF, then the Leniency Agreement may also be terminated by the Fifth Chamber of Coordination and Reviews of the MPF or, solely with respect to the criminal related provisions of the Leniency Agreement, by the 10th Federal Court of the Federal District in Brasilia, the authorities responsible for the ratification of the Leniency Agreement.reference into this Item 3.
On August 24, 2017, the Fifth Chamber ratified the Leniency Agreement. On September 8, 2017, the 10th Federal Court ratified the Leniency Agreement. In compliance with the terms of the Leniency Agreement, J&F is conducting an internal investigation involving improper payments made in Brazil by or on behalf of J&F, certain companies of the J&F Group and certain officers of J&F (including two former directors of the Company). J&F has engaged outside advisors to assist in conducting the investigation, including an assessment as to whether any of the misconduct disclosed to Brazilian authorities had any connection to the Company, or resulted in a violation of U.S. law. The internal investigation is ongoing and the Company is fully cooperating with J&F in connection with the investigation. We cannot predict when the investigation will be completed or the results of the investigation, including the outcome or impact of any government investigations or any resulting litigation.
On September 8, 2017, at the request of the MPF, the STF issued an order temporarily revoking the immunity from prosecution previously granted to Joesley Mendonça Batista and another executive of J&F in connection with the Plea Bargain Agreements. The MPF requested the revocation of their immunity following public disclosure of certain voice recordings involving them in which they discussed certain alleged illicit activities the MPF claims were not covered by the annexes to their respective Plea Bargain Agreements. On September 10, 2017, Joesley Mendonça Batista voluntarily turned himself into police in Brazil. On September 11, 2017, the 10th Federal Court suspended its ratification of the criminal provisions of the Leniency Agreement as a result of the STF's temporary revocation of Joesley Mendonça Batista immunity under his Plea Bargain Agreement. On October 11, 2017, Judge Vallisney de Souza of the 10th Federal Court revalidated the criminal provisions of the Leniency Agreement.
We cannot predict whether the Plea Bargain Agreements will be upheld or terminated by the STF, and, if terminated, whether the Leniency Agreement will be also terminated by either the Fifth Chamber and/or the 10th Federal Court, and to what extent. If the Leniency Agreement is terminated, in whole or in part, as a result of any Plea Bargain Agreement being terminated, this may materially adversely affect the public perception or reputation of the J&F Group, including the Company, and could have a material adverse effect on the J&F Group's business, financial condition, results of operations and prospects. Furthermore, the termination of the Leniency Agreement may cause the termination of certain stabilization agreements entered into by JBS S.A. and certain of its subsidiaries, which would permit the lenders of the debt that is the subject to the terms of the stabilization agreements to accelerate their debt, which could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).
Item 4.Mine Safety Disclosures
None.
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the NASDAQNasdaq Global Select Market (“NASDAQ”Nasdaq”) under the symbol “PPC.” High and low closing prices of the Company’s common stock for 2017 and 2016 are as follows:
|
| | | | | | | | | | | | | | | | |
| | | 2017 Prices | | 2016 Prices |
| Quarter | | High | | Low | | High | | Low |
| First | | $ | 22.35 |
| | $ | 18.10 |
| | $ | 25.15 |
| | $ | 21.00 |
|
| Second | | 26.22 |
| | 21.70 |
| | 27.50 |
| | 23.48 |
|
| Third | | 29.86 |
| | 20.28 |
| | 25.82 |
| | 20.80 |
|
| Fourth | | 38.39 |
| | 27.68 |
| | 21.84 |
| | 17.38 |
|
Holders
TheAs of February 27, 2024, the Company estimates that there were approximately 37,20030,100 holders (including individual participants in security position listings) of the Company’s common stock as of February 15, 2018.stock.
Dividends
On May 18, 2016, the Company paid a special cash dividend from retained earnings of approximately $700 million, or $2.75 per share, to stockholders of record as of May 10, 2016. On February 17, 2015, the Company paid a special cash dividend from retained earnings of approximately $1.5 billion, or $5.77 per share, to stockholders of record as of January 30, 2015. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund both special cash dividends.
Notwithstanding the special cash dividends paid on May 18, 2016 and February 17, 2015, the Company has no current intention to pay any further dividends to its stockholders. Any change in dividend policy will depend upon future conditions, including earnings and financial condition, general business conditions, any applicable contractual limitations and other factors deemed relevant by our Board of Directors in its discretion.
Both the U.S. CreditRevolving Syndicated Facility and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends. TheIn addition, the terms of Moy Park's indenturethe U.K. and the Moy Park Multicurrency RevolvingEurope Revolver Facility Agreement restrict Moy Park��sthe U.K. and Europe’s ability and the ability of certain of Moy Park’sthe U.K. and Europe’s subsidiaries to, among other things, make payments and distributions to us.us, which could in turn impair our ability to pay dividends to our stockholders. See "Note 11. Long-Term Debt and Other Borrowing Arrangements”“Note 13. Debt” of our Consolidated and Combined Financial Statements included in this annual report for additional information.
Issuer Purchases of Equity Securities in 2017
On July 28, 2015, the Company’s Board of Directors approved a $150.0 million share repurchase authorization. The Company plans to repurchase shares through various means, which may include but are not limited to open market purchases, privately negotiated transactions, the use of derivative instruments and/or accelerated share repurchase programs. The share repurchase program was originally scheduled to expire on July 27, 2016. On February 10, 2016, the Company’s Board of Directors approved an increase of the share repurchase authorization to $300.0 million and an extension of the expiration date to February 9, 2017. The extent to which the Company repurchases its shares and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by the Company’s management team. The Company reserves the right to limit or terminate the repurchase program at any time without notice. For the fifty-three weeks ended December 31, 2017, the Company repurchased 0.8 million shares of its common stock under the program for an aggregate cost of $14.6 million and an average price of $18.78 per share. Since the inception of the program, the Company has repurchased 11.4 million shares of its common stock under the program for an aggregate cost of $231.8 million and an average price of $20.30 per share. Set forth below is information regarding our stock repurchases for the thirteen weeks ended December 31, 2017.
|
| | | | | | | | | | | | | | |
| Issuer Purchases of Equity Securities |
| Period | | Total Number of Shares Purchased | | Average Price
Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Plans or Programs |
| September 25, 2017 through October 22, 2017 | | — |
| | $ | — |
| | — |
| | $ | 72,913,018 |
|
| October 23, 2017 through November 26, 2017 | | — |
| | — |
| | — |
| | 72,913,018 |
|
| November 27, 2017 through December 31, 2017 | | — |
| | — |
| | — |
| | 72,913,018 |
|
| Total | | — |
| | $ | — |
| | — |
| | $ | 72,913,018 |
|
Total Return on Registrant’s Common EquityPerformance Graph
The graph below matchesshows a comparison from December 30, 2018 through December 31, 2023 of the cumulative 5-Year5-year total stockholder return of holders of Pilgrim’s Pride Corporation’sthe Company’s common stock with the cumulative total returns of the Russell 2000 index and a customized peer group of three companies that includes:two companies: Tyson Foods Inc and Hormel Foods Corp, Sanderson Farms Inc. and Tyson Foods Inc.Corp. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on December 30, 20122018 and tracks it through December 31, 2017.2023.
The graph covers the period from December 30, 20122018 to December 31, 2017,2023, and reflects the performance of the Company’s single class of common stock. The stock price performance represented by this graph is not necessarily indicative of future stock performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 12/30/18 | | 06/30/19 | | 12/29/19 | | 06/30/20 | | 12/27/20 | | 06/30/21 | | 12/26/21 | | 06/30/22 | | 12/25/22 | | 06/30/23 | | 12/31/23 |
| PPC | $ | 100.00 | | | $ | 162.86 | | | $ | 211.48 | | | $ | 108.34 | | | $ | 124.12 | | | $ | 142.27 | | | $ | 176.72 | | | $ | 200.32 | | | $ | 152.66 | | | $ | 137.84 | | | $ | 177.42 | |
| Russell 2000 | 100.00 | | | 116.98 | | | 125.52 | | | 109.23 | | | 150.58 | | | 176.99 | | | 172.90 | | | 132.39 | | | 137.56 | | | 148.68 | | | 160.85 | |
| Peer Group | 100.00 | | | 123.76 | | | 140.63 | | | 117.61 | | | 122.11 | | | 132.53 | | | 144.69 | | | 146.38 | | | 122.50 | | | 106.73 | | | 99.22 | |
Item 6.[Reserved]
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/30/12 | | 06/30/13 | | 12/29/13 | | 06/30/14 | | 12/28/14 | | 06/30/15 | | 12/27/15 | | 06/30/16 | | 12/25/16 | | 06/30/17 | | 12/31/17 |
| PPC | $ | 100.00 |
| | $ | 207.79 |
| | $ | 229.07 |
| | $ | 380.53 |
| | $ | 473.85 |
| | $ | 385.19 |
| | $ | 377.14 |
| | $ | 474.73 |
| | $ | 354.37 |
| | $ | 408.41 |
| | $ | 578.70 |
|
| Russell 2000 | 100.00 |
| | 115.86 |
| | 138.82 |
| | 143.25 |
| | 145.62 |
| | 152.54 |
| | 139.19 |
| | 142.27 |
| | 168.85 |
| | 177.27 |
| | 193.58 |
|
| Peer Group | 100.00 |
| | 130.78 |
| | 159.09 |
| | 180.22 |
| | 191.67 |
| | 202.24 |
| | 271.06 |
| | 287.87 |
| | 277.45 |
| | 278.99 |
| | 332.78 |
|
Item 6.Selected Financial Data
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| (In thousands, except ratios and per share data) | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Operating Results Data: | | | | | | | | | |
| Net sales | $ | 10,767,863 |
| | $ | 9,878,564 |
| | $ | 8,752,672 |
| | $ | 8,583,365 |
| | $ | 8,411,148 |
|
Gross profit(a) | 1,471,614 |
| | 1,103,983 |
| | 1,298,724 |
| | 1,393,995 |
| | 845,439 |
|
Operating income(a) | 1,072,322 |
| | 792,082 |
| | 1,061,132 |
| | 1,203,115 |
| | 658,863 |
|
| Interest expense, net | 99,453 |
| | 73,335 |
| | 42,721 |
| | 77,271 |
| | 84,881 |
|
| Loss on early extinguishment of debt | — |
| | — |
| | — |
| | — |
| | — |
|
Income (loss) before income taxes(a) | 982,066 |
| | 724,036 |
| | 1,001,324 |
| | 1,102,391 |
| | 573,940 |
|
Income tax expense (benefit)(b) | 263,899 |
| | 243,919 |
| | 338,352 |
| | 390,953 |
| | 24,227 |
|
Net income(a) | 718,167 |
| | 480,117 |
| | 662,972 |
| | 711,438 |
| | 549,713 |
|
| Net income (loss) attributable to noncontrolling interest | 102 |
| | (803 | ) | | 48 |
| | (210 | ) | | 158 |
|
Net income attributable to Pilgrim’s Pride Corporation(a) | 694,579 |
| | 440,532 |
| | 645,914 |
| | 711,648 |
| | 549,555 |
|
Ratio of earnings to fixed charges(c) | 9.11x |
| | 8.86x |
| | 19.86x |
| | 12.96x |
| | 7.47x |
|
| Per Common Diluted Share Data: | | | | | | | | | |
| Net income attributable to Pilgrim’s Pride Corporation | $ | 2.79 |
| | $ | 1.73 |
| | $ | 2.50 |
| | $ | 2.74 |
| | $ | 2.12 |
|
Adjusted net income attributable to Pilgrim’s Pride Corporation(d) | 2.78 |
| | 1.75 |
| | 2.60 |
| | 2.96 |
| | 2.14 |
|
| Book value | 7.45 |
| | 8.21 |
| | 10.28 |
| | 8.46 |
| | 5.75 |
|
| Balance Sheet Summary: | | |
| | | | | | |
| Working capital | 1,063,765 |
| | 624,728 |
| | 1,090,129 |
| | 1,138,177 |
| | 845,584 |
|
| Total assets | 6,248,652 |
| | 5,021,942 |
| | 5,668,292 |
| | 3,091,718 |
| | 3,172,402 |
|
| Notes payable and current maturities of long-term debt | 47,775 |
| | 15,712 |
| | 28,108 |
| | 262 |
| | 410,234 |
|
| Long-term debt, less current maturities | 2,635,617 |
| | 1,396,124 |
| | 1,436,852 |
| | 3,980 |
| | 501,999 |
|
| Total stockholders’ equity | 1,855,661 |
| | 2,086,132 |
| | 2,659,875 |
| | 2,196,801 |
| | 1,492,602 |
|
| Cash Flow Summary: | | | | | | | | | |
| Cash flows from operating activities | 801,321 |
| | 795,362 |
| | 1,020,380 |
| | 1,066,692 |
| | 878,533 |
|
Depreciation and amortization(e) | 277,792 |
| | 231,708 |
| | 173,817 |
| | 155,824 |
| | 150,884 |
|
| Impairment of goodwill and other assets | 5,156 |
| | 790 |
| | 4,813 |
| | — |
| | 4,004 |
|
| Purchases of investment securities | — |
| | — |
| |
|
| | (55,100 | ) | | (96,902 | ) |
| Proceeds from sale or maturity of investment securities | — |
| | — |
| |
|
| | 152,050 |
| | — |
|
| Acquisitions of property, plant and equipment | (339,872 | ) | | (340,960 | ) | | (190,262 | ) | | (171,443 | ) | | (116,223 | ) |
| Purchase of acquired business, net of cash acquired | (658,520 | ) | | — |
| | (373,532 | ) | | — |
| | — |
|
| Payment of cash dividends | — |
| | (714,785 | ) | | (1,498,470 | ) | | — |
| | — |
|
| Cash flows from financing activities | 466,395 |
| | (828,219 | ) | | (585,005 | ) | | (905,595 | ) | | (250,214 | ) |
| Other Data: | | | | | | | | | |
EBITDA(f)(g) | 1,353,343 |
| | 1,023,755 |
| | 1,213,779 |
| | 1,321,774 |
| | 800,398 |
|
Adjusted EBITDA(f)(g) | 1,388,029 |
| | 1,029,682 |
| | 1,245,633 |
| | 1,352,249 |
| | 810,316 |
|
| Key Indicators (as a percent of net sales): | | | | | | | | | |
Gross profit(a) | 13.7 | % | | 11.2 | % | | 14.8 | % | | 16.2 | % | | 10.1 | % |
| Selling, general and administrative expenses | 3.6 | % | | 3.1 | % | | 2.6 | % | | 2.2 | % | | 2.2 | % |
Operating income(a) | 10.0 | % | | 8.0 | % | | 12.1 | % | | 14.0 | % | | 7.8 | % |
| Interest expense, net | 0.9 | % | | 0.7 | % | | 0.5 | % | | 0.9 | % | | 1.0 | % |
Net income(a) | 6.5 | % | | 4.5 | % | | 7.4 | % | | 8.3 | % | | 6.5 | % |
| |
(a) | Operating income and net income include the following restructuring charges for each of the years presented: |
|
| | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In millions) |
| Additional effect on operating income: | | | | | | | | | |
| Administrative restructuring charges | (9.8 | ) | | (1.1 | ) | | (5.8 | ) | | (2.3 | ) | | (5.7 | ) |
| |
(b) | Income tax expense in 2017, 2016, 2015 and 2014 resulted primarily from expense recorded on our year-to-date income. Income tax expense in 2013 resulted primarily from expense recorded on our year-to-date income offset by a decrease in valuation allowance as a result of year-to-date earnings. |
| |
(c) | For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges (excluding capitalized interest). Fixed charges consist of interest (including capitalized interest) on all indebtedness, amortization of capitalized financing costs and that portion of rental expense that we believe to be representative of interest. |
| |
(d) | Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with GAAP, to compare the performance of companies. Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is not a measurement of financial performance under GAAP, has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. It does not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations. |
A reconciliation of net income attributable to Pilgrim’s Pride Corporation per common diluted share to adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In thousands except per share data) |
| Net income attributable to Pilgrim’s Pride Corporation | $ | 694,579 |
| | $ | 440,532 |
| | $ | 645,914 |
| | $ | 711,648 |
| | $ | 549,555 |
|
| Loss on early extinguishment of debt | — |
| | — |
| | 1,470 |
| | 29,475 |
| | — |
|
| Foreign currency transaction losses (gains) | (2,659 | ) | | 4,055 |
| | 26,148 |
| | 27,979 |
| | 4,415 |
|
| Adjusted net income attributable to Pilgrim’s Pride Corporation | 691,920 |
| | 444,587 |
| | 673,532 |
| | 769,102 |
| | 553,970 |
|
| Weighted average diluted shares of common stock outstanding | 248,971 |
| | 254,126 |
| | 258,676 |
| | 259,471 |
| | 259,241 |
|
Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share | $ | 2.78 |
| | $ | 1.75 |
| | $ | 2.60 |
| | $ | 2.96 |
| | $ | 2.14 |
|
| |
(e) | Includes amortization of capitalized financing costs of approximately $6.0 million, $5.3 million, $4.1 million, $13.7 million, and $9.3 million in 2017, 2016, 2015, 2014, and 2013, respectively. |
| |
(f) | “EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (i) net income (loss) attributable to noncontrolling interests in the period from 2013 through 2017, (ii) restructuring charges in the period from 2013 through 2017, (iii) foreign currency transaction losses (gains) in the period from 2013 through 2017 and (iv) transaction costs related to the Moy Park acquisition in 2017. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are: |
They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
They do not reflect changes in, or cash requirements for, our working capital needs;
They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;
They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and
They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.
| |
(g) | In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with GAAP. You should compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis. |
A reconciliation of net income to EBITDA and Adjusted EBITDA is as follows:
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | (In thousands) |
| Net income | $ | 718,167 |
| | $ | 480,117 |
| | $ | 662,972 |
| | $ | 711,438 |
| | $ | 549,713 |
|
| Add: | | | | | | | | | |
Interest expense, net (a) | 99,453 |
| | 73,335 |
| | 42,721 |
| | 77,271 |
| | 84,881 |
|
| Income tax expense (benefit) | 263,899 |
| | 243,919 |
| | 338,352 |
| | 390,953 |
| | 24,227 |
|
Depreciation and amortization (b) | 277,792 |
| | 231,708 |
| | 173,817 |
| | 155,824 |
| | 150,884 |
|
| Minus: | | | | | | | | | |
Amortization of capitalized financing costs(c) | 5,968 |
| | 5,324 |
| | 4,083 |
| | 13,712 |
| | 9,307 |
|
| EBITDA | 1,353,343 |
| | 1,023,755 |
| | 1,213,779 |
| | 1,321,774 |
| | 800,398 |
|
| Add: | | | | | | | | | |
Foreign currency transaction losses (gains)(d) | (2,659 | ) | | 4,055 |
| | 26,148 |
| | 27,979 |
| | 4,415 |
|
Restructuring charges(e) | 9,775 |
| | 1,069 |
| | 5,754 |
| | 2,286 |
| | 5,661 |
|
| Transaction costs related to the Moy Park acquisition | 19,606 |
| | — |
| | — |
| | — |
| | — |
|
| Puerto Rico hurricane impact | 8,066 |
| | — |
| | — |
| | — |
| | — |
|
| Minus: | | | | | | | | | |
| Net income (loss) attributable to noncontrolling interest | 102 |
| | (803 | ) | | 48 |
| | (210 | ) | | 158 |
|
| Adjusted EBITDA | $ | 1,388,029 |
| | $ | 1,029,682 |
|
| $ | 1,245,633 |
|
| $ | 1,352,249 |
|
| $ | 810,316 |
|
| |
(a) | Interest expense, net, consists of interest expense less interest income. |
| |
(b) | 2013 includes $0.4 million of asset impairments not included in restructuring charges. |
| |
(c) | Amortization of capitalized financing costs is included in both interest expense, net and depreciation and amortization above. |
| |
(d) | The Company measures the financial statements of its Mexico subsidiaries as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than nonmonetary assets, of the Mexico subsidiaries at current exchange rates. We remeasure nonmonetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Currency exchange gains or losses resulting from these remeasurements are included in the line item Foreign currency transaction losses (gains) in the Consolidated and Combined Statements of Income.
|
| |
(e) | Restructuring charges includes tangible asset impairment, severance and change-in-control compensation costs, and losses incurred on both the sale of unneeded broiler eggs and flock depletion. |
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Company
We are one of the largest chicken producers in the world, with operations in the United States (“U.S.”), United Kingdom (“U.K.”), Mexico, France, Puerto Rico, and The Netherlands. We are primarily engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken products to retailers, distributors and foodservice operators. We offer a wide range of products to our customers through strong national and international distribution channels. Pilgrim’s fresh chicken products consist of refrigerated (non-frozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company's prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated, ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts.
We market our balanced portfolio of fresh, prepared and value-added chicken products to a diverse set of over 5,500 customers across the U.S., the U.K. and Europe, Mexico and in approximately 100 other countries, with no single customer accounting for more than 10% of total sales. We have become a valuable partner to our customers and a recognized industry leader by consistently providing high-quality products and services designed to meet their needs and enhance their business. Our sales efforts are largely targeted towards the foodservice industry, principally chain restaurants and food processors, such as Chick‑fil‑A® and retail customers, including grocery store chains and wholesale clubs, such as Kroger®, Costco®, Publix®, and H-E-B®.
As a vertically integrated company, we control every phase of the production process, which helps us better manage food safety and quality, as well as more effectively control margins and improve customer service. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K. and Europe, Puerto Rico and Mexico. Our plants are strategically located to ensure that customers timely receive fresh products. With our global network of approximately5,200 growers, 39 feed mills, 50 hatcheries, 36 processing plants, 16 prepared foods cook plants, 20 distribution centers, nine rendering facilities and four pet food plants, we believe we are well-positioned to supply the growing demand for our products.
Our U.K. and Europe segment reflects the operations of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”), which we acquired on September 8, 2017. Moy Park is a leading and highly regarded U.K. food company, providing fresh, high quality and locally farmed poultry and convenience food products. Moy Park has operated in the U.K. retail market for over 50 years and delivers a range of fresh, ready-to-cook, coated and ready-to-eat poultry products to major retailers and large foodservice customers throughout the United Kingdom, Ireland, France and The Netherlands. We believe that we operate one of the most efficient business models for chicken production in the U.K. and Europe.
We are one of the largest, and we believe one of the most efficient, producers and sellers of chicken in Mexico. Our presence in Mexico provides access to a market with growing demand and has enabled us to leverage our operational strengths within the region. The market for chicken products in Mexico is still developing, with most sales attributed to fresh, commodity-oriented, market price-based business. Additionally, we are an important player in the live market in Mexico. We believe our Mexico business is well positioned to continue benefiting from these trends in the Mexican consumer market.
As of December 31, 2017, we had approximately 51,300 employees and the capacity to process more than 45.2 million birds per week for a total of more than 13.3 billion pounds of live chicken annually. In 2017, we produced 10.0 billion pounds of chicken products, generating approximately $10.8 billion in net sales and approximately $694.6 million in net income attributable to Pilgrim’s.
We operate on a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. Any reference we make to a particular year (for example, 2017) in this report applies to our fiscal year and not the calendar year. Fiscal 2017 was a 53-week fiscal year.
Executive Summary
Overview
We are one of the largest protein companies in the world, and as a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service. This gives us the opportunity to continue to create growth and development opportunities, further increasing our position as a leading domestic and global protein company.
We reported net income attributable to Pilgrim’s Pride Corporation of $694.6$322.3 million, or $2.79$1.36 per diluted common share, and profit before tax totaling $365.2 million, for 2017.2023. These operating results included gross profit of $1,471.6 million. During 2017, we$1.1 billion and generated $801.3$677.9 million of cash from operations. We generated consolidated operating margins of 3.0% with operating margins of 2.4%, 2.5%, and 7.3% in our U.S., U.K. and Europe, and Mexico reportable segments, respectively. During 2023, we generated EBITDA and Adjusted EBITDA of $951.7 million and $1,034.2 million, respectively. A reconciliation of net income to EBITDA and Adjusted EBITDA is included later in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report.
The following table comparesWe operate on the highest and lowest prices reachedbasis of a 52/53-week fiscal year that ends on nearby futures for one bushel of corn and one ton of soybean meal during the currentSunday falling on or before December 31. Any reference we make to a particular year applies to our fiscal year and previous two years:not the calendar year. Fiscal 2023 was a 53-week accounting cycle and 2022 was a 52-week accounting cycle.
Global Economic Conditions |
| | | | | | | | | | | | | | | |
| | Corn | | Soybean Meal |
| | Highest Price | | Lowest Price | | Highest Price | | Lowest Price |
| | | | |
| 2017: | | | | | | | |
| Fourth Quarter | $ | 3.68 |
| | $ | 3.47 |
| | $ | 346.30 |
| | $ | 315.50 |
|
| Third Quarter | 4.15 |
| | 3.46 |
| | 346.20 |
| | 296.50 |
|
| Second Quarter | 3.96 |
| | 3.66 |
| | 321.00 |
| | 297.20 |
|
| First Quarter | 3.86 |
| | 3.55 |
| | 352.70 |
| | 314.10 |
|
| 2016: | | | | | | | |
| Fourth Quarter | 3.98 |
| | 3.58 |
| | 320.70 |
| | 269.00 |
|
| Third Quarter | 3.94 |
| | 3.16 |
| | 401.00 |
| | 302.80 |
|
| Second Quarter | 4.38 |
| | 3.52 |
| | 418.30 |
| | 266.80 |
|
| First Quarter | 3.73 |
| | 3.52 |
| | 275.30 |
| | 257.20 |
|
| 2015: | | | | | | | |
| Fourth Quarter | 3.98 |
| | 3.58 |
| | 320.70 |
| | 269.00 |
|
| Third Quarter | 4.34 |
| | 3.48 |
| | 374.80 |
| | 302.40 |
|
| Second Quarter | 4.10 |
| | 3.53 |
| | 326.40 |
| | 286.50 |
|
| First Quarter | 4.13 |
| | 3.70 |
| | 377.40 |
| | 317.50 |
|
We purchase derivative financial instruments, specifically exchange-traded futures and options, in an attempthave responded to mitigate price risk relatedthese challenges by continuing negotiations with customers to our anticipated consumption of commodity inputs such as corn, soybean meal, wheat, soybean oil and natural gas. We will sometimes purchase a derivative instrument to minimizemitigate the impact of a commodity’s price volatilityextraordinary costs we have experienced. We also continue to focus on our operating results. Weoperational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.
Russia-Ukraine War Impacts
The Russia-Ukraine war began in February 2022. The impact of the ongoing war and sanctions has not been limited to businesses that operate in Russia and Ukraine and has negatively impacted and will also purchase derivative financial instrumentslikely continue to negatively impact other global economic markets including where we operate. The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in an attemptsome countries, and disrupted trade and supply chains. The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.
The impact on the agriculture markets falls into two main categories: (1) the effect on Ukrainian crop production, as the region is key in global grain production; and (2) the duration of the disruption in trade flows. Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to mitigate currency exchange rate exposure relatedfind alternative supply. In the fourth quarter of 2023, the global supply chains have become less sensitive to the financial statementsconflict in Ukraine as grain production in other global areas had record high seasons alleviating much of the global supply constraints that existed after the initial outbreak of the war. Ukraine supply constraints from Russia’s mid-2023 suspension of the Black Sea Grain Initiative and other impacts from the war have only minimally impacted grain exports from Ukraine and the global supply of grains due to the increased production from other areas.
The U.S. government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls. The impact of these measures, now and in the future, along with further escalation of the conflict could adversely affect our business, supply chain or customers.
Raw Materials and Input Costs
Our U.S. and Mexico segment that are denominated in Mexican pesossegments use corn and soybean meal as the main ingredients for feed production, while our U.K. and Europe segment that are denominated in British pounds.
For our Mexico segment, we do not designate derivative financial instruments that we purchase to mitigate commodity purchase or currency exchange rate exposures as cash flow hedges; therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings.
For our U.K. and Europe segment, we do designate certain derivative financial instruments that we have purchased to mitigate foreign currency transaction exposures as cash flow hedges; therefore, before the settlement date of the financial derivative instruments, we recognize changes in the fair value of the effective portion of the cash flow hedge in accumulated other comprehensive income (loss) while we recognize changes in the fair value of the ineffective portion immediately in earnings. When the derivative financial instruments associated with the effective portion are settled, the amount in accumulated other comprehensive income (loss) is then reclassified to earnings. Gains or losses related to these derivative financial instruments are included in the line item Cost of sales in the Consolidated and Combined Statements of Income.
We recognized $6.7 million in net gains related to changes in the fair value of our derivative financial instruments during 2017. We recognized $4.3 million in net losses and $21.6 million in net gains related to changes in the fair value of our derivative financial instruments during 2016 and 2015, respectively.
Although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients, such changes do not immediately impact cost of sales. The cost of feed ingredients is recognized in cost of sales, on a first-in-first-out basis, at the same time that the sales of the chickens that consume the feed grains are recognized. Thus, there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold. For example, corn delivered to a feed mill and paid for one week might be used to manufacture feed the following week. However,
the chickens that eat that feed might not be processed and sold for another 42 to 63 days, and only at that time will the costs of the feed consumed by the chickens become included in cost of goods sold.
Commodities such as corn,uses wheat, soybean meal and soybean oil are actively traded through various exchanges with future marketbarley as the main ingredients for feed production.
During 2023, the global price of corn and wheat, measured at U.S. dollars per metric ton, both decreased about 30% per the International Monetary Fund as reported by the St. Louis Fed research center. The U.S. experienced dryer weather during the spring of 2023 that threatened corn supply, but the corn crop for the 2023/2024 growing season is confirmed to be at record production levels as prices quoted ontrended down towards the end of 2023. Favorable weather conditions in Brazil during 2023 positively impacted global corn supply, while Argentina saw a daily basis. These quoted marketsevere drought which restricted their crop production for the year. Soybean prices although a good indicatorbegan 2023 at higher levels, but came down during the second quarter and have remained stable throughout the remainder of the commodity's base price, do not represent the final price for which we can purchase these commodities. There are several components in addition to the quotedyear.
During 2023, U.S. commodity market price, such as freight, storage and seller premiums, that are included in the final price that we pay for grain. Although changes in quoted market prices may be a good indicator of the commodity’s base price, the components mentioned above may have a significant impact on the total change in grain costs recognized from period to period.
Market prices for chicken products are currentlytrended in line with seasonal norms throughout the first half of the year, but at levels sufficientat or below the five-year historical average, before rebounding in the third quarter and trending in line with the historical average for the remainder of the year.
During the first half of 2023, industry production growth paired with higher levels of cold storage supply led to increased broiler availability. Additionally, although domestic demand grew in the first half, the increased demand pressure did not offset the costs of feed ingredients. However, there can be no assurance that chickenincremental increase in supply keeping prices will not decrease due to such factors as competition from other proteins and substitutions by consumers of non-protein foods because of uncertainty surrounding the general economy and unemployment.
Recent Developments
Moy Park Acquisition. On September 8, 2017, we acquired 100% of the issued and outstanding shares of Moy Park from JBS S.A. for cash of $301.3 million andat our around seasonally expected levels despite a note payable to the sellerhigher cost basis, which significantly impacted profitability in the amount of £562.5 million. Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 7 hatcheries and 1 rendering facility in the U.K., France and The Netherlands, the acquired business processes 6.0 million birds per seven-day work week, in addition to producing around 456.0 million pounds of prepared foods per year. Moy Park currently has approximately 10,200 employees. See “Note 2. Business Acquisitions”commodity market-driven portion of our Consolidated and Combined Financial Statements included in this annual report for additional information relating to this acquisition. The Moy Park operations constitutes our U.K. and Europe segment.
The acquisition was treated asU.S. business. As a common-control transaction under U.S. GAAP. A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. The accounting and reporting for a transaction between entities under common control is not to be considered a business combination under U.S. GAAP. Accordingly, for the period from September 30, 2015 through September 7, 2017, the Consolidated and Combined Financial Statements includes the accounts of the Company and its majority-owned subsidiaries combined with the accounts of Moy Park. For the period from September 8, 2017 through September 24, 2017, the Consolidated and Combined Financial Statements includes the accounts of the Company and its majority-owned subsidiaries, including Moy Park.
GNP Acquisition. On January 6, 2017, we acquired 100% of the membership interests of GNP from Maschhoff Family Foods, LLC for a cash purchase price of $350 million, subject to customary working capital adjustments. GNP is a vertically integrated poultry business based in St. Cloud, Minnesota. The acquired business has a production capacity of 2.1 million birds per five-day work week in its two plants and currently employs approximately 1,500 people. This acquisition further strengthens our strategic position inresult, the U.S. chicken market. industry began reducing egg sets and chick placements as compared to prior year volumes beginning late in the second quarter and continued to be reduced throughout the second half of 2023.
The GNP operations are includedreduction in our U.S. segment.
2017 Tax Reform
On December 22, 2017,broiler production coincided with improved volume demand in both the U.S. government enacted comprehensive tax legislation (the “Tax Act”), which significantly revisesfoodservice and retail channels, enabling the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35.0%industry to 21.0%, implementing a territorial tax system, imposing one-time tax on foreign unremitted earningsreduce cold storage inventories and setting limitations on deductibility of certain costs (e.g., interest expense), among other things.
Due to the complexities involved in accounting for the recently enacted Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118, requires that the Company include in its financial statements the reasonable estimate ofreduce the impact of the Tax Act on earningsyear-end seasonal inventory increases. The rebalancing of supply and demand drove positive price fluctuations as U.S. chicken market prices returned to the extent such reasonable estimate has been determined. Accordingly,historical five-year average levels late into the Company accrued $41.5 millionthird quarter of 2023 and followed expected seasonal pricing trends through the remainder of the year.
During 2023, the U.K. chicken market saw an increase in provisional tax benefit relatedlabor costs due to the netnational living wages change in deferred tax liabilities stemmingApril 2023. Through our current customer contracting models and additional negotiations we have offset the majority of these cost increases. Our utilities and feed ingredient costs continued to decrease throughout 2023 from the Tax Act’sbeginning of the year. We continue to focus on managing costs, including labor and yield efficiencies, agricultural performance and increasing operational efficiencies through investments in capital projects.
Commodity prices for chicken in Mexico ended 2023 below prior-year prices despite incremental increases throughout the year. Mexico grain prices were also below prior year levels.
U.K. market prices for pork products have followed an upward trend from 2022 but fell slightly during the fourth quarter of 2023, reflecting pig shortages from a 20% reduction of the U.S. federal tax rate from 35.0% to 21.0% for the year ended December 31, 2017. Additionally, the Company is currently estimating a zero tax liability on foreign unremitted earningsEnglish sow herd during 2022. E.U. and U.K. pig producers downsized their sow herds during 2023 by about 5% due to various factors. Due to increased market pricing and stabilization of feed prices, U.K. pig farming became profitable in the second quarter of 2023 and remained profitable in the second half of 2023.
U.K. prices for prepared foods have remained at elevated levels from inflationary pressure, primarily from increased pork prices. We continue to focus on partnering with our Key Customers and increasing operational efficiency.
Sustainability
We believe sustainability involves continuously improving social responsibility, economic viability and environmental stewardship. We are committed to helping society meet the global challenge of feeding a growing population in a responsible matter.
Environmental Stewardship. We were the first major meat and poultry company in the world to set a net earningszero greenhouse gas emissions target by 2040, demonstrating our leadership and profits (“E&P”) deficit on accumulated post-1986 deferred foreign income. Therefore,dedication to improving the Company has not accrued any amountefficiency of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings going back to 1986 for the year ended December 31, 2017. The Company will continue to analyze historical E&P on accumulated post-1986 deferred foreign income and will record any resulting tax adjustment during 2018. All other accounting as required by the Tax Act as of December 31, 2017 is complete
The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its subsidiaries. The Company may be subject to the GILTI and BEAT provisions effective beginning January 1, 2018 and is in the process of analyzing their effects, including how to account for the GILTI provision from an accounting policy standpoint.
The final impact on the Company from the Tax Act’s transition tax legislation may differ from the aforementioned one-time transition tax amount due to the complexity of calculatingour operations and supporting producers to reduce our environmental footprint. In support of this initiative, in April 2021, we issued $1.0 billion of sustainability-linked bonds, which require us to reduce our Scope 1 and 2 global greenhouse gas emissions intensity by 30% by 2030.
Social Responsibility. Safety of our team members is a condition at Pilgrim’s. The health of our workforce was our top priority throughout the COVID-19 pandemic, and we implemented hundreds of safety measures within our facilities, constantly
evolving our operations as needed. To support the communities where our team members live and work, we invested more than $20 million in local projects focused on alleviating food insecurity, strengthening long-term community infrastructure and well-being, and aiding COVID-19 emergency response and relief efforts through our Hometown Strong initiative. Finally, ensuring the well-being of animals under our care is an uncompromising commitment at Pilgrim’s. We continually strive to improve our welfare efforts through the use of new technologies and the implementation of standards that meet and exceed regulatory requirements and industry guidelines.
Governance. To cultivate discipline and drive accountability for Sustainability related matters, we use our annual budgeting process to establish strategies, plans, and risk mitigation tactics. This process is further reinforced by a series of key performance indicators to evaluate and monitor progress. These performance indicators are linked with primary evidence such U.S. tax attributes as accumulated foreign earningscompensation for both senior executive and profits, foreign tax paid,plant level personnel. As part of our business management processes, progress against these metrics is reviewed at least monthly and other tax components involved in foreign tax credit calculations for prior years backevaluated by external agencies to 1986. Such differences could be material, dueassess progress against industry peers. In addition, the Board of Directors formed a Sustainability Committee to among other things, changes in interpretationsprovide oversight and counsel on strategies, policies, and investments to reduce the impact of the Tax Act, future legislative action to address questions that arise because of the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the one-time transition tax.climate change.
Business Segment and Geographic ReportingReportable Segments
We operate in three reportable business segments: the U.S., the U.K. and Europe, and Mexico. We measure segment profit as operating income. CorporateCertain corporate expenses are allocated to the Mexico and U.K. and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. For additional information, see “Note 21. Business Segment and Geographic Reporting”20. Reportable Segments” of our Consolidated and Combined Financial Statements included in this annual report.
Results of Operations
20172023 Compared to 20162022
Net sales. Net sales for 2017 increased $889.32023 decreased $106.2 million, or 9.0%0.6%, from 2016.$17.5 billion generated in 2022 to $17.4 billion generated in 2023. The following table provides additional information regarding net sales:
| | | | | | | | | | | | | | | | | | | | |
| | | | Change from 2022 |
| Sources of net sales | | 2023 | | Amount | | Percent |
| | | (In thousands, except percent data) |
| U.S. | | $ | 10,027,742 | | | $ | (720,608) | | | (6.7) | % |
| U.K. and Europe | | 5,203,322 | | | 328,584 | | | 6.7 | % |
| Mexico | | 2,131,153 | | | 285,864 | | | 15.5 | % |
| Total net sales | | $ | 17,362,217 | | | $ | (106,160) | | | (0.6) | % |
U.S. Reportable Segment. U.S. net sales generated in 2023 decreased $720.6 million, or 6.7%, from U.S. net sales generated in 2022 primarily because of a decrease in net sales per pound, contributing $1.2 billion, or 10.9 percentage points, to the decrease in net sales. This decrease in net sales per pound was partially offset by an increase in sales volume of $453.3 million, or 4.2 percentage points. The decrease in net sales per pound was driven by lower commodity market pricing for fresh chicken products as compared to prior year. The increase in sales volume was driven primarily by an increase in pounds sold in our fresh products divisions.
U.K. and Europe Reportable Segment. U.K. and Europe sales generated in 2023 increased $328.6 million, or 6.7%, from sales generated in 2022 primarily from an increase in net sales per pound and the favorable impact of foreign currency translation of $397.3 million, or 8.2 percentage points, and $33.5 million, or 0.7 percentage points, respectively. The increase in net sales per pound was driven by price increases necessary to recover increased feed ingredients, labor, utilities and other operating costs. The increases in net sales per pound and favorable impact of foreign currency translation were partially offset by a decrease in sales volume of $102.3 million, or 2.1 percentage points.
Mexico Reportable Segment. Mexico sales generated in 2023 increased $285.9 million, or 15.5%, from sales generated in 2022 primarily because of the favorable impact of foreign currency remeasurement and an increase in sales volume, partially offset by a decrease in net sales price per pound. The favorable impact of foreign currency remeasurement and increase in sales volume contributed $249.0 million, or 13.5 percentage points, and $86.2 million, or 4.7 percentage points, respectively, to the increase in net sales. The favorable impact of foreign currency remeasurement was due to a strengthening of the Mexican peso against the U.S. dollar. The sales volume across all lines of business increased during 2023 due to market demand. Partially offsetting these increases in net sales was a decrease in net sales price per pound of $49.3 million, or 2.7 percentage points.
|
| | | | | | | | | | | | |
| | | | | Change from 2016 | |
| Source of net sales | | 2017 | | Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 7,443,222 |
| | $ | 771,819 |
| | 11.6 | % | (a) |
| U.K. and Europe | | 1,996,319 |
| | 48,878 |
| | 2.5 | % | (b) |
| Mexico | | 1,328,322 |
| | 68,602 |
| | 5.4 | % | (c) |
| Total net sales | | $ | 10,767,863 |
| | $ | 889,299 |
| | 9.0 | % | |
| |
(a) | U.S. net sales generated in 2017 increased $771.8 million, or 11.6%, from U.S. net sales generated in 2016 primarily because of net sales generated by the recently acquired GNP operations and an increase in net sales per pound experienced by our existing customers offset by a decrease in sales volume. The impact of the acquired business contributed $433.9 million, or 6.5 percentage points, to the increase in net sales. Higher net sales per pound, which resulted primarily from higher market prices, contributed $533.0 million, or 8.0 percentage points, to the net sales increase. Decreased sales volume, which resulted from the unfavorable impact that ongoing operational improvements in one of our prepared foods facilities had on production, the conversion of our Sanford, North Carolina facility to an organic operation, as well as more deboning of leg quarters in several of our facilities, offset the overall net sales increase by $195.2 million, or 2.9 percentage points. Included in U.S. sales generated during 2017 and 2016 were sales to JBS USA Food Company totaling $15.3 million and $16.5 million, respectively. |
| |
(b) | U.K. and Europe sales generated in 2017 increased $48.9 million, or 2.5%, from U.K. and Europe sales generated in 2016, primarily because of an increase in sales volume and an increase in net sales per pound partially offset by the impact of foreign currency translation. The increase in sales volume contributed $80.5 million, or 4.1 percentage points, to the increase in U.K. and Europe net sales. The increase in net sales per pound contributed $151.6 million, or 7.8 percentage points, to the increase in U.K. and Europe net sales. The increase to net sales was partially offset by the impact of foreign currency translation, which reduced U.K. and Europe net sales by $183.3 million, or 9.4 percentage points. Other factors affecting the increase in U.K. and Europe net sales were individually immaterial. |
| |
(c) | Mexico sales generated in 2017 increased $68.6 million, or 5.4%, from Mexico sales generated in 2016, primarily because of an increase in sales volume and an increase in net sales per pound partially offset by the impact of foreign currency translation. The increase in sales volume contributed $50.1 million, or 4.0 percentage points, to the increase in Mexico net sales. The increase in net sales per pound contributed $69.6 million, or 5.5 percentage points, to the increase in Mexico net sales. The impact of foreign currency translation partially offset the overall net sales increase by $51.1million, or 4.1 percentage points. Other factors affecting the increase in Mexico net sales were individually immaterial. |
Gross profit. Gross profit increaseddecreased by $367.6$693.4 million, or 33.3%38.3%, from $1.8 billion generated in 2022 to $1.1 billion generated in 2016 to $1.5 billion generated in 2017.2023. The following tables provide gross profit information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Change from 2022 | | Percent of Net Sales |
| Components of gross profit | | 2023 | | Amount | | Percent | | 2023 | | 2022 |
| | | (In thousands, except percent data) |
| Net sales | | $ | 17,362,217 | | | $ | (106,160) | | | (0.6) | % | | 100.0 | % | | 100.0 | % |
| Cost of sales | | 16,243,816 | | | 587,242 | | | 3.8 | % | | 93.6 | % | | 89.6 | % |
| Gross profit | | $ | 1,118,401 | | | $ | (693,402) | | | (38.3) | % | | 6.4 | % | | 10.4 | % |
|
| | | | | | | | | | | | | | | | | | |
| | | | | Change from 2016 | | Percent of Net Sales | |
| Components of gross profit | | 2017 | | Amount | | Percent | | 2017 | | 2016 | |
| | | (In thousands, except percent data) | |
| Net sales | | $ | 10,767,863 |
| | $ | 889,299 |
| | 9.0 | % | | 100.0 | % | | 100.0 | % | |
| Cost of sales | | 9,296,249 |
| | 521,668 |
| | 5.9 | % | | 86.3 | % | | 88.8 | % | (a)(b) |
| Gross profit | | $ | 1,471,614 |
| | $ | 367,631 |
| | 33.3 | % | | 13.7 | % | | 11.2 | % | |
| | | | | | | | | | | | | | | | | | | | |
| Sources of gross profit | | 2023 | | Change from 2022 |
| Amount | | Percent |
| | (In thousands, except percent data) |
| U.S. | | $ | 522,484 | | | $ | (913,421) | | | (63.6) | % |
| U.K. and Europe | | 374,699 | | | 134,027 | | | 55.7 | % |
| Mexico | | 221,432 | | | 86,260 | | | 63.8 | % |
Elimination(a) | | (214) | | | (268) | | | (496.3) | % |
| Total gross profit | | $ | 1,118,401 | | | $ | (693,402) | | | (38.3) | % |
| | | | | | | | | | | | | | | | | | | | |
| Sources of cost of sales | | 2023 | | Change from 2022 |
| Amount | | Percent |
| | (In thousands, except percent data) |
| U.S. | | $ | 9,505,258 | | | $ | 192,813 | | | 2.1 | % |
| U.K. and Europe | | 4,828,623 | | | 194,557 | | | 4.2 | % |
| Mexico | | 1,909,721 | | | 199,604 | | | 11.7 | % |
Elimination(a) | | 214 | | | 268 | | | (496.3) | % |
| Total cost of sales | | $ | 16,243,816 | | | $ | 587,242 | | | 3.8 | % |
|
| | | | | | | | | | | | |
| Sources of gross profit | | 2017 | | Change from 2016 | |
| Amount | | Percent | |
| | (In thousands, except percent data) | |
| United States | | $ | 1,094,811 |
| | $ | 352,726 |
| | 47.5 | % | |
| U.K. and Europe | | 188,180 |
| | (1,443 | ) | | (0.8 | )% | |
| Mexico | | 188,528 |
| | 16,348 |
| | 9.5 | % | |
| Elimination | | 95 |
| | — |
| | — | % | (c) |
| Total gross profit | | $ | 1,471,614 |
| | $ | 367,631 |
| | 33.3 | % | |
U.S. Reportable Segment. Cost of sales incurred by our U.S. operations in 2023 increased $192.8 million, or 2.1%, from cost of sales incurred by our U.S. operations in 2022. Cost of sales increased primarily because of increased sales volume of $392.9 million, or 4.2 percentage points, partially offset by a decrease in cost per pound sold of $203.9 million, or 2.2 percentage points. The increase in our sales volume was primarily driven by our fresh products divisions. Other factors affecting U.S. cost of sales were individually immaterial.
U.K. and Europe Reportable Segment. Cost of sales incurred by the U.K. and Europe operations during 2023 increased $194.6 million, or 4.2%, from cost of sales incurred by the U.K. and Europe operations during 2022 primarily because of increases in cost per pound sold and the unfavorable impact of foreign currency translation of $257.6 million, or 5.6 percentage points, and $31.1 million, or 0.7 percentage points, respectively. The increase in cost per pound was driven by increased feed ingredients, labor, utilities and other operating costs. Partially offsetting these increases was the impact of a decrease in sales volume of $94.1 million, or 2.1 percentage points. Other factors affecting cost of sales were individually immaterial. |
| | | | | | | | | | | | |
| Sources of cost of sales | | 2017 | | Change from 2016 | |
| Amount | | Percent | |
| | (In thousands, except percent data) | |
| United States | | $ | 6,348,411 |
| | $ | 419,093 |
| | 7.1 | % | (a) |
| U.K. and Europe | | 1,808,139 |
| | 50,321 |
| | 2.9 | % | (b) |
| Mexico | | 1,139,794 |
| | 52,254 |
| | 4.8 | % | (c) |
| Elimination | | (95 | ) | | — |
| | — | % | (d) |
| Total cost of sales | | $ | 9,296,249 |
| | $ | 521,668 |
| | 5.9 | % | |
| |
(a) | Cost of sales incurred by our U.S. operations in 2017 increased $419.1 million, or 7.1%, from cost of sales incurred by our U.S. operations in 2016. Cost of sales primarily increased because of costs incurred by the acquired GNP operations and, to a lesser extent, by increases in cost of sales incurred by our existing U.S. operations. Cost of sales incurred by the acquired GNP operations contributed $363.5 million, or 6.2 percentage points, to the increase in U.S. cost of sales. Cost of sales related to the existing U.S. operations increased due to $88.7 million in increased labor costs, $25.7 million in increased chick costs, $19.7 million in increased depreciation, $19.1 million in increased health care costs and $25.7 million in increased freight. These increases were offset by associated lower sales volume, a $79.6 million decrease in feed ingredients costs and $20.6 million of commodity derivative gains. Other factors affecting U.S. cost of sales were individually immaterial. |
| |
(b) | Cost of sales incurred by the U.K. and Europe operations during 2017 increased $50.3 million, or 2.9%, from cost of sales incurred by the U.K. and Europe operations during 2016 primarily because of increased sales volume and a $64.5 million increase in feed ingredient costs. U.K. and Europe cost of sales also increased because of a $4.5 million increase in freight and storage costs, a $3.5 million increase in other costs, and a $0.8 million increase in utilities costs. These costs were partially offset by a decline in depreciation of $15.4 million and a decline of wages and benefits by $8.3 million from 2016 amounts. Other factors affecting cost of sales were individually immaterial. |
| |
(c) | Cost of sales incurred by the Mexico operations during 2017 increased $52.3 million, or 4.8%, from cost of sales incurred by the Mexico operations during 2016 primarily because of increased sales volume and a $37.1 million increase in contract services. Mexico cost of sales also increased because of a $12.9 million increase in wages and benefits, a $9.3 million increase in warehousing costs, an $8.6 million increase in utilities costs, a $6.6 million increase in transportation costs and a $1.8 million increase in in depreciation and amortization costs. These costs were partially offset by the $21.5 million favorable impact of foreign currency translation on inventory, a $1.3 million gain in commodity derivatives and a $1.1 million decrease in travel and entertainment costs. Other factors affecting cost of sales were individually immaterial. |
| |
(d) | Our Consolidated and Combined Financial Statements include the accounts of our company and its majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation. |
Operating income. Operating income increased $280.2decreased $654.3 million, or 35.4%55.6%, from $792.1$1,176.6 million generated for 20162022 to $1.1 billion$522.3 million generated for 2017.2023. The following tables provide operating income information:
| | | | | | | Change from 2016 | | Percent of Net Sales | | | | | | Change from 2022 | | Percent of Net Sales |
| Components of operating income | | 2017 | | Amount | | Percent | | 2017 | | 2016 | | Components of operating income | | 2023 | | Amount | | Percent | | 2023 | | 2022 |
| | | (In thousands, except percent data) | | | | (In thousands, except percent data) |
| Gross profit | | $ | 1,471,614 |
| | $ | 367,631 |
| | 33.3 | % | | 13.7 | % | | 11.2 | % | | Gross profit | | $ | 1,118,401 | | | $ | | $ | (693,402) | | | (38.3) | | (38.3) | % | | 6.4 | % | | 10.4 | % |
| SG&A expenses | | 389,517 |
| | 78,685 |
| | 25.3 | % | | 3.6 | % | | 3.1 | % | (a)(b) | SG&A expenses | | 551,770 | | | (52,972) | | (52,972) | | | (8.8) | | (8.8) | % | | 3.2 | % | | 3.5 | % |
| Administrative restructuring charges | | 9,775 |
| | 8,706 |
| | 814.4 | % | | 0.1 | % | | — | % | (c) |
| Restructuring activities | | Restructuring activities | | 44,345 | | | 13,879 | | | 45.6 | % | | 0.3 | % | | 0.2 | % |
| Operating income | | $ | 1,072,322 |
| | $ | 280,240 |
| | 35.4 | % | | 10.0 | % | | 8.1 | % | | Operating income | | $ | 522,286 | | | $ | | $ | (654,309) | | | (55.6) | | (55.6) | % | | 3.0 | % | | 6.7 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Change from 2022 |
| Sources of operating income | | 2023 | | Amount | | Percent |
| | | (In thousands, except percent data) |
| U.S. | | $ | 238,894 | | | $ | (855,131) | | | (78.2) | % |
| U.K. and Europe | | 128,151 | | | 129,085 | | | NM(b) |
| Mexico | | 155,455 | | | 72,005 | | | 86.3 | % |
Eliminations(a) | | (214) | | | (268) | | | (496.3) | % |
| Total operating income | | $ | 522,286 | | | $ | (654,309) | | | (55.6) | % |
|
| | | | | | | | | | | | |
| | | | | Change from 2016 | |
| Source of operating income | | 2017 | | Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 841,491 |
| | $ | 268,932 |
| | 47.0 | % | |
| U.K. and Europe | | 77,105 |
| | (1,467 | ) | | (1.9 | )% | |
| Mexico | | 153,631 |
| | 12,775 |
| | 9.1 | % | |
| Elimination | | 95 |
| | — |
| | — | % | (f) |
| Total operating income | | $ | 1,072,322 |
| | $ | 280,240 |
| | 35.4 | % | |
| | | | | | | | | | | | | | | | | | | | |
| Sources of SG&A expenses (defined below) | | 2023 | | Change from 2022 |
| Amount | | Percent |
| | | (In thousands, except percent data) |
| U.S. | | $ | 283,590 | | | $ | (58,290) | | | (17.0) | % |
| U.K. and Europe | | 202,203 | | | (8,937) | | | (4.2) | % |
| Mexico | | 65,977 | | | 14,255 | | | 27.6 | % |
| Total SG&A expense | | $ | 551,770 | | | $ | (52,972) | | | (8.8) | % |
| | | | | | | | | | | | | | | | | | | | |
| Sources of restructuring activities charges | | 2023 | | Change from 2022 |
| Amount | | Percent |
| | | (In thousands, except percent data) |
| | | | | | |
| U.K. and Europe | | $ | 44,345 | | | $ | 13,879 | | | 45.6 | % |
| | | | | | |
| | | | | | |
|
| | | | | | | | | | | | |
| Sources of SG&A expenses | | 2017 | | Change from 2016 | |
| Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 245,061 |
| | $ | 76,604 |
| | 45.5 | % | (a) |
| U.K. and Europe | | 109,559 |
| | (1,492 | ) | | (1.3 | )% | (b) |
| Mexico | | 34,897 |
| | 3,573 |
| | 11.4 | % | (c) |
| Total SG&A expense | | $ | 389,517 |
| | $ | 78,685 |
| | 25.3 | % | |
(b)This Y/Y change is designated not meaningful (or “NM”).
U.S. Reportable Segment. Selling, general and administrative (“SG&A”) expense incurred by the U.S. operations during 2023 decreased $58.3 million, or 17.0%, from SG&A expense incurred by the U.S. operations during 2022 primarily from decreases in legal defense costs, incentive compensation costs, and employee relation costs. Other factors affecting SG&A expense were individually immaterial. |
| | | | | | | | | | | | |
| Sources of administrative restructuring charges | | 2017 | | Change from 2016 | |
| Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 8,259 |
| | $ | 7,190 |
| | 672.6 | % | (d) |
| U.K. and Europe | | 1,516 |
| | 1,516 |
| | 100.0 | % | (e) |
| Total administrative restructuring charges | | $ | 9,775 |
| | $ | 8,706 |
| | 814.4 | % | |
| |
(a) | SG&A expense incurred by the U.S. operations during 2017 increased $76.6 million, or 45.5%, from SG&A expense incurred by the U.S. operations during 2016 primarily because of expenses incurred by the acquired GNP operations and, to a lesser extent, by increases in SG&A expense incurred by our existing U.S. operations. Expenses incurred by the acquired GNP business contributed $35.5 million, or 21.2 percentage points, to the overall increase in SG&A expenses. Expenses incurred by our existing U.S. operations increased primarily because of an $18.7 million increase in transaction costs associated with the Moy Park acquisition, a $6.0 million increase in professional fees expenses, a $5.7 million increase in management fees charged for administrative functions shared with JBS USA Food Company, a $5.0 million increase in advertising and promotional expenses, a $4.4 million increase in employee wages and benefits and a $1.4 million increase in depreciation and amortization expenses. Other factors affecting SG&A expense were individually immaterial. |
| |
(b) | SG&A expense incurred by the U.K. and Europe operations during 2017 decreased $1.5 million, or 1.3%, from SG&A expense incurred by the U.K. and Europe operations during 2016 primarily because of a $9.0 million decrease in advertising and promotion costs and a $4.0 million decrease in management fees charged for administrative functions shared with JBS S.A. These decreases to SG&A expense were partially offset by a $7.4 million increase in employee wages and benefits, a $2.3 million increase in miscellaneous expenses and a $1.6 million increase in depreciation and amortization. Other factors affecting SG&A expense were individually immaterial. |
| |
(c) | SG&A expense incurred by the Mexico operations during 2017 increased $3.6 million, or 11.4%, from SG&A expense incurred by the Mexico operations during 2016 primarily because of a $1.7 million increase in wages and benefits and a $1.9 million increase in advertising and promotion expenses. These increases to SG&A expense were partially offset by a $0.3 million benefit from a decline in foreign exchange rates. Other factors affecting SG&A expense were individually immaterial. |
| |
(d) | Administrative restructuring charges incurred by the U.S. operations during 2017 increased $7.2 million, or 672.6%, from administrative restructuring charges incurred during 2016. Administrative restructuring charges incurred by the U.S. segment during 2017 included a $3.5 million impairment of the aggregate carrying amount of an asset group held for sale in Alabama, $2.6 million in severance costs related to the GNP operations, the elimination of prepaid costs totaling $0.7 million related to obsolete software assumed in the GNP acquisition, and $0.9 million in costs associated with the plant closure in Luverne, Minnesota. Administrative restructuring charges incurred by the U.S. operations during 2016 represented impairment costs of $0.8 million related to assets held for sale in Texas and impairment costs of $0.3 million related to the sale of an asset in Louisiana. |
| |
(e) | Administrative restructuring charges incurred by the U.K. and Europe operations during 2017 increased $1.5 million, or 100.0%, from administrative restructuring charges incurred during 2016. During 2017, administrative restructuring charges represented impairment costs of $1.5 million related to to a property in Dublin, Ireland. |
| |
(f) | Our Consolidated and Combined Financial Statements include the accounts of both our company and its majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation. |
Mexico Reportable Segment. SG&A expense incurred by the Mexico operations during 2023 increased $14.3 million, or 27.6%, from SG&A expense incurred by the Mexico operations during 2022. SG&A expense increased primarily from increased payroll and employee-related costs due to labor reform law changes and the unfavorable impact of foreign currency remeasurement. Other factors affecting SG&A expense were individually immaterial.
Interest expense. Consolidated and combined interest expense increased 41.7%16.0% to $107.2$166.6 million in 20172023 from $75.6$143.6 million in 2016,2022, primarily becausefrom an increase of $34.3 million in interest expense on outstanding borrowings and a loss on early extinguishment of debt recognized as a component of interest expense of $20.7 million, partially offset by an increase in the weighted average interest rate to 4.54% in 2017 from 4.39% in 2016 and an increase in average borrowingsincome of $2.0 billion in 2017 from $1.5 billion in 2016. Borrowings increased primarily to fund both the GNP and Moy Park acquisitions during 2017.$26.6 million. As a percent of net sales, interest expense in 20172023 and 20162022 was 1.00%1.0% and 0.77%0.8%, respectively.
Income taxes. Our consolidated and combined income tax expense in 20172023 was $263.9$42.9 million, compared to income tax expense of $243.9$278.9 million in 2016. The increase in income tax expense in 2017 resulted from an increase in pre-tax income during 2017, partially offset by the recognition of a future reduction in the U.S. tax rate during 2017. As a result of the future reduction in the U.S. tax rate, we expect a future effective tax rate of approximately 24%.
2016 Compared to 2015
Net sales. Net sales for 2016 increased $1.1 billion, or 12.9%, from 2015. The following table provides additional information regarding net sales:
|
| | | | | | | | | | | | |
| | | | | Change from 2015 | |
| Source of net sales | | 2016 | | Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 6,671,403 |
| | $ | (471,951 | ) | | (6.6 | )% | (a) |
| U.K. and Europe | | 1,947,441 |
| | 1,374,873 |
| | 240.1 | % | (b) |
| Mexico | | 1,259,720 |
| | 222,970 |
| | 21.5 | % | (c) |
| Total net sales | | $ | 9,878,564 |
| | $ | 1,125,892 |
| | 12.9 | % | |
| |
(a) | U.S. net sales generated in 2016 decreased $472.0 million, or 6.6%, from U.S. net sales generated in 2015 primarily because of decreases in both sales volume and net sales per pound. The decrease in sales volume, which resulted from the unfavorable impact that ongoing operational improvements in one of our prepared foods facilities had on production during the period and lower product demand from our commercial customers, contributed $300.5 million, or 4.2 percentage points, to the net sales decrease. Lower net sales per pound, which resulted primarily from lower market prices, contributed |
$171.4 million, or 2.3 percentage points, to the net sales decrease. Included in U.S. sales generated during 2016 and 2015 were sales to JBS USA Food Company totaling $16.5 million and $21.7 million, respectively.
| |
(b) | U.K. and Europe sales generated in 2016 increased $1.4 billion, or 240.1%, from U.K. and Europe sales generated in 2015, primarily due to the common- control acquisition of Moy Park on September 30, 2015. |
| |
(c) | Mexico sales generated in 2016 increased $223.0 million, or 21.5%, from Mexico sales generated in 2015, primarily because of an increase in sales volume and an increase in net sales per pound partially offset by the impact of foreign currency translation. The increase in sales volume contributed $310.6 million, or 30.0 percentage points, to the increase in Mexico net sales. The increase in net sales per pound contributed $133.7 million, or 12.9 percentage points, to the increase in Mexico net sales. The increases to net sales was partially offset by the impact of foreign currency translation, which contributed $221.3 million, or 21.3 percentage points, to the decrease in Mexico net sales. Other factors affecting the increase in Mexico net sales were individually immaterial. |
Gross profit. Gross profit decreased by $194.7 million, or 15.0%, from $1.3 billion generated in 2015 to $1.1 billion generated in 2016. The following tables provide gross profit information:
|
| | | | | | | | | | | | | | | | | | |
| | | | | Change from 2015 | | Percent of Net Sales | |
| Components of gross profit | | 2016 | | Amount | | Percent | | 2016 | | 2015 | |
| | | (In thousands, except percent data) | |
| Net sales | | $ | 9,878,564 |
| | $ | 1,125,892 |
| | 12.9 | % | | 100.0 | % | | 100.0 | % | |
| Cost of sales | | 8,774,581 |
| | 1,320,633 |
| | 17.7 | % | | 88.8 | % | | 85.2 | % | (a)(b) |
| Gross profit | | $ | 1,103,983 |
| | $ | (194,741 | ) | | (15.0 | )% | | 11.2 | % | | 14.8 | % | |
|
| | | | | | | | | | | | |
| Sources of gross profit | | 2016 | | Change from 2015 | |
| Amount | | Percent | |
| | (In thousands, except percent data) | |
| United States | | $ | 742,085 |
| | $ | (384,776 | ) | | (34.1 | )% | |
| U.K. and Europe | | 189,623 |
| | 145,276 |
| | 327.6 | % | |
| Mexico | | 172,180 |
| | 44,759 |
| | 35.1 | % | |
| Elimination | | 95 |
| | — |
| | — | % | (c) |
| Total gross profit | | $ | 1,103,983 |
| | $ | (194,741 | ) | | (15.0 | )% | |
|
| | | | | | | | | | | | |
| Sources of cost of sales | | 2016 | | Change from 2015 | |
| Amount | | Percent | |
| | (In thousands, except percent data) | |
| United States | | $ | 5,929,318 |
| | $ | (87,175 | ) | | (1.4 | )% | (a) |
| U.K. and Europe | | 1,757,818 |
| | 1,229,597 |
| | 232.8 | % | (b) |
| Mexico | | 1,087,540 |
| | 178,211 |
| | 19.6 | % | (c) |
| Elimination | | (95 | ) | | — |
| | — | % | (d) |
| Total cost of sales | | $ | 8,774,581 |
| | $ | 1,320,633 |
| | 17.7 | % | |
| |
(a) | Cost of sales incurred by our U.S. operations in 2016 decreased $87.2 million, or 1.4%, from cost of sales incurred by our U.S. operations in 2015. Cost of sales primarily decreased because of lower sales volume, an $81.5 million decrease in feed ingredients costs and a $17.9 million decrease in freight and storage costs. These costs were partially offset by a $27.0 million increase in contract labor costs, derivative losses of $5.0 million in 2016 compared to derivative gains of $21.3 million in 2015, a $21.3 million increase in wages and benefits, and an $18.1 million increase in co-pack labor costs. Other factors affecting U.S. cost of sales were individually immaterial. |
| |
(b) | Cost of sales incurred by the U.K. and Europe operations during 2016 increased $1.2 billion, or 232.8%, from cost of sales incurred by the U.K. and Europe operations during 2015 primarily due to the common-control acquisition of Moy Park on September 30, 2015. |
| |
(c) | Cost of sales incurred by the Mexico operations during 2016 increased $178.2 million, or 19.6%, from cost of sales incurred by the Mexico operations during 2015 primarily because of increased sales volume and a $33.3 million increase in feed ingredient costs. Mexico cost of sales also increased because of a $22.9 million increase in wages and benefits, a $11.9 million increase in freight and storage costs, and a $11.2 increase in in depreciation and amortization costs. These costs were partially offset by the impact of foreign currency translation which contributed $191.9 million, or 21.1 percentage points, to the decrease in cost of sales incurred by our Mexico operations. Other factors affecting cost of sales were individually immaterial. |
| |
(d) | Our Consolidated and Combined Financial Statements include the accounts of our company and its majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation. |
Operating income. Operating income decreased $269.1 million, or 25.4%, from $1.1 billion generated for 2015 to $0.8 billion generated for 2016. The following tables provide operating income information:
|
| | | | | | | | | | | | | | | | | | |
| | | | | Change from 2015 | | Percent of Net Sales | |
| Components of operating income | | 2016 | | Amount | | Percent | | 2016 | | 2015 | |
| | | (In thousands, except percent data) | |
| Gross profit | | $ | 1,103,983 |
| | $ | (194,741 | ) | | (15.0 | )% | | 11.2 | % | | 14.8 | % | |
| SG&A expenses | | 310,832 |
| | 78,994 |
| | 34.1 | % | | 3.1 | % | | 2.6 | % | (a)(b) |
| Administrative restructuring charges | | 1,069 |
| | (4,685 | ) | | (81.4 | )% | | — | % | | 0.1 | % | (c) |
| Operating income | | $ | 792,082 |
| | $ | (269,050 | ) | | (25.4 | )% | | 8.1 | % | | 12.1 | % | |
|
| | | | | | | | | | | | |
| | | | | Change from 2015 | |
| Source of operating income | | 2016 | | Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 572,559 |
| | $ | (377,051 | ) | | (39.7 | )% | |
| U.K. and Europe | | 78,572 |
| | 62,331 |
| | 383.8 | % | |
| Mexico | | 140,856 |
| | 45,670 |
| | 48.0 | % | |
| Elimination | | 95 |
| | — |
| | — | % | (e) |
| Total operating income | | $ | 792,082 |
| | $ | (269,050 | ) | | (25.4 | )% | |
|
| | | | | | | | | | | | |
| Sources of SG&A expenses | | 2016 | | Change from 2015 | |
| Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 168,457 |
| | $ | (3,189 | ) | | (1.9 | )% | (a) |
| U.K. and Europe | | 111,051 |
| | 83,094 |
| | 297.2 | % | (b) |
| Mexico | | 31,324 |
| | (911 | ) | | (2.8 | )% | (c) |
| Total SG&A expense | | $ | 310,832 |
| | $ | 78,994 |
| | 34.1 | % | |
|
| | | | | | | | | | | | |
| Sources of administrative restructuring charges | | 2016 | | Change from 2015 | |
| Amount | | Percent | |
| | | (In thousands, except percent data) | |
| United States | | $ | 1,069 |
| | $ | (4,536 | ) | | (80.9 | )% | (d) |
| U.K. and Europe | | — |
| | (149 | ) | | (100.0 | )% | |
| Total administrative restructuring charges | | $ | 1,069 |
| | $ | (4,685 | ) | | (81.4 | )% | |
| |
(a) | SG&A expense incurred by the U.S. operations during 2016 decreased $3.2 million, or 1.9%, from SG&A expense incurred by the U.S. operations during 2015 primarily because of a $5.2 million decrease in brokerage expenses, a $2.6 million decrease in management fees charged for administrative functions shared with JBS USA Food Company, and a $2.0 million decrease in employee wages and benefits that were partially offset by a a $3.1 million increase in contract labor expenses, and a $2.6 million increase in professional fees expenses. Other factors affecting SG&A expense were individually immaterial. |
| |
(b) | SG&A expense incurred by the U.K. and Europe operations during 2016 increased $83.1 million, or 297.2%, from SG&A expense incurred by the U.K. and Europe operations during 2015 primarily due to the common-control acquisition of Moy Park on September 30, 2015. |
| |
(c) | SG&A expense incurred by the Mexico operations during 2016 decreased $0.9 million, or 2.8%, from SG&A expense incurred by the Mexico operations during 2015 primarily because of a $15.0 million decrease in management fees charged for administrative functions shared with JBS USA Food Company and a $2.6 million decrease in professional fees expenses. These decreases to SG&A expense were partially offset by a $15.9 increase in employee wages and benefits. Other factors affecting SG&A expense were individually immaterial. |
| |
(d) | Administrative restructuring charges incurred by the U.S. operations during 2016 decreased $4.5 million, or 80.9%, from administrative restructuring charges incurred during 2015. During 2016, administrative restructuring charges represented impairment costs of $0.8 million related to assets held for sale in Texas and impairment costs of $0.3 million related to the sale of an asset in Louisiana. During 2015, administrative restructuring charges represented impairment costs of $4.8 million related to assets held for sale in Louisiana and Texas and a loss of $0.8 million related to the sale of a rendering plant in Arkansas. |
| |
(e) | Our Consolidated and Combined Financial Statements include the accounts of both our company and its majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation. |
Interest expense. Consolidated and combined interest expense increased 62.5% to $75.6 million in 2016 from $46.6 million in 2015, primarily because of an increase in the weighted average interest rate to 4.39% in 2016 from 4.09% in 2015 and an increase in average borrowings of $1.5 billion in 2016 from $1.1 billion in 2015. As a percent of net sales, interest expense in 2016 and 2015 was 0.77% and 0.53%, respectively.
Income taxes. Our consolidated and combined income tax expense in 2016 was $243.9 million, compared to income tax expense of $338.4 million in 2015.2022. The decrease in income tax expense in 20162023 resulted primarily from a decrease in income.pre-tax income during 2023.
2022 Compared to 2021
For discussion of 2022 results of operations in comparison to 2021 results of operations, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of the 2022 Annual Report on Form 10-K filed on February 9, 2023.
Liquidity and Capital Resources
Our principal sources of liquidity are cash generated from operations, funds from borrowings, and existing cash on hand. The following table presents our available sources of liquidity as of December 31, 2017:2023:
| | | | | | | | | | | | | | | | | | | | |
| Sources of Liquidity | | Facility
Amount | | Amount
Outstanding | | Available |
| | | (In millions) |
| Cash and cash equivalents | | | | | | $ | 731.2 | |
| Borrowing arrangements: | | | | | | |
U.S. Revolving Syndicated Facility(a) | | $ | 850.0 | | | $ | — | | | 824.9 | |
Mexico BBVA Credit Facility(b) | | 65.4 | | | — | | | 65.4 | |
U.K. and Europe Revolver Facility(c) | | 191.1 | | | — | | | 191.1 | |
|
| | | | | | | | | | | | | |
Source of Liquidity(a) | | Facility
Amount | | Amount
Outstanding | | Available | |
| | | (In millions) | |
| Cash and cash equivalents | | $ | — |
| | $ | — |
| | $ | 581.5 |
| |
| Debt facilities: | | | | | | | |
| U.S. Credit Facility | | 750.0 |
| | 73.3 |
| | 631.9 |
| (a) |
| Mexico Credit Facility | | 76.3 |
| | 76.3 |
| | — |
| (b) |
| U.K. and Europe Credit Facilities | | 123.7 |
| | 11.4 |
| | 112.3 |
| (c) |
| |
(a) | Availability under the U.S. Credit Facility is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at December 31, 2017 totaled $44.8 million. |
| |
(b) | As of December 31, 2017, the U.S. dollar-equivalent of the amount available under the Mexico Credit Facility (as described below) was less than $0.1 million. The Mexico Credit Facility provides for a loan commitment of $1.5 billion Mexican pesos. |
| |
(c) | The U.K. and Europe Credit Facilities consist of the Moy Park Multicurrency Revolving Facility Agreement, the Moy Park Receivables Finance Agreement, and the Moy Park France Invoice Discounting Facility, as described below. As of December 31, 2017,(b)As of December 31, 2023, the U.S. dollar-equivalent of the amount available under the Mexico BBVA Credit Facility was $65.4 million ($1.1 billion Mexican pesos). (c)As of December 31, 2023, the U.S. dollar-equivalent of the amount available under the U.K. and Europe Credit Facilities totaled $112.3 million. The facilities provide for a combined loan commitment amount of £65 million pound sterling and €30 million euro. |
Long-Term Debt and Other Borrowing ArrangementsEurope Revolver Facility was $191.1 million (£150.0 million).
U.S. Senior Notes
On March 11, 2015, the CompanyOctober 12, 2023, we completed a sale of $500.0 million aggregate principal amount of its 5.75%unsecured, registered, senior notes due 2025 (the “Senior2034 (“Senior Notes due 2025”2034”). The Companyissuance price of this offering to the public was 98.041%, which created gross proceeds of $490.2 million before transaction costs. We used the net proceeds from the sale of the Senior Notes to repay $350.0 million and $150.0 million of the term loan indebtedness under the U.S. Credit Facility on March 12, 2015 and April 22, 2015, respectively. On September 29, 2017, the Company completed an add-on offering of $250.0 million of the Senior Notes due 2025 (the “Additional Senior Notes due 2025”). The issuance price of the add-on offering was 102.0% which created gross proceeds of $255.0 million. The additional $5.0 million will be amortized over the life of the bond. The Company used the net proceeds from the sale of the Additional Senior Notes due 20252034, together with cash on hand, to repay in full the JBS S.A. Promissory Note (as described below) issued as part of the Moy Park acquisition andpurchase for general corporate purposes. The Additional Senior Notes due 2025 will be treated as a single class with the existing Senior Notes due 2025 for all purposes under the 2015 Indenture (defined below) and will have the same terms as those of the existing Senior Notes due 2025. The Additional Senior Notes due 2025 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes due 2025 and the Additional Senior Notes due 2025 are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “2015 Indenture”). The 2015 Indenture provides, among other things, thatcash the Senior Notes due 20252027 through a tender offer and the Additional Senior Notes due 2025 bear interest at a ratesubsequent redemption of 5.75% per annum from the dateremaining outstanding notes. As of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015 for the Senior Notes due 2025 and March, 15 2018 for the Additional Senior Notes due 2025. The Senior Notes due 2025 and the Additional Senior Notes due 2025 are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2025 and the Additional Senior Notes due 2025. The Senior Notes due 2025 and the Additional Senior Notes due 2025 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2025 and the Additional Senior Notes due 2025 and the 2015 Indenture also contain customary covenants and events of default, including failure to payOctober 12, 2023, $812.8 million principal or interest on the Senior Notes due 2025 and the Additional Senior Notes due 2025 when due, among others.
On September 29, 2017, the Company completed a sale of $600.0 million aggregate principal amount of its 5.875% senior notes due 2027 (the “Senior Notes due 2027”). The Company used the net proceeds from the sale of the Senior Notes due 2027 to repay in full the JBS S.A. Promissory Note issued as part of the Moy Park acquisitionhad been validly tendered and for general corporate purposes.purchased by us. The remaining outstanding Senior Notes due 2027 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.purchased by us on October 16, 2023.
The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among the Company, its guarantor subsidiary and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest atOn April 19, 2023, we completed a rate of 5.875% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on March 30, 2018. The Senior Notes due 2027 are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2027. The Senior Notes due 2027 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2027 and the 2017 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2027 when due, among others.
Moy Park Senior Notes
On May 29, 2014, Moy Park (Bondco) Plc, a subsidiary of Granite Holdings Sàrl, completed the sale of a £200.0 million$1.0 billion aggregate principal amount of its 6.25% unsecured, registered senior notes due 2021 (the “Moy Park Notes”2033 (“Senior Notes due 2033”). On April 17, 2015, an add-on offering of £100.0 million ofWe used the Moy Park Notes (the “Additional Moy Park Notes”) was completed. The Moy Park Notesnet proceeds to repay the term loans and the Additional Moy Park Notes were sold to qualified institutional buyers pursuant to Rule 144Aoutstanding balance under the Securities Act, and outside2021 U.S. Credit Facility. The issuance price of this offering to the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Moy Park Notes and the Additional Moy Park Notes are governed by, and were issued pursuant to, an indenture dated aspublic was 99.312%, which created gross proceeds of May 29, 2014 by Moy Park (Bondco) Plc, as issuer, Moy Park Holdings (Europe) Limited, Moy Park (Newco) Limited, Moy Park Limited, O’Kane Poultry Limited, as guarantors, and The Bank of New York Mellon, as trustee (the “Moy Park Indenture”). The Moy Park Indenture provides, among other things, that the Moy Park Notes and the Additional Moy Park Notes bear interest at a rate of 6.25% per annum from the date of issuance until maturity, payable semiannually in cash in arrears, beginning on November 29, 2014 for the Moy Park Notes and May 28, 2015 for the Additional Moy Park Notes. The Moy Park Notes and the Additional Moy Park Notes are guaranteed by each of the subsidiary guarantors described above. The Moy Park Indenture contains customary covenants and events of default that may limit Moy Park (Bondco) Plc’s ability and the ability of certain subsidiaries to incur additional debt, declare or pay dividends or make certain investments, among others.$993.1 million before transaction costs.
On November 2, 2017, Moy Park (Bondco) Plc announced the final results of its previously announced tender offer to purchase for cash any and all of its issued and outstanding Moy Park Notes and Moy Park Additional Notes. As of November 2, 2017, £1,185,000 principal amount of Moy Park Notes and Moy Park Additional Notes had been validly tendered (and not validly withdrawn). Moy Park (Bondco) Plc has purchased all validly tendered (and not validly withdrawn) Moy Park Notes and Moy Park Additional Notes on or prior to November 2, 2017, with such settlement occurring on November 3, 2017.
U.S. Credit Facility
On May 8, 2017, the Company and certain of its subsidiariesOctober 4, 2023, we entered into a ThirdRevolving Syndicated Facility Agreement with CoBank, ACB as administrative agent (the “RCF”). This facility replaced the Fifth Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with Coöperatieve Rabobank U.A., New York Branch (“Rabobank”), as administrative agent and collateral agent, and the other lenders party thereto. The U.S. Credit Facility provides for a revolving loan commitment of up to$750.0 million and a term loan commitment of up to $800.0 million (the “Term Loans”).that was executed in 2021. The U.S. Credit Facility also includes an accordion feature that allows the Company, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $1.0 billion, subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase.
The revolving loan commitment under the U.S. Credit Facility matures on May 6, 2022. All principal on the Term Loans is due at maturity on May 6, 2022. Installments of principal are required to be made, in an amount equal to 1.25% of the original principal amount of the Term Loans, on a quarterly basis prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. As of December 31, 2017, the company had Term Loans outstanding totaling $780.0 million and the amount available for borrowingRCF increased our availability under the revolving loan commitment was $631.9 million. The Company had letters of credit of $44.8from $800.0 million to $850.0 million and borrowings of $73.3 million outstanding underextended the revolving loan commitment as of December 31, 2017.
The U.S. Credit Facility includes a $75.0 million sub-limit for swingline loans and a $125.0 million sub-limit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equalmaturity date from August 2026 to (i) in the case of LIBOR loans, LIBOR plus 1.50% through December 31, 2017 and, thereafter, based on the Company’s net senior secured leverage ratio, between LIBOR plus 1.25% and LIBOR plus 2.75% and (ii) in the case of alternate base rate loans, the base rate plus 0.50% through December 31, 2017 and, based on the Company’s net senior secured leverage ratio, between the base rate plus 0.25% and base rate plus 1.75% thereafter.
The U.S. Credit Facility contains financial covenants and various other covenants that may adversely affect the Company’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS and the Company’s other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The U.S. Credit Facility also provides that we may not incur capital expenditures in excess of $500.0 million in any fiscal year. The Company is currently in compliance with the covenants under the U.S. Credit Facility.
All obligations under the U.S. Credit Facility continue to be unconditionally guaranteed by certain of the Company’s subsidiaries and continue to be secured by a first priority lien on (i) the accounts receivable and inventory of our company and its non-Mexico subsidiaries, (ii) 100% of the equity interests in our domestic subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., and 65% of the equity interests in our direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility.
Mexico Credit FacilityOctober 2028.
On September 27, 2016, certain of our Mexican subsidiariesAugust 15, 2023, we entered into an unsecured credit agreement (the “Mexico BBVA Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer,México as lender. The loan commitment under the Mexico BBVA Credit Facility was $1.5is Mex$1.1 billion Mexican pesos.and can be borrowed on a revolving basis. Outstanding borrowings under the Mexico BBVA Credit Facility accruedaccrue interest at a rate equal to the Interbank Equilibrium Interest RateTIIE plus 0.95%1.35%. The Mexico BBVA Credit Facility will be used for general corporate and working capital purposes. The Mexico BBVA Credit Facility will mature on September August 15, 2026.
We expect cash flows from operations, combined with availability under our credit facilities, to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.
Historical Flow of Funds
| | | | | | | | | | | | | | |
| | Year Ended |
| Cash Flows from Operating Activities | | December 31, 2023 | | December 25, 2022 |
| | | (In millions) |
| Net income | | $ | 322.3 | | | $ | 746.5 | |
| Net noncash expenses | | 462.4 | | | 422.6 | |
| Changes in operating assets and liabilities: | | | | |
| Trade accounts and other receivables | | (19.0) | | | (149.6) | |
| Inventories | | 12.6 | | | (472.2) | |
| Prepaid expenses and other current assets | | 17.8 | | | 18.3 | |
| Accounts payable and accrued expenses | | (68.7) | | | 263.3 | |
| Income taxes | | (8.9) | | | (142.5) | |
| Long-term pension and other postretirement obligations | | (10.0) | | | (4.1) | |
| Other operating assets and liabilities | | (30.7) | | | (12.3) | |
| Cash provided by operating activities | | $ | 677.9 | | | $ | 669.9 | |
Net Noncash Expenses
Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $462.4 million for the year ended December 31, 2017,2023. Net noncash expense items included $419.9 million of depreciation and amortization, loss on early extinguishment of debt recognized as a component of interest expense of $20.7 million, loan cost amortization of $7.4 million, stock-based compensation expense of $7.2 million, deferred income tax expense of $6.7 million, asset impairment of $4.0 million, and accretion of bond discount of $2.3 million. Partially offsetting the net noncash expenses was an $6.1 million gain on property disposals. Other items affecting net noncash expenses were individually immaterial.
Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $422.6 million for the year ended December 25, 2022. Net noncash expense items included $403.1 million of depreciation and amortization, $21.3 million of deferred income tax expense, $7.0 million of stock-based compensation expense, loan cost amortization of $4.8 million, asset impairment of $3.6 million and accretion of bond discount of $1.7 million. Partially offsetting the net noncash expenses was an $18.9 million gain on property disposals. Other items affecting net noncash expenses were individually immaterial.
Changes in Operating Assets and Liabilities
The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $19.0 million use of cash in 2023. The change in cash was primarily due to the timing of customer payments. The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $149.6 million use of cash in 2022. The change in cash was primarily due to the timing of customer payments.
The change in inventories represented a $12.6 million source of cash in 2023. The change in cash resulted from an decrease in our raw materials and work-in-process inventory values. The change in inventories represented a $472.2 million use of cash in 2022. The change in cash resulted from an increase in our raw materials and work-in-process inventory values due to higher input costs.
The change inprepaid expenses and other current assets represented a $17.8 million source of cash in 2023. This change resulted primarily from a net decrease in the commodity derivatives assets. The change in prepaid expenses and other current assets represented a $18.3 million source of cash in 2022. This change resulted primarily from a net decrease in value-added tax receivables and prepaid property insurance.
Accounts payable and accrued expenses, including accounts payable to related parties, represented a $68.7 million use of cash in 2023. This change resulted primarily from the timing of payments. Accounts payable and accrued expenses, including accounts payable to related parties, represented a $263.3 million source of cash in 2022. This change resulted primarily from the timing of payments as well as increased prices for feed ingredients, transportation and packaging materials.
The change in income taxes, which includes income taxes receivables, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions and the tax components within accumulated other comprehensive
loss, represented a $8.9 million use of cash in 2023. This change resulted primarily from the timing of estimated tax payments and lower profitability in 2023. The change in income taxes, which includes income taxes receivables, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions and the tax components within accumulated other comprehensive loss, represented a $142.5 million use of cash in 2022. This change resulted primarily from the timing of estimated tax payments and higher profitability in 2022.
| | | | | | | | | | | | | | |
| | Year Ended |
| Cash Flows from Investing Activities | | December 31, 2023 | | December 25, 2022 |
| | | (In millions) |
| Acquisitions of property, plant and equipment | | $ | (543.8) | | | $ | (487.1) | |
| Proceeds from insurance recoveries | | 20.7 | | | 16.0 | |
| Proceeds from property disposals | | 19.8 | | | 35.5 | |
| Purchase of acquired businesses, net of cash acquired | | — | | | (9.7) | |
| Cash used in investing activities | | $ | (503.4) | | | $ | (445.3) | |
Capital expenditures were incurred for growth projects, such as the Athens, GA expansion and the South Georgia protein conversion plant, and to improve operational efficiencies, system enhancement projects, and to reduce costs for the years ended December 31, 2023 and December 25, 2022. Proceeds from insurance recoveries reflects cash received on property insurance recoveries related to the Mayfield, Kentucky tornado that occurred in December 2021. Proceeds from property disposals were primarily for the sale of a farm in Mexico and other miscellaneous equipment.
| | | | | | | | | | | | | | |
| | Year Ended |
| Cash Flows from Financing Activities | | December 31, 2023 | | December 25, 2022 |
| | | (In millions) |
| Proceeds from revolving line of credit and long-term borrowings | | $ | 1,768.2 | | | $ | 362.5 | |
| Payments on revolving line of credit, long-term borrowings, and finance lease obligations | | (1,616.3) | | | (388.3) | |
| Payment of capitalized loan costs | | (19.8) | | | (4.7) | |
| Payment on early extinguishment of debt | | (13.8) | | | — | |
| Distribution of equity under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim’s Pride Corporation | | (1.6) | | | (2.0) | |
| Purchase of common stock under share repurchase program | | — | | | (199.6) | |
| Cash provided by (used in) financing activities | | $ | 116.7 | | | $ | (232.0) | |
Proceeds from revolving line of credit and long-term borrowings are primarily from the offerings of our 2033 and 2034 Senior Notes, as well as borrowings on our 2021 U.S. Credit Facility and our U.K. and Europe Revolver Facility. Payments on revolving line of credit, long-term borrowings, and finance lease obligations are primarily due to the paydown of our term loans and revolving notes on our 2021 U.S. Credit Facility, the completed tender offer of our 2027 Senior Notes, and repayment of borrowings on our U.K. and Europe Revolver Facility. The payment of capitalized loan costs relates to the offering of 2033 and 2034 Senior Notes and the execution of the U.S. dollar-equivalentRevolving Syndicated credit facility in 2023. The payment on early extinguishment of debt primarily relates to the tender-offer payment of the loan commitment2027 Senior Notes. The distribution of equity under the Mexico Credit FacilityTax Sharing Agreement is the 2022 distribution of equity that was $76.3 million,paid in the first quarter of 2023.
Long-Term Debt and there were $76.3 million outstanding borrowings under the Mexico Credit Facility that bear interest atOther Borrowing Arrangements
Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and other term loan agreements. For a per annum rate of 8.34%. As of December 31, 2017, the U.S. dollar-equivalent borrowing availability was less than $0.1 million.description, refer to Part II, Item 8, Notes to Consolidated Financial Statements, “Note 13. Debt.”
Moy Park Multicurrency Revolving Facility AgreementObligor Group Summarized Financial Information
On March 19, 2015, Moy Park Holdings (Europe) Limited, a subsidiary of Granite Holdings Sàrl, and its subsidiaries, entered into an agreement with Barclays Bank plc which matures on March 19, 2018. The agreement provides for a multicurrency revolving loan commitment of up to £20.0 million. As of December 31, 2017, the U.S. dollar-equivalent loan commitment under Moy Park multicurrency revolving facility was $27.0 million and there were $9.6 million outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus a margin determined by Moy Park’s Net Debt to EBITDA ratio. The current margin stands at 2.2%. As of December 31, 2017, the U.S. dollar-equivalent borrowing availability was $17.4 million.
The facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain assets sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially allAll of the Moy Park's assets.
Moy Park Receivables Finance Agreement
Moy Park Limited, a subsidiary of Granite Holdings Sàrl, entered into a £45.0 million receivables finance agreement on January 29, 2016 (the “Receivables Finance Agreement”), with Barclays Bank plc, which matures on January 29, 2020. As of December 31, 2017,senior unsecured registered notes (collectively, the U.S. dollar-equivalent loan commitment under the Receivables Finance Agreement was $60.8 million and there were no outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus 1.5%. The Receivables Finance Agreement includes an accordion feature that allows us, at any time, to increase the commitments“Pilgrim’s Senior Notes”) issued by up to an additional £15.0 million (U.S. dollar-equivalent $20.3 million as of December 31, 2017), subject to the satisfaction of certain conditions.
The Receivables Finance Agreement contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.
Moy Park France Invoice Discounting Facility
In June 2009, Moy Park France Sàrl, a subsidiary of Granite Holdings Sàrl, entered into a €20.0 million invoice discounting facility with GE De Facto (the “Invoice Discounting Facility”). The facility limit was increased €10.0 million in September 2016 to €30.0 million. The Invoice Discounting Facility is payable on demand and the term is extended on an annual basis. The agreement can be terminated with three months’ notice. As of December 31, 2017, the U.S. dollar-equivalent loan commitment under the Invoice Discounting Facility was $36.0 million and there were $1.8 million outstanding borrowings. As of December 31, 2017,
the U.S. dollar-equivalent borrowing availability was $34.2 million. Outstanding borrowings under the Invoice Discounting Facility bear interest at a per annum rate equal to EURIBOR plus a margin of 0.80%.
The Invoice Discounting Facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.
JBS S.A. Promissory Note
On September 8, 2017, Onix Investments UK Ltd., a wholly owned subsidiary of Pilgrim’s Pride Corporation executedprior to December 31, 2023 are fully and unconditionally guaranteed by Pilgrim’s Pride Corporation of West Virginia Inc., JFC LLC, Gold’n Plump Farms LLC and Gold’n Plump Poultry LLC (the “Subsidiary Guarantors”). See “Note 13. Debt” of our Consolidated Financial Statements included in this annual report for additional descriptions of these guarantees.
The following tables present summarized financial information for Pilgrim’s Pride Corporation parent company only (as issuer of the Pilgrim’s Senior Notes) and the Subsidiary Guarantors (together, the “Obligor Group”), on a subordinated promissory note payablecombined basis after the elimination of all intercompany balances and transactions between Pilgrim’s Pride Corporation parent company only and the Subsidiary Guarantors and investments in any non-obligated subsidiary.
| | | | | | | | | | | |
| Summarized Balance Sheets | December 31, 2023 | | December 25, 2022 |
| (In millions) |
| Current assets | $ | 2,106 | | | $ | 1,983 | |
Current assets due from non-obligated subsidiaries(a) | 192 | | | 170 | |
Current assets due from related parties(b) | — | | | 2 | |
| Noncurrent assets | 2,063 | | | 1,945 | |
| Current liabilities | 1,384 | | | 1,402 | |
Current liabilities due to non-obligated subsidiaries(a) | 325 | | | 253 | |
Current liabilities due to related parties(b) | 32 | | | 8 | |
| Noncurrent liabilities | 3,578 | | | 3,459 | |
(a) Represents receivables and short-term lending due from and payables and short-term lending due to non-obligated subsidiaries.
(b) Represents receivables due from and payables due to JBS S.A. (the “JBS S.A. Promissory Note”) for £562.5affiliates.
| | | | | |
| Summarized Income Statements | Year Ended December 31, 2023 |
| (In millions) |
| Net sales | $ | 10,104 | |
Gross profit(a) | 533 | |
| Operating income | 293 | |
| Net income | 49 | |
| Net income attributable to Obligor Group | 49 | |
(a) For the year ended December 31, 2023, the Obligor Group recognized $195.0 million which had a maturity date of September 6, 2018. Interest onnet sales to the outstanding principal balance of the JBS S.A. Promissory Note accrued at the rate per annum equal to (i) fromnon-obligated subsidiaries and after November 8, 2017 and prior to January 7, 2018, 4.00%, (ii) from and after January 7, 2018 and prior to March 8, 2018, 6.00% and (iii) from and after March 8, 2018, 8.00%. The JBS S.A. Promissory Note was repaid in full on October 2, 2017 using the net proceedsno purchases from the sale of Senior Notes due 2027 and the Additional Senior Notes due 2025.non-obligated subsidiaries.
Collateral
Substantially all of our domestic inventories and domestic fixed assets are pledged as collateral to secure the obligations under the U.S. Credit Facility.
Off-Balance Sheet Arrangements
We maintain operating leases for various types of equipment, some of which contain residual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease maturities range from one to ten years. We estimate the maximum potential amount of the residual value guarantees is approximately $48.5 million; however, the actual amount would be offset by any recoverable amount based on the fair market value of the underlying leased assets. No liability has been recorded related to this contingency as the likelihood of payments under these guarantees is not considered to be probable, and the fair value of the guarantees is immaterial. We historically have not experienced significant payments under similar residual guarantees.
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.
Capital Expenditures
We anticipate spending between $315$475 million and $325$525 million on the acquisition of property, plant and equipment in 2018.2024. Capital expenditures will primarily be incurred to grow our operations, improve efficiencies, to reduce costs, and reduce costs.for system enhancement projects. We expect to fund these capital expenditures with cash flow from operations and proceeds from the revolving lines of credit under our various debt facilities.
Indefinite Reinvestment of Foreign Subsidiaries’ Undistributed Earnings
We have determined that the undistributed earnings of our Mexico, Puerto Rico and U.K. subsidiaries will be indefinitely
reinvested and not distributed to the U.S. The undistributed earnings of our Mexico, Puerto Rico and U.K. subsidiaries totaled $805.9 million, $21.3 million and $12.6 million, respectively, at December 31, 2017.operations.
Contractual Obligations
In addition to our debt commitments at December 31, 2017,2023, we had other commitments and contractual obligations that obligaterequire us to make specified payments in the future. The following table summarizes the total amounts due as of December 31, 2017,2023 under all debt agreements, commitments and other contractual obligations. The table indicates the years in which payments are due under the contractual obligations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period |
| Contractual Obligations | | Total | | Less than
One Year | | One to
Three Years | | Three to
Five Years | | Greater than
Five Years |
| | | (In thousands) |
Long-term debt(a) | | $ | 3,400,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3,400,000 | |
Interest(b) | | 1,572,567 | | | 171,005 | | | 341,750 | | | 341,750 | | | 718,062 | |
| Finance leases | | 2,628 | | | 742 | | | 1,141 | | | 745 | | | — | |
| Operating leases | | 305,430 | | | 77,745 | | | 109,010 | | | 62,816 | | | 55,859 | |
| Derivative liabilities | | 17,841 | | | 17,841 | | | — | | | — | | | — | |
Purchase obligations(c) | | 457,392 | | | 414,546 | | | 28,445 | | | 3,691 | | | 10,710 | |
| Total | | $ | 5,755,858 | | | $ | 681,879 | | | $ | 480,346 | | | $ | 409,002 | | | $ | 4,184,631 | |
(a)Long-term debt is presented at face value and excludes $25.1 million in letters of credit outstanding related to normal business transactions.
(b)Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings as of December 31, 2023.
(c)Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due By Period |
Contractual Obligations(a) | | Total | | Less than One Year | | One to Three Years | | Three to Five Years | | Greater than Five Years |
| | | (In thousands) |
Long-term debt(b) | | $ | 2,695,290 |
| | $ | 42,348 |
| | $ | 166,236 |
| | $ | 1,136,706 |
| | $ | 1,350,000 |
|
Interest(c) | | 765,544 |
| | 118,708 |
| | 224,927 |
| | 173,784 |
| | 248,125 |
|
| Capital leases | | 10,118 |
| | 5,951 |
| | 4,167 |
| | — |
| | — |
|
| Operating leases | | 242,873 |
| | 54,759 |
| | 83,645 |
| | 57,145 |
| | 47,324 |
|
| Derivative liabilities | | 4,058 |
| | 4,058 |
| | — |
| | — |
| | — |
|
Purchase obligations(d) | | 346,770 |
| | 346,730 |
| | 40 |
| | — |
| | — |
|
| Total | | $ | 4,064,653 |
| | $ | 572,554 |
| | $ | 479,015 |
| | $ | 1,367,635 |
| | $ | 1,645,449 |
|
| |
(a) | The total amount of unrecognized tax benefits at December 31, 2017 was $11.9 million. We did not include this amount in the contractual obligations table above as reasonable estimates cannot be made at this time of the amounts or timing of future cash outflows. |
| |
(b) | Long-term debt is presented at face value and excludes $44.8 million in letters of credit outstanding related to normal business transactions. |
| |
(c) | Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings as of December 31, 2017. |
| |
(d) | Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. |
We expect cash flows from operations, combined with availability under the U.S. Revolving Syndicated Facility, the Mexico BBVA Credit Facility and the U.K. and Europe Credit FacilitiesRevolver Facility to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.
Historical FlowPillar II Tax Initiative
The Organization for Economic Cooperation and Development (“OECD”) is an international organization made up of Funds38 member countries that work on establishing international standards seeking solutions to a series of social, economic, and environmental challenges, from improving economic performance, creating jobs to promoting solid education and combating international tax avoidance.
Calendar Year 2017Regarding the fight against tax avoidance, the Base Erosion Profit Shifting (“BEPS”) project was created in 2013, which is an initiative of the G20 (Group of twenty countries with the largest economies) together with the OECD, aimed at implementing 15 measures to combat tax avoidance, improve the coherence of international tax rules, and ensure a more transparent tax environment on the international stage and to avoid the abuse of tax norms that result in erosion of the tax base, mainly through profit shifting to destinations with more favorable taxation or no taxation.
Cash provided by operating activities was $801.3 million during 2017. The cash flows provided by operating activities were primarily from net incomePillar II is part of $718.2 million, proceedsone of $277.8 millionOECD's most recent initiatives, known as BEPS 2.0, is intended to address tax issues related to depreciationchanges in business models in a globalized environment. The goal of Pillar II is to create a global minimum taxation system for multinational companies with an annual global turnover exceeding EUR 750 million, aiming to implement a balance in the global income tax collection of these companies, which may consist of additional taxation for economic groups. In short, this additional taxation aims to ensure the payment of a minimum effective global rate of 15%, per jurisdiction, where the multinational group operates.
Starting in 2024, Pillar II rules come into effect in various countries, impacting several multinationals and amortization, partially offset by a usetheir subsidiaries groups operating in these jurisdictions. During the initial three years, transition rules (Safe Harbor) simplify the calculations of $207.4 millionthe effective rate per jurisdiction, enabling adaptation to the affected multinational groups.
Although the implementation of Pillar II offers uncertainties in cash relatedthe US legal system, the Company and its subsidiaries are monitoring the potential impacts that this new rule may bring to inventories.the Group.
Trade accounts and other receivables, including accounts receivable from related parties, used cashDuring 2023, the Company conducted Safe Harbor analysis using 2022 financial data for the jurisdictions where the Company operates. The results of $82.2 million relatedthis preliminary analysis indicate that some countries within the Group may be subject to operating activities during 2017. The change in operating cash related to trade accounts and other receivables is primarilythe additional payment of income tax under the rules of Pillar II. However, the percentage of additional payment cannot be accurately estimated as of the time the issuance of these Financial Statements, particularly due to a decrease in outstanding receivables and customer payment timing.
Inventories had uses of cash of $207.4 million related to operating activities during 2017. The change in cash related to inventories was primarily due to increases in our live chicken and finished chicken products and inventories related to the GNP acquisition.
Prepaid expenses and other current assets had uses of cash of $14.8 million related to operating activities during 2017. The change resulted primarily from a net increase in value-added tax receivables, as well as increases in prepaid expenses and other current assets related to the GNP acquisition.
Accounts payable and accrued expenses, including accounts payable to related parties, had uses of cash of $22.8 million related to operating activities during 2017. This change resulted primarily from the timing of payments.
Income taxes, which includes income taxes receivables, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions and the tax components within accumulated other comprehensive loss, had proceeds of cash of $188.1 million. This change resulted primarily from the timing of estimated tax payments.
Net non-cash expenses provided $233.9 million in cash during 2017. Net non-cash expense items increased primarily because of $277.8 million in cash related to depreciation and amortization, partially offset by a deferred income tax benefit of $50.0 million.
Cash used in investing activities was $992.1 million during 2017. This change resulted primarily because of cash used in business acquisitions totaling $658.5 million and the use of cash for capital expenditures totaling $339.9 million. Capital expenditures were primarily incurred to improve operational efficiencies, reduce costs and tailor processes to meet specific customer needs in order to further solidify our competitive advantages. Capital expenditures for 2017 could not exceed $500.0 million under the terms of our U.S. credit facility. Cash proceeds generated from property disposals and proceeds from settlement of life insurance totaled $4.5 million and $1.8 million, respectively.
Cash proceeds from financing activities was $466.4 million during 2017. Cash proceeds from long-term debt totaled $1,871.8 million and proceeds from equity contributions under the Tax Sharing Agreement with JBS USA Food Company Holdings totaled $5.0 million. Cash was used for payment of note payable to affiliate totaling $753.5 million, repayment of long-term debt totaling $628.7 million, purchase common stock under our share repurchase program totaling $14.6 million and payment of capitalized loan costs totaling $13.6 million.
Calendar Year 2016
Cash provided by operating activities was $795.4 million during 2016. The cash flows provided by operating activities were primarily from net income of $480.1 million and proceeds of $231.7 million related to depreciation and amortization.
Trade accounts and other receivables, including accounts receivable from related parties, used cash of $32.4 million related to operating activities during 2016. The change in operating cash related to trade accounts and other receivables is primarily due to a decrease in outstanding receivables and customer payment timing.
Inventories had uses of cash of $33.1 million related to operating activities during 2016. The use of cash related to inventories was primarily due to a build up of freezer inventories.
Prepaid expenses and other current assets had cash proceeds of $19.3 million related to operating activities during 2016. The proceeds of cash related to prepaid expenses and other current assets is primarily attributable to a decrease in value-added tax receivables and a decline in prepaid insurance.
Accounts payable and accrued expenses, including accounts payable to related parties, had proceeds of cash of $75.9 million related to operating activities during 2016. This change resulted primarily from the timing of payments.
Income taxes, which include income taxes receivables, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions, and the tax components within accumulated other comprehensive loss, had proceeds of cash of $75.2 million during 2016. This change resulted primarily from the timing of estimated tax payments andfact that the impact of the Moy Park acquisition.Pillar 2 will be based on 2024 results, which cannot yet be known.
Net non-cash expenses provided $225.1 million in cash during 2016. Net non-cash expense items increased primarily because of $231.7 million in cash proceeds related to depreciation and amortization.
Cash used in investing activities was $327.6 million during 2016, primarily because of incurred capital expenditures of $341.0 million. Capital expenditures were primarily incurred for the routine replacement of equipment and to improve efficiencies and reduce costs. Capital expenditures for 2016 could not exceed $500 million under the terms of our U.S. credit facility. Additionally, cash proceeds generated from property disposals totaled $13.4 million.
Cash used by financing activities was $828.2 million during 2016. Cash was used to pay a special cash dividend and purchase common stock under share repurchase program for $714.8 million and $117.9 million, respectively. Cash proceeds from long-term debt totaled $593.0 million, partially offset by cash used on payments of long-term borrowings of $570.0 million.
Recently IssuedRecent Accounting Pronouncements
In May 2014, theRefer to Part II, Item 8, Notes to Consolidated Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers.
In July 2015, the FASB issued new accounting guidance on the subsequent measurement of inventory, which, in an effort to simplify unnecessarily complicated accounting guidance that can result in several potential outcomes, requires an entity to measure inventory at the lower of cost or net realizable value.
In February 2016, the FASB issued new accounting guidance on lease arrangements, which, in an effort to increase transparency and comparability among organizations utilizing leasing, requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet.
In March 2016, the FASB issued new accounting guidance on employee share-based payments, which, in an effort to simplify unnecessarily complicated aspects of accounting and reporting for share-based payment transactions, requires an entity to amend accounting and reporting methodology for areas such as the income tax consequences of share-based payments, classification of share-based awards as either equity or liabilities, and classification of share-based payment transactions in the statement of cash flows.
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
In November 2016, the FASB issued new accounting guidance on the classification and presentation of restricted cash in the statement of cash flows in order to eliminate the discrepancies that currently exist in how companies present these changes.
In March 2017, the FASB issued new accounting guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost, which requires the service cost component of net benefit cost to be reported in the same line of the income statement as other compensation costs earned by the employee and the other components of net benefit cost to be reported below income from operations.
In August 2017, the FASB issued an accounting standard update that simplifies the application of hedge accounting guidance in current GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements.
SeeStatements, “Note 1. Description of Business and BasisSummary of Presentation” of our Consolidated and Combined Financial Statements included in this annual report for additional information relating to these new accounting pronouncements.Significant Accounting Policies.”
Critical Accounting Policies and Estimates
General. Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, customer programsinventory, goodwill and incentives, allowance for doubtful accounts, inventories,other intangible assets, litigation and income taxes and product recall accounting.taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition. The vast majority of our revenue is derived from contracts which are based upon a customer ordering our products. While there may be master agreements, the contract is only established when the customer’s order is accepted by us. We recognize revenueaccount for a contract, which may be verbal or written, when allit is approved and committed by both parties, the rights of the following circumstancesparties are satisfied: (i) persuasive evidenceidentified along with payment terms, the contract has commercial substance and collectability is probable.
We evaluate the transaction for distinct performance obligations, which are the sale of our products to customers. Since our products are commodity market-priced, the sales price is fixedrepresentative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or determinable, (iii) collectability is reasonably assuredport of destination) and (iv) delivery has occurred. Delivery occurs indepicts the periodtransfer of control and recognition of revenue. There are instances of customer pick-up at our facilities, in which case control transfers to the customer takes titleat that point and assumes the risks and rewards of ownershipwe recognize revenue. Our performance obligations are typically fulfilled within days to weeks of the products specified inacceptance of the customer’s purchase order or sales agreement. Revenueorder.
We make judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give riseconstrained. Due to the revision become known.nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and updated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.
Inventory.Inventories. Live chicken and pig inventories are stated at the lower of cost or marketnet realizable value and breeder hen, breeder sow and boar inventories at the lower of cost, less accumulated amortization, or market.net realizable value. The costs associated with breeder hen inventories are accumulated up to the
production stage and amortized over their productive lives using the unit-of-production method. FinishedThe costs associated with breeder sow inventories are accumulated up to the production stage and amortized on a straight-line basis over their productive lives to the estimated residual cull value. The costs associated with finished poultry products, finished pork products, feed, eggs and other inventories are stated at the lower of cost (average) or market.net realizable value. Inventory typically transfers from one stage of production to another at a standard cost, where it accumulates additional cost directly incurred with the production of inventory, including overhead. The standard cost at which each type of inventory transfers is set by management to reflect the actual costs incurred in the prior steps. We record valuationsmonitor and adjustments for our inventory and for estimated obsolescence at or equaladjust standard costs throughout the year to ensure that standard costs reasonably reflect the difference between theactual average cost of the inventory and the estimated market value based upon known conditions affecting inventory obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products. produced.
We allocate meat costs between our various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as our breast meat cost. We allocate meat costs between our various finished pork products based on a by-product costing technique that allocates the cost of the whole pig into the primal cuts by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes legs, shoulders, bellies, offal and fifth quarter parts, which are carried in inventory at the estimated recoverable amounts, with the remaining amount being reflected as our loin meat cost.
For our prepared foods inventories, raw materials and packaging materials are valued at the lower of weighted average cost and net realizable value, work in progress is valued at the latest production cost (raw materials, packaging), finished goods are valued at the lower of the latest actual monthly production cost (raw materials, packaging and direct labor) and attributable overheads and net realizable value, and engineering spares and consumables are valued at cost with an appropriate provision for obsolete engineering spares consistent with historical practice.
Generally, we perform an evaluation of whether any lower of cost or marketnet realizable value adjustments are required at the country level based on a number of factors, including: (i)(1) pools of related inventory, (ii)(2) product continuation or discontinuation, (iii)(3) estimated market selling prices and (iv)(4) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required.
Property, Plant and Equipment. We also record impairment charges on long-lived assets heldvaluation adjustments, when necessary, for use when events and circumstances indicate thatestimated obsolescence at or equal to the assets may be impaireddifference between the cost of inventory and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The impairment charge is determinedmarket value based upon the amount by which the net book value of the assets exceeds their fair market value. In making these determinations, we utilize certain assumptions,known conditions affecting inventory obsolescence, including but not limited to: (i) future cash flows estimated to be generated by these assets, which are based on additional assumptions such as asset utilization, remaining length of service and estimated salvage values, (ii) estimated fair market value of the assets, and (iii) determinations with respect to the lowest level of cash flows relevant to the respective impairment test, generally groupings of related operational facilities. Given the interdependency of our individual facilities during the production process, which operate as a vertically integrated network, we evaluate impairment of assets held for use at the country level (i.e., the U.S. and Mexico). Management believes this is the lowest level of identifiable cash flows for our assets that are held for use in production activities. At the present time, our forecasts indicate that we can recover the carrying value of our assets held for use based on the projected undiscounted cash flows of the operations.significantly aged products, discontinued product lines, or damaged or obsolete products.
We record impairment charges on long-lived assets held for sale when the carrying amount of those assets exceeds their fair value less appropriate selling costs. Fair value is based on amounts documented in sales contracts or letters of intent accepted by us, amounts included in counteroffers initiated by us, or, in the absence of current contract negotiations, amounts determined using a sales comparison approach for real property and amounts determined using a cost approach for personal property. Under the sales comparison approach, sales and asking prices of reasonably comparable properties are considered to develop a range of unit prices within which the current real estate market is operating. Under the cost approach, a current cost to replace the asset new is calculated and then the estimated replacement cost is reduced to reflect the applicable decline in value resulting from physical deterioration, functional obsolescence and economic obsolescence. Appropriate selling costs includes reasonable broker's commissions, costs to produce title documents, filing fees, legal expenses and the like. We estimate appropriate closing costs as 4% to 6% of asset fair value. This range of rates is considered reasonable for our assets held for sale based on historical experience.
Goodwill and Other Intangibles, net. Goodwill represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in a business combination. Identified intangible assets represent trade names and customer relationships and non-compete agreements arising from acquisitions that are recorded at fair value as of the date acquired less accumulated amortization, if any. The Company usesWe use various market valuation techniques to determine the fair value of itsour identified intangible assets.
Goodwill and other intangible assets with indefinite lives areis not amortized but areis tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise. For goodwill, an impairment loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill. Management first reviews relevant qualitative factors to determine if an indicationwhether it is more likely than not (that is, a likelihood of impairment exists formore than 50 percent), that the fair value of a reporting unit.unit is less than the unit’s carrying amount (including goodwill). If management determines thereit is an indicationmore
likely than not that the carrying amount of a reporting unit goodwill might be impaired, a quantitative analysisimpairment test is performed. Management performedhas the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative impairment test. Management would be able to resume performing the qualitative assessment in any subsequent period. When performing quantitative impairment tests, we estimate the fair value of our reporting units with material goodwill carrying amounts using an income approach (discounted cash flow method). We develop projections for cash flows over a 5-year period based on assumptions about revenue growth and margin changes using internally-developed economic projections and industry data obtained from government authorities such as the U.S. Department of Agriculture and other sources. We also make terminal value assumptions about revenue growth and margin changes for periods beyond the projection period. We utilize margin assumptions based on operating performance expectations, margins historically realized in the reporting units’ industries, and general macroeconomic trends. We utilize the weighted average cost of capital as a proxy for the discount rate. We consider reporting units that have 20% or less excess fair value over carrying amount to have a heightened risk of future goodwill impairment.
In 2022 and 2021, we reviewed relevant qualitative analysis notingfactors and determined that no indicationsindicators of goodwill impairment existed for our Moy Park, Pilgrim’s Food Masters, Pilgrim’s Mexico, and Pilgrim’s U.S. reporting units. Our Pilgrim’s U.K. reporting unit reported goodwill of $2.1 million and $1.8 million at December 25, 2022 and December 26, 2021, respectively. These amounts were considered immaterial to warrant quantitative goodwill impairment testing. In 2023, we experienced (1) an increase in anylong-term treasury rates that management determined could negatively affect discount rates and (2) continued inflationary pressures impacting primarily our Moy Park and Pilgrim’s Food Masters reporting units that management determined could negatively affect our margins. Both discount rates and margins are used in estimating the fair value of itsthe reporting units. Therefore, management elected to bypass qualitative assessments and performed quantitative goodwill impairment tests for the Moy Park, Pilgrim’s Food Masters, Pilgrim’s Mexico, and Pilgrim’s U.S. reporting units as of December 31, 2017. For indefinite-lived2023. Our Pilgrim’s U.K. reporting unit reported goodwill of $2.3 million at December 31, 2023. This amount was considered immaterial to warrant quantitative goodwill impairment testing.
Our Moy Park reporting unit had goodwill of $784.8 million at December 31, 2023. In estimating the reporting unit’s fair value, we generally assumed revenue growth would normalize to slightly below the weighted average long-term inflation rate for the countries in which the reporting unit operates. We also assumed margins in future years would increase through the projection period as the reporting unit continues to remove costs from operations through rationalization projects then normalize in the long-term as we believe this is consistent with market participant views in an exit transaction. The current year results are not indicative of future market participant expectations in an exit transaction primarily due to current challenging market conditions associated with continued inflationary pressures in the countries in which the Moy Park reporting unit operates. Based on the outcome of the quantitative test, management determined that no goodwill impairment existed in the Moy Park reporting unit as of December 31, 2023; however, the Moy Park reporting unit does have a heightened risk of future goodwill impairment as the excess fair value over carrying amount of the reporting unit was less than 20%. An increase in the discount rate of 25-50 basis points or a reduction in estimated long-term margins by 75-100 basis points across all future projected years, with all other assumptions unchanged, would have caused the carrying value of this reporting unit to exceed its fair value, which may have resulted in material goodwill impairment loss.
Our Pilgrim’s Food Masters, Pilgrim’s Mexico and Pilgrim’s U.S. reporting units had goodwill of $329.4 million, $127.8 million and $41.9 million, respectively, at December 31, 2023. In estimating the reporting units’ fair value, we generally assumed revenue growth would normalize to the approximate weighted average long-term inflation rate for the U.K., Ireland, Mexico and the U.S., respectively. We also assumed margins in future years would normalize over time as we believe this is consistent with market participant views in an exit transaction. The current year results, as well as the first year of projected results, are not indicative of future market participant expectations in an exit transaction as product price increases have lagged behind increased input costs that resulted from inflationary pressures experienced in the U.K., Ireland, Mexico and the U.S. during 2022 and early 2023. Based on the outcome of the quantitative tests, management determined that no goodwill impairment existed in the Pilgrim’s Food Masters, Pilgrim’s Mexico, or Pilgrim’s U.S. reporting units as of December 31, 2023, and the reporting units do not have a heightened risk of future goodwill impairment as the excess fair value over carrying amount of each reporting unit exceeded 20%.
Other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise. An impairment loss is recognized if the carrying amount of an indefinite-livedindefinite-life intangible asset exceeds the estimated fair value of that intangible asset. Management first reviews relevant qualitative factors to determine ifwhether it is more likely than not (that is, a likelihood of more than 50%) that an indication of impairment exists.intangible asset is impaired. If management determines there is an indication that the carrying amount of the intangible asset might be impaired, anda quantitative analysisimpairment test is performed. Management performed ahas the option to bypass the qualitative analysis noting no indications of impairmentassessment for any indefinite-life intangible asset in any period and proceed directly to performing the quantitative impairment test.
The fair value of our indefinite-life intangible assets is calculated principally using a relief-from-royalty valuation approach, which uses significant unobservable inputs as defined by the fair value hierarchy, and is believed to reflect market participant views which would exist in an exit transaction. Under this valuation approach, we make estimates and assumptions about brand sales growth, royalty rates and discount rates based on specific brand sales projections, general economic projections, anticipated future cash flows and marketplace data. We consider indefinite-life intangible assets that have 20% or less excess fair value over carrying amount to have a heightened risk of future impairment. Our 2022 and 2021 indefinite-life intangible assets impairment analyses did not result in an impairment charge.
In 2023, we experienced an increase in long-term treasury rates that management determined could negatively affect discount rates, which are used in estimating the fair value of the reporting units. Therefore, management elected to bypass qualitative assessments for all indefinite-life intangible assets and performed quantitative impairment tests. Based on the outcome of the quantitative tests, management determined that no material impairment existed as of December 31, 2017.2023.
The estimated fair values of two indefinite-life intangible assets did not exceed their carrying amounts by more than 20% at December 31, 2023. One brand reported in the U.K. and Europe reportable segment had a carrying amount of $36.1 million at December 31, 2023. For this brand, a hypothetical increase in the discount rate of approximately 25-50 basis points, with all other assumptions unchanged, would have caused the carrying amount of this brand to exceed its fair value, which may have resulted in impairment loss. A hypothetical decrease in the royalty rate of this brand of approximately 25-50 basis points, with all other assumptions unchanged, would have caused the carrying amount of this brand to exceed its fair value, which may have resulted in impairment loss. One brand reported in the Mexico reportable segment had a carrying amount of $0.8 million at December 31, 2023. Potential future full impairment of its carrying amount would not be considered a material impairment loss. We generally assumed brand revenue growth rates in future years would normalize over time as we believe this is consistent with market participant views in an exit transaction. The current year results are not indicative of future market participant expectations in an exit transaction primarily due to the expected temporary impacts of continued inflationary pressures and volatile market conditions. We do not currently consider any of our other indefinite-life intangible assets, which had aggregate carrying amount of $543.5 million at December 31, 2023 to be at heightened risk of future impairment.
Identifiable intangible assets with definite lives, such as customer relationships non-compete agreements and trade names that the Company expectswe expect to use for a limited amount of time, are amortized over their estimated useful lives on a straight-line basis. The useful lives range from three15 to 20 years for trade names and non-compete agreements and 5three to 1618 years for customer relationships. Identified intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Management assessed if events or changes in
circumstances indicated that the aggregate carrying amount of its identified intangible assets with definite lives might not be recoverable and determined that there were no impairment indicators during the fifty-three weeksyears ended December 31, 2017 and fifty-two weeks ended December 25, 2016.
Derivative Financial Instruments. The Company uses derivative financial instruments (e.g., futures, forwards and options) for the purpose of mitigating exposure to changes in commodity prices and foreign currency exchange rates.
Commodity Price Risk- The Company utilizes various raw materials, which are all considered commodities, in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel. The Company considers these raw materials to be generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company enters into derivative contracts such as physical forward contracts and exchange-traded futures or option contracts in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for periods up to 12 months. The Company may enter into longer-term derivatives on particular commodities if deemed appropriate.
Foreign Currency Risk - The Company has foreign operations and, therefore, has exposure to foreign exchange risk when the financial results of those operations are translated to US dollars. The Company will occasionally purchase derivative financial instruments such as foreign currency forward contracts in an attempt to mitigate currency exchange rate exposure related to the net assets of its Mexico operations that are denominated in Mexican pesos. The Company’s Moy Park operation also attempts to mitigate foreign currency exposure on certain euro- and U.S. dollar-denominated transactions through the use of derivative financial instruments.
Pilgrim’s recognizes all commodity derivative instruments that qualify for derivative accounting treatment as either assets or liabilities and measures those instruments at fair value unless they qualify for, and we elect, the normal purchases and normal sales scope exception (“NPNS”). The permitted accounting treatments include: cash flow hedge; fair value hedge; and undesignated contracts. Undesignated contract accounting is the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria both at the time of designation and on an ongoing basis.
The Company has generally applied the NPNS exception to its forward physical grain purchase contracts. NPNS contracts are accounted for using the accrual method of accounting; therefore, there were no amounts recorded in the Consolidated and Combined Financial Statements at December 31, 20172023 and December 25, 2016.2022.
Undesignated contracts may include contracts not designated as a hedge or for which the NPNS exception was not elected, contracts that do not qualify for hedge accounting and derivatives that do not or no longer qualify for the NPNS scope exception. The fair value of these derivatives is recognized in the Consolidated and Combined Balance Sheets within Prepaid expenses and other current assets or Accrued expenses and other current liabilities. Changes in fair value of these derivatives are recognized immediately in the Consolidated and Combined Statements of Income within Net sales, Cost of sales or Selling, general and administrative expense, depending on the risk they are intended to mitigate. While management believes these instruments help mitigate various market risks, they are not designated nor accounted for as hedges as a result of the extensive recordkeeping requirements.
The Company designated a British pound-denominated promissory note payable issued to JBS S.A. in conjunction with the Moy Park acquisition as a hedge of its net investment in Moy Park. The remeasurement of the note is reported as a foreign currency translation adjustment in accumulated other comprehensive loss in the Consolidated and Combined Balance Sheets and will be reclassified into earnings only if the Company divests its investment in Moy Park. The Company paid the promissory note payable in full with proceeds from the sale of senior notes (See “Note 11. Long-Term Debt and Other Borrowing Arrangements” to the Consolidated and Combined Financial Statements). At December 31, 2017, the remeasurement adjustment was a loss of $13.5 million and is included in accumulated other comprehensive loss, net of tax.
Pilgrim’s has designated a portion of its foreign currency derivatives as cash flow hedges and the effective portion of the gain or loss on these derivatives is reported as a component of Accumulated other comprehensive loss within the Consolidated and Combined Balance Sheets and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The derivatives are designated as hedging the variability in expected future cash flows from foreign currency exchange risk related to sales and purchases denominated in nonfunctional currencies.
Litigation and Contingent Liabilities. We are subject to lawsuits, investigations and other claims related to employment, environmental, product, and other matters. We are required to assess the likelihood of any adverse judgments or outcomes, as well
as potential ranges of probable losses, to these matters. We estimate the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. We expense legal costs related to such loss contingencies as they are incurred. With respect to our environmental remediation obligations, the accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in our assumptions, the effectiveness of strategies, or other factors beyond our control.
Accrued Self Insurance. Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit our total exposure. Certain categories of claim liabilities are actuarially determined. The assumption used to arrive at periodic expenses is reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.
Income Taxes. We follow provisions under ASC No. 740-10-30-27 in the Expenses-IncomeFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes topic, with regard to members of a group that file a consolidated tax return but issue separate financial statements. We file our own U.S. federal tax return, but we are included in certain state unitary returns with JBS USA Food Company Holdings. TheOur income tax expense of our company is computed using the separate return method. The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. For the unitary states, we have an obligation to make tax payments to JBS USA Food Company Holdings for our share of the unitary taxable income, which is included in taxes payable in our Consolidated and Combined Balance Sheets. Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date. We recognize potential interest and penalties related to income tax positions as a part of the income tax provision.
Realizability of Deferred Tax Assets. We review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, potential for carry back of tax losses, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances have been established primarily for net operating loss carry forwards. See “Note 12. Income Taxes” to the Consolidated Financial Statements in this annual report.
Indefinite Reinvestment in Foreign Subsidiaries. We deem our earnings from foreign subsidiaries as of December 31, 2017 to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided.
Accounting for Uncertainty in Income Taxes. We follow provisions under ASC No. 740-10-25 that provide a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 12. Income Taxes” to the Consolidated Financial Statements in this annual report.
Defined Benefit Pension and Other Postretirement Benefits. Plans. We sponsor four qualified defined benefit pension plans, two nonqualified defined benefit retirement plans, and one defined benefit postretirement life insurance plan. Some of these plans are administered by a board of trustees made up of management within the participating companies and representatives
from associated labor groups while others are administered by an investment committee made up of management from the participating company. We use independent third-party actuaries to assist in determining our pension obligations and net periodic benefit cost. We, along with the actuaries, review assumptions including estimates of the present value of projected future pension payments to participants. We accumulate and amortize the impact of actuarial gains and losses over future periods.
Our defined benefit pension and other postretirement benefit costsplans contains uncertainties because it requires management to make assumptions and obligations are dependent on the various actuarialapply judgments. The key assumptions usedmade in calculating such amounts. These assumptions relate todeveloping key estimates include discount rates, salary growth, long-term returnexpected returns on plan assets, retirement rates, and other factors. We basemortality. These assumptions can have a material impact on the funded status and the net periodic benefit cost. The discount rate assumptions on current investmentrates reflect yields on high-quality corporate long-term bonds. Long-term return onbonds as of the measurement date and were compared to the effective discount rate determined by discounting plan assets is determinedcash flows using the 12/31/2023 Empower Above Mean Curve. All other assumptions reflect estimates of future experience and considering relevant historical information, such as credible plan experience, from representative populations and relevant plan characteristics. The mortality assumption reflects experience from representative populations, based on historical portfolio resultsthe Pri-2012 Private Retirement Plans Mortality Table Report issued by the Society of Actuaries (“SOA”) in October 2019 and management’s expectationthe Mortality Improvement Scale MP-2021 Report issued by the SOA in October 2021. It is reasonable to expect that changes in external factors will result in changes to the assumptions noted above that are used to measure pension obligations and net periodic benefit cost in future periods.
Business Combination Accounting. We allocate the consideration of the future economic environment. Actual results that differ from our assumptions are accumulatedan acquired business to its identifiable assets and if inliabilities based on estimated fair values. The excess of the lesserconsideration over the amount allocated to the assets and liabilities, if any, is recorded to goodwill. We use all available information to estimate fair values. We use various models to determine the value of 10%assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market approach to value property, relief-from-royalty and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill. We typically engage third-party valuation specialists to assist in the fair value determination of tangible long-lived assets and intangible assets other than goodwill. The fair value of acquired inventories is typically determined by extending physical counts of the projected benefit obligationinventories taken at or near the acquisition date to market pricing in effect for such inventories at or near the acquisition date. The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the business combination date. As necessary, we may engage third-party specialists to assist in the estimation of fair value for certain liabilities. We adjust the preliminary acquisition accounting, as necessary, typically up to one year after the acquisition closing date for those items that existed at the acquisition date and were provisionally accounted for at that time, as we obtain more information regarding asset valuations and liabilities assumed.
Our acquisition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including changes in assumptions regarding industry economic factors and business strategies. If actual results are materially different than the assumptions used to determine fair value of the assets and liabilities acquired through a business combination, it is possible that adjustments to the carrying values of such assets and liabilities will have an impact on our net earnings.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction losses (gains), (2) transaction costs related to business acquisitions, (3) costs related to litigation settlements, (4) restructuring activities losses, (5) property insurance recoveries, and (6) net income attributable to noncontrolling interest. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of our performance with our competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are:
•They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
•They do not reflect changes in, or cash requirements for, our working capital needs;
•They do not reflect the significant interest expense or the fair market valuecash requirements necessary to service interest or principal payments on our debt;
•Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
•They are not adjusted for all noncash income or expense items that are reflected in our statements of plan assets, amortized over either (i)cash flows;
•EBITDA does not reflect the estimated average future service periodimpact of active plan participants ifearnings or charges attributable to noncontrolling interests;
•They do not reflect the plan is activeimpact of earnings or (ii)charges resulting from matters we consider to not be indicative of our ongoing operations; and
•They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.
In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.
| | | | | | | | | | | | | | |
| | |
| (Unaudited) | | Year Ended |
| | December 31, 2023 | | December 25, 2022 |
| | |
| Net income | | $ | 322,317 | | | $ | 746,538 | |
| Add: | | | | |
| Interest expense, net | | 166,621 | | | 143,644 | |
| Income tax expense | | 42,905 | | | 278,935 | |
| Depreciation and amortization | | 419,900 | | | 403,110 | |
| EBITDA | | 951,743 | | | 1,572,227 | |
| Add: | | | | |
| Foreign currency transaction losses | | 20,570 | | | 30,817 | |
| Transaction costs related to acquisitions | | — | | | 948 | |
| Litigation settlements expense | | 39,400 | | | 34,086 | |
| Restructuring activities losses | | 44,345 | | | 30,466 | |
| Minus: | | | | |
| Property insurance recoveries | | 21,124 | | | 19,580 | |
| Net income attributable to noncontrolling interest | | 743 | | | 608 | |
| Adjusted EBITDA | | $ | 1,034,191 | | | $ | 1,648,356 | |
| | | | | | | | | | | |
|
| Reconciliation of Adjusted Net Income |
| (Unaudited) |
| | | |
| Year Ended |
| December 31,
2023 | | December 25,
2022 |
| |
| Net income attributable to Pilgrim’s | $ | 321,574 | | | $ | 745,930 | |
| Add: | | | |
| Foreign currency transaction losses | 20,570 | | | 30,817 | |
| Restructuring activities losses | 44,345 | | | 30,466 | |
| Transaction costs related to acquisitions | — | | | 948 | |
| Litigation settlements | 39,400 | | | 34,086 | |
Loss on early extinguishment of debt recognized as a component of interest expense(a) | 20,694 | | | — | |
| Minus: | | | |
| Property insurance recoveries | 21,124 | | | 19,580 | |
| Adjusted net income attributable to Pilgrim’s before tax impact of adjustments | 425,459 | | | 822,667 | |
Net tax benefit of adjustments(b) | (25,140) | | | (19,115) | |
Adjusted net income attributable to Pilgrim’s | $ | 400,319 | | | $ | 803,552 | |
| Weighted average diluted shares of common stock outstanding | 237,297 | | 240,394 |
Adjusted net income attributable to Pilgrim’s per common diluted share | $ | 1.69 | | | $ | 3.34 | |
(a)The loss on early extinguishment of debt recognized as a component of interest expense was due to the estimated average future life expectancyrepurchase of the Senior Notes due 2027.
(b)Net tax impact of adjustments represents the tax impact of all plan participants if the plan is frozen.adjustments shown above.
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
Market Risk-Sensitive Instruments and Positions
The risk inherent in our market risk-sensitive instruments and positions is primarily the potential loss arising from adverse changes in commodity prices, foreign currency exchange rates, interest rates and the credit quality of available-for-sale securities as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions our management may take to mitigate our exposure to such changes. Actual results may differ.differ from those described below.
Commodity Prices
We purchase certain commodities, primarily corn, soybean meal, soybean oil, and sorghum,wheat, 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, weWe 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)(1) executing purchase agreements with suppliers for future physical delivery of feed ingredients at established prices and (ii)(2) purchasing or selling derivative financial instruments such as futures and options.
For this sensitivity analysis, market risk is estimated as a hypothetical 10.0% change10% increase in the weighted-average cost of our primary feed ingredients as of December 31, 2017 and December 25, 2016.the periods presented. The impact of this fluctuation, if realized, could be mitigated by related commodity hedging activity. However, fluctuations greater than 10.0%10% could occur.
| | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Amount | | Impact of 10% Increase in Feed Ingredient Prices |
| (In thousands) |
Feed ingredient purchases(a) | $ | 4,298,504 | | | $ | 429,850 | |
Feed ingredient inventory(b) | 206,198 | | | 20,620 | |
(a)Based on our feed consumption, during 2017 and 2016, such a change would10% increase in the price of our feed ingredient purchases will have resulted in a change toincreased cost of sales of approximately $279.7 million and $280.1 million, respectively, excludingfor the impact of any feed ingredients derivative financial instruments in that period. year ended December 31, 2023.
(b)A 10.0% change10% increase in ending feed ingredientsingredient prices would have increased inventories atas of December 31, 2017 and December 25, 2016 would be $14.6 million and $12.4 million, respectively, excluding any potential impact on the production costs2023.
| | | | | | | | | | | |
| December 31, 2023 |
| Amount | | Impact of 10% Increase to the Fair Value of Commodity Derivative Assets |
| (In thousands) |
Commodity derivative assets(a) | $ | 35,812 | | | $ | 3,581 | |
(a)We purchase commodity derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to itsour anticipated consumption of commodity inputs for the next 12 months. A 10.0%10% increase in corn, soybean meal, and soybean oil prices on December 31, 2017 and December 25, 2016wheat prices would have resulted in an increase of approximately $0.5 million and $0.4 million, respectively, in the fair value of our net commodity derivative asset position, including margin cash, as of that date.December 31, 2023.
Interest Rates
Our variable-rateFixed-rate debt instruments represent approximately 34.7% and 38.1% of our total debt at December 31, 2017 and December 25, 2016, respectively. Holding other variables constant, including levels of indebtedness, an increase in interest rates of 25 basis points would have increased our interest expense by $0.6 million and $0.3 million in 2017 and 2016, respectively.
. Market risk for fixed-rate debt is estimated as the potential increasedecrease in fair value resulting from a hypothetical decreaseincrease in interest rates of 10.0%10%. Using a discounted cash flow analysis, a hypothetical 10.0% decrease10% increase in interest rates would have decreased the fair value of our fixed-rate debt by approximately $10.2 million and $5.2$131.1 million as of December 31, 2017 and December 25, 2016, respectively.2023.
Foreign Currency
Mexico Subsidiaries
Our earnings are also affected by foreign exchange rate fluctuations related to the Mexican peso net monetary position of our Mexico subsidiaries. We manage this exposure primarily by attempting to minimize our Mexican peso net monetary position. We are also exposed to the effect of potential currency exchange rate fluctuations to the extent that amounts are repatriated from Mexico to the U.S. We currently anticipate that the future cash flows of our Mexico subsidiaries will be reinvested in our Mexico operations.
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. Foreign currency exchange gains, representing the change in the U.S. dollar value of the net monetary assets of our Mexican subsidiaries denominated in Mexican pesos, were $2.7 million in 2017, while foreign exchange losses were $3.9 million and $25.9 million in 2016 and 2015, respectively. The average exchange rates for 2017, 2016 and 2015 were 18.93 Mexican pesos to 1 U.S. dollar, 18.64 Mexican pesos to 1 U.S. dollar and 15.85 Mexican pesos to 1 U.S. dollar, respectively.operations. For this sensitivity analysis, market risk is estimated as a hypothetical 10.0% deterioration10% change in the current exchange rate used to convert Mexican pesos to U.S. dollars as of December 31, 2017 and December 25, 2016.2023. However, fluctuations greater than 10.0%10% could occur. Based on the net monetary liability position of our Mexico operations at December 31, 2017, such a change would have resulted in an increase in foreign currency
transaction losses recognized in 2017 of approximately $3.7 million. Based on the net monetary liability position of our Mexico operations at December 25, 2016, such a change would have resulted in a decrease in foreign currency transaction losses recognized in 2016 of approximately $0.4 million. No assurance can be given as to how future movements in the Mexican peso could affect our future financial condition or results of operations.
Additionally, we | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Impact of 10% Deterioration in Exchange Rate(a) | | Impact of 10% Appreciation in Exchange Rate(b) |
| (In thousands, except for exchange rate data) |
| Foreign currency remeasurement gain (loss) | $ | (18,310) | | | $ | 22,379 | |
| Exchange rate of Mexican pesos to the U.S. dollar: | | | |
| As reported | 16.97 | | | 16.97 | |
| Hypothetical 10% change | 18.67 | | | 15.28 | |
U.K. and Europe Subsidiaries
We are exposed to foreign exchange-related variability of investments and earnings from our foreign investments inU.K. and Europe (including the U.K.).subsidiaries. Foreign currency market risk is the possibility that our financial results or financial position could be better or worse than planned because of changes in foreign currency exchange rates. At December 31, 2017,For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in exchange rates used to convert U.S. dollars to British pound and to euro, and the effect of this change on our U.K. and Europe segmentsubsidiaries.
Net Assets. As of December 31, 2023, our U.K. and Europe subsidiaries that are denominated in the British pound had net assets of approximately $2.2 billion denominated$4.1 billion. A 10% weakening in the British pounds, after consideration of our derivative and nonderivative financial instruments. Based on our sensitivity analysis, a 10% adverse change inpound against the U.S. dollar exchange ratesrate would cause a reductiondecrease in the net assets of $222.8 million to our U.K. and Europe subsidiaries by $374.4 million. A 10% strengthening in the British pound against the U.S. dollar exchange rate would cause an increase in the net assets. assets of our U.K. and Europe subsidiaries by $457.6 million.
At December 31, 2017, we hadCash flow hedging transactions. We periodically enter into foreign currency forward contracts, which wereare designated and qualify as cash flow hedges, with an aggregate notional amount of $38.0 million to hedge foreign currency risk on a portion of sales generated and purchases made by our investments inU.K. and Europe (including the U.K.). On the basis of our sensitivity analysis, asubsidiaries. A 10% weakening or strengthening of the U.S. dollar against the British pound by 10% would result in a $3.0 million negative change in our cash flows on settlement while a weakening of theand U.S. dollar against the euro by 10% would result in a $0.8 million negative changeimmaterial changes in our cash flows on settlement.the fair values of these derivative instruments. No assurance can be given as to how future movements in currency rates could affect our future financial condition or results of operations.
Quality of Investments
Certain retirement plans that we sponsor invest in a variety of financial instruments. 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, 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 we participate hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.
Impact of Inflation
Due to low to moderate inflation in the U.S., U.K. and Europe, and Mexico and our rapid inventory turnover rate, the results ofOur global operations have not been significantly affectedwere impacted by inflation during 2023, but less significantly than in 2022. Our global businesses negotiated with our customers to increase prices to mitigate the past three-year period.impacts of the increase in input costs such as feed ingredients, labor, utilities, freight and other input costs. Prior to 2022, inflation was significantly less impactful to our operations. We anticipate inflation in 2024 will be moderate compared to 2023 based on the monetary policy measures implemented in the jurisdictions in which we operate.
Item 8.Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
TheTo the Stockholders and Board of Directors
Pilgrim’s
Pilgrim's Pride Corporation:
OpinionOpinions on the Consolidated and Combined Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated and combined balance sheets of Pilgrim’sPilgrim's Pride Corporation and subsidiaries (the Company) as of December 31, 20172023 and December 25, 2016,2022, the related consolidated and combined statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fifty-three weeksyears in the three-year period ended December 31, 2017, the fifty-two weeks ended December 25, 2016, and the fifty-two weeks ended December 27, 2015,2023, and the related notes and financial statement schedule II (collectively, the consolidated and combined financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and December 25, 2016,2022, and the results of its operations and its cash flows for each of the fifty-three weeksyears in the three-year period ended December 31, 2017, the fifty-two weeks ended December 25, 2016, and the fifty-two weeks ended December 27, 2015,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, Also in accordance withour opinion, the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’smaintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 15, 2018 expressed an unqualified opinion on the effectiveness of theCommission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting.
Basisreporting, and for Opinion
These consolidated and combined financial statements are the responsibilityits assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thesethe Company’s consolidated and combined financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated and combined financial statements are free of material misstatement, whether due to error or fraud. fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated and combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated and combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated and combined financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of quantitative goodwill impairment assessment
As discussed in Notes 1 and 8 to the consolidated financial statements, the goodwill balance as of December 31, 2023 was $1.3 billion, of which $1.1 billion related to reporting units within the Company’s U.K. and Europe reportable segment. For 2023, management elected to bypass the qualitative assessments for certain reporting units and performed quantitative goodwill impairment tests. The Company determined that no impairment existed as of December 31, 2023.
We identified the evaluation of the quantitative goodwill impairment assessments related to certain reporting units within the Company’s U.K. and Europe reportable segment as a critical audit matter. Subjective auditor judgment and specialized skills and knowledge were required to evaluate certain key assumptions used in measuring fair value of the reporting units. These key assumptions included forecasted revenue growth, forecasted margins, discount rates, and terminal growth rates. Changes in these assumptions could have an impact on the fair value of the reporting units.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s quantitative goodwill impairment assessments for certain reporting units within the Company’s U.K. and Europe reportable segment. This included controls over the development of the key assumptions listed above. We evaluated the Company’s assessments by:
◦assessing the Company’s forecasted revenue growth and forecasted margins against underlying business strategies and growth plans
◦comparing historical results to forecasts to assess the Company’s ability to forecast.
In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
◦evaluating the discount rates used by comparing the Company’s inputs to the discount rates to publicly available data for comparable companies and assessing the resulting discount rates
◦comparing the selected terminal growth rates to the Company’s growth expectations using publicly available industry and economic data.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Denver, Colorado
February 27, 2024
February 15, 2018
PILGRIM’S PRIDE CORPORATION
CONSOLIDATED AND COMBINED BALANCE SHEETS
| | | | December 31, 2017 | | December 25, 2016 |
| December 31, 2023 | | | December 31, 2023 | | December 25, 2022 |
| | (In thousands, except share and par value data) | | (In thousands, except share and par value data) |
| Cash and cash equivalents | $ | 581,510 |
| | $ | 292,544 |
|
| Restricted cash and cash equivalents | 8,021 |
| | 4,979 |
|
| Trade accounts and other receivables, less allowance for doubtful accounts | 565,478 |
| | 445,553 |
|
| Trade accounts and other receivables, less allowance for credit losses | |
| Accounts receivable from related parties | 2,951 |
| | 4,010 |
|
| Inventories | 1,255,070 |
| | 975,608 |
|
| Income taxes receivable | |
| Prepaid expenses and other current assets | 102,550 |
| | 81,932 |
|
| Assets held for sale | 708 |
| | 5,259 |
|
| Total current assets | 2,516,288 |
| | 1,809,885 |
|
| | Deferred tax assets | |
| Deferred tax assets | |
| Deferred tax assets | |
| Other long-lived assets | 18,165 |
| | 19,260 |
|
| Identified intangible assets, net | 617,163 |
| | 471,591 |
|
| Operating lease assets, net | |
| Intangible assets, net | |
| Goodwill | 1,001,889 |
| | 887,221 |
|
| Property, plant and equipment, net | 2,095,147 |
| | 1,833,985 |
|
| Total assets | $ | 6,248,652 |
| | $ | 5,021,942 |
|
| | | | |
| Accounts payable | $ | 762,444 |
| | $ | 790,378 |
|
| Accounts payable | |
| Accounts payable | |
| Accounts payable to related parties | 2,889 |
| | 4,468 |
|
| Revenue contract liabilities | |
| Accrued expenses and other current liabilities | 417,342 |
| | 347,021 |
|
| Income taxes payable | 222,073 |
| | 27,578 |
|
| Current maturities of long-term debt | 47,775 |
| | 15,712 |
|
| Total current liabilities | 1,452,523 |
| | 1,185,157 |
|
| Noncurrent operating lease liabilities, less current maturities | |
| Long-term debt, less current maturities | 2,635,617 |
| | 1,396,124 |
|
| Deferred tax liabilities | 208,492 |
| | 251,807 |
|
| Other long-term liabilities | 96,359 |
| | 102,722 |
|
| Total liabilities | 4,392,991 |
| | 2,935,810 |
|
| | | | |
| Commitments and contingencies |
|
| |
|
|
| | | | |
| Preferred stock, $.01 par value, 50,000,000 shares authorized; no shares issued | — |
| | — |
|
Common stock, $.01 par value, 800,000,000 shares authorized; 260,167,881 and 259,682,000 shares issued at year-end 2017 and year-end 2016, respectively; 248,752,508 and 249,046,139 shares outstanding at year-end 2017 and year-end 2016, respectively | 2,602 |
| | 307,288 |
|
| Treasury stock, at cost, 11,415,373 shares and 10,635,861 shares at year-end 2017 and year-end 2016, respectively | (231,758 | ) | | (217,117 | ) |
| Common stock, $.01 par value, 800,000,000 shares authorized; 261,931,080 and 261,610,518 shares issued at year-end 2023 and year-end 2022, respectively; 236,789,927 and 236,469,365 shares outstanding at year-end 2023 and year-end 2022, respectively | |
| Common stock, $.01 par value, 800,000,000 shares authorized; 261,931,080 and 261,610,518 shares issued at year-end 2023 and year-end 2022, respectively; 236,789,927 and 236,469,365 shares outstanding at year-end 2023 and year-end 2022, respectively | |
| Common stock, $.01 par value, 800,000,000 shares authorized; 261,931,080 and 261,610,518 shares issued at year-end 2023 and year-end 2022, respectively; 236,789,927 and 236,469,365 shares outstanding at year-end 2023 and year-end 2022, respectively | |
| Treasury stock, at cost, 25,141,153 shares at year-end 2023 and year-end 2022. | |
| Additional paid-in capital | 1,932,509 |
| | 3,100,332 |
|
| Retained earnings (accumulated deficit) | 173,943 |
| | (782,785 | ) |
| Retained earnings | |
| Accumulated other comprehensive loss | (31,140 | ) | | (329,858 | ) |
| Total Pilgrim’s Pride Corporation stockholders’ equity | 1,846,156 |
| | 2,077,860 |
|
| Noncontrolling interest | 9,505 |
| | 8,272 |
|
| Total stockholders’ equity | 1,855,661 |
| | 2,086,132 |
|
| Total liabilities and stockholders’ equity | $ | 6,248,652 |
| | $ | 5,021,942 |
|
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
PILGRIM’S PRIDE CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
| | | | Fifty-Three Weeks Ended December 31, 2017 | | Fifty-Two Weeks
Ended
December 25, 2016 | | Fifty-Two Weeks
Ended
December 27, 2015 |
| Year Ended | | | Year Ended |
| December 31, 2023 | | | December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| | (In thousands, except per share data) | | (In thousands, except per share data) |
| Net sales | $ | 10,767,863 |
| | $ | 9,878,564 |
| | $ | 8,752,672 |
|
| Cost of sales | 9,296,249 |
| | 8,774,581 |
| | 7,453,948 |
|
| Gross profit | 1,471,614 |
| | 1,103,983 |
| | 1,298,724 |
|
| Selling, general and administrative expense | 389,517 |
| | 310,832 |
| | 231,838 |
|
| Administrative restructuring charges | 9,775 |
| | 1,069 |
| | 5,754 |
|
| Restructuring activities | |
| Operating income | 1,072,322 |
| | 792,082 |
| | 1,061,132 |
|
| Interest expense, net of capitalized interest | 107,183 |
| | 75,636 |
| | 46,549 |
|
| Interest income | (7,730 | ) | | (2,301 | ) | | (3,828 | ) |
| Foreign currency transaction losses (gains) | (2,659 | ) | | 4,055 |
| | 26,148 |
|
| Miscellaneous, net | (6,538 | ) | | (9,344 | ) | | (9,061 | ) |
| Income before income taxes | 982,066 |
| | 724,036 |
| | 1,001,324 |
|
| Income tax expense | 263,899 |
| | 243,919 |
| | 338,352 |
|
| Net income | 718,167 |
| | 480,117 |
| | 662,972 |
|
| Less: Net income from Granite Holdings Sàrl prior to acquisition by Pilgrim’s Pride Corporation | 23,486 |
| | 40,388 |
| | 17,010 |
|
| Less: Net income (loss) attributable to noncontrolling interest | 102 |
| | (803 | ) | | 48 |
|
| Less: Net income attributable to noncontrolling interest | |
| Net income attributable to Pilgrim’s Pride Corporation | $ | 694,579 |
| | $ | 440,532 |
| | $ | 645,914 |
|
| | | | | | |
| Weighted average shares of common stock outstanding: | | | | | |
| Weighted average shares of Pilgrim’s Pride Corporation common stock outstanding: | |
| Weighted average shares of Pilgrim’s Pride Corporation common stock outstanding: | |
| Weighted average shares of Pilgrim’s Pride Corporation common stock outstanding: | |
| Basic | |
| Basic | |
| Basic | 248,738 |
| | 253,669 |
| | 258,442 |
|
| Effect of dilutive common stock equivalents | 233 |
| | 457 |
| | 234 |
|
| Diluted | 248,971 |
| | 254,126 |
| | 258,676 |
|
| | | | | | |
Net income attributable to Pilgrim’s Pride Corporation per share of common stock outstanding: | | | | | |
| Net income attributable to Pilgrim’s Pride Corporation per share of common stock outstanding: | |
| Net income attributable to Pilgrim’s Pride Corporation per share of common stock outstanding: | |
| Basic | |
| Basic | |
| Basic | $ | 2.79 |
| | $ | 1.74 |
| | $ | 2.50 |
|
| Diluted | $ | 2.79 |
| | $ | 1.73 |
| | $ | 2.50 |
|
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
PILGRIM’S PRIDE CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
| | | | Fifty-Three Weeks Ended December 31, 2017 | | Fifty-Two Weeks Ended December 25, 2016 | | Fifty-Two Weeks Ended December 27, 2015 |
| | (In thousands) |
| Year Ended | | | Year Ended |
| December 31, 2023 | | | December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) | | | (In thousands) |
| Net income | $ | 718,167 |
| | $ | 480,117 |
| | $ | 662,972 |
|
| Other comprehensive loss: | | | | | |
| Other comprehensive income (loss): | |
| Foreign currency translation adjustment | |
| Foreign currency translation adjustment | |
| Foreign currency translation adjustment | | | | | |
| Gains (losses) arising during the period | 100,081 |
| | (233,232 | ) | | (32,482 | ) |
| Income tax effect | 3,137 |
| | — |
| | — |
|
| Gains (losses) arising during the period | |
| Gains (losses) arising during the period | |
| | Derivative financial instruments designated as cash flow hedges | |
| Derivative financial instruments designated as cash flow hedges | |
Derivative financial instruments designated as cash
flow hedges | | | | | |
| Gains (losses) arising during the period | 60 |
| | (151 | ) | | (56 | ) |
| Gains (losses) arising during the period | |
| Gains (losses) arising during the period | |
| Income tax effect | |
Reclassification to net earnings for losses (gains)
realized | (639 | ) | | 311 |
| | (5 | ) |
| Income tax effect | |
| Available-for-sale securities | | | | | |
| Gains arising during the period | 132 |
| | 443 |
| | 533 |
|
| Losses arising during the period | |
| Losses arising during the period | |
| Losses arising during the period | |
| Income tax effect | (50 | ) | | (167 | ) | | (201 | ) |
| Reclassification to net earnings for gains realized | (34 | ) | | (552 | ) | | (475 | ) |
| Reclassification to net earnings for losses (gains) realized | |
| Income tax effect | 13 |
| | 209 |
| | 179 |
|
| Defined benefit plans | | | | | |
| Gains (losses) arising during the period | (8,738 | ) | | (9,085 | ) | | 5,054 |
|
| Gains realized during the period | |
| Gains realized during the period | |
| Gains realized during the period | |
| Income tax effect | 968 |
| | 3,429 |
| | (1,908 | ) |
| Reclassification to net earnings of losses realized | 932 |
| | 659 |
| | 689 |
|
| Income tax effect | (353 | ) | | (249 | ) | | (260 | ) |
| Total other comprehensive income (loss), net of tax | 95,509 |
| | (238,385 | ) | | (28,932 | ) |
| Comprehensive income | 813,676 |
| | 241,732 |
| | 634,040 |
|
Less: Comprehensive income (loss) for Granite
Holdings Sàrl prior to acquisition by Pilgrim's
Pride Corporation | 88,050 |
| | (192,684 | ) | | (15,533 | ) |
Less: Comprehensive income (loss) attributable to
noncontrolling interests | 102 |
| | (803 | ) | | 48 |
|
Comprehensive income attributable to Pilgrim's Pride
Corporation | $ | 725,524 |
| | $ | 435,219 |
| | $ | 649,525 |
|
| Less: Comprehensive income attributable to noncontrolling interests | |
| Comprehensive income attributable to Pilgrim’s Pride Corporation | |
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
PILGRIM’S PRIDE CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pilgrim’s Pride Corporation Stockholders | | | | |
| | Common Stock | | Treasury Stock | | Additional
Paid-in
Capital | | Retained Earnings (Accumulated
Deficit) | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interest | | Total |
| | Shares | | Amount | Shares | | Amount | | |
| | (In thousands) |
| Balance at December 28, 2014 | 259,029 |
| | $ | 2,590 |
| | — |
| | $ | — |
| | $ | 1,662,354 |
| | $ | 591,492 |
| | $ | (62,541 | ) | | $ | 2,906 |
| | $ | 2,196,801 |
|
| Comprehensive income: | | | | | | | | | | | | | | | | | |
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | 662,924 |
| | — |
| | 48 |
| | 662,972 |
|
| Other comprehensive loss, net of tax benefit of $2,190 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (28,932 | ) | | — |
| | (28,932 | ) |
Capital contribution under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim’s Pride Corporation (the“TSA”) | — |
| | — |
| | — |
| | — |
| | 3,690 |
| | — |
| | — |
| | — |
| | 3,690 |
|
| Share-based compensation plans: | | | | | | | | | | | | | | | | | |
| Common stock issued under compensation plans | 671 |
| | 7 |
| | — |
| | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
|
| Common stock forfeited under compensation plans | (15 | ) | | | | | | | | (85 | ) | | | | | | | | (85 | ) |
| Requisite service period recognition | — |
| | — |
| | — |
| | — |
| | 3,060 |
| | — |
| | — |
| | — |
| | 3,060 |
|
| Tax benefit related to share-based compensation | — |
| | — |
| | — |
| | — |
| | 6,474 |
| | — |
| | — |
| | — |
| | 6,474 |
|
| Common stock purchased under share repurchase program | — |
| | — |
| | (4,862 | ) | | (99,233 | ) | | — |
| | — |
| | — |
| | — |
| | (99,233 | ) |
| Special cash dividend | — |
| | — |
| | — |
| | — |
| | — |
| | (1,498,470 | ) | | — |
| | — |
| | (1,498,470 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | 188 |
| | (188 | ) | | — |
| | — |
| | — |
|
| Stockholders' Equity of Granite Holdings Sàrl | 13,000 |
| | 304,691 |
| | — |
| | — |
| | 1,414,716 |
| | (304,678 | ) | | — |
| | (1,131 | ) | | 1,413,598 |
|
| Balance at December 27, 2015 | 272,685 |
| | $ | 307,288 |
| | (4,862 | ) | | $ | (99,233 | ) | | $ | 3,090,390 |
| | $ | (548,920 | ) | | $ | (91,473 | ) | | $ | 1,823 |
| | $ | 2,659,875 |
|
| Comprehensive income: | | | | | | | | | | | | | | | | | |
| Net income | — |
| | — |
| | — |
| | — |
| | — |
| | 480,920 |
| | — |
| | (803 | ) | | 480,117 |
|
| Other comprehensive loss, net of tax expense of $3,222 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (238,385 | ) | | — |
| | (238,385 | ) |
| Capital contribution under the TSA | — |
| | — |
| | — |
| | — |
| | 5,039 |
| | — |
| | — |
| | — |
| | 5,039 |
|
| Share-based compensation plans: | | | | | | | | | | | | | | | | | |
| Requisite service period recognition | — |
| | — |
| | | | | | 6,102 |
| | — |
| | — |
| | — |
| | 6,102 |
|
| Common stock purchased under share repurchase program | — |
| | — |
| | (5,774 | ) | | (117,884 | ) | | — |
| | — |
| | — |
| | — |
| | (117,884 | ) |
| Capital contributions to subsidiary by noncontrolling participants | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7,252 |
| | 7,252 |
|
| Common stock purchased from retirement plan participants | (3 | ) | | — |
| | — |
| | — |
| | (73 | ) | | — |
| | — |
| | — |
| | (73 | ) |
| Dividend paid by Granite Holdings Sàrl to JBS S.A. | — |
| | — |
| | — |
| | — |
| | — |
| | (14,870 | ) | | — |
| | — |
| | (14,870 | ) |
| Special cash dividend | — |
| | — |
| | — |
| | — |
| | — |
| | (699,915 | ) | | — |
| | — |
| | (699,915 | ) |
| Other | — |
| | — |
| | — |
| | — |
| | (1,126 | ) | | — |
| | — |
| | — |
| | (1,126 | ) |
| Balance at December 25, 2016 | 272,682 |
| | $ | 307,288 |
| | (10,636 | ) | | $ | (217,117 | ) | | $ | 3,100,332 |
| | $ | (782,785 | ) | | $ | (329,858 | ) | | $ | 8,272 |
| | $ | 2,086,132 |
|
| Comprehensive income: | | | | | | | | | | | | | | | | | |
| Net income (loss) | — |
| | — |
| | — |
| | — |
| | — |
| | 718,065 |
| | — |
| | 102 |
| | 718,167 |
|
| Other comprehensive income, net of tax expense of $4,012 | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 95,509 |
| | — |
| | 95,509 |
|
| Capital contribution under the TSA | — |
| | — |
| | — |
| | — |
| | 5,558 |
| | — |
| | — |
| | — |
| | 5,558 |
|
| Share-based compensation plans: | | | | | | | | | | | | | | | | | |
| Common stock issued under compensation plans | 486 |
| | 5 |
| | — |
| | — |
| | (5 | ) | | — |
| | — |
| | — |
| | — |
|
| Requisite service period recognition | — |
| | — |
| | — |
| | — |
| | 3,019 |
| | — |
| | — |
| | — |
| | 3,019 |
|
| Common stock purchased under share repurchase program | — |
| | — |
| | (780 | ) | | (14,641 | ) | | — |
| | — |
| | — |
| | — |
| | (14,641 | ) |
| Deemed equity contribution resulting from the transfer of Granite Holdings Sàrl net assets from JBS S.A. to Pilgrim's Pride Corporation in a common-control transaction | — |
| | — |
| | — |
| | — |
| | 237,195 |
| | — |
| | — |
| | | | 237,195 |
|
| Transfer of Granite Holdings Sàrl to Pilgrim's from JBS S.A. | (13,000 | ) | | (304,691 | ) | | — |
| | — |
| | (1,413,590 | ) | | 238,663 |
| | 203,209 |
| | 1,131 |
| | (1,275,278 | ) |
| Balance at December 31, 2017 | 260,168 |
| | $ | 2,602 |
| | (11,416 | ) | | $ | (231,758 | ) | | $ | 1,932,509 |
| | $ | 173,943 |
| | $ | (31,140 | ) | | $ | 9,505 |
| | $ | 1,855,661 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pilgrim’s Pride Corporation Stockholders | | | | |
| | Common Stock | | Treasury Stock | | Additional
Paid-in
Capital | | Retained Earnings | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interest | | Total |
| Shares | | Amount | Shares | | Amount | | |
| | (In thousands) |
| Balance at December 27, 2020 | 261,185 | | | $ | 2,612 | | | (17,673) | | | $ | (345,134) | | | $ | 1,954,334 | | | $ | 972,569 | | | $ | (20,620) | | | $ | 11,586 | | | $ | 2,575,347 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | 31,000 | | | — | | | 268 | | | 31,268 | |
| Other comprehensive loss, net of tax expense of $8,197 | — | | | — | | | — | | | — | | | — | | | — | | | (27,377) | | | — | | | (27,377) | |
| Capital distribution under Tax Sharing Agreement between JBS USA Holdings and Pilgrim’s Pride Corporation (the “TSA”) | — | | | — | | | — | | | — | | | (1,961) | | | — | | | — | | | — | | | (1,961) | |
| Stock-based compensation plans: | | | | | | | | | | | | | | | | | |
| Common stock issued under compensation plans | 162 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | |
| Requisite service period recognition | — | | | — | | | — | | | — | | | 11,657 | | | — | | | — | | | — | | | 11,657 | |
| Balance at December 26, 2021 | 261,347 | | | $ | 2,614 | | | (17,673) | | | $ | (345,134) | | | $ | 1,964,028 | | | $ | 1,003,569 | | | $ | (47,997) | | | $ | 11,854 | | | $ | 2,588,934 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | 745,930 | | | — | | | 608 | | | 746,538 | |
| Other comprehensive loss, net of tax expense of $2,478 | — | | | — | | | — | | | — | | | — | | | — | | | (288,451) | | | — | | | (288,451) | |
| Capital distribution under TSA | — | | | — | | | — | | | — | | | (1,592) | | | — | | | — | | | — | | | (1,592) | |
| Stock-based compensation plans: | | | | | | | | | | | | | | | | | |
| Common stock issued under compensation plans | 264 | | | 3 | | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | |
| Requisite service period recognition | — | | | — | | | — | | | — | | | 7,400 | | | — | | | — | | | — | | | 7,400 | |
| Common stock purchased under share repurchase program | — | | | — | | | (7,469) | | | (199,553) | | | — | | | — | | | — | | | — | | | (199,553) | |
| Balance at December 25, 2022 | 261,611 | | | $ | 2,617 | | | (25,142) | | | $ | (544,687) | | | $ | 1,969,833 | | | $ | 1,749,499 | | | $ | (336,448) | | | $ | 12,462 | | | $ | 2,853,276 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | 321,574 | | | — | | | 743 | | | 322,317 | |
| Other comprehensive income, net of tax expense of $2,083 | — | | | — | | | — | | | — | | | — | | | — | | | 159,965 | | | — | | | 159,965 | |
| Capital contribution under TSA | — | | | — | | | — | | | — | | | 1,425 | | | — | | | — | | | — | | | 1,425 | |
| Stock-based compensation plans: | | | | | | | | | | | | | | | | | |
| Common stock issued under compensation plans | 320 | | | 3 | | | — | | | — | | | (3) | | | — | | | — | | | — | | | — | |
| Requisite service period recognition | — | | | — | | | — | | | — | | | 7,594 | | | — | | | — | | | — | | | 7,594 | |
| Balance at December 31, 2023 | 261,931 | | | $ | 2,620 | | | (25,142) | | | $ | (544,687) | | | $ | 1,978,849 | | | $ | 2,071,073 | | | $ | (176,483) | | | $ | 13,205 | | | $ | 3,344,577 | |
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
PILGRIM’S PRIDE CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| | (In thousands) |
| Cash flows from operating activities | | | | | |
| Net income | $ | 322,317 | | | $ | 746,538 | | | $ | 31,268 | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 419,900 | | | 403,110 | | | 380,824 | |
| Loss on early extinguishment of debt recognized as a component of interest expense | 20,694 | | | — | | | 24,654 | |
| Loan cost amortization | 7,366 | | | 4,753 | | | 5,095 | |
| Stock-based compensation activity | 7,226 | | | 6,985 | | | 11,655 | |
| Deferred income tax expense (benefit) | 6,675 | | | 21,295 | | | (86,391) | |
| Gain on property disposals | (6,052) | | | (18,908) | | | (1,476) | |
| Asset impairment | 4,010 | | | 3,559 | | | — | |
| Accretion of bond discount | 2,278 | | | 1,717 | | | 1,533 | |
| Loss (gain) on equity method investments | 328 | | | (2) | | | (16) | |
| Amortization of bond premium | — | | | — | | | (167) | |
| Changes in operating assets and liabilities | | | | | |
| Trade accounts and other receivables | (19,007) | | | (149,599) | | | (259,377) | |
| Inventories | 12,602 | | | (472,224) | | | (177,864) | |
| Prepaid expenses and other current assets | 17,776 | | | 18,264 | | | (53,797) | |
| Accounts payable and accrued expenses | (68,677) | | | 263,288 | | | 359,589 | |
| Income taxes | (8,878) | | | (142,455) | | | 115,216 | |
| Long-term pension and other postretirement obligations | (9,993) | | | (4,128) | | | (18,461) | |
| Other operating assets and liabilities | (30,688) | | | (12,330) | | | (5,826) | |
| Cash provided by operating activities | 677,877 | | | 669,863 | | | 326,459 | |
| Cash flows from investing activities | | | | | |
| Acquisitions of property, plant and equipment | (543,816) | | | (487,110) | | | (381,671) | |
| Proceeds from property insurance recoveries | 20,681 | | | 16,034 | | | — | |
| Proceeds from property disposals | 19,784 | | | 35,516 | | | 24,724 | |
| Purchase of acquired businesses, net of cash acquired | — | | | (9,692) | | | (966,766) | |
| Cash used in investing activities | (503,351) | | | (445,252) | | | (1,323,713) | |
| Cash flows from financing activities | | | | | |
| Proceeds from revolving line of credit and long-term borrowings | 1,768,236 | | | 362,540 | | | 2,951,707 | |
| Payments on revolving line of credit, long-term borrowings and finance lease obligations | (1,616,321) | | | (388,299) | | | (2,006,195) | |
| Payment of capitalized loan costs | (19,816) | | | (4,741) | | | (22,293) | |
| Payment on early extinguishment of debt | (13,780) | | | — | | | (21,258) | |
| Distribution of capital under the TSA | (1,592) | | | (1,961) | | | (650) | |
| Purchase of common stock under share repurchase program | — | | | (199,553) | | | — | |
| Cash provided by (used in) financing activities | 116,727 | | | (232,014) | | | 901,311 | |
| Effect of exchange rate changes on cash and cash equivalents | 5,211 | | | (7,959) | | | (2,342) | |
| Increase (decrease) in cash and cash equivalents | 296,464 | | | (15,362) | | | (98,285) | |
| Cash and cash equivalents, restricted cash and restricted cash equivalents, beginning of year | 434,759 | | | 450,121 | | | 548,406 | |
| Cash and cash equivalents, restricted cash and restricted cash equivalents, end of year | $ | 731,223 | | | $ | 434,759 | | | $ | 450,121 | |
| Supplemental Disclosure Information | | | | | |
| Interest paid (net of amount capitalized) | $ | 131,205 | | | $ | 156,292 | | | $ | 119,328 | |
| Income taxes paid | 19,749 | | | 385,585 | | | 20,863 | |
|
| | | | | | | | | | | |
| | Fifty-Three Weeks Ended December 31, 2017 | | Fifty-Two Weeks
Ended
December 25, 2016 | | Fifty-Two Weeks
Ended
December 27, 2015 |
| | (In thousands) |
| Cash flows from operating activities: | | | | | |
| Net income | $ | 718,167 |
| | $ | 480,117 |
| | $ | 662,972 |
|
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | 277,792 |
| | 231,708 |
| | 173,817 |
|
| Asset impairment | 5,156 |
| | 790 |
| | 4,813 |
|
| Foreign currency transaction gains related to borrowing arrangements | (1,387 | ) | | — |
| | — |
|
| Amortization of bond premium | (180 | ) | | — |
| | — |
|
| Gain on property disposals | (506 | ) | | (8,914 | ) | | (10,372 | ) |
| Loss (gain) on equity method investments | (59 | ) | | 452 |
| | — |
|
| Share-based compensation | 3,020 |
| | 6,102 |
| | 2,975 |
|
| Deferred income tax expense (benefit) | (49,963 | ) | | (5,034 | ) | | 19,872 |
|
| Changes in operating assets and liabilities: | | | | | |
| Trade accounts and other receivables | (82,169 | ) | | (32,428 | ) | | 76,130 |
|
| Inventories | (207,399 | ) | | (33,083 | ) | | 83,595 |
|
| Prepaid expenses and other current assets | (14,827 | ) | | 19,270 |
| | 23,578 |
|
| Accounts payable and accrued expenses | (22,827 | ) | | 75,893 |
| | 36,314 |
|
| Income taxes | 188,120 |
| | 75,238 |
| | (55,324 | ) |
| Long-term pension and other postretirement obligations | (10,864 | ) | | (10,165 | ) | | (3,500 | ) |
| Other | (753 | ) | | (4,584 | ) | | 5,510 |
|
| Cash provided by operating activities | 801,321 |
| | 795,362 |
| | 1,020,380 |
|
| Cash flows from investing activities: | | | | | |
| Acquisitions of property, plant and equipment | (339,872 | ) | | (340,960 | ) | | (190,262 | ) |
| Purchase of acquired business, net of cash acquired | (658,520 | ) | | — |
| | (373,532 | ) |
| Proceeds from property disposals | 4,475 |
| | 13,375 |
| | 14,610 |
|
| Proceeds from settlement of life insurance contract | 1,845 |
| | — |
| | — |
|
| Cash used in investing activities | (992,072 | ) | | (327,585 | ) | | (549,184 | ) |
| Cash flows from financing activities: | | | | | |
| Proceeds from notes payable to bank | — |
| | 36,838 |
| | 28,726 |
|
| Payments on notes payable to bank | — |
| | (65,564 | ) | | — |
|
| Payment of note payable to affiliate | (753,512 | ) | | — |
| | — |
|
| Proceeds from revolving line of credit and long-term borrowings | 1,871,818 |
| | 593,015 |
| | 1,680,000 |
|
| Payments on revolving line of credit, long-term borrowings and capital lease obligations | (628,677 | ) | | (570,015 | ) | | (690,138 | ) |
Proceeds from capital contribution under Tax Sharing Agreement between
JBS USA Food Company Holdings and Pilgrim’s Pride Corporation | 5,038 |
| | 3,690 |
| | — |
|
| Tax benefit related to share-based compensation | — |
| | — |
| | 6,474 |
|
| Capital contributions to subsidiary by noncontrolling stockholders | — |
| | 7,252 |
| | — |
|
| Payment of capitalized loan costs | (13,631 | ) | | (693 | ) | | (12,364 | ) |
| Purchase of common stock under share repurchase program | (14,641 | ) | | (117,884 | ) | | (99,233 | ) |
| Purchase of common stock from retirement plan participants | — |
| | (73 | ) | | — |
|
| Payment of cash dividend | — |
| | (714,785 | ) | | (1,498,470 | ) |
| Cash provided by (used in) financing activities | 466,395 |
| | (828,219 | ) | | (585,005 | ) |
| Effect of exchange rate changes on cash and cash equivalents | 16,364 |
| | (38,587 | ) | | (4,264 | ) |
| Increase (decrease) in cash and cash equivalents | 292,008 |
| | (399,029 | ) | | (118,073 | ) |
| Cash and cash equivalents, beginning of period | 297,523 |
| | 696,552 |
| | 814,625 |
|
| Cash and cash equivalents, end of period | $ | 589,531 |
| | $ | 297,523 |
| | $ | 696,552 |
|
| Supplemental Disclosure Information: | | | | | |
| Interest paid (net of amount capitalized) | $ | 81,260 |
| | $ | 69,857 |
| | $ | 42,968 |
|
| Income taxes paid | 122,956 |
| | 161,026 |
| | 361,183 |
|
and Combined Financial Statements.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico, the Netherlands and The Netherlands.the Republic of Ireland. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company’s primary distribution is through retailers, foodservice distributors and restaurants throughout the countries listed above. Additionally, the Company exports chicken and pork products (from its U.K. operations) to approximately 100over 115 countries. Pilgrim’sOur fresh chicken products consist of refrigerated (nonfrozen) whole chickens, wholeor cut-up chickens andchicken, selected chicken parts that are either marinated or non-marinated.non-marinated, primary pork cuts, added value pork, and pork ribs. The Company’s prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breadedprocessed sausages, bacon, smoked meat, gammon joints, pre-packed meats, sandwich and either marinated or non-marinated.deli counter meats and meat balls. The Company’s other products include plant-based protein offerings, ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts. As a vertically integrated company, we control every phaseThe Company also provides direct-to-consumer meals and hot food to-go solutions in the U.K. and the Republic of the production of our products.Ireland. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Europe,Mexico, France, Puerto Rico, and Mexico. As of December 31, 2017, Pilgrim’s had approximately 51,300 employeesthe Netherlands and the capacity to process more than 45.2 million birds per week for a totalRepublic of more than 13.3 billion pounds of live chicken annually. Approximately5,200 contract growers supply poultry for the Company’s operations. As of December 31, 2017, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”) beneficially owned 78.6% of the Company’s outstanding common stock.Ireland.
Consolidated and Combined Financial Statements
The Company operates on the basis of a 52/53-week fiscal year ending on the Sunday falling on or before December 31. Any reference we make to a particular year (for example, 2017) in the notes to these Consolidated and Combined Financial Statements applies to our fiscal year and not the calendar year.
On September 8, 2017, a subsidiary of the Company acquired 100% of the issued and outstanding shares of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”) from JBS S.A. in a common-control transaction. Moy Park was acquired by JBS S.A. from an unrelated third party on September 30, 2015. For the period from September 30, 2015 through September 7, 2017, the Consolidated and Combined Financial Statements include the accounts of the Company and its majority-owned subsidiaries combined with the accounts of Moy Park. For the period from September 8, 2017 through December 31, 2017, the Consolidated and Combined Financial Statements include the accounts of the Company and its majority-owned subsidiaries, including Moy Park. We eliminate all significant affiliate accounts and transactions upon consolidation.
The Consolidated and Combined Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. GAAP(“U.S. GAAP”) using management’s best estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. Significant estimates made by the Company include the allowance for doubtful accounts,credit losses, reserves related to inventory obsolescence or valuation, useful lives of long-lived assets, goodwill, identifiable intangible assets, valuation of deferred tax assets, insurance accruals, valuation of pension and other postretirement benefits obligations, income tax accruals, certain derivative positions and valuations of acquired businesses.
The functional currency of the Company'sCompany’s U.S. and Mexico operations and certain holding-company subsidiaries in Luxembourg, the U.K., Malta and the Republic of Ireland is the U.S. dollar. The functional currency of itsthe Company’s U.K. operations is the British pound. The functional currency of the Company'sCompany’s operations in France, the Netherlands and the NetherlandsRepublic of Ireland is the euro. For foreign currency-denominated entities other than the Company'sCompany’s Mexico operations, translation from local currencies into U.S. dollars is performed for most assets and liabilities using the exchange rates in effect as of the balance sheet date. Income and expense accounts are remeasured using average exchange rates for the period. Adjustments resulting from translation of these financial records are reflected as a separate component of Accumulated other comprehensive lossin the Consolidated and Combined Balance Sheets. For the Company'sCompany’s Mexico operations, remeasurement from the Mexican peso to the U.S. dollarsdollar is performed for monetary assets and liabilities using the exchange rate in effect as of the balance sheet date. Remeasurement is performed for non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Income and expense accounts are remeasured using average exchange rates for the period. Net adjustments resulting from remeasurement of these financial records are reflected in Foreign currency transaction losses (gains) in the Consolidated and Combined Statements of Income.
The Company or its subsidiaries may use derivatives for the purpose of mitigating exposure to changes in foreign currency exchange rates. Foreign currency transaction gains or losses are reported in the Consolidated and Combined Statements of Income.
Revenue Recognition
We recognize revenue when allThe vast majority of the following circumstancesCompany’s revenue is derived from contracts which are satisfied: (i) persuasive evidencebased upon a customer ordering its products. While there may be master agreements, the contract is only established when the customer’s order is accepted by the Company. The Company accounts for a contract, which may be verbal or written, when it is approved and committed by both
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
parties, the rights of the parties are identified along with payment terms, the contract has commercial substance and collectability is probable.
The Company evaluates the transaction for distinct performance obligations, which are the sale of its products to customers. Since its products are commodity market-priced, the sales price is fixedrepresentative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or determinable, (iii) collectability is reasonably assuredport of destination), and (iv) delivery has occurred. Delivery occurs indepicts the periodtransfer of control and recognition of revenue. There are instances of customer pick-up at the Company’s facilities, in which case control transfers to the customer takes titleat that point and assumes the risks and rewards of ownershipCompany recognizes revenue. The Company’s performance obligations are typically fulfilled within days to weeks of the products specified inacceptance of the customer’s purchase order or sales agreement. Revenueorder.
The Company makes judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give riseconstrained. Due to the revision become known. Taxes collectednature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from customersthe customer. When applicable, variable consideration is estimated at contract inception and remittedupdated on a regular basis until the contract is completed. Allocating the transaction price to governmental authorities are excluded from revenues.a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.
Shipping and Handling Costs
Costs associated withIn the products shippedrare case when shipping and handling activities are performed after a customer obtains control of the good, the Company has elected to customersaccount for shipping and handling as activities to fulfill the promise to transfer the good. When revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are recognized inaccrued. Shipping and handling costs are recorded within cost of sales.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs are included in selling,Selling, general and administrative expenses(“SG&A”) expense and totaled $18.5$56.7 million, $12.3$58.0 million and $5.8$32.4 million for 2017, 20162023, 2022 and 2015,2021, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs totaled $3.7$5.7 million, $3.5$12.5 million and $4.1$5.1 million for 2017, 20162023, 2022 and 2015,2021, respectively.
Cash and Cash Equivalents
The Company considers highly liquid investments with aan original maturity of three months or less when acquired to be cash equivalents. The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated and Combined Statements of Cash Flows.
Restricted Cash
The Company is required to maintain cash balances with a broker as collateral for exchange traded futures contracts. These balances are classified as restricted cash as they are not available for use by the Company to fund daily operations. The balance of restricted cash may also include investments in U.S. Treasury Bills that qualify as cash equivalents, as required by the broker, to offset the obligation to return cash collateral.
The following table reconciles cash, cash equivalents, restricted cash and restricted cash equivalents as reported in the Consolidated Balance Sheets to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| (In thousands) |
| Cash and cash equivalents | $ | 697,748 | | | $ | 400,988 | |
| Restricted cash and restricted cash equivalents | 33,475 | | | 33,771 | |
| Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the Consolidated Statements of Cash Flows | $ | 731,223 | | | $ | 434,759 | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Investments
The Company’s current investments are all highly liquid investments with aan original maturity of three months or less when acquired and are, therefore, considered cash equivalents. The Company’s current investments are comprised of fixed income securities, primarilysuch as commercial paper and a money market fund.paper. These investments are classified as available-for-sale. These securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a separate component of accumulated other comprehensive income.loss. Investments in fixed income securities with remaining maturities of less than one year and those identified by management at the time of purchase for funding operations in less than one year are classified as current assets. Investments in fixed income securities with remaining maturities in excess of one year that management has not identified at the time of purchase for funding operations in less than one year are classified as long-term assets. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length of time a security is in an unrealized loss position, the extent to which fair value is less than amortized cost, the impact of changing interest rates in the short and long term, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company determines the cost of each security sold and each amount reclassified out of accumulated other comprehensive incomeloss into earnings using the specific identification method. Purchases and sales are recorded on a settlement date basis.
Investments in entities in which the Company has an ownership interest greater than 50% and exercises control over the entity are consolidated in the Consolidated and Combined Financial Statements. Investments in entities in which the Company has an ownership interest between 20% and 50% and exercises significant influence are accounted for using the equity method. The Company invests from time to time in ventures in which its ownership interest is less than 20% and over which it does not exercise significant influence. Such investments are accounted for under the cost method. The fair values for investments not traded on a quoted exchange are estimated based upon the historical performance of the ventures, the ventures’ forecasted financial performance and management’s evaluation of the ventures’ viability and business models. To the extent the book value of an investment exceeds its assessed fair value, the Company will record an appropriate impairment charge.
Accounts Receivable
The Company records accounts receivable when revenue is recognized. We record an allowance for doubtful accounts,expected credit losses, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accountscredit losses are based on historical collection experience, current trends, aging of accounts receivable, and periodic credit evaluations of our customers’ financial condition. We write off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable.
Inventories
Live chicken and pig inventories are stated at the lower of cost or marketnet realizable value and breeder hen, breeder sow and boar inventories are stated at the lower of cost, less accumulated amortization, or market.net realizable value. The costs associated with breeder hen inventories are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. The costs associated with breeder sow inventories are accumulated up to the production stage and amortized on a straight-line basis over their productive lives to the estimated residual cull value. Finished poultry products, finished pork products, feed, eggs and other inventories are stated at the lower of cost (average) or market.
net realizable value. Inventory typically transfers from one stage of production to another at a standard cost, where it accumulates additional cost directly incurred with the production of inventory, including overhead. The standard cost at which each type of inventory transfers is set by management to reflect the actual costs incurred in the prior steps. We record valuation adjustments for our inventorymonitor and for estimated obsolescence at or equaladjust standard costs throughout the year to ensure that standard costs reasonably reflect the difference between theactual average cost of the inventory and the estimated market value based upon known conditions affecting inventory, including significantly aged products, discontinued product lines, or damaged or obsolete products. We allocateproduced.
The Company allocates meat costs between ourits various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as ourits breast meat cost. The Company allocates meat costs between its various finished pork products based on a by-product costing technique that allocates the cost of the whole pig into the primal cuts by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes legs, shoulders, bellies, offal and fifth quarter parts, which are carried in inventory at the estimated recoverable amounts, with the remaining amount being reflected as our loin meat cost.
The Company values its other prepared foods products, raw materials and packaging materials at the lower of weighted average cost and net realizable value. Work in progress is valued at the latest production cost (raw materials, packaging), finished goods are valued at the lower of the latest actual monthly production cost (raw materials, packaging and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
direct labor) and attributable overheads and net realizable value, and engineering spares and consumables are valued at cost with an appropriate provision for obsolete engineering spares consistent with historical practice.
Generally, the Company performs an evaluation of whether any lower of cost or marketnet realizable value adjustments are required at the country level based on a number of factors, including: (i)(1) pools of related inventory, (ii)(2) product continuation or discontinuation, (iii)(3) estimated market selling prices and (iv)(4) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required. The Company also records valuation adjustments, when necessary, for estimated obsolescence at or equal to the difference between the cost of inventory and the estimated market value based upon known conditions affecting inventory obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating lease assets, net, Accrued expenses and other current liabilities, and Noncurrent operating lease liability, less current maturities, in our Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, net, Current maturities of long-term debt and Long-term debt, less current maturities in our Consolidated Balance Sheets.
Operating lease assets and operating lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the present value of future payments. IBR is derived from the Company’s credit facility’s margin as a basis with adjustments to periodically updated SOFR swap rate and foreign currency curve. The operating lease asset also includes any lease payments made, including upfront costs and prepayments, and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate a lease when it is reasonably certain that it will exercise that option. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with a corresponding reduction to the operating lease asset.
The Company has lease agreements with lease and non-lease components. Lease and non-lease components are generally accounted for separately. For certain equipment leases, such as vehicles, the Company accounts for the lease and non-lease components as a single lease component.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, and repair and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of these assets. Estimated useful lives for building, machinery and equipment are five to 33 years and for automobiles and trucks are three to ten years. The charge to income resulting from amortization of assets recorded under capital leases is included with depreciation expense.
The Company records impairment charges on long-lived assets held for use when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When the above is true, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i)(1) future cash flows estimated to be generated by these assets, which are based on additional assumptions such as asset utilization, remaining length of service and estimated salvage values, (ii)(2) estimated fair market value of the assets and (iii)(3) determinations with respect to the lowest level of cash flows relevant to the respective impairment test, generally groupings of related operational facilities. Given the interdependency of the Company’s individual facilities during the production process, which operate as a vertically integrated network, it evaluates impairment of assets held for use at the country level (i.e., the U.S. and Mexico). Management believes this is the lowest level of identifiable cash flows for its assets that are held for use in production activities. At the present time, the Company’s forecasts indicate that it can recover the carrying value of its assets held for use based on the projected undiscounted cash flows of the operations.
The Company records impairment charges on long-lived assets held for sale when the carrying amount of those assets exceeds their fair value less appropriate selling costs. Fair value is based on amounts documented in sales contracts or letters of intent accepted by the Company, amounts included in counteroffers initiated by the Company, or, in the absence of current contract negotiations, amounts determined using a sales comparison approach for real property and amounts determined using a cost approach for personal property. Under the sales comparison approach, sales and asking prices of reasonably comparable properties are considered to develop a range of unit prices within which the current real estate market is operating. Under the cost approach, a current cost to replace the asset new is calculated and then the estimated replacement cost is reduced to reflect the applicable decline in value resulting from physical deterioration, functional obsolescence and economic obsolescence.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Appropriate selling costs includes reasonable broker’s commissions, costs to produce title documents, filing fees, legal expenses and the like. We estimate appropriate closing costs as 4% to 6% of asset fair value. This range of rates is considered reasonable for our assets held for sale based on historical experience.
Goodwill and Other Intangibles, net
Goodwill represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in a business combination. Identified intangible assets represent trade names, customer relationships and non-compete agreements arising from acquisitions that are recorded at fair value as of the date acquired less accumulated amortization, if any. The Company uses various market valuation techniques to determine the fair value of its identified intangible assets.
Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise. For goodwill, an impairment loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill. Management first reviews relevant qualitative factors to determine if an indicationwhether it is more likely than not (that is, a likelihood of impairment exists formore than 50 percent), that the fair value of a reporting unit.unit is less than the unit’s carrying amount (including goodwill). If management determines thereit is an indicationmore likely than not that the carrying amount of a reporting unit goodwill might be impaired, a quantitative analysisimpairment test is performed. Management has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative impairment test. Management would be able to resume performing the qualitative assessment in any subsequent period. In 2023, the Company experienced (1) an increase in long-term treasury rates that management determined could negatively affect discount rates and (2) continued inflationary pressures impacting primarily our Moy Park and Pilgrim’s Food Masters reporting units that management determined could negatively affect our margins. Due to these factors in 2023, management elected to bypass the qualitative assessment for all reporting units and performed a qualitative analysis noting no indicationsquantitative impairment test for each reporting unit with a material amount of goodwill impairment in any of its reporting unitsreported as of December 31, 2017. 2023 and the results of the quantitative tests are reported below.
As of December 31, 2023, our Moy Park, Pilgrim’s Food Masters, Pilgrim’s Mexico, and Pilgrim’s U.S. reporting units had reported goodwill of $784.8 million, $329.4 million, $127.8 million, and $41.9 million, respectively. Our Pilgrim’s U.K. reporting unit had reported goodwill of $2.3 million as of December 31, 2023, which was considered immaterial to warrant quantitative goodwill impairment testing. To perform the quantitative assessments, Management estimated the fair value of our reporting units with material goodwill carrying amounts using an income approach (discounted cash flow method). The method to estimate the fair value of each reporting unit involves the use of assumptions about revenue growth, margins, industry data, discount rates, and terminal growth values. These assumptions use data from internally-developed economic projections and external industry data obtained from government authorities, such as the U.S. Department of Agriculture, and other sources. The margin assumptions are based on operating performance expectations, historically realized margins within each reporting units’ industries, and general macroeconomic trends. We use the weighted average cost of capital as a proxy for the discount rates. We consider reporting units that have a 20% or less excess fair value over carrying amount to have a heightened risk of future goodwill impairment.
Based on the outcomes of the reporting units’ quantitative assessments, Management determined that no goodwill impairment existed in any of the reporting units’ with material carrying amounts of goodwill. Our Moy Park reporting unit was determined to have a heightened risk of future goodwill impairment as the excess fair value over the reporting unit’s carrying amount was less than 20%. Some of the assumptions used in determining the fair values of the reporting units are outside the control of management and while we believe we have made reasonable estimates and assumptions to calculate these fair values, it is possible a material change could occur. If actual results of the reporting units are not consistent with the estimates and assumptions used to calculate the fair values, it could result in material impairments of our reported goodwill.
For indefinite-lived intangible assets, an impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value of that intangible asset. Management first reviews relevant qualitative factors to determine ifwhether it is more likely than not (that is, a likelihood of more than 50%) that an indication of impairment exists.intangible asset is impaired. If management determines there is an indication that the carrying amount of the intangible asset might be impaired, anda quantitative analysisimpairment test is performed. Management performed ahas the option to bypass the qualitative analysis noting no indications of impairmentassessment for any of itsindefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. For 2023, management elected to bypass qualitative assessments for all indefinite-lived intangible assets and performed quantitative impairment tests and determined that no impairment existed as of December 31, 2017.2023.
The fair value of our indefinite-life intangible assets is calculated principally using a relief-from-royalty valuation approach, which uses significant unobservable inputs as defined by the fair value hierarchy, and is believed to reflect market participant views which would exist in an exit transaction. Under this valuation approach, we make estimates and assumptions about brand sales growth, royalty rates and discount rates based on specific brand sales projections, general economic projections, anticipated future cash flows and marketplace data. We consider indefinite-life intangible assets that have 20% or
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
less excess fair value over carrying amount to have a heightened risk of future impairment. Our 2022 and 2021 indefinite-life intangible assets impairment analyses did not result in an impairment charge.
In 2023, we experienced an increase in long-term treasury rates that management determined could negatively affect discount rates, which are used in estimating the fair value of the reporting units. Therefore, management elected to bypass qualitative assessments for all indefinite-life intangible assets and performed quantitative impairment tests and determined that no material impairment existed as of December 31, 2023. The estimated fair values of two of our indefinite-life intangibles did not exceed their carrying values by more than 20% at December 31, 2023. This includes one brand within our U.K. and Europe reportable segment and one brand in our Mexico reportable segment with carrying amounts $36.1 million and $0.8 million, respectively, as of December 31, 2023. We generally assumed brand revenue growth rates in future years would normalize over time as we believe this is consistent with market participant views in an exit transaction.The current year results are not indicative of future market participant expectations in an exit transaction primarily due to the expected temporary impacts of continued inflationary pressures and volatile market conditions. We do not currently consider any of our other indefinite-life intangible assets, which had aggregate carrying value of $543.5 million at December 31, 2023 to be at heightened risk of future impairment.
Identifiable intangible assets with definite lives, such as customer relationships non-compete agreements and trade names that the Company expects to use for a limited amount of time, are amortized over their estimated useful lives on a straight-line basis. The useful lives range from three15 to 20 years for trade names and non-compete agreements and 5three to 1618 years for customer relationships. Identified intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Management assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets with definite lives might not be recoverable and determined that there were no impairment indicators during the fifty-three weeksyears ended December 31, 20172023 and fifty-two weeks ended December 25, 2016.2022.
Book Overdraft Balances
The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated and Combined Statements of Cash Flows.
Litigation and Contingent Liabilities
The Company is subject to lawsuits, investigations and other claims related to employment, environmental, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. The Company estimates the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. The Company expenses legal costs related to such loss contingencies as they are incurred. The accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.
Accrued Self Insurance
Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit the Company’s total exposure. Certain categories of claim liabilities are actuarially determined. The assumptions used to arrive at periodic expenses are reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.
Asset Retirement Obligations
The Company monitors certain asset retirement obligations in connection with its operations. These obligations relate to clean-up, removal or replacement activities and related costs for “in-place” exposures only when those exposures are moved or modified, such as during renovations of our facilities. These in-place exposures include asbestos, refrigerants, wastewater, oil, lubricants and other contaminants common in manufacturing environments. Under existing regulations, the Company is not required to remove these exposures and there are no plans to undertake a renovation that would require removal of the asbestos or the remediation of the other in-place exposures at this time. The facilities are expected to be maintained and repaired by activities that
will not result in the removal or disruption of these in-place exposures at this time. As a result, there is an indeterminate settlement date for these asset retirement obligations because the range of time over which the Company may incur these liabilities is unknown and cannot be reasonably estimated. Therefore, the Company has not recorded the fair value of any potential liability.
Income Taxes
The Company follows provisions under ASC No. 740-10-30-27stated in the Expenses-IncomeFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes topic, with regard to members of a group that file a consolidated tax return but issue separate financial statements. The Company files its own U.S. federal tax return, but it is included in certain state unitary returns with JBS USA Food Company Holdings (“JBS USA Holdings”). The income tax expense of the Company is computed using the separate return method. The provision for
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income taxes has been determined using the asset and liability approach of accounting for income taxes. For the unitary states, we have an obligation to make tax payments to JBS USA Holdings for our share of the unitary taxable income, which is included in taxes payable in our Consolidated and Combined Balance Sheets. Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.
The Company reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, potential for carry back of tax losses, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances have been established primarily for net operating loss carry forwards of certain foreign subsidiaries. See “Note 12. Income Taxes” to the Consolidated and Combined Financial Statements.
The Company deems its earnings from its foreign subsidiariesMexico, Puerto Rico, the U.K., the Republic of Ireland, France, the Netherlands, Luxembourg and Malta as of December 31, 20172023 to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided.
The Company follows provisions underwithin ASC No. 740-10-25Topic 740, Income Taxes, that provide a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50.0%50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 12. Income Taxes” to the Consolidated and Combined Financial Statements.
Pension and Other Postemployment Benefits
Our pension and other postemployment benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, long-term return on plan assets and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. We determine the long-term return on plan assets based on historical portfolio results and management’s expectation of the future economic environment. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over either (i)(1) the estimated average future service period of active plan participants if the plan is active or (ii)(2) the estimated average future life expectancy of all plan participants if the plan is frozen.
Operating Leases
Rent expense for operating leases is recorded on a straight-line basis over the lease term unless the lease contains an escalation clause which is not fixed or determinable. The lease term begins when we have the right to control the use of the leased property, which is typically before rent payments are due under the terms of the lease. If a lease has a fixed or determinable escalation clause, the difference between rent expense and rent paid is recorded as deferred rent and is included in the Consolidated and Combined Balance Sheets. Rent for operating leases that do not have an escalation clause or where escalation is based on an inflation index is expensed over the lease term as it is payable.
Derivative Financial Instruments
The Company uses derivative financial instruments (e.g., futures, forwards options and options)swaps) for the purpose of mitigating exposure to changes in commodity prices, and foreign currency exchange rates and interest rates.
•Commodity Price Risk - The Company utilizes various raw materials, which are all considered commodities, in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel. The Company considers these raw materials to be generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company enters into derivative contracts such as physical forward contracts and exchange-traded futures or option contracts in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for periods up to 12 months. The Company may enter into longer-term derivatives on particular commodities if deemed appropriate.
•Foreign Currency Risk - The Company has foreign operations and, therefore, has exposure to foreign exchange risk when the financial results of those operations are translated to USU.S. dollars. The Company will occasionally purchase derivative financial instruments such as foreign currency forward contracts in an attempt to mitigate currency exchange rate exposure related to the net assets of its Mexico operationsreportable segment that are denominated in Mexican pesos. The Company’s Moy Park operationU.K. and Europe reportable segment also attempts to mitigate foreign currency exposure on certain euro- and U.S. dollar-denominated transactions denominated in foreign currencies through the use of derivative financial instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
•Interest Rate Risk - The Company has exposure to variability in cash flows from interest payments due to the use of variable interest rates on certain long-term debt arrangements. The Company has purchased in the past an interest rate swap contract to convert the variable interest rate to a fixed interest rate on a portion of its outstanding long-term debt arrangements in order to manage this interest rate risk and add stability to interest expense and cash flows.
Pilgrim’s recognizes all commodity derivative instruments that qualify for derivative accounting treatment as either assets or liabilities and measures those instruments at fair value unless they qualify for, and we elect, the normal purchases and normal sales scope exception (“NPNS”). The permitted accounting treatments include: cash flow hedge; fair value hedge; and undesignated contracts. Undesignated contract accounting is the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria both at the time of designation and on an ongoing basis.
The Company has generally applied the NPNS exception tofor certain of its forward physical grain purchase and energy purchase contracts. NPNS contracts are accounted for using the accrual method of accounting; therefore, there were no amounts recorded in the Consolidated and Combined Financial Statements at December 31, 20172023 and December 25, 2016.2022.
Undesignated contracts may include contracts not designated as a hedge or for which the NPNS exception was not elected, contracts that do not qualify for hedge accounting and derivatives that do not or no longer qualify for the NPNS scope exception. The fair value of these derivatives is recognized in the Consolidated and Combined Balance Sheets within Prepaid expenses and other current assets or Accrued expenses and other current liabilities. Changes in fair value of these derivatives are recognized immediately in the Consolidated and Combined Statements of Income within Net sales, Cost of sales or Selling, general and administrativeSG&A expense, depending on the risk they are intended to mitigate. While management believes these instruments help mitigate various market risks, they are not designated nor accounted for as hedges as a result of the extensive recordkeepingrecord keeping requirements.
Business Combination Accounting
Pilgrim’s allocates the consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the consideration over the amount allocated to the assets and liabilities, if any, is recorded to goodwill. The Company uses all available information to estimate fair values. Pilgrim’s uses various models to determine the value of assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market approach to value property, relief-from-royalty and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill. The Company typically engages third-party valuation specialists to assist in the fair value determination of tangible long-lived assets and intangible assets other than goodwill. The fair value of acquired inventories is determined by extending physical counts of the inventories taken at or near the acquisition date to market pricing in effect for such inventories at or near the acquisition date. The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the business combination date. As necessary, Pilgrim’s may engage third-party specialists to assist in the estimation of fair value for certain liabilities. The Company adjusts the preliminary acquisition accounting, as necessary, typically up to one year after the acquisition closing date for those items that existed at the acquisition date and were provisionally accounted for at that time, as it obtains more information regarding asset valuations and liabilities assumed.
The Company designated a British pound-denominated promissory note payable issuedCompany’s acquisition accounting methodology contains uncertainties because it requires management to JBS S.A. in conjunction withmake assumptions and to apply judgment to estimate the Moy Park acquisition as a hedgefair value of its net investment in Moy Park. The remeasurementacquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the noteacquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of the Company’s fair value estimates, including changes in assumptions regarding industry economic factors and business strategies. If actual results are materially different than the assumptions used to determine fair value of the assets and liabilities acquired through a business combination, it is reported as a foreign currency translation adjustment in accumulated other comprehensive loss in the Consolidated and Combined Balance Sheets and will be reclassified into earnings only if the Company divests its investment in Moy Park. The Company paid the promissory note payable in full with proceeds from the sale of senior notes (See “Note 11. Long-Term Debt and Other Borrowing Arrangements”possible that adjustments to the Consolidatedcarrying values of such assets and Combined Financial Statements). At December 31, 2017,liabilities will have an impact on the balance of the remeasurement adjustment in accumulated other comprehensive loss,Company’s net of tax, was $13.5 million.earnings.
Pilgrim’s has designated a portion of its foreign currency derivatives as cash flow hedges and the effective portion of the gain or loss on these derivatives is reported as a component of Accumulated other comprehensive loss within the Consolidated and Combined Balance Sheets and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The derivatives are designated as hedging the variability in expected future cash flows from foreign currency exchange risk related to sales and purchases denominated in nonfunctional currencies.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We make significant estimates in regard to
receivables collectability; inventory valuation; realization of deferred tax assets; valuation of long-lived assets; valuation of contingent liabilities liabilities subject to compromise and self insuranceself-insurance liabilities; valuation of pension and other postretirement benefits obligations; and valuation of acquired businesses.
Recent Accounting Pronouncements Adopted in 2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2014,September 2022, the FinancialFASB issued Accounting Standards BoardUpdate (“FASB”ASU”) issued new accounting guidance new accounting guidance on revenue recognition,2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard.
We will adopt this standard as of January 1, 2018, the beginning of our 2018 fiscal year, using the cumulative effect adjustment, often referred to as modified retrospective approach. Under this method, we would not restate the prior financial statements presented, and would record any adjustments in the opening balance sheet for January 2018. The new guidance on revenue recognition requires the use of more estimates and judgments than the present standards. Additional disclosures will include the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the prior guidance.
Our implementationdisclosure of the new revenueexistence of supplier financing programs. The guidance is in its final stages of a three phased evaluation process. Our process is outlined below.
Phase 1 - Assess:
A high-level adoption analysis and training
Reviewed and analyzed the Company’s revenue streams
Identified and reviewed representative customer contracts from revenue streams
Identified potential accounting impacts and documented key items to be validated and quantified
Phase 2 - Evaluate:
Company has concluded on the majority of Company's position for any accounting treatment differences and is in the process of documenting
Quantifying the potential effects this guidance will have on its Consolidated and Combined Financial Statement
Evaluating any changes to the Company's accounting policies
Expanding disclosures as required by the new standard
Identifying the impact the new standard will have on business processes, systems and internal controls to support the recognition andrequires disclosure requirements under the new standard
Training the organization, as applicable
Phase 3- Implement (in process):
Finalize decisions related to the new standard
Record any accounting adjustments identified
Evaluate and test updated or newly implemented internal controls surrounding adoption of the new standard
Revise the Company’s first quarter 2018 financial statement disclosures to incorporate the qualitative and quantitative impact of adoption and expanded disclosures
Share results with Audit Committee
The Company is on schedule to complete the implementation phase in March 2018. While the Company has reached conclusions on key accounting assumptions we are in process of finalizing any accounting policy changes, documentation and internal controls for the new revenue standard. The new revenue standard will have a minimal impact on our financial statements beyond additional disclosure requirements. The cumulative effect on equity of initially applying the new standard is expected to be immaterial, with an immaterial impact to our net income on an ongoing basis. Due toabout the nature of our business, we anticipate minimal changes will be made to ourthe supplier financing agreements, including key terms and payment timing and determination of amounts, the accounting treatment for the transactions and revenue policies.
In July 2015, the FASB issued new accounting guidanceeffect of the transactions on the subsequent measurementfinancial statements, as well as any assets pledged or guarantees provided to the providers of inventory, which, in an effort to simplify unnecessarily complicated accounting guidance that can result in several potential outcomes, requires an entity to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current accounting guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin.financing programs. The provisions of the new guidance were effective as offor years beginning after December 15, 2022 with the requirement to add rollforward disclosures for years beginning of our 2017 fiscal year.after December 15, 2023. The initialCompany adopted this guidance effective December 26, 2022. The adoption of this guidance did not have a material impact on our financial statements.Consolidated Financial Statements. Additional information regarding supplier finance programs is included in “Note 11. Supplier Finance Programs.”
In February 2016,March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to the application of current GAAP to existing contracts, hedging relationships and other transactions affected by reference rate reform. The new accounting guidance will ease the transition to new reference rates by allowing entities to update contracts and hedging relationships without applying many of the contract modification requirements specific to those contracts. The provisions of the new guidance are effective beginning March 12, 2020, extending through December 31, 2022 with the option to apply the guidance at any point during that time period. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides further clarification on lease arrangements, which,the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in an effort to increase transparency and comparability among organizations utilizing leasing, requiresTopic 848. Once an entity elects an expedient or exception it must be applied to all eligible contracts or transactions. The Company adopted this guidance effective December 26, 2022. The adoption did not have a material impact on our Consolidated Financial Statements.
Recent Accounting Pronouncements Adopted in 2022
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires annual disclosures for transactions with a government authority that isare accounted for by a lessee to recognizegrant or contribution model. The guidance requires disclosure about the assetsnature of certain government assistance received, the accounting treatment for the transactions and liabilities arising from leasesthe effect of the transactions on the balance sheet. Thisfinancial statements. The guidance alsois effective for annual periods beginning after December 15, 2021, with early adoption permitted. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements.
Recent Accounting Pronouncements Not Yet Adopted as of December 31, 2023
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires additional disclosures for reportable segments. The guidance requires disclosures about significant segment expenses that are regularly provided to the amount, timingchief operating decision maker along with additional measures of segment profit that are regularly used by the chief operating decision maker in assessing segment performance and uncertainty of cash flows arising from leases. In transition, the entity is requireddeciding how to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.allocate resources. The provisions of the new guidance will be effective as offor years beginning after December 15, 2023 and interim periods in fiscal years beginning after December 15, 2024. The Company plans to adopt this guidance in the beginning of our 2019next fiscal year. Early adoption is permitted. Weyear and are currently evaluatingstill assessing the impact of the new guidanceimpacts on our financial statements and have elected to adopt as of the beginning of our 2019 fiscal year.Consolidated Financial Statements.
In March 2016,December 2023, the FASB issued new accounting guidance on employee share-based payments,ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which in an effortrequires additional disclosures for income taxes to simplify unnecessarily complicated aspectsenhance transparency and usefulness of accounting and reporting for share-based payment transactions, requires an entity to amend accounting and reporting methodology for areas such as the income tax consequencesdisclosures. The guidance requires additional disclosures for the tabular rate reconciliation, income taxes paid, and the disaggregation of share-based payments, classification of share-based awards as either equity or liabilities,domestic, federal and classification of share-based payment transactions in the statement of cash flows. The transition approach will vary depending on the area of accountingstate, and reporting methodology to be amended. The Company adopted this standard on December 26, 2016, the beginning of our 2017 fiscal year,foreign components within income (or loss) from continuing operations before income tax expense (or benefit) and will prospectively present excessincome tax benefits or deficiencies in the income statement as a component of “Provision for income taxes” rather than in the “Equity” section of the Balance Sheet. As part of the adoption, the Company did not have a cumulative-effect adjustment, as there were no previous unrecognized excess tax benefits that would impact retained earnings. As a result, there was no retrospective adjustment to the prior period statement of cash flows of excess tax benefits as an operating activity rather than a financing activity.
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excludedexpense (or benefit) from the scope that have the contractual right to receive cash.continuing operations. The provisions of the new guidance will be effective as of thefor years beginning of our 2020 fiscal year. Early adoption is permitted after our 2018 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In November 2016, the FASB issued new accounting guidance on the classification and presentation of restricted cash in the statement of cash flows in orderDecember 15, 2024. The Company plans to eliminate the diversity that currently exists in how companies present these changes. The new guidance requires restricted cash to be included with cash and cash equivalents when explaining the changes in cash in the statement of cash flows. We elected to early adopt this guidance as it becomes effective and is assessing the impacts on our Consolidated Financial Statements.
2. REVENUE RECOGNITION
The vast majority of December 26, 2016, the beginningCompany’s revenue is derived from contracts which are based upon a customer ordering our products. While there may be master agreements, the contract is only established when the customer’s order is accepted by the Company. The Company accounts for a contract, which may be verbal or written, when it is approved and committed by both parties, the rights of our 2017 fiscal year. An entity should apply the new guidance onparties are identified along with payment terms, the contract has commercial substance and collectability is probable.
The Company evaluates the transaction for distinct performance obligations, which are the sale of its products to customers. Since its products are commodity market-priced, the sales price is representative of the observable, standalone selling price. Each performance obligation is recognized based upon a retrospective basis, whereinpattern of recognition that reflects the statementtransfer of control
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to the customer at a point in time, which is upon destination (customer location or port of destination), which faithfully depicts the transfer of control and recognition of revenue. There are instances of customer pick-up at the Company’s facility, in which case control transfers to the customer at that point and the Company recognizes revenue. The Company’s performance obligations are typically fulfilled within days to weeks of the acceptance of the order.
The Company makes judgments regarding the nature, amount, timing and uncertainty of revenue and cash flowflows arising from revenue and cash flows with customers. Determination of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to complya contract requires evaluation and judgment along with the applicable disclosures for a change in an accounting principle. These disclosures includeestimation of the total contract value and if any of the contract value is constrained. Due to the nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and reasonupdated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.
Disaggregated Revenue
Revenue has been disaggregated into the following categories below to show how economic factors affect the nature, amount, timing and uncertainty of revenue and cash flows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Fresh | | Prepared | | Export | | Other | | Total |
| (In thousands) |
| U.S. | $ | 8,105,268 | | | $ | 978,423 | | | $ | 533,205 | | | $ | 410,846 | | | $ | 10,027,742 | |
| U.K. and Europe | 1,074,900 | | | 3,525,359 | | | 472,657 | | | 130,406 | | | 5,203,322 | |
| Mexico | 1,796,670 | | | 212,651 | | | — | | | 121,832 | | | 2,131,153 | |
| Total net sales | $ | 10,976,838 | | | $ | 4,716,433 | | | $ | 1,005,862 | | | $ | 663,084 | | | $ | 17,362,217 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 25, 2022 |
| Fresh | | Prepared | | Export | | Other | | Total |
| (In thousands) |
| U.S. | $ | 8,624,421 | | | $ | 1,107,734 | | | $ | 552,823 | | | $ | 463,372 | | | $ | 10,748,350 | |
| U.K. and Europe | 908,882 | | | 3,104,347 | | | 712,685 | | | 148,824 | | | 4,874,738 | |
| Mexico | 1,587,809 | | | 167,589 | | | — | | | 89,891 | | | 1,845,289 | |
| Total net sales | $ | 11,121,112 | | | $ | 4,379,670 | | | $ | 1,265,508 | | | $ | 702,087 | | | $ | 17,468,377 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 26, 2021 |
| Fresh | | Prepared | | Export | | Other | | Total |
| (In thousands) |
| U.S. | $ | 7,264,448 | | | $ | 898,614 | | | $ | 459,371 | | | $ | 491,446 | | | $ | 9,113,879 | |
| U.K. and Europe | 1,151,330 | | | 2,214,180 | | | 458,588 | | | 109,964 | | | 3,934,062 | |
| Mexico | 1,515,453 | | | 128,208 | | | — | | | 85,856 | | | 1,729,517 | |
| Total net sales | $ | 9,931,231 | | | $ | 3,241,002 | | | $ | 917,959 | | | $ | 687,266 | | | $ | 14,777,458 | |
Contract Costs
The Company can incur incremental costs to obtain or fulfill a contract such as broker expenses that are not expected to be recovered. The amortization period for such expenses is less than one year; therefore, the costs are expensed as incurred.
Taxes
The Company excludes all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added and some excise taxes) from the transaction price.
Contract Balances
The Company receives payment from customers based on terms established with the customer. Payments are typically due within 14 to 30 days of delivery. Revenue contract liabilities relate to payments received in advance of satisfying the performance under the customer contract. The revenue contract liabilities relate to customer prepayments and the advanced
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
consideration, such as cash, received from governmental agency contracts for which performance obligations to the end customer have not been satisfied.
Changes in the revenue contract liability balances for the changeyears ended December 31, 2023 and December 25, 2022 were as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| (In thousands) |
| Balance, beginning of year | $ | 34,486 | | | $ | 22,321 | |
| Revenue recognized | (28,674) | | | (19,712) | |
| Cash received, excluding amounts recognized as revenue during the period | 79,146 | | | 31,877 | |
| Balance, end of year | $ | 84,958 | | | $ | 34,486 | |
3. LEASES
The Company is party to operating lease agreements for warehouses, office space, vehicle maintenance facilities and livestock growing farms in accounting principle, the transition method,U.S., distribution centers, hatcheries and office space in Mexico and farms, processing facilities and office space in the U.K. and Europe. Additionally, the Company leases equipment, over-the-road transportation vehicles and other assets in all three reportable segments. The Company is also party to a descriptionlimited number of finance lease agreements in the prior-period informationU.S.
The Company’s leases have remaining lease terms of less than one year to 17 years, some of which may include options to extend the lease for up to five years and some of which may include options to terminate the lease within one year. The exercise of options to extend lease terms is at the Company’s sole discretion. Certain leases also include options to purchase the leased property.
Certain lease agreements include rental payment increases over the lease term that has been retrospectively adjustedcan be either fixed or variable. Fixed payment increases and variable payment increases based on an index or rate are included in the effectinitial lease liability using the index or rate at commencement date. Variable payment increases not based on an index are recognized as incurred. Certain lease agreements contain residual value guarantees, primarily vehicle and transportation equipment leases.
The following table presents components of lease expense (in thousands). Operating lease cost, finance lease amortization and finance lease interest are respectively included in Cost of sales, SG&A expense and Interest expense, net of capitalized interest in the change on the financial statement line items. A descriptionConsolidated Statements of the prior-period information that has been retrospectively adjustedIncome.
| | | | | | | | | | | |
| For the Year Ended |
| December 31, 2023 | | December 25, 2022 |
Operating lease cost(a) | $ | 92,877 | | | $ | 98,353 | |
| Amortization of finance lease assets | 921 | | | 472 | |
| Interest on finance leases | 95 | | | 132 | |
| Short-term lease cost | 93,739 | | | 77,100 | |
| Variable lease cost | 2,751 | | | 4,102 | |
| Net lease cost | $ | 190,383 | | | $ | 180,159 | |
(a)Sublease income is immaterial and the effect of the change on the statement ofnot included in operating lease costs.
The weighted-average remaining lease term and discount rate for lease liabilities included in our Consolidated Balance Sheets are as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| Weighted-average remaining lease term: | | | |
| Operating leases | 5.73 years | | 5.80 years |
| Finance leases | 4.34 years | | 4.52 years |
| Weighted-average discount rate: | | | |
| Operating leases | 4.24 | % | | 4.00 | % |
| Finance leases | 2.81 | % | | 3.19 | % |
Supplemental cash flow line itemsinformation related to leases is not disclosed as it is not material.follows (in thousands):
In March 2017, the FASB issued new accounting guidance on the presentation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In August 2017, the FASB issued an accounting standard update that simplifies the application of hedge accounting guidance in current GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. Among the simplification updates, the standard eliminates the requirement in current GAAP to separately recognize periodic hedge ineffectiveness. Mismatches between the changes in value of the hedged item and hedging instrument may still occur but they will no longer be separately reported. The standard requires the presentation of the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The standard is effective for annual and interim reporting periods beginning after December 15, 2018, but early adoption is permitted. We are currently evaluating the impact the adoption of this standard will have on our financial statements. | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows - operating leases | $ | 94,087 | | | $ | 69,349 | |
| Operating cash flows - finance leases | 96 | | | 132 | |
| Financing cash flows - finance leases | 979 | | | 924 | |
| Operating lease assets obtained in exchange for operating lease liabilities | 36,967 | | | 56,988 | |
2. BUSINESS ACQUISITIONS
Moy Park
On September 8, 2017, the Company purchased 100% of the issued and outstanding shares of Moy Park from JBS S.A. for cash of $301.3 million and a note payable to the seller in the amount of £562.5 million. Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 7 hatcheries and 1 rendering facility in Northern Ireland, the U.K., France, and The Netherlands, Moy Park processes 6.0 million birds per seven-day work week, in addition to producing around 456.0 million pounds of prepared foods per year. Its product portfolio comprises fresh and added-value poultry, ready-to-eat meals, breaded and multi-protein frozen foods, vegetarian foods and desserts, supplied to major food retailers and restaurant chains in Europe (including the U.K.). Moy Park has approximately 10,200 employeesFuture minimum lease payments under noncancelable leases as of December 31, 2017. The Moy Park operations comprise our U.K. and Europe segment.
The acquisition was treated as a common-control transaction under U.S. GAAP. A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. The accounting and reporting for a transaction between entities under common control is not to be considered a business combination under U.S. GAAP. Since there is no change in control over the net assets from the parent’s perspective, there is no change in basis in the assets or liabilities. Therefore, Pilgrim's, as the receiving entity, recognized the assets and liabilities received at their historical carrying amounts, as reflected in the parent’s financial statements. The difference between the proceeds transferred and the carrying amounts of the net assets on the date of the acquisition is recognized in equity.
Transaction costs incurred in conjunction with the acquisition were approximately $19.6 million. These costs were expensed as incurred. Beginning September 8, 2017, the results of operations and financial position of Moy Park have been included in the consolidated results of operations and financial position of the Company. The results of operations and financial position of Moy Park have been combined with the results of operations and financial position of Pilgrim's from September 30, 2015, the common control date, through September 7, 2017. The following table summarizes the results of operations of Moy Park since the September 30, 2015 common-control date:
|
| | | | | | | |
| | Net Sales | | Net Income |
| | (In thousands) |
| September 8, 2017 through December 31, 2017 | $ | 722,387 |
| | $ | 34,039 |
|
| December 26, 2016 through September 7, 2017 | 1,273,932 |
| | 23,486 |
|
| 2016 | 1,947,441 |
| | 40,388 |
|
| 2015 | 572,568 |
| | 17,010 |
|
GNP
On January 6, 2017, the Company acquired 100% of the membership interests of JFC LLC and its subsidiaries (together, “GNP”) from Maschhoff Family Foods, LLC for $350.0 million, subject to customary working capital adjustments. The purchase was funded through cash on hand and borrowings under the U.S. Credit Agreement. GNP is a vertically integrated poultry business based in St. Cloud, Minnesota. The acquired business has a production capacity of 2.1 million birds per five-day work week in its two plants and currently employs approximately 1,500 people. This acquisition further strengthens the Company’s strategic position in the U.S. chicken market. The GNP operations are included in our U.S. segment.
The following table summarizes the consideration paid for GNP (in thousands)
|
| | | |
| Negotiated sales price | $ | 350,000 |
|
| Working capital adjustment | 7,252 |
|
| Preliminary purchase price | $ | 357,252 |
|
Transaction costs incurred in conjunction with the purchase were approximately $0.6 million. These costs were expensed as incurred. The results of operations of the acquired business since January 6, 2017 are included in the Company’s Consolidated and Combined Statements of Income. Net sales and net income generated by the acquired business during the year ended December 31, 2017 totaled $433.9 million and $30.4 million, respectively.
The assets acquired and liabilities assumed in the GNP acquisition were measured at their fair values at January 6, 2017 as set forth below. The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce. These benefits include
(i) complementary product offerings, (ii) an enhanced footprint in the U.S., (iii) shared knowledge of innovative technologies such as gas stunning, aeroscalding and automated deboning, (iv) enhanced position in the fast-growing antibiotic-free and certified organic chicken segments due to the addition of GNP’s portfolio of Just BARE® Certified Organic and Natural/American Humane CertifiedTM/No-Antibiotics-Ever product lines and (v) attractive cost-reduction synergy opportunities and value creation. The Company has tax basis in the goodwill, and therefore, the goodwill is deductible for tax purposes. The fair values recorded were determined based upon upon various external and internal valuations..
The fair values recorded for the assets acquired and liabilities assumed for GNP2023 are as follows (in thousands):
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| For the fiscal years ending December: | | | |
| 2024 | $ | 77,745 | | | $ | 742 | |
| 2025 | 57,462 | | | 587 | |
| 2026 | 51,548 | | | 554 | |
| 2027 | 37,909 | | | 526 | |
| 2028 | 24,907 | | | 219 | |
| Thereafter | 55,859 | | | — | |
| Total future minimum lease payments | 305,430 | | | 2,628 | |
| Less: imputed interest | (34,642) | | | (142) | |
| Present value of lease liabilities | $ | 270,788 | | | $ | 2,486 | |
|
| | | |
| Cash and cash equivalents | $ | 10 |
|
| Trade accounts and other receivables | 18,453 |
|
| Inventories | 56,459 |
|
| Prepaid expenses and other current assets | 3,414 |
|
| Property, plant and equipment | 144,138 |
|
| Identifiable intangible assets | 131,120 |
|
| Other long-lived assets | 829 |
|
| Total assets acquired | 354,423 |
|
| Accounts payable | 23,848 |
|
| Other current liabilities | 11,866 |
|
| Other long-term liabilities | 3,393 |
|
| Total liabilities assumed | 39,107 |
|
| Total identifiable net assets | 315,316 |
|
| Goodwill | 41,936 |
|
| Total net assets | $ | 357,252 |
|
The Company recognized certain identifiable intangible assets as of January 6, 2017 due to this acquisition. The following table presents the fair values and useful lives, where applicable, of these assets:
|
| | | | | |
| | Fair Value | | Useful Life |
| | (In thousands) | | (In years) |
| Customer relationships | $ | 92,900 |
| | 13.0 |
| Trade names | 38,200 |
| | 20.0 |
| Non-compete agreement | 20 |
| | 3.0 |
| Total fair value | $ | 131,120 |
| | |
| Weighted average useful life | | | 15.2 |
The Company performed a valuation of the assets andLease liabilities of GNP as of January 6, 2017. Significant assumptions used in the valuation and the bases for their determination are summarized as follows:
Property, plant and equipment, net. Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company's real property improvements and the majority of its personal property was based on the cost approach. The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
Trade names. The Company valued two trade names using the income approach, specifically the relief from royalty method. Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned. Royalty rates were selected based on consideration of several factors, including (i) prior transactions involving GNP trade names, (ii) incomes derived from license agreements on comparable trade names within the food industry and (iii) the relative profitability and perceived contribution of each trade name. The royalty rate used in the determination of the fair values of the two trade names was 2.0% of expected net sales related to the respective trade names. In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of 2.5%. Income taxes were estimated at 39.3% of pre-tax income, a tax amortization benefit factor was estimated at 1.2098 and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of 13.8%.
Customer relationships. The Company valued GNP customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset was determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the fair value of the customer relationships, net sales related to existing GNP customers were estimated to grow at a rate of 2.5% annually, but we also anticipate losing existing GNP customers at an attrition rate of 4.0%. Income taxes were estimated at 39.3% of pre-tax income, a tax amortization benefit factor was estimated at 1.2098 and net cash flows attributable to our existing customers were discounted using a rate of 13.8%.
See “Note 8. Goodwill and Identified Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the GNP acquisition.
Tyson Mexico
On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries, 100% of the equity of Provemex Holdings, LLC and its subsidiaries (together, “Tyson Mexico”) from Tyson Foods, Inc. and certain of its subsidiaries for cash. Tyson Mexico is a vertically integrated poultry business based in Gómez Palacio, Durango, Mexico. The acquired business has a production capacity of 2.9 million birds per five-day work week in its three plants and currently employs more than 4,400 people in its plants, offices and five distribution centers. This acquisition further strengthened the Company’s strategic position in the Mexico chicken market.
The following table summarizes the consideration paid for Tyson Mexico (in thousands):
|
| | | |
| Negotiated sales price | $ | 400,000 |
|
| Working capital adjustment | (20,933 | ) |
| Final purchase price | $ | 379,067 |
|
The results of operations of the acquired business since June 29, 2015 are included in the Company’sour Consolidated and Combined Statements of Income. Net sales generated by the acquired business during 2017 and 2016 totaled $141.4 million and $250.6 million, respectively. The significant decrease in net sales during 2017 as compared to 2016 primarily resulted from a shift in sales activity from the acquired business to the Company’s legacy business operating in Mexico. The acquired business generated net income of $6.3 million during 2017 and incurred a net loss of $13.7 million during 2016.
The assets acquired and liabilities assumed in the Tyson Mexico acquisition were measured at their fair values at June 29, 2015 as set forth below. The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce. These benefits include complementary product offerings, an enhanced footprint in Mexico and attractive synergy opportunities and value creation. The Company does not have tax basis in the goodwill, and therefore, the goodwill is not deductible for tax purposes. The fair values recorded were determined based upon various external and internal valuations.
The fair values recorded for the assets acquired and liabilities assumed for Tyson Mexico areBalance Sheets as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| Operating Leases | | Finance Leases | | Operating Leases | | Finance Leases |
| Accrued expenses and other current liabilities | $ | 67,440 | | | $ | — | | | $ | 79,222 | | | $ | — | |
| Current maturities of long-term debt | — | | | 674 | | | — | | | 966 | |
| Noncurrent operating lease liability, less current maturities | 203,348 | | | — | | | 230,701 | | | — | |
| Long-term debt, less current maturities | — | | | 1,812 | | | — | | | 2,658 | |
| Total lease liabilities | $ | 270,788 | | | $ | 2,486 | | | $ | 309,923 | | | $ | 3,624 | |
|
| | | |
| Cash and cash equivalents | $ | 5,535 |
|
| Trade accounts and other receivables | 24,173 |
|
| Inventories | 68,130 |
|
| Prepaid expenses and other current assets | 7,661 |
|
| Property, plant and equipment | 209,139 |
|
| Identifiable intangible assets | 26,411 |
|
| Other long-lived assets | 199 |
|
| Total assets acquired | 341,248 |
|
| Accounts payable | 21,550 |
|
| Other current liabilities | 8,707 |
|
| Long-term deferred tax liabilities | 52,376 |
|
| Other long-term liabilities | 5,155 |
|
| Total liabilities assumed | 87,788 |
|
| Total identifiable net assets | 253,460 |
|
| Goodwill | 125,607 |
|
| Total net assets | $ | 379,067 |
|
The Company performed a valuation of the assets and liabilities of Tyson Mexico at June 29, 2015. Significant assumptions used in the valuation and the bases for their determination are summarized as follows:
Property, plant and equipment, net. Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company’s real property improvements and the majority of its personal property was based on the cost approach. The valuation of the Company’s land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
Indefinite-lived trade names. The Company valued two indefinite-lived trade names using the income approach, specifically the relief from royalty method. Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned. Royalty rates were selected based on consideration of several factors, including (i) prior transactions involving Tyson Mexico trade names, (ii) incomes derived from license agreements on comparable trade names within the food and non-alcoholic beverages industry and (iii) the relative profitability and perceived contribution of each trade name. Royalty rates used in the determination of the fair values of the two trade names ranged from 4.0% to 5.0% of expected net sales related to the respective trade names and trade name maintenance costs were estimated as 1.4% of the royalty saved. The Company anticipates using both trade names for an indefinite period as demonstrated by the sustained use of each subject trade name. In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of 3.5% to 4.0% annually with a terminal year growth rate of 3.8%. Income taxes were estimated at 30.0% of pre-tax income, a tax amortization benefit was estimated considering a rate of 15.0% and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of 12.0%. The two trade names were valued at $9.7 million under this approach.
Customer relationships. The Company valued Tyson Mexico’s customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset is determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the fair value of the customer relationships, net sales related to our existing customers were estimated to grow at a rate of 4.0% annually, but we also anticipate losing existing customers at an attrition rate of 7.9%. Income taxes were estimated at 30.0% of pre-tax income, a tax amortization benefit was estimated considering a rate of 23.4% and net cash flows attributable to our existing customers were discounted using a rate of 13.5%. Customer relationships were valued at $16.7 million under this approach.
The Company recognized the following change in goodwill related to this acquisition during 2016 (in thousands):
|
| | | |
| Goodwill, beginning of period | $ | 156,565 |
|
| Additional fair value attributed to acquired property, plant and equipment | (51,387 | ) |
Deferred tax impact related to additional fair value attributed to acquired property, plant and equipment | 15,416 |
|
| Deferred tax impact related to customer relationship intangibles | 5,013 |
|
| Goodwill, end of period | $ | 125,607 |
|
Unaudited Pro Forma Financial Information
The following unaudited pro forma information presents the combined financial results for the Company, Moy Park, GNP and Tyson Mexico as if all the acquisitions had been completed at the beginning of 2015.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands, except per share amounts) |
| Net sales | $ | 10,773,662 |
| | $ | 10,311,325 |
| | $ | 11,157,328 |
|
| Net income attributable to Pilgrim's Pride Corporation | 664,776 |
| | 401,630 |
| | 631,800 |
|
Net income attributable to Pilgrim's Pride Corporation
per common share - diluted | 2.67 |
| | 1.58 |
| | 2.44 |
|
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company’s results of operations would have been had it completed the acquisitions on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisitions.
3. FAIR VALUE MEASUREMENTS
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. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:
|
| | |
Level 1 | | Unadjusted 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 in its entirety.
As of December 31, 2017 and December 25, 2016, the Company held derivative assets and liabilities that were required to be measured at fair value on a recurring basis. Derivative assets and liabilities consist of long and short positions on exchange-traded commodity futures instruments and foreign currency forward contracts to manage translation and remeasurement risk.
The following items were measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2017 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In thousands) |
| Fair value assets: | | | | | | | | |
| Commodity futures instruments | | $ | 301 |
| | $ | — |
| | $ | — |
| | $ | 301 |
|
| Commodity options instruments | | 421 |
| | — |
| | — |
| | 421 |
|
| Foreign currency instruments | | 45 |
| | — |
| | — |
| | 45 |
|
| Fair value liabilities: | | | | | | | | |
| Commodity futures instruments | | (296 | ) | | — |
| | — |
| | (296 | ) |
| Commodity options instruments | | (3,551 | ) | | — |
| | — |
| | (3,551 | ) |
| Foreign currency instruments | | (211 | ) | | — |
| | — |
| | (211 | ) |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | | | | | |
| | | December 25, 2016 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | (In thousands) |
| Fair value assets: | | | | | | | | |
| Commodity futures instruments | | $ | 5,341 |
| | $ | — |
| | $ | — |
| | $ | 5,341 |
|
| Commodity options instruments | | 98 |
| | — |
| | — |
| | 98 |
|
| Foreign currency instruments | | 516 |
| | — |
| | — |
| | 516 |
|
| Fair value liabilities: | | | | | | | | |
| Commodity futures instruments | | (4,063 | ) | | — |
| | — |
| | (4,063 | ) |
| Commodity option instruments | | (2,764 | ) | | — |
| | — |
| | (2,764 | ) |
| Foreign currency instruments | | (153 | ) | | — |
| | — |
| | (153 | ) |
See “Note 7. Derivative Financial Instruments” for additional information.
The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations. For each class of assets and liabilities not measured at fair value in the Consolidated and Combined Balance Sheet but for which fair value is disclosed, the Company is not required to provide the quantitative disclosure about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy.
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.
The carrying amounts and estimated fair values of our fixed-rate debt obligation recorded in the Consolidated and Combined Balance Sheets consisted of the following:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2017 | | December 25, 2016 |
| | | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | | | (In thousands) | | |
| Fixed-rate senior notes payable at 5.75%, at Level 1 inputs | | $ | (750,000 | ) | | $ | (774,375 | ) | | $ | (500,000 | ) | | $ | (503,395 | ) |
| Fixed-rate senior notes payable at 5.875%, at Level 1 inputs | | (604,820 | ) | | (619,080 | ) | | — |
| | — |
|
| Fixed-rate senior notes payable at 6.25%, at Level 1 inputs | | (403,444 | ) | | (418,787 | ) | | (369,736 | ) | | (389,709 | ) |
| Chattel Mortgages, at Level 3 inputs | | (873 | ) | | (855 | ) | | (1,432 | ) | | (1,379 | ) |
See “Note 11. Long-Term Debt and Other Borrowing Arrangements” for additional information.
The carrying amounts of our cash and cash equivalents, derivative trading accounts' margin cash, restricted cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximate their fair values due to their relatively short maturities. Derivative assets were recorded at fair value based on quoted market prices and are included in the line item Prepaid expenses and other current assets on the Consolidated and Combined Balance Sheet. Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item Accrued expenses and other current liabilities on the Consolidated and Combined Balance Sheet. The fair values of the Company’s Level 1 fixed-rate debt obligation was based on the quoted market price at December 31, 2017 or December 25, 2016, as applicable. The fair values of the Company’s Level 3 fixed-rate debt obligation was based on discounted cash flows at December 31, 2017 or December 25, 2016, as applicable.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
4. TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade accounts and other receivables (including accounts receivable from related parties), less allowance for doubtful accounts, consisted of the following:
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (In thousands) |
| Trade accounts receivable | $ | 548,472 |
| | $ | 435,818 |
|
| Notes receivable - current | 5,130 |
| | 630 |
|
| Other receivables | 20,021 |
| | 15,766 |
|
| Receivables, gross | 573,623 |
| | 452,214 |
|
| Allowance for doubtful accounts | (8,145 | ) | | (6,661 | ) |
| Receivables, net | $ | 565,478 |
| | $ | 445,553 |
|
| | | | |
Accounts receivable from related parties(a) | $ | 2,951 |
| | $ | 4,010 |
|
| |
(a) | Additional information regarding accounts receivable from related parties is included in “Note 18. Related Party Transactions.” |
Changes in the allowance for doubtful accounts were as follows:
|
| | | | |
| | | Total |
| | | (In thousands) |
| Balance at December 25, 2016 | | $ | (6,661 | ) |
| Provision charged to operating results | | (2,700 | ) |
| Account write-offs and recoveries | | 1,538 |
|
| Effect of exchange rate | | (322 | ) |
| Balance at December 31, 2017 | | $ | (8,145 | ) |
5. INVENTORIES
Inventories consisted of the following:
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (In thousands) |
| Live chicken and hens | $ | 585,525 |
| | $ | 407,475 |
|
| Feed, eggs and other | 218,611 |
| | 257,049 |
|
| Finished chicken products | 390,412 |
| | 243,824 |
|
| Total chicken inventories | 1,194,548 |
| | 908,348 |
|
| Commercial feed, table eggs and other | 60,522 |
| | 67,260 |
|
| Total inventories | $ | 1,255,070 |
| | $ | 975,608 |
|
6. INVESTMENTS IN SECURITIES
We recognize investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security’s length to maturity. Additionally, those securities identified by management at the time of purchase for funding operations in less than one year are classified as current.
The following table summarizes our investments in available-for-sale securities:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| |
Cost | | Fair
Value | |
Cost | | Fair
Value |
| | (In thousands) |
| Cash equivalents: | | | | | | | |
| Fixed income securities | $ | 330,456 |
| | $ | 330,456 |
| | $ | 140,480 |
| | $ | 140,480 |
|
| Other | 942 |
| | 942 |
| | 61 |
| | 61 |
|
Securities classified as cash and cash equivalents mature within 90 days. Securities classified as short-term investments mature between 91 and 365 days. Securities classified as long-term investments mature after 365 days. The specific identification method is used to determine the cost of each security sold and each amount reclassified out of accumulated other comprehensive loss to earnings. Gross realized gains recognized during 2017 and 2016 related to the Company’s available-for-sale securities totaled $0.4 million and $0.9 million, respectively. Gross realized losses recognized during 2017 and 2016 related to the Company’s available-for-sale securities totaled $6,500 and $83,400, respectively. Proceeds received from the sale or maturity of available-for-sale securities during 2017 and 2016 are disclosed in the Consolidated and Combined Statements of Cash Flows. Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during 2017 and 2016 that have been included in accumulated other comprehensive loss and the net amount of gains and losses reclassified out of accumulated other comprehensive loss to earnings during 2017 and 2016 are disclosed in “Note 14. Stockholders’ Equity.”
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum,wheat, natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next 12twelve months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.
The Company has operations in Mexico, and Europe (including the U.K.), France, the Netherlands and therefore,the Republic of Ireland. Therefore, it has exposure to translational foreign exchange risk when the financial results of those operations are remeasured in U.S. dollars. The Company has purchased foreign currency forward contracts to partially manage this translational foreign exchange risk.
The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Consolidated and Combined Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements. OurThe Company’s counterparties require that weit post cash collateral for changes in the net fair value of the derivative contracts. This cash collateral is reported in the line item Restricted cash and cash equivalents on the Consolidated Balance Sheets.
We haveUndesignated contracts may include contracts not designated as hedges or contracts that do not qualify for hedge accounting. The fair value of each of these derivatives is recognized in the Consolidated Balance Sheets within Prepaid expenses and other current assets or Accrued expenses and other current liabilities. Changes in fair value of each derivative are
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognized immediately in the Consolidated Statements of Income within Net sales, Cost of sales, Selling, general and administrative expense, or Foreign currency transaction (gains) losses depending on the risk the derivative is intended to mitigate. While management believes these instruments help mitigate various market risks, they are not designated and accounted for as hedges as a result of the extensive record keeping requirements.
The Company does not apply hedge accounting treatment to certain derivative financial instruments that we haveit has purchased to mitigate commodity purchase exposures in the U.S. and Mexico or foreign currency transaction exposures on our Mexico operations as cash flow hedges. Items designated as cash flow hedges are disclosed and described further below.operations. Therefore, wethe Company recognized changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to thesethe commodity derivative financial instruments are included in the line item Cost of sales in the Consolidated and Combined Statements of Income. Realized gains and losses related to cash flows are disclosed in the Consolidated Statements of Cash Flows in Cash Provided by Operating Activities. Unrealized gains and losses related to cash flows are disclosed in the Consolidated Statements of Cash Flows in the line item Other operating assets and liabilities. Gains or losses related to the foreign currency derivative financial instruments are included in the line item Foreign currency transaction losses (gains) and Cost of sales in the Consolidated Statements of Income.
We have designatedThe Company does apply hedge accounting to certain derivative financial instruments related to ourits U.K. and Europe reportable segment that we haveit has purchased to mitigate foreign currency transaction exposures as cash flow hedges.exposures. Before the settlement date of the financial derivative instruments, we recognizethe Company recognizes changes in the fair value of the effective portion of the cash flow hedge into accumulated other comprehensive incomeloss (“AOCI”AOCL”) while we recognize changes in the fair value of the ineffective portion immediately in earnings.. When the derivative financial instruments associated with the effective portion are settled, the amount in AOCIAOCL is then reclassified to earnings. Gains or losses related to these derivative financial instruments are included in the line item items Net sales and Cost of sales in the Consolidated and Combined Statements of Income.
The Company recognized $6.7 million in net gains relatedWe have generally applied the normal purchase and normal sale scope exception (“NPNS”) to changes inour forward physical grain purchase contracts delivered by truck and to our forward physical natural gas and solar-generated power purchase contracts. NPNS contracts are accounted for using the accrual method of accounting; therefore, amounts payable under these contracts are recorded when we take delivery of the contracted product and no amounts were recorded for the fair value of its derivative financial instruments during 2017. The Company recognized $4.3 million in net losses and $21.6 million in net gains related to changesthese contracts in the fair value of its derivative financial instruments during 2016Consolidated Financial Statements at December 31, 2023 and 2015, respectively.December 25, 2022.
Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| (In thousands) |
| Fair values: | | | |
| Commodity derivative assets | $ | 1,202 | | | $ | 17,922 | |
| Commodity derivative liabilities | (17,118) | | | (9,042) | |
| Foreign currency derivative assets | 175 | | | 555 | |
| Foreign currency derivative liabilities | (723) | | | (6,170) | |
| | | |
| Sales contract derivative assets | 960 | | | — | |
| Sales contract derivative liabilities | — | | | (3,705) | |
Cash collateral posted with brokers(a) | 33,475 | | | 33,771 | |
Derivatives Coverage(b): | | | |
| Corn | 10.9 | % | | 14.4 | % |
| Soybean meal | 39.6 | % | | 10.1 | % |
| Period through which stated percent of needs are covered: | | | |
| Corn | July 2024 | | December 2023 |
| Soybean meal | March 2024 | | December 2023 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
(a)Collateral posted with brokers consists primarily of cash, short term treasury bills, or other cash equivalents.
(b)Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date.
The following table presents the gains and losses of each derivative instrument held by the Company not designated or qualifying as hedging instruments:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | |
| Years Ended | |
Type of Contract (a) | December 31, 2023 | | December 25, 2022 | | December 26, 2021 | Affected Line Item in the Consolidated Statements of Income |
| Foreign currency derivatives gain (loss) | $ | (34,229) | | | $ | (35,586) | | | $ | 12,806 | | Foreign currency transaction losses (gains) |
| Commodity derivative gain (loss) | (5,318) | | | 53,899 | | | 50,404 | | Cost of sales |
| Sales contract derivative gain (loss) | 4,665 | | | 8,985 | | | (12,691) | | Net sales |
| Total | $ | (34,882) | | | $ | 27,298 | | | $ | 50,519 | | |
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (Fair values in thousands) |
| Fair values: | | | |
| Commodity derivative assets | $ | 722 |
| | $ | 5,439 |
|
| Commodity derivative liabilities | (3,847 | ) | | (6,827 | ) |
| Foreign currency derivative assets | 45 |
| | 516 |
|
| Foreign currency derivative liabilities | (211 | ) | | (153 | ) |
| Cash collateral posted with brokers | 8,021 |
| | 4,979 |
|
Derivatives Coverage(a): | | | |
| Corn | 3.1 | % | | 2.3 | % |
| Soybean meal | 1.7 | % | | 0.3 | % |
| Period through which stated percent of needs are covered: | | | |
| Corn | March 2019 |
| | September 2018 |
|
| Soybean meal | December 2018 |
| | July 2017 |
|
| |
(a) | Derivatives coverage is the percent of anticipated corn and soybean meal needs covered by outstanding derivative instruments through a specified date. |
(a)Amounts in parentheses represent income (expenses) related to results of operations.
The following tables present the components of the gain or loss on derivatives that qualify as cash flow hedges:
| | | | | | | | | | | | | | | | | |
| Gain (Loss) Recognized in Other Comprehensive Loss |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Foreign currency derivatives | $ | (2,579) | | | $ | 1,719 | | | $ | 471 | |
| Interest rate swap derivatives | — | | | 98 | | | (88) | |
| Total | $ | (2,579) | | | $ | 1,817 | | | $ | 383 | |
|
| | | | | | | | | | | | |
| | | Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion) |
| | | December 31, 2017 | | December 25, 2016 | | December 27, 2015 |
| | (In thousands) |
| Foreign currency derivatives gain (loss) | | $ | (60 | ) | | $ | 152 |
| | $ | 55 |
|
| Total | | $ | (60 | ) | | $ | 152 |
| | $ | 55 |
|
| | | | | | | |
| | | Net Realized Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) |
| | | December 31, 2017 | | December 25, 2016 | | December 27, 2015 |
| | (In thousands) |
| Foreign currency derivatives | | $ | — |
| | $ | — |
| | $ | — |
|
| Total | | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | |
| | | Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
| | | December 31, 2017 | | December 25, 2016 | | December 27, 2015 |
| | (In thousands) |
| Foreign currency derivatives gain (loss) | | $ | 639 |
| | $ | (310 | ) | | $ | 5 |
|
| Total | | $ | 639 |
| | $ | (310 | ) | | $ | 5 |
|
At | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain (Loss) Reclassified from AOCI into Income |
| December 31, 2023 | | December 25, 2022 |
| Net sales(a) | | Cost of sales(b) | | Interest expense, net of capitalized interest(b) | | Net sales(a) | | Cost of sales(b) | | Interest expense, net of capitalized interest(b) |
| (In thousands) |
| Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded | $ | 17,362,217 | | | $ | 16,243,816 | | | $ | 202,272 | | | $ | 17,468,377 | | | $ | 15,656,574 | | | $ | 152,672 | |
| Impact from cash flow hedging instruments: | | | | | | | | | | | |
| Interest rates swap derivatives | — | | | — | | | — | | | — | | | — | | | 98 | |
| Foreign currency derivatives | (1,816) | | | (3) | | | — | | | (3,194) | | | 851 | | | — | |
(a)Amounts represent income (expenses) related to net sales.
(b)Amounts represent expenses (income) related to cost of sales and interest expense.
As of December 31, 2017, the before-tax2023, there were immaterial pre-tax deferred net gainslosses on foreign currency derivatives recorded in AOCIAOCL that are expected to be reclassified to the Consolidated and Combined Statements of Income during the next twelve months are $0.5 million.months. This expectation is based on the anticipated settlements on the hedged investments in foreign currencies that will occur over the next twelve months, at which time the Company will recognize the deferred gains (losses)losses to earnings.
5. TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade accounts and other receivables (including accounts receivable from related parties), less allowance for credit losses, consisted of the following:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
| Trade accounts receivable | $ | 1,027,916 | | | $ | 984,332 | |
| Notes receivable | 51,168 | | | 33,477 | |
| Other receivables | 59,435 | | | 88,962 | |
| Receivables, gross | 1,138,519 | | | 1,106,771 | |
| Allowance for credit losses | (9,341) | | | (9,559) | |
| Receivables, net | $ | 1,129,178 | | | $ | 1,097,212 | |
| | | |
Accounts receivable from related parties(a) | $ | 1,778 | | | $ | 2,512 | |
(a)Additional information regarding accounts receivable from related parties is included in “Note 19. Related Party Transactions.”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the allowance for credit losses was as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| Allowance for Credit Losses: | (In thousands) |
| Balance, beginning of period | $ | (9,559) | | | $ | (9,673) | |
| Provision charged to operating results | (1,439) | | | (675) | |
| Account write-offs and recoveries | 2,436 | | | 597 | |
| Effect of exchange rate | (779) | | | 192 | |
| Balance, end of period | $ | (9,341) | | | $ | (9,559) | |
In June 2023, the Company and JBS USA Food Company (“JBS USA”) jointly entered into a receivables purchase agreement with a bank for an uncommitted facility with a maximum capacity of $415.0 million and no recourse to the Company or JBS USA. Under the facility, the Company may sell eligible trade receivables in exchange for cash. Transfers under the agreement are recorded as a sale under ASC 860, Broad Transactions – Transfers and Servicing. At the transfer date, the Company received cash equal to the face value of the receivables sold less a fee based on the current Secured Overnight Financing Rate (“SOFR”) plus an applicable margin applied over the customer payment term. The fees are immaterial.
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
Allowance for Sales Adjustments(a): | (In thousands) |
| Balance, beginning of period | $ | 6,905 | | | $ | 11,472 | |
| Charged to operating results | 337,546 | | | 238,135 | |
| | | |
| Deductions | (335,253) | | | (242,702) | |
| Balance, end of period | $ | 9,198 | | | $ | 6,905 | |
(a) Deductions either written off, rebilled or reclassified as liabilities.
6. INVENTORIES
Inventories consisted of the following:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
| Raw materials and work-in-process | $ | 1,158,467 | | | $ | 1,204,092 | |
| Finished products | 642,028 | | | 596,375 | |
| Operating supplies | 75,530 | | | 95,367 | |
| Maintenance materials and parts | 109,374 | | | 94,350 | |
| Total inventories | $ | 1,985,399 | | | $ | 1,990,184 | |
7. INVESTMENTS IN SECURITIES
The Company reported a $16.7recognizes investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security’s length to maturity. The following table summarizes our investments in available-for-sale securities:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 25, 2022 |
| |
Cost | | Fair
Value | |
Cost | | Fair
Value |
| | (In thousands) |
| Fixed income securities | $ | 324,808 | | | $ | 324,947 | | | $ | 167,366 | | | $ | 167,430 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Gross realized gains during 2023 and 2022 related to the Company’s available-for-sale securities totaled $21.5 million adjustment resulting fromand $7.1 million, respectively, while gross realized losses were immaterial. Net unrealized holding gains and losses on the translation of a British pound-denominated note payable owed to JBS S.A. as a component of AccumulatedCompany’s available-for-sale securities recognized during 2023 and 2022 that have been included in accumulated other comprehensive lossincome (loss) and the net amount of gains and losses reclassified out of accumulated other comprehensive income (loss) to earnings during 2023 and 2022 are disclosed in the Consolidated and Combined Balance Sheet as“Note 14. Stockholders’ Equity.”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. GOODWILL AND IDENTIFIED INTANGIBLE ASSETS
The activity in goodwill by reportable segment for the years ended December 31, 20172023 and December 25, 20162022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 25, 2022 | | Additions | | Currency Translation | | December 31, 2023 |
| (In thousands) |
| U.S. | $ | 41,936 | | | $ | — | | | $ | — | | | $ | 41,936 | |
| U.K. and Europe | 1,058,204 | | | — | | | 58,317 | | | 1,116,521 | |
| Mexico | 127,804 | | | — | | | — | | | 127,804 | |
| Total | $ | 1,227,944 | | | $ | — | | | $ | 58,317 | | | $ | 1,286,261 | |
| | December 26, 2021 | | | December 26, 2021 | | Additions | | Currency Translation | | December 25, 2022 |
| (In thousands) | | | (In thousands) |
| U.S. | |
| U.K. and Europe | |
| Mexico | |
| Total | |
| | | | | December 25, 2016 | | Additions | | Currency Translation | | December 31, 2017 |
| | | (In thousands) |
| United States | | $ | — |
| | $ | 41,936 |
| | $ | — |
| | $ | 41,936 |
|
| U.K. and Europe | | 761,614 |
| | — |
| | 72,732 |
| | 834,346 |
|
| Mexico | | 125,607 |
| | — |
| | — |
| | 125,607 |
|
| Total | | $ | 887,221 |
| | $ | 41,936 |
| | $ | 72,732 |
| | $ | 1,001,889 |
|
|
|
| | | | | | | | | | | | | | | | |
| | | December 27, 2015 | | Additions | | Currency Translation | | December 25, 2016 |
| | | (In thousands) |
| United States | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| U.K. and Europe | | 915,641 |
| | — |
| | (154,027 | ) | | 761,614 |
|
| Mexico | | 156,565 |
| | (30,958 | ) | | — |
| | 125,607 |
|
| Total | | $ | 1,072,206 |
| | $ | (30,958 | ) | | $ | (154,027 | ) | | $ | 887,221 |
|
Identified intangibleIntangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 25, 2022 | | | | Amortization | | Disposals | | Currency Translation | | | December 31, 2023 |
| (In thousands) |
| Carrying amount: | | | | | | | | | | | | |
| Trade names not subject to amortization | $ | 549,024 | | | | | $ | — | | | $ | — | | | $ | 31,449 | | | | $ | 580,473 | |
| Trade names subject to amortization | 112,057 | | | | | — | | | — | | | 624 | | | | 112,681 | |
| Customer relationships | 427,662 | | | | | — | | | — | | | 14,057 | | | | 441,719 | |
| Accumulated amortization: | | | | | | | | | | | | |
| Trade names | (53,708) | | | | | (3,886) | | | — | | | (168) | | | | (57,762) | |
| Customer relationships | (189,015) | | | | | (29,210) | | | — | | | (4,903) | | | | (223,128) | |
| Total | $ | 846,020 | | | | | $ | (33,096) | | | $ | — | | | $ | 41,059 | | | | $ | 853,983 | |
| | | | December 25, 2016 | | Additions | | Amortization | | Currency Translation | | Disposals | | December 31, 2017 | |
| | (In thousands) |
| December 26, 2021 | | | December 26, 2021 | | Amortization | | Disposals | | Currency Translation | | December 25, 2022 |
| (In thousands) | | | (In thousands) |
| Carrying amount: | | | | | | | | | | | | |
| Trade names | $ | 41,369 |
| | $ | 38,200 |
| | $ | — |
| | $ | 117 |
| | $ | — |
| | $ | 79,686 |
| |
| Trade names not subject to amortization | |
| Trade names not subject to amortization | |
| Trade names not subject to amortization | |
| Trade names subject to amortization | |
| Customer relationships | 151,147 |
| | 92,900 |
| | — |
| | 7,905 |
| | — |
| | 251,952 |
| |
| Non-compete agreements | 300 |
| | 20 |
| | — |
| | — |
| | — |
| | 320 |
| |
Trade names not subject to amortization | 369,258 |
| | — |
| | — |
| | 34,336 |
| | — |
| | 403,594 |
| |
| Accumulated amortization: | — |
| | | | | | | | | |
| |
| Trade names | |
| Trade names | |
| Trade names | (37,128 | ) | | — |
| | (3,808 | ) | | 48 |
| | — |
| | (40,888 | ) | |
| Customer relationships | (53,055 | ) | | — |
| | (22,571 | ) | | (1,568 | ) | | — |
| | (77,194 | ) | |
| Non-compete agreements | (300 | ) | | — |
| | (7 | ) | | — |
| | — |
| | (307 | ) | |
| Total | $ | 471,591 |
| | $ | 131,120 |
| | $ | (26,386 | ) | | $ | 40,838 |
| | $ | — |
| | $ | 617,163 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 27, 2015 | | Additions | | Amortization | | Currency Translation | | Disposals | | December 25, 2016 | |
| | (In thousands) |
| Carrying amount: | | | | | | | | | | | | |
| Trade names | $ | 41,617 |
| | $ | — |
| | $ | — |
| | $ | (248 | ) | | $ | — |
| | $ | 41,369 |
| |
| Customer relationships | 168,021 |
| | — |
| | — |
| | (16,874 | ) | | — |
| | 151,147 |
| |
| Non-compete agreements | 300 |
| | — |
| | — |
| | — |
| | — |
| | 300 |
| |
Trade names not subject to amortization | 441,974 |
| | — |
| | — |
| | (72,716 | ) | | — |
| | 369,258 |
| |
| Accumulated amortization: | | | | | | | | | | | — |
| |
| Trade names | (35,216 | ) | | — |
| | (1,905 | ) | | (7 | ) | | — |
| | (37,128 | ) | |
| Customer relationships | (37,583 | ) | | — |
| | (16,834 | ) | | 1,362 |
| | — |
| | (53,055 | ) | |
| Non-compete agreements | (300 | ) | | — |
| | — |
| | | | — |
| | (300 | ) | |
| Total | $ | 578,813 |
| | $ | — |
| | $ | (18,739 | ) | | $ | (88,483 | ) | | $ | — |
| | $ | 471,591 |
| |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets are amortized over the estimated useful lives of the assets as follows:
| | | | | |
| Trade names subject to amortization | | |
Customer relationships | 5-1615-20 years |
Trade namesCustomer relationships | 3-203-18 years |
| Non-compete agreements | 3 years |
The Company recognized amortization expense related to identified intangible assets of $26.4 million in 2017, $18.7 million in 2016 and $8.5 million in 2015.
The Company expects to recognize amortization expense associated with identified intangible assets of $24.9$30.3 million in 2018, $23.52024, $30.3 million in 2019, $19.72025, $28.3 million in 2020, $19.72026, $24.4 million in 20212027 and $19.7$24.4 million in 2022.2028.
AtThe Company elected to bypass a qualitative assessment to determine whether it was more likely than not that reporting unit fair value was less than reporting unit carrying amount (including goodwill) for each of its reporting units with a material amount of goodwill reported as of December 31, 2017,2023. Instead, the Company assessed qualitative factors to determine if it was necessary to perform either the two-stepperformed a quantitative impairment test related to the carryingfor each reporting unit with a material amount of its goodwill or quantitative impairment tests related to the carrying amountsreported as of its identified intangible assets not subject to amortization.December 31, 2023. Based on these assessments, the Company determined that it was not necessary to perform either the two-step quantitative impairment test related to the carrying amountresults of its goodwill nor the quantitative impairment tests, relatedthere was no goodwill impairment in any of the Company’s reporting units as of December 31, 2023.
The Company elected to thebypass a qualitative assessment to determine whether it was more likely than not that indefinite-lived intangible asset fair value was less than indefinite-lived intangible asset carrying amountsamount for each of its identified intangible assets not subject to amortization at that date.
Atas of December 31, 2017,2023. Instead, the Company performed a quantitative impairment test for each intangible asset not subject to amortization as of December 31, 2023. Based on the results of the quantitative impairment tests, there was no impairment of any of the Company’s intangible assets not subject to amortization as of December 31, 2023.
As of December 31, 2023, the Company assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets subject to amortization might not be recoverable. There were no indicators present that required the Company to test the recoverability of the aggregate carrying amount of its identified intangible assets subject to amortization at that date.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (“PP&E”), net consisted of the following:
| | | | December 31, 2017 | | December 25, 2016 |
| December 31, 2023 | | | December 31, 2023 | | December 25, 2022 |
| | (In thousands) | | (In thousands) |
| Land | $ | 205,087 |
| | $ | 150,127 |
|
| Buildings | 1,681,610 |
| | 1,487,353 |
|
| Machinery and equipment | 2,533,522 |
| | 2,268,526 |
|
| Autos and trucks | 58,159 |
| | 58,454 |
|
| Finance lease assets | |
| Construction-in-progress | 187,094 |
| | 255,086 |
|
| Property, plant and equipment, gross | 4,665,472 |
| | 4,219,546 |
|
| PP&E, gross | |
| Accumulated depreciation | (2,570,325 | ) | | (2,385,561 | ) |
| Property, plant and equipment, net | $ | 2,095,147 |
| | $ | 1,833,985 |
|
| PP&E, net | |
The Company recognized depreciation expense of $245.4$386.8 million, $210.5$369.4 million and $161.7$354.4 million during 2017, 20162023, 2022 and 2015,2021, respectively.
During 2017,2023, the Company spent $339.9incurred $557.8 million on capital projects and transferred $411.8 million of completed projects from construction-in-progress to depreciable assets. During 2016, the Company spent $341.0 million on capital projects and transferred $269.6$461 million of completed projects from construction-in-progress to depreciable assets. Capital expenditures during 2023 were primarily incurred during 2017for growth projects, such as the Athens, GA expansion and the South Georgia protein conversion plant, and to improve operational efficiencies, system enhancement projects, and to reduce costscosts. During 2022, the Company spent $487.1 million on capital projects and tailor processestransferred $354.2 million of completed projects from construction-in-progress to meet specific customer needsdepreciable assets. Capital expenditures in order to further solidify competitive advantagesaccounts payable and accrued expenses for the Company.years ended December 31, 2023 and December 25, 2022 were $85.9 million and $72.0 million, respectively.
During 2017,2023, the Company sold certain PP&E for $4.5$19.8 million and recognized a gain of $0.5$6.1 million. PP&E sold in 2017 included2023 consisted of a processing plantfarm in Texas, a feed mill in Arkansas, poultry farms in AlabamaMexico and Texas, vacant land in Texas, a processing plant in Ireland, a hatchery in the U.K. andother miscellaneous equipment. During 2016,2022, the Company sold certain PP&E for $13.4$35.5 million and recognized a gain of $8.9$18.9 million. PP&E sold in 2016 included2022 consisted of a processing plant in Louisiana, poultry farmsfarm in Mexico and Texas, vacant land in Alabama and Texas, an office building in Texas andother miscellaneous equipment.
Management has committed to the sale of certain properties and related assets, including, but not limited to, a processing complex in Alabama and other miscellaneous assets, which no longer fit into the operating plans of the Company. The Company is actively marketing these properties and related assets for immediate sale and believes a sale of each property can be consummated within the next 12 months. At December 31, 2017, the Company reported assets held for sale totaling $0.7 million in Assets held for sale on its Consolidated and Combined Balance Sheets.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The Company tested the recoverability of its Alabama processing complex held for sale at various effective dates during 2017. The Company determined that the aggregate carrying amount of this asset group at June 25, 2017, was not recoverable over the remaining life of the primary asset in the group and recognized impairment costs of $3.5 million within its U.S. segment, which is reported in the line item Administrative restructuring charges on its Consolidated and Combined Statements of Income. The Company determined that the aggregate carrying amount at December 31, 2017 of this asset group was recoverable over the remaining life of the primary asset in the group.
The Company tested the recoverability of its Ireland processing facility held for sale at various effective dates during 2017. The Company determined that the aggregate carrying amount of this asset group at September 24, 2017, was not recoverable over the remaining life of the primary asset in the group and recognized impairment costs of $1.5 million within its U.K. segment, which is reported in the line item Administrative restructuring charges on its Consolidated and Combined Statements of Income. The Ireland processing facility was sold in December 2017.
The Company has closed or idled various processing complexes, processing plants, hatcheries, broiler farms, and feed mills throughoutfacilities in the U.S. segment. Neitherand the U.K. The Board of Directors nor JBS has not determined if it would be in the best interest of the Company to divest any of these closed or idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. AtAs of December 31, 2017,2023, the carrying amount of these idled assets was $48.6$59.9 million based on depreciable value of $166.7$217.4 million and accumulated depreciation of $118.1$157.5 million.
The During 2023, the Company has closed or idled various processing complexes, processing plants, hatcheries, and other miscellaneous assets, throughoutrecognized an impairment loss on PP&E of $4.0 million incurred as a result of planned restructuring activities in the U.K. and Europe reportable segment. Neither the BoardAdditional information regarding restructuring activities is included in “Note 18. Restructuring-Related Activities.”
As of Directors nor JBS has determined if it would be in the best interest of the Company to divest any of these closed or idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. At December 31, 2017, the carrying amount of these idled assets was $2.9 million based on depreciable value of $11.4 million and accumulated depreciation of $8.5 million.
At December 31, 2017,2023, the Company assessed if events or changes in circumstances indicated that the aggregate carrying amount of its property, plant and equipment held for use might not be recoverable. There were no indicators present that required the Company to test the recoverability of the aggregate carrying amount of its property, plant and equipment held for use at that date.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
10. CURRENT LIABILITIES
Current liabilities, other than income taxes and current maturities of long-term debt, consisted of the following components:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
| Accounts payable | | | |
| Trade accounts | $ | 1,294,830 | | | $ | 1,476,552 | |
| Book overdrafts | 90,612 | | | 93,800 | |
| Other payables | 25,134 | | | 17,587 | |
| Total accounts payable | 1,410,576 | | | 1,587,939 | |
Accounts payable to related parties(a) | 41,254 | | | 12,155 | |
Revenue contract liabilities(b) | 84,958 | | | 34,486 | |
| Accrued expenses and other current liabilities | | | |
| Compensation and benefits | 249,474 | | | 258,098 | |
| Accrued sales rebates | 104,390 | | | 55,002 | |
| Insurance and self-insured claims | 76,287 | | | 72,453 | |
| Litigation settlements | 73,330 | | | 99,230 | |
| Interest and debt-related fees | 71,508 | | | 32,433 | |
Current maturities of operating lease liabilities(c) | 67,440 | | | 79,222 | |
| Taxes | 37,635 | | | 33,550 | |
Derivative liabilities(d) | 17,841 | | | 18,917 | |
| Other accrued expenses | 228,822 | | | 201,994 | |
| Total accrued expenses and other current liabilities | 926,727 | | | 850,899 | |
| Total current liabilities | $ | 2,463,515 | | | $ | 2,485,479 | |
(a)Additional information regarding accounts payable to related parties is included in “Note 19. Related Party Transactions.”
(b)Additional information regarding revenue contract liabilities is included in “Note 2. Revenue Recognition.”
(c)Additional information regarding current maturities of operating lease liabilities is included in “Note 3. Leases.”
(d)Additional information regarding derivative liabilities is included in “Note 4. Derivative Financial Instruments.”
11. SUPPLIER FINANCE PROGRAMS
The Company maintains supplier finance programs, under which we agree to pay for confirmed invoices from participating suppliers to a financing entity. Maturity dates are generally between 65-180 days and we pay either the supplier or the financing entity depending on the supplier’s election. We do not have an economic interest in a supplier’s participation in the program or a direct financial relationship with the financial institution funding the program. As of December 31, 2023 and December 25, 2022, the outstanding balance of confirmed invoices was $192.7 million and $239.6 million respectively and are included in Accounts payable in the Consolidated Balance Sheets.
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (In thousands) |
| Accounts payable: | | | |
| Trade accounts | $ | 691,176 |
| | $ | 722,495 |
|
| Book overdrafts | 56,022 |
| | 63,577 |
|
| Other payables | 15,246 |
| | 4,306 |
|
| Total accounts payable | 762,444 |
| | 790,378 |
|
Accounts payable to related parties(a) | 2,889 |
| | 4,468 |
|
| Accrued expenses and other current liabilities: | | | |
| Compensation and benefits | 181,678 |
| | 160,591 |
|
| Interest and debt-related fees | 29,750 |
| | 10,907 |
|
| Insurance and self-insured claims | 79,911 |
| | 82,544 |
|
| Derivative liabilities: | | | |
| Commodity futures | 296 |
| | 4,063 |
|
| Commodity options | 3,551 |
| | 2,764 |
|
| Foreign currency derivatives | 211 |
| | 153 |
|
| Other accrued expenses | 121,944 |
| | 85,999 |
|
| Total accrued expenses and other current liabilities | 417,341 |
| | 347,021 |
|
| | $ | 1,182,674 |
| | $ | 1,141,867 |
|
| |
(a) | Additional information regarding accounts payable to related parties is included in “Note 18. Related Party Transactions.” |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
11. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term debt consisted of the following components:
|
| | | | | | | | | |
| | Maturity | | December 31, 2017 | | December 25, 2016 |
| Long-term debt and other long-term borrowing arrangements: | | | (In thousands) |
| Senior notes payable, net of unaccreted premium at 5.75% | 2025 | | $ | 754,820 |
| | $ | 500,000 |
|
| Senior notes payable at 5.875% | 2027 | | 600,000 |
| | — |
|
| Senior notes payable at 6.25% | 2021 | | 403,444 |
| | 369,736 |
|
| U.S. Credit Facility (defined below): | | | | | |
| Term note payable at 2.61% | 2022 | | 780,000 |
| | 500,000 |
|
| Revolving note payable at 2.84% | 2022 | | 73,262 |
| | — |
|
Mexico Credit Facility (defined below) with notes payable at TIIE rate plus 0.90% | 2019 | | 76,307 |
| | 23,304 |
|
Moy Park Multicurrency Revolving Facility with notes payable at LIBOR rate plus 2.5% | 2019 | | 9,590 |
| | 11,985 |
|
Moy Park Receivables Finance Agreement with payables at LIBOR plus 1.5% | 2020 | | — |
| | — |
|
Moy Park France Invoice Discounting Revolver with payables at EURIBOR plus 0.8% | 2018 | | 1,815 |
| | 8,918 |
|
| Chattels mortgages at weighted average of 3.74% | Various | | 873 |
| | 1,432 |
|
| Term Loan Agence L’eau | 2018 | | — |
| | 6 |
|
| Capital lease obligations | Various | | 9,239 |
| | 14,600 |
|
| Long-term debt | | | 2,709,350 |
| | 1,429,981 |
|
| Less: Current maturities of long-term debt | | | (47,775 | ) | | (15,712 | ) |
| Long-term debt, less current maturities | | | 2,661,575 |
| | 1,414,269 |
|
| Less: Capitalized financing costs | | | (25,958 | ) | | (18,145 | ) |
Long-term debt, less current maturities, net of capitalized financing costs: | | | $ | 2,635,617 |
| | $ | 1,396,124 |
|
U.S. Senior Notes
On March 11, 2015, the Company completed a sale of $500.0 million aggregate principal amount of its 5.75% senior notes due 2025 (the “Senior Notes due 2025”). The Company used the net proceeds from the sale of the Senior Notes to repay $350.0 million and $150.0 million of the term loan indebtedness under the U.S. Credit Facility on March 12, 2015 and April 22, 2015, respectively. On September 29, 2017, the Company completed an add-on offering of $250.0 million of the Senior Notes due 2025 (the “Additional Senior Notes due 2025”). The issuance price of the add-on offering was 102.0% which created gross proceeds of $255.0 million. The additional $5.0 million will be amortized over the life of the bond. The Company used the net proceeds from the sale of the Additional Senior Notes due 2025 to repay in full the JBS S.A. Promissory Note (as described below) issued as part of the Moy Park acquisition and for general corporate purposes. The Additional Senior Notes due 2025 will be treated as a single class with the existing Senior Notes due 2025 for all purposes under the 2015 Indenture (defined below) and will have the same terms as those of the existing Senior Notes due 2025. The Additional Senior Notes due 2025 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes due 2025 and the Additional Senior Notes due 2025 are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “2015 Indenture”). The 2015 Indenture provides, among other things, that the Senior Notes due 2025 and the Additional Senior Notes due 2025 bear interest at a rate of 5.75% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015 for the Senior Notes due 2025 and March, 15 2018 for the Additional Senior Notes due 2025. The Senior Notes due 2025 and the Additional Senior Notes due 2025 are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2025 and the Additional Senior Notes due 2025. The Senior Notes due 2025 and the Additional Senior Notes due 2025 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2025 and the Additional Senior Notes due 2025 and the 2015 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2025 and the Additional Senior Notes due 2025 when due, among others.
On September 29, 2017, the Company completed a sale of $600.0 million aggregate principal amount of its 5.875% senior notes due 2027 (the “Senior Notes due 2027”). The Company used the net proceeds from the sale of the Senior Notes due 2027 to repay in full the JBS S.A. Promissory Note issued as part of the Moy Park acquisition and for general corporate purposes. The Senior Notes due 2027 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among the Company, its guarantor subsidiary and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest at a rate of 5.875% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on March 30, 2018. The Senior Notes due 2027 are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2027. The Senior Notes due 2027 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2027 and the 2017 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2027 when due, among others.
Moy Park Senior Notes
On May 29, 2014, Moy Park (Bondco) Plc, a subsidiary of Granite Holdings Sàrl, completed the sale of a £200.0 million aggregate principal amount of its 6.25% senior notes due 2021 (the “Moy Park Notes”). On April 17, 2015, an add-on offering of £100.0 million of the Moy Park Notes (the “Additional Moy Park Notes”) was completed. The Moy Park Notes and the Additional Moy Park Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Moy Park Notes and the Additional Moy Park Notes are governed by, and were issued pursuant to, an indenture dated as of May 29, 2014 by Moy Park (Bondco) Plc, as issuer, Moy Park Holdings (Europe) Limited, Moy Park (Newco) Limited, Moy Park Limited, O’Kane Poultry Limited, as guarantors, and The Bank of New York Mellon, as trustee (the “Moy Park Indenture”). The Moy Park Indenture provides, among other things, that the Moy Park Notes and the Additional Moy Park Notes bear interest at a rate of 6.25% per annum from the date of issuance until maturity, payable semiannually in cash in arrears, beginning on November 29, 2014 for the Moy Park Notes and May 28, 2015 for the Additional Moy Park Notes. The Moy Park Notes and the Additional Moy Park Notes are guaranteed by each of the subsidiary guarantors described above. The Moy Park Indenture contains customary covenants and events of default that may limit Moy Park (Bondco) Plc’s ability and the ability of certain subsidiaries to incur additional debt, declare or pay dividends or make certain investments, among others.
On November 2, 2017, Moy Park (Bondco) Plc announced the final results of its previously announced tender offer to purchase for cash any and all of its issued and outstanding Moy Park Notes and Moy Park Additional Notes. As of November 2, 2017, £1,185,000 principal amount of Moy Park Notes and Moy Park Additional Notes had been validly tendered (and not validly withdrawn). Moy Park (Bondco) Plc has purchased all validly tendered (and not validly withdrawn) Moy Park Notes and Moy Park Additional Notes on or prior to November 2, 2017, with such settlement occurring on November 3, 2017.
U.S. Credit Facility
On May 8, 2017, the Company and certain of its subsidiaries entered into a Third Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with Coöperatieve Rabobank U.A., New York Branch (“Rabobank”), as administrative agent and collateral agent, and the other lenders party thereto. The U.S. Credit Facility provides for a revolving loan commitment of up to$750.0 million and a term loan commitment of up to $800.0 million (the “Term Loans”). The U.S. Credit Facility also includes an accordion feature that allows the Company, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $1.0 billion, subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase.
The revolving loan commitment under the U.S. Credit Facility matures on May 6, 2022. All principal on the Term Loans is due at maturity on May 6, 2022. Installments of principal are required to be made, in an amount equal to 1.25% of the original principal amount of the Term Loans, on a quarterly basis prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. As of December 31, 2017, the company had Term Loans outstanding totaling $780.0 million and the amount available for borrowing under the revolving
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
loan commitment was $631.9 million. The Company had letters of credit of $44.8 million and borrowings of $73.3 million outstanding under the revolving loan commitment as of December 31, 2017.
The U.S. Credit Facility includes a $75.0 million sub-limit for swingline loans and a $125.0 million sub-limit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equal to (i) in the case of LIBOR loans, LIBOR plus 1.50% through December 31, 2017 and, thereafter, based on the Company’s net senior secured leverage ratio, between LIBOR plus 1.25% and LIBOR plus 2.75% and (ii) in the case of alternate base rate loans, the base rate plus 0.50% through December 31, 2017 and, based on the Company’s net senior secured leverage ratio, between the base rate plus 0.25% and base rate plus 1.75% thereafter.
The U.S. Credit Facility contains financial covenants and various other covenants that may adversely affect the Company’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS and the Company’s other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The U.S. Credit Facility also provides that we may not incur capital expenditures in excess of $500.0 million in any fiscal year. The Company is currently in compliance with the covenants under the U.S. Credit Facility.
All obligations under the U.S. Credit Facility continue to be unconditionally guaranteed by certain of the Company’s subsidiaries and continue to be secured by a first priority lien on (i) the accounts receivable and inventory of our company and its non-Mexico subsidiaries, (ii) 100% of the equity interests in our domestic subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., and 65% of the equity interests in our direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility.
Mexico Credit Facility
On September 27, 2016, certain of our Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility was $1.5 billion Mexican pesos. Outstanding borrowings under the Mexico Credit Facility accrued interest at a rate equal to the Interbank Equilibrium Interest Rate plus 0.95%. The Mexico Credit Facility will mature on September 27, 2019. As of December 31, 2017, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $76.3 million, and there were $76.3 million outstanding borrowings under the Mexico Credit Facility that bear interest at a per annum rate of 8.34%. As of December 31, 2017, the U.S. dollar-equivalent borrowing availability was less than $0.1 million.
Moy Park Multicurrency Revolving Facility Agreement
On March 19, 2015, Moy Park Holdings (Europe) Limited, a subsidiary of Granite Holdings Sàrl, and its subsidiaries, entered into an agreement with Barclays Bank plc which matures on March, 2019. The agreement provides for a multicurrency revolving loan commitment of up to £20.0 million. As of December 31, 2017, the U.S. dollar-equivalent loan commitment under Moy Park multicurrency revolving facility was $27.0 million and there were $9.6 million outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus a margin determined by Moy Park’s Net Debt to EBITDA ratio. The current margin stands at 2.2%. As of December 31, 2017, the U.S. dollar-equivalent borrowing availability was $17.4 million.
The facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain assets sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of the Moy Park's assets.
Moy Park Receivables Finance Agreement
Moy Park Limited, a subsidiary of Granite Holdings Sàrl, entered into a £45.0 million receivables finance agreement on January 29, 2016 (the “Receivables Finance Agreement”), with Barclays Bank plc, which matures on January 29, 2020. As of December 31, 2017, the U.S. dollar-equivalent loan commitment under the Receivables Finance Agreement was $60.8 million and there were no outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus 1.5%. The Receivables Finance Agreement includes an accordion feature that allows us, at any time, to increase the commitments by up to an additional £15.0 million (U.S. dollar-equivalent $20.3 million as of December 31, 2017), subject to the satisfaction of certain conditions.
The Receivables Finance Agreement contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.
Moy Park France Invoice Discounting Facility
In June 2009, Moy Park France Sàrl, a subsidiary of Granite Holdings Sàrl, entered into a €20.0 million invoice discounting facility with GE De Facto (the “Invoice Discounting Facility”). The facility limit was increased €10.0 million in September 2016 to €30.0 million. The Invoice Discounting Facility is payable on demand and the term is extended on an annual basis. The agreement can be terminated with three months’ notice. As of December 31, 2017, the U.S. dollar-equivalent loan commitment under the Invoice Discounting Facility was $36.0 million and there were $1.8 million outstanding borrowings. As of December 31, 2017, the U.S. dollar-equivalent borrowing availability was $34.2 million. Outstanding borrowings under the Invoice Discounting Facility bear interest at a per annum rate equal to EURIBOR plus a margin of 0.80%.
The Invoice Discounting Facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.
JBS S.A. Promissory Note
On September 8, 2017, Onix Investments UK Ltd., a wholly owned subsidiary of Pilgrim’s Pride Corporation, executed a subordinated promissory note payable to JBS S.A. (the “JBS S.A. Promissory Note”) for £562.5 million, which had a maturity date of September 6, 2018. Interest on the outstanding principal balance of the JBS S.A. Promissory Note accrued at the rate per annum equal to (i) from and after November 8, 2017 and prior to January 7, 2018, 4.00%, (ii) from and after January 7, 2018 and prior to March 8, 2018, 6.00% and (iii) from and after March 8, 2018, 8.00%. The JBS S.A. Promissory Note was repaid in full on October 2, 2017 using the net proceeds from the sale of Senior Notes due 2027 and the Additional Senior Notes due 2025.
12. INCOME TAXES
Income (loss) before income taxes by jurisdiction is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| | (In thousands) |
| U.S. | $ | 26,887 | | | $ | 928,709 | | | $ | (141,940) | |
| Foreign | 338,335 | | | 96,764 | | | 234,330 | |
| Total | $ | 365,222 | | | $ | 1,025,473 | | | $ | 92,390 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| U.S. | $ | 773,160 |
| | $ | 532,853 |
| | $ | 920,250 |
|
| Foreign | 208,906 |
| | 191,183 |
| | 81,074 |
|
| Total | $ | 982,066 |
| | $ | 724,036 |
| | $ | 1,001,324 |
|
The components of income tax expense (benefit) are set forth below:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| | (In thousands) |
| Current: | | | | | |
| Federal | $ | (19,727) | | | $ | 169,660 | | | $ | 22,591 | |
| Foreign | 59,326 | | | 52,995 | | | 115,772 | |
| State and other | (3,369) | | | 34,985 | | | 9,150 | |
| Total current | 36,230 | | | 257,640 | | | 147,513 | |
| Deferred: | | | | | |
| Federal | 12,783 | | | 14,654 | | | (52,147) | |
| Foreign | (10,573) | | | 5,694 | | | (16,225) | |
| State and other | 4,465 | | | 947 | | | (18,019) | |
| Total deferred | 6,675 | | | 21,295 | | | (86,391) | |
| Total | $ | 42,905 | | | $ | 278,935 | | | $ | 61,122 | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Current: | | | |
| Federal | $ | 213,146 |
| | $ | 165,989 |
| | $ | 248,821 |
|
| Foreign | 65,100 |
| | 62,753 |
| | 43,640 |
|
| State and other | 35,614 |
| | 20,211 |
| | 26,019 |
|
| Total current | 313,860 |
| | 248,953 |
| | 318,480 |
|
| Deferred: | | | | | |
| Federal | (19,434 | ) | | (3,529 | ) | | 32,819 |
|
| Foreign | (34,264 | ) | | (2,490 | ) | | (19,695 | ) |
| State and other | 3,737 |
| | 985 |
| | 6,748 |
|
| Total deferred | (49,961 | ) | | (5,034 | ) | | 19,872 |
|
| | $ | 263,899 |
| | $ | 243,919 |
| | $ | 338,352 |
|
The effective tax rate for 20172023 was 26.9%11.7% compared to 34.6%27.2% for 20162022 and 34.9%66.2% for 2015.2021.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| Federal income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State tax rate, net | 0.6 | | | 3.2 | | | (4.5) | |
| Mexico tax audit | — | | | 3.8 | | | — | |
| Intercompany financing | (5.7) | | | (1.9) | | | (14.1) | |
| Permanent items | (0.9) | | | (0.9) | | | 1.7 | |
| Difference in U.S. statutory tax rate and foreign country effective tax rate | 5.2 | | | 1.2 | | | 22.3 | |
| Rate change | (0.7) | | | (0.9) | | | 26.6 | |
| Foreign currency translation | (7.4) | | | (0.9) | | | 10.6 | |
| Tax credits | (3.0) | | | (0.4) | | | (4.1) | |
| Change in reserve for unrecognized tax benefits | — | | | (0.4) | | | 7.3 | |
| Change in valuation allowance | 6.9 | | | 2.8 | | | (0.2) | |
| Return to provision | (4.1) | | | — | | | — | |
| Other | (0.2) | | | 0.6 | | | (0.4) | |
| Total | 11.7 | % | | 27.2 | % | | 66.2 | % |
|
| | | | | | | | | |
| | 2017 | | 2016 | | 2015 | |
| Federal income tax rate | 35.0 |
| % | 35.0 |
| % | 35.0 |
| % |
| State tax rate, net | 2.6 |
| | 2.4 |
| | 2.3 |
| |
| Domestic production activity | (1.6 | ) | | (1.3 | ) | | (1.9 | ) | |
Difference in U.S. statutory tax rate and foreign country effective tax rate | (1.4 | ) | | (1.4 | ) | | (0.9 | ) | |
| Rate change | (5.3 | ) | | — |
| | — |
| |
| Tax credits | (0.5 | ) | | (0.6 | ) | | (0.7 | ) | |
Change in reserve for unrecognized tax benefits | (0.7 | ) | | (0.2 | ) | | (0.1 | ) | |
| Change in valuation allowance | (1.2 | ) | | (0.1 | ) | | — |
| |
| Other | — |
| | 0.8 |
| | 1.2 |
| |
| Total | 26.9 |
| % | 34.6 |
| % | 34.9 |
| % |
On December 22, 2017,Included in the U.S. government enacted comprehensivereturn to provision is a decrease of (4.2)% in the effective tax legislation (the “Tax Act”), which significantly revisesrate related to a return to provision amount from the ongoing U.S. corporate2020 federal income tax law by lowering the U.S. federal corporate income tax rate from 35.0%return due to 21.0%, implementing a territorial tax system, imposing one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense), among other things.
Due to the complexities involved in accounting for the recently enacted Tax Act, the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 118 requires that the Company include in its financial statements the reasonable estimate of the impact of the Tax Act on earnings to the extent such reasonable estimate has been determined. Accordingly, the Company accrued $41.5 million in provisional tax benefit related to the net change in deferred tax liabilities stemming from the Tax Act’s reduction of the U.S. federal tax rate from 35.0% to 21.0% fordeconsolidation. The amount was recorded during the year ended December 31, 2017. Additionally,2023. Included in the CompanyMexico tax audit is currently estimating a zeroan increase of 3.8% in the effective tax liability on foreign unremitted earnings duerate related to a net earningsthe Mexican tax authority’s claim that Avícola Pilgrim’s Pride de Mexico, S.A. de C.V. (“Avícola”) should have considered dividends paid out of its subsidiaries as partially taxable in tax years 2009 and profits (“E&P”) deficit on accumulated post-1986 deferred foreign income. Therefore, the Company has not accrued any2010.The amount of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings going back to 1986 forwas recorded during the year ended December 31, 2017. The Company will continue to analyze historical E&P on accumulated post-1986 deferred foreign income and will record any resulting tax adjustment during 2018. All other accounting as required by the Tax Act as of December 31, 2017 is complete
The Tax Act also includes a provision to tax global intangible low-taxed income (“GILTI”) of foreign subsidiaries and a base erosion anti-abuse tax (“BEAT”) measure that taxes certain payments between a U.S. corporation and its subsidiaries. The Company may be subject to the GILTI and BEAT provisions effective beginning January 1, 2018 and is25, 2022. Included in the processchange in reserve for unrecognized tax benefits is an increase of analyzing their effects, including how 7.0% in the effective tax rate related
to accountinterest deductions in the U.K. for tax years 2017 through 2021. The amount was recorded during the GILTI provision from an accounting policy standpoint.
The final impact on the Company from the Tax Act’s transition tax legislation may differ from the aforementioned one-time transition tax amount due to the complexity of calculating and supporting with primary evidence such U.S. tax attributes as accumulated foreign earnings and profits, foreign tax paid, and other tax components involved in foreign tax credit calculations for prior years back to 1986. Such differences could be material, due to, among other things, changes in interpretations of the Tax Act, future legislative action to address questions that arise because of the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the one-time transition tax.year ended December 25, 2021.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
| Deferred tax liabilities: | | | |
| PP&E and identified intangible assets | $ | 519,458 | | | $ | 547,113 | |
| Inventories | 99,144 | | | 99,889 | |
| Incentive compensation | 8,984 | | | 11,138 | |
| Operating lease assets | 81,942 | | | 76,914 | |
| Other | 2,534 | | | 7,867 | |
| Total deferred tax liabilities | 712,062 | | | 742,921 | |
| Deferred tax assets: | | | |
| U.S. net operating losses | 24,902 | | | 12,297 | |
| Foreign net operating losses | 55,583 | | | 53,801 | |
| Credit carry forwards | 23,985 | | | 18,102 | |
| Allowance for credit losses | 5,167 | | | 9,197 | |
| Accrued liabilities | 81,156 | | | 127,714 | |
| Workers’ compensation | 5,361 | | | 4,192 | |
| Pension and other postretirement benefits | — | | | 3,351 | |
| Operating lease liabilities | 80,823 | | | 76,914 | |
| Advance payments | 22,774 | | | 68,361 | |
| Interest expense limitations | 93,685 | | | 37,353 | |
| Other | 26,428 | | | 33,785 | |
| Total deferred tax assets | 419,864 | | | 445,067 | |
| Valuation allowance | (88,460) | | | (64,361) | |
| Net deferred tax assets | 331,404 | | | 380,706 | |
| Net deferred tax liabilities | $ | 380,658 | | | $ | 362,215 | |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (In thousands) |
| Deferred tax liabilities: | | | |
| PP&E and identified intangible assets | $ | 213,500 |
| | $ | 242,991 |
|
| Inventories | 57,641 |
| | 93,114 |
|
| Insurance claims and losses | 29,253 |
| | 42,186 |
|
| Business combinations | 50,695 |
| | 47,260 |
|
| Other | 18,519 |
| | 7,938 |
|
| Total deferred tax liabilities | 369,608 |
| | 433,489 |
|
| Deferred tax assets: | | | |
| Net operating losses | 3,276 |
| | 3,396 |
|
| Foreign net operating losses | 26,934 |
| | 32,825 |
|
| Credit carry forwards | 2,425 |
| | 2,080 |
|
| Allowance for doubtful accounts | 1,767 |
| | 4,274 |
|
| Accrued liabilities | 50,389 |
| | 57,567 |
|
| Workers compensation | 26,119 |
| | 38,834 |
|
| Pension and other postretirement benefits | 13,379 |
| | 21,903 |
|
| Other | 51,306 |
| | 46,414 |
|
| Total deferred tax assets | 175,595 |
| | 207,293 |
|
| Valuation allowance | (14,479 | ) | | (25,611 | ) |
| Net deferred tax assets | 161,116 |
| | 181,682 |
|
| Net deferred tax liabilities | $ | 208,492 |
| | $ | 251,807 |
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment.
As of December 31, 2017,2023, the Company believes it has sufficient positive evidence to conclude that realization of its federal, state and stateforeign net deferred tax assets isare more likely than not to be realized. The decrease in valuation allowance of $11.1 million during 2017 was primarily due to a release of valuation on certain Mexico and U.K. net operating losses. As of December 31, 2017,2023, the Company’s valuation allowance is $14.5$88.5 million, of which $13.9$11.0 million relates to our U.K. and Europe operations, $0.5$0.1 million relates to our Mexico operations, $53.0 million relates to Onix Investments UK Limited, Sandstone Holdings Sàrl and Arkose Investments ULC, indirect subsidiaries of Pilgrim’s, $11.8 million relates to our Puerto Rico operations, $11.8 million relates to U.S. foreign tax credits and $0.8 million relates to state net operating losses and $0.1 million relates to its Mexico operations.losses.
| | | | | | | | | | | | | | | | | | | | | | | |
| Beginning Balance | | Additions | | Deductions | | Ending Balance |
| (In thousands) |
| Valuation allowance: | | | | | | | |
| 2023 | $ | 64,361 | | | $ | 25,296 | | | $ | (1,197) | | | $ | 88,460 | |
| 2022 | 24,261 | | | 43,188 | | | (3,088) | | | 64,361 | |
| 2021 | 33,678 | | | — | | | (9,417) | | | 24,261 | |
As of December 31, 2017,2023, the Company had state net operating loss carry forwards of approximately $98.0$104.8 million that will begin to expire in 2018.2024. The Company also had Mexico net operating loss carry forwards atas of December 31, 20172023 of approximately $19.3$4.3 million that begin to expire in 2018.2028. The Company also had U.K. net operating loss carry forwards as of December 31, 2023 of approximately $202.6 million that may be carried forward indefinitely.
As of December 31, 2017,2023, the Company had approximately $2.1$5.8 million of state tax credit carry forwards that begin to expire in 2018.
On November 6, 2009, H.R. 3548 was signed into law and included a provision that allowed most business taxpayers an increased carry back period for net operating losses incurred in 2008 or 2009. As a result, during 2009 the Company utilized $547.7 million of its U.S. federal net operating losses under the expanded carry back provisions of H.R. 3548 and filed a claim for refund of $169.7 million. The Company received $122.6 million in refunds from the Internal Revenue Service (“IRS”) from the carry back claims during 2010. The Company anticipates receipt of the remainder of its claim pending resolution of its litigation with the IRS. See “Note 19. Commitments and Contingencies” for additional information.
The Company has not provided any deferred income taxes on the undistributed earnings of its foreign subsidiaries as of December 31, 2017 based upon the determination that such earnings will be indefinitely reinvested. It is not practicable to determine the amount of incremental taxes that might arise if these earnings were to be remitted.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
2024.
For the fifty-three weeksyears ended December 31, 20172023 and fifty-two weeks ended December 25, 2016,2022, there is a tax effect of $4.0$(2.1) million and $3.2$(2.5) million, respectively, reflected in other comprehensive income.loss.
Beginning in 2017, as a result of the new FASB guidance on share-based payments, excess tax benefits are now required to be reported in income tax expense rather than in additional paid-in capital. For the fifty-three weeksyears ended December 31, 2017,2023 and December 25, 2022, there is aare immaterial tax effect of $1.1 millioneffects reflected in income tax expense due to excess tax benefits and shortfalls related to share-based compensation. For the fifty-two weeks ended December 25, 2016, there is no tax effect reflected in additional paid-in capital due to excess tax benefits related to share-basedstock-based compensation. See “Note 1. Business and Summary of Significant Accounting Policies” for additional information.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
| Unrecognized tax benefits, beginning of year | $ | 27,585 | | | $ | 20,242 | |
| Increase as a result of tax positions taken during prior years | 17,415 | | | 13,950 | |
| Decrease for lapse in statute of limitations | (7,201) | | | (6,473) | |
| Decrease for tax positions of prior years | (234) | | | (134) | |
| Unrecognized tax benefits, end of year | $ | 37,565 | | | $ | 27,585 | |
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (In thousands) |
| Unrecognized tax benefits, beginning of year | $ | 16,813 |
| | $ | 17,110 |
|
| Increase as a result of tax positions taken during the current year | 1,163 |
| | 1,031 |
|
| Increase as a result of tax positions taken during prior years | 60 |
| | 16 |
|
| Decrease as a result of tax positions taken during prior years | (892 | ) | | (140 | ) |
| Decrease for lapse in statute of limitations | (4,123 | ) | | (1,204 | ) |
| Decrease relating to settlements with taxing authorities | (1,155 | ) | | — |
|
| Unrecognized tax benefits, end of year | $ | 11,866 |
| | $ | 16,813 |
|
Included in unrecognized tax benefits of $11.9$37.6 million atas of December 31, 2017,2023, was $6.7$18.0 million of tax benefits that, if recognized,recognized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 31, 2017,2023, the Company had recorded a liability of $7.1$5.9 million for interest and penalties. During 2017,2023, accrued interest and penalty amounts related to uncertain tax positions decreasedincreased by $1.1$2.7 million.
The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and several foreign locations including Mexico, the U.K., the Republic of Ireland, and the United Kingdom.continental Europe. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2011 and is no longer subject to Mexico and U.K. income tax examinations by taxing authorities for years prior to 2011.2019 in U.S. federal, state and local jurisdictions, for years prior to 2010 in Mexico, and for years prior to 2017 in the U.K.
The Company has a tax sharing agreement with JBS USA Food Company Holdings effective for tax years beginning 2010. The$1.4 million net tax receivable for tax year 2017 of $5.6 million was accrued in 20172023 as a capital contribution and an account receivable from a related party in our Consolidated and Combined Balance Sheet.
The 2023 tax sharing accrual is related to true-ups of prior year tax sharing accruals. No tax sharing receivable or payable is accrued for the 2023 tax year.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
13. DEBT
13.Long-term debt and other borrowing arrangements, including current notes payable to banks, consisted of the following components:
| | | | | | | | | | | | | | | | | |
| Maturity | | December 31, 2023 | | December 25, 2022 |
| | | (In thousands) |
| Senior notes payable, net of discount, at 6.875% | 2034 | | $ | 490,408 | | | $ | — | |
| Senior notes payable, net of discount, at 6.25% | 2033 | | 993,595 | | | — | |
| Senior notes payable at 3.50% | 2032 | | 900,000 | | | 900,000 | |
| Senior notes payable, net of discount, at 4.25% | 2031 | | 992,711 | | | 991,692 | |
| Senior notes payable, net of discount at 5.875% | 2027 | | — | | | 846,582 | |
| U.S. Revolving Credit Facility at 6.66% - 8.75% | 2028 | | — | | | — | |
| 2021 U.S. Credit Facility (defined below) | | | | | |
| Term note payable at 6.40% - 8.50% | 2026 | | — | | | 480,078 | |
| Revolving note payable at 4.33% | 2026 | | — | | | — | |
| U.K. and Europe Revolver Facility (defined below) with notes payable at SONIA plus 1.25% | 2027 | | — | | | — | |
| Mexico BBVA Credit Facility (defined below) with notes payable at TIIE plus 1.35% | 2026 | | — | | | — | |
| Mexico Credit Facility (defined below) with notes payable at TIIE plus 1.70% | 2023 | | — | | | — | |
| Finance lease obligations | Various | | 2,486 | | | 3,624 | |
| Long-term debt | | | 3,379,200 | | | 3,221,976 | |
| Less: Current maturities of long-term debt | | | (674) | | | (26,279) | |
| Long-term debt, less current maturities | | | 3,378,526 | | | 3,195,697 | |
| Less: Capitalized financing costs | | | (37,685) | | | (29,265) | |
| Long-term debt, less current maturities, net of capitalized financing costs | | | $ | 3,340,841 | | | $ | 3,166,432 | |
There are no future minimum principal payments due in each of the next five fiscal years subsequent to the year ended December 31, 2023. See “Note 3. Leases” for future minimum payments of finance lease obligations.
U.S. Senior Notes
U.S. Senior Notes Due 2027
On September 29, 2017, the Company completed a sale of $600.0 million aggregate principal amount of its 5.875% unsecured senior notes due 2027. On March 7, 2018, the Company completed an add-on offering of $250.0 million of these senior notes (together with the senior notes issued in September 2017, the “Senior Notes due 2027”). The issuance price of this add-on offering was 97.25%, which created gross proceeds of $243.1 million. The $6.9 million discount was amortized over the life of the Senior Notes due 2027 up to the point of redemption on October 12, 2023. Each issuance of the Senior Notes due 2027 is treated as a single class for all purposes under the 2017 Indenture (defined below) and have the same terms.
The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among the Company, its guarantor subsidiaries and Regions Bank, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest at a rate of 5.875% per annum from the date of issuance until maturity, payable semiannually in cash in arrears, beginning on March 30, 2018 for the Senior Notes due 2027 that were issued in September 2017 and beginning on March 15, 2018 for the Senior Notes due 2027 that were issued in March 2018. On October 12, 2023, the outstanding balance for the Senior Notes due 2027 was paid in full with the proceeds from the Senior Notes due 2034, along with cash on hand as outlined below.
U.S. Senior Notes Due 2031
On April 8, 2021, the Company completed a sale of $1.0 billion aggregate principal amount of its 4.25% sustainability-linked unsecured senior notes due 2031 (“Senior Notes due 2031”). The Company used the net proceeds, together with cash on hand, to redeem previously issued senior notes. The issuance price of this offering was 98.994%, which created gross proceeds of $989.9 million. The $10.1 million discount will be amortized over the remaining life of the Senior Notes due
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2031. Each issuance of the Senior Notes due 2031 is treated as a single class for all purposes under the April 2021 Indenture (defined below) and have the same terms.
The Senior Notes due 2031 are governed by, and were issued pursuant to, an indenture dated as of April 8, 2021 by and among the Company, its guarantor subsidiaries and Regions Bank, as trustee (the “April 2021 Indenture”). The April 2021 Indenture provides, among other things, that the Senior Notes due 2031 bear interest at a rate of 4.25% per annum payable semi-annually on April 15 and October 15 of each year. From and including October 15, 2026, the interest rate payable on the notes shall be increased to 4.50% per annum unless the Company has notified the trustee at least 30 days prior to October 15, 2026 that in respect of the year ended December 31, 2025, (1) the Company’s greenhouse gas emissions intensity reduction target of 17.679% by December 31, 2025 from a 2019 baseline (the “Sustainability Performance Target”) has been satisfied and (2) the satisfaction of the Sustainability Performance Target has been confirmed by a qualified provider of third-party assurance or attestation services appointed by the Company to review the Company’s statement of the greenhouse gas emissions intensity in accordance with its customary procedures.
U.S. Senior Notes Due 2032
On September 2, 2021, the Company completed a sale of $900.0 million in aggregate principal amount of its 3.50% unsecured senior notes due 2032 (“Senior Notes due 2032”). The Company used the proceeds, together with borrowings under the delayed draw term loan under its U.S. Credit Facility, to finance the acquisition of the Kerry Consumer Foods’ meats and meals businesses (now Pilgrim’s Food Masters) and to pay related fees and expenses. Each issuance of the Senior Notes due 2032 is treated as a single class for all purposes under the September 2021 Indenture (defined below) and have the same terms.
The Senior Notes due 2032 are governed by, and were issued pursuant to, an indenture dated as of September 2, 2021 by and among the Company, its guarantor subsidiaries and Regions Bank, as trustee (the “September 2021 Indenture”). The September 2021 Indenture provides, among other things, that the Senior Notes due 2032 bear interest at a rate of 3.50% per annum payable semi-annually on March 1 and September 1 of each year.
On September 22, 2022, the Company announced expiration and receipt of requisite consents in its consent solicitation for certain amendments to its Senior Notes due 2031 and Senior Notes due 2032. The amendments conform certain provisions and restrictive covenants in each indenture to (1) reflect PPC investment grade status and (2) the corresponding provisions and restrictive covenants set forth in the indenture governing its Senior Notes due 2031 and Senior Notes due 2032. The amendments permanently eliminated certain covenants for the Company, including limitation on incurrence of additional debt, issuance of capital stock, restricted payments, asset sales, restrictions on distributions, affiliate transactions, guarantees of debt by restricted subsidiaries and provisions related to mergers and consolidation. In addition, provisions related to limitation on liens, sale and leaseback transactions, substitution of the company and measuring compliance were amended.
U.S. Senior Notes Due 2033
On April 19, 2023, the Company completed a sale of $1.0 billion aggregate principal amount of its 6.25% unsecured, registered senior notes due 2033 (“Senior Notes due 2033”). The Company used the net proceeds to repay the term loans and the outstanding balance under the U.S. Credit Facility as defined below. The remaining proceeds will be used for general corporate purposes, including repaying existing debt. The issuance price of this offering to the public was 99.312%, which created gross proceeds of $993.1 million before transaction costs. The $6.9 million discount will be amortized over the remaining life of the Senior Notes due 2033. The Senior Notes due 2033 bear interest at a rate of 6.25% per annum from the date of issuance until maturity, payable semiannually on January 1 and July 1 of each year, commencing on January 1, 2024.
The Senior Notes due 2027, Senior Notes due 2031, Senior Notes due 2032, and Senior Notes due 2033 (together, “Guaranteed Senior Notes”) were and are each guaranteed on a senior unsecured basis by the Company’s guarantor subsidiaries. On February 16, 2023, the Company exchanged all of its outstanding principal amounts on the Senior Notes due 2031 and the Senior Notes due 2032 for an equal principal amount of new notes in a transaction registered under the Securities Act. The Senior Notes due 2033 were registered under the Securities Act from the date of sale. In addition, all of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Guaranteed Senior Notes. All the Guaranteed Senior Notes related guarantees were and are unsecured senior obligations of the Company and its guarantor subsidiaries and rank equally with all of the Company’s and its guarantor subsidiaries’ other unsubordinated indebtedness. The Guaranteed Senior Notes also contain customary covenants and events of default.
U.S. Senior Notes Due 2034
On October 12, 2023, the Company completed a sale of $500.0 million aggregate principal amount of its 6.875% unsecured, registered senior notes due 2034 (“Senior Notes due 2034”). The Company used the net proceeds from the offering
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of the Senior Notes due 2034, together with cash on hand, to repurchase pursuant to a tender offer and redeem all of its outstanding 5.875% Senior Notes due 2027. The issuance price of this offering to the public was 98.041%, which created gross proceeds of $490.2 million before transaction costs. The $9.8 million discount will be amortized over the remaining life of the Senior Notes due 2034. The Senior Notes due 2034 bear interest at a rate of 6.875% per annum from the date of issuance until maturity, payable semiannually in arrears on May 15 and November 15 of each year, commencing on May 15, 2024.
The Senior Notes due 2034 are the Company’s senior unsecured obligations and will rank equally with all of the Company’s existing and future senior unsecured debt and rank senior to all of the Company’s existing and future subordinated debt. The Senior Notes due 2034 will be effectively junior to the Company’s existing and future secured debt to the extent of the value of the collateral securing such debt. The Senior Notes due 2034 are not guaranteed by the Company’s subsidiaries will be structurally subordinated to all existing and future liabilities (including trade payables) of the Company’s subsidiaries.
U.S. Credit Facilities
2021 U.S. Credit Facility
On August 9, 2021, the Company and certain of the Company’s subsidiaries entered into a Fifth Amended and Restated Credit Agreement (the “2021 U.S. Credit Facility”) with CoBank, ACB, as administrative agent and collateral agent, and the other lenders party thereto. The 2021 U.S. Credit Facility provides for an $800.0 million revolving credit commitment and a term loan commitment of up to $700.0 million (the “Term Loans”). On April 19, 2023, the outstanding balances for the swingline loans and term loans under the 2021 U.S. Credit Facility were paid in full with the proceeds from the Senior Notes 2033 as outlined above.
On June 21, 2023, PPC, CoBank and the other lenders entered into a first amendment to the 2021 U.S. Credit Facility in connection with a benchmark transition event with respect to LIBOR. With the first amendment the parties agreed to replace LIBOR with Adjusted Term Secured Overnight Financing rate (“SOFR”), corresponding to Term SOFR plus a SOFR adjustment percentage per annum equal to 0.10%.
The 2021 U.S. Credit Facility was replaced by the Revolving Syndicated Facility Agreement (“RCF”) on October 4, 2023 as outlined in the details below.
U.S. Revolving Syndicated Credit Facility
On October 4, 2023 (the “Effective Date”), the Company and certain of the Company’s subsidiaries entered into an unsecured Revolving Credit Facility (the “RCF”) with CoBank, ACB as administrative agent, and the other lenders party thereto. The RCF replaced the 2021 U.S. Credit Facility detailed above. The RCF increased the Company’s availability under the revolving loan commitment from $800.0 million to $850.0 million, amended certain covenants, and extended the maturity date of the Company’s revolving loan commitments from August 9, 2026 to October 4, 2028. As of December 31, 2023, the Company had outstanding letters of credit and available borrowings under the revolving credit commitment of $25.1 million and $824.9 million, respectively. There were no outstanding borrowings as of December 31, 2023. Outstanding borrowings under the RCF bear interest at a per annum rate equal to SOFR or the prime rate plus applicable margins based on the Company’s credit ratings.
The RCF also requires compliance with a minimum interest coverage ratio of 3.50:1.00 (the “Financial Maintenance Covenant”). The Borrowers may give collateral cure notice to the administrative agent, electing to provide full unconditional guarantee perfected by first priority security interest in substantially all U.S. assets. From and after the collateral cure date the financial maintenance covenant shall no longer be in effect, availability under the RCF shall be limited to collateral coverage, may be subject to a minimum fixed charge coverage ratio if utilization is above 80% and there shall be limitation on 1) liens, 2) indebtedness, 3) sales and other dispositions of assets, 4) dividends, distributions, and other payments in respect of equity interest, 5) investments, acquisitions, loans and advances, and 6) voluntary prepayments, redemptions or repurchases of unsecured subordinated material indebtedness. In each case, clauses 1 to 6 are subject to certain exceptions which can be material. The Company is currently in compliance with the covenants under the RCF.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.K. and Europe Revolver Facility
On June 24, 2022, Moy Park Holdings (Europe) Ltd. (“MPH(E)”) and other Pilgrim’s entities located in the U.K. and Republic of Ireland entered into an unsecured multicurrency revolving facility agreement (the “U.K. and Europe Revolver Facility”) with the Governor and Company of the Bank of Ireland, as agent, and the other lenders party thereto. The U.K. and Europe Revolver Facility provides for a multicurrency revolving loan commitment of up to £150.0 million. The loan commitment matures on June 24, 2027. Outstanding borrowings bear interest at the current Sterling Overnight Index Average (SONIA) interest rate plus 1.25% (as defined in the U.K. and Europe Revolver Facility). All obligations under this agreement are guaranteed by certain of the Company’s subsidiaries. As of December 31, 2023, both the U.S. dollar-equivalent loan commitment and borrowing availability were $191.1 million and there were no outstanding borrowings under this agreement.
The U.K. and Europe Revolver Facility contains representations and warranties, covenants, indemnities and conditions, in each case, that the Company believes are customary for transactions of this type. Pursuant to the terms of the agreement, the Company is required to meet certain financial and other restrictive covenants. Additionally, the Company is prohibited from taking certain actions without consent of the lenders, including, without limitation, incurring additional indebtedness, entering into certain mergers or other business combination transactions, permitting liens or other encumbrances on its assets and making restricted payments, including dividends, in each case, except as expressly permitted under the U.K. and Europe Revolver Facility. The Company is currently in compliance with the covenants under the U.K. and Europe Revolver Facility.
Mexico Credit Facilities
Mexico Credit Facility
On December 14, 2018, certain of the Company’s Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with Banco del Bajio, Sociedad Anónima, Institución de Banca Múltiple, as lender. The loan commitment under the Mexico Credit Facility is Mex$1.5 billion and can be borrowed on a revolving basis. Outstanding borrowings under the Mexico Credit Facility accrue interest at a rate equal to the 28-Day Interbank Equilibrium Interest Rate (TIIE) plus 1.7%. The Mexico Credit Facility contains covenants and defaults that the Company believes are customary for transactions of this type. The Mexico Credit Facility matured on December 14, 2023 and was not renewed.
Mexico BBVA Credit Facility
On August 15, 2023, certain of the Company’s Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico BBVA Credit Facility”) with BBVA México as lender. The loan commitment under the Mexico BBVA Credit Facility is Mex$1.1 billion and can be borrowed on a revolving basis. Outstanding borrowings under the Mexico BBVA Credit Facility accrue interest at a rate equal to TIIE plus 1.35%. The Mexico BBVA Credit Facility contains covenants and defaults that the Company believes are customary for transactions of this type. The Company is currently in compliance with the covenants under the Mexico BBVA Credit Facility. The Mexico BBVA Credit Facility will be used for general corporate and working capital purposes. The Mexico BBVA Credit Facility will mature on August 15, 2026. As of December 31, 2023, the U.S. dollar-equivalent of the loan commitment and borrowing availability was $65.4 million. As of December 31, 2023, there were no outstanding borrowings under the Mexico BBVA Credit Facility.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Loss
The following tables provide information regarding the changes in AOCL during 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| Losses Related to Foreign Currency Translation | | Unrealized Losses on Derivative Financial Instruments Classified as Cash Flow Hedges | | Losses Related to Pension and Other Postretirement Benefits | | Losses on Available-for-Sale Securities | | Total |
| (In thousands) |
| Balance, beginning of year | $ | (269,825) | | | $ | (1,162) | | | $ | (65,447) | | | $ | (14) | | | $ | (336,448) | |
| Other comprehensive income (loss) before reclassifications | 154,975 | | | (2,579) | | | 5,437 | | | (124) | | | 157,709 | |
| Amounts reclassified from accumulated other comprehensive loss to net income | — | | | 1,813 | | | 807 | | | 133 | | | 2,753 | |
| Currency translation | — | | | 14 | | | (511) | | | — | | | (497) | |
| Net current year other comprehensive income (loss) | 154,975 | | | (752) | | | 5,733 | | | 9 | | | 159,965 | |
| Balance, end of year | $ | (114,850) | | | $ | (1,914) | | | $ | (59,714) | | | $ | (5) | | | $ | (176,483) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| Gains (Losses) Related to Foreign Currency Translation | | Unrealized Losses on Derivative Financial Instruments Classified as Cash Flow Hedges | | Losses Related to Pension and Other Postretirement Benefits | | Gains (Losses) on Available-for-Sale Securities | | Total |
| (In thousands) |
| Balance, beginning of year | $ | 27,241 | | | $ | (2,365) | | | $ | (72,873) | | | $ | — | | | $ | (47,997) | |
| Other comprehensive income (loss) before reclassifications | (297,066) | | | (1,718) | | | 6,383 | | | (1) | | | (292,402) | |
| Amounts reclassified from accumulated other comprehensive loss to net income | — | | | 4,118 | | | 1,043 | | | (13) | | | 5,148 | |
| Currency translation | — | | | (1,197) | | | — | | | — | | | (1,197) | |
| Net current year other comprehensive income (loss) | (297,066) | | | 1,203 | | | 7,426 | | | (14) | | | (288,451) | |
| Balance, end of year | $ | (269,825) | | | $ | (1,162) | | | $ | (65,447) | | | $ | (14) | | | $ | (336,448) | |
| | | | | | | | | | | | | | | | | | | | |
| Details about Accumulated Other Comprehensive Loss Components | | Amount Reclassified from Accumulated Other Comprehensive Loss(a) | | Affected Line Item in the Consolidated Statements of Income |
| 2023 | | 2022 | |
| | (In thousands) | | |
| Realized loss on settlement of foreign currency derivatives classified as cash flow hedges | | $ | (1,816) | | | $ | (3,193) | | | Net sales |
| Realized gain (loss) on settlement of foreign currency derivatives classified as cash flow hedge | | 3 | | | (851) | | | Cost of sales |
| Realized loss on settlement of interest rate swap derivatives classified as cash flow hedges | | — | | | (98) | | | Interest expense, net of capitalized interest |
| Realized gain (loss) on sale of securities | | (175) | | | 17 | | | Interest income |
Amortization of pension and other postretirement plan actuarial losses(b) | | (1,065) | | | (1,381) | | | Miscellaneous, net |
| Total before tax | | (3,053) | | | (5,506) | | | |
| Tax benefit | | 300 | | | 358 | | | |
| Total reclassification for the period | | $ | (2,753) | | | $ | (5,148) | | | |
(a)Positive amounts represent income to the results of operations while amounts in parentheses represent expenses to the results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b)These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See “Note 15. Pension and Other Postretirement Benefits.”
Preferred Stock
The Company has authorized 50,000,000 shares of $0.01 par value preferred stock, although no shares have been issued and no shares are outstanding.
Restrictions on Dividends
The 2021 U.S. Credit Facility, the RCF and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends. Additionally, the U.K. and Europe Revolver Facility prohibits MPH(E) and other Pilgrim’s entities located in the U.K. and Republic of Ireland to, among other things, make payments and distributions to the Company.
15. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans such as the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”) the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan and the Geo Adams Group Pension Fund (together, the “U.K. Plans”), nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plans. Underplan. Expenses recognized under all of our retirement plans the Company’s expenses were $10.8totaled $32.0 million, $11.2$30.9 million and $11.2$19.2 million in 2017, 20162023, 2022 and 2015,2021, respectively.
The Company used a year-end measurement date of December 31, 20172023 for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the financial statements.
Qualified Defined Benefit Pension Plans
The Company sponsors twofour qualified defined benefit pension plans named the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”) and, the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan (the “Tulip Plan”) and the Geo Adams Group Pension Fund (the “Geo Adams Plan” and, together with the Tulip Plan, the “U.K. Plans”). The Union Plan covers certain locations or work groups within PPC. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for that group as of March 31, 2007. The U.K. Plans cover certain eligible active and former U.K. employees who were employed at locations that the Company purchased through its acquisition of Tulip in 2019. Participation in the Tulip Plan was frozen as of October 31, 2007 and participation in the Geo Adams Plan was frozen as of September 5, 2008.
Nonqualified Defined Benefit Pension Plans
The Company sponsors two nonqualified defined benefit retirement plans named the Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “SERP Plan”) and the Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”). Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on compensation in excess of certain IRC limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits under the SERP Plan were frozen as of February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors.
Defined Benefit Postretirement Life Insurance Plan
The Company sponsors one defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Retiree Life Plan” and together with the Union Plan, the GK Pension Plan, the SERP Plan and the Directors’ Emeriti Plan, the “U.S. Plans”). Pilgrim’s Pride assumed defined benefit postretirement medical and life insurance obligations, including the Retiree Life Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. These retired employees all reached the age of 65 in 2012 and liabilities of the postretirement medical plan then ended.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Benefit Plans Obligations and Assets
The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated and Combined Balance Sheets for these plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in projected benefit obligation | (In thousands) |
| Projected benefit obligation, beginning of year | $ | 236,147 | | | $ | 373,062 | | | $ | 1,169 | | | $ | 1,346 | |
| Interest cost | 11,322 | | | 6,777 | | | 54 | | | 23 | |
| Actuarial (gains) losses | 238 | | | (106,909) | | | (21) | | | (184) | |
| Benefits paid | (17,072) | | | (12,867) | | | (42) | | | (16) | |
| Curtailments and settlements | — | | | (5,053) | | | — | | | — | |
| Currency translation (gain) loss | 6,873 | | | (18,863) | | | — | | | — | |
| Projected benefit obligation, end of year | $ | 237,508 | | | $ | 236,147 | | | $ | 1,160 | | | $ | 1,169 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in plan assets | (In thousands) |
| Fair value of plan assets, beginning of year | $ | 210,133 | | | $ | 326,409 | | | $ | — | | | $ | — | |
| Actual return on plan assets | 17,709 | | | (89,479) | | | — | | | — | |
| Contributions by employer | 8,570 | | | 9,789 | | | 42 | | | 16 | |
| Benefits paid | (17,072) | | | (12,867) | | | (42) | | | (16) | |
| Curtailments and settlements | — | | | (5,053) | | | — | | | — | |
| Expenses paid from assets | (327) | | | (337) | | | — | | | — | |
| Currency translation gain (loss) | 6,438 | | | (18,329) | | | — | | | — | |
| Fair value of plan assets, end of year | $ | 225,451 | | | $ | 210,133 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Change in projected benefit obligation: | (In thousands) |
| Projected benefit obligation, beginning of year | $ | 167,159 |
| | $ | 165,952 |
| | $ | 1,648 |
| | $ | 1,672 |
|
| Interest cost | 5,571 |
| | 5,585 |
| | 51 |
| | 51 |
|
| Actuarial losses (gains) | 15,745 |
| | 10,305 |
| | 68 |
| | 46 |
|
| Benefits paid | (10,228 | ) | | (6,098 | ) | | — |
| | — |
|
Settlements(a) | — |
| | (8,585 | ) | | (164 | ) | | (121 | ) |
| Projected benefit obligation, end of year | $ | 178,247 |
| | $ | 167,159 |
| | $ | 1,603 |
| | $ | 1,648 |
|
| |
(a) | A settlement is a transaction that is an irrevocable action, relieves the employer or the plan of primary responsibility for a pension or postretirement obligation and eliminates significant risks related to the obligation and the assets used to affect the settlement. A settlement can be triggered when a plan pays lump sums totaling more than the sum of the plan’s interest cost and service cost. The GK Pension Plan, the Retiree Life Plan, and the Union Pension Plan met this threshold in 2017 and 2016. |
Table of Contents | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Funded status | (In thousands) |
| Unfunded benefit obligation, end of year | $ | (12,057) | | | $ | (26,014) | | | $ | (1,160) | | | $ | (1,169) | |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amounts recognized in the Consolidated Balance Sheets as of end of year | (In thousands) |
| Current liabilities | $ | (7,717) | | | $ | (841) | | | $ | (187) | | | $ | (177) | |
| Long-term liabilities | (4,340) | | | (25,173) | | | (973) | | | (992) | |
| Recognized liabilities | $ | (12,057) | | | $ | (26,014) | | | $ | (1,160) | | | $ | (1,169) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amounts recognized in accumulated other comprehensive loss at end of year | (In thousands) |
| Net actuarial loss (gain) | $ | 40,487 | | | $ | 48,121 | | | $ | (87) | | | $ | (66) | |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Change in plan assets: | (In thousands) |
| Fair value of plan assets, beginning of year | $ | 97,526 |
| | $ | 96,947 |
| | $ | — |
| | $ | — |
|
| Actual return on plan assets | 12,325 |
| | 4,460 |
| | — |
| | — |
|
| Contributions by employer | 12,947 |
| | 10,802 |
| | 164 |
| | 121 |
|
| Benefits paid | (10,228 | ) | | (6,098 | ) | | — |
| | — |
|
| Settlements | — |
| | (8,585 | ) | | (164 | ) | | (121 | ) |
| Fair value of plan assets, end of year | $ | 112,570 |
| | $ | 97,526 |
| | $ | — |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Funded status: | (In thousands) |
| Unfunded benefit obligation, end of year | $ | (65,677 | ) | | $ | (69,633 | ) | | $ | (1,603 | ) | | $ | (1,648 | ) |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Amounts recognized in the Consolidated and Combined Balance Sheets at end of year: | (In thousands) |
| Current liability | $ | (12,168 | ) | | $ | (13,113 | ) | | $ | (149 | ) | | $ | (147 | ) |
| Long-term liability | (53,509 | ) | | (56,520 | ) | | (1,454 | ) | | (1,501 | ) |
| Recognized liability | $ | (65,677 | ) | | $ | (69,633 | ) | | $ | (1,603 | ) | | $ | (1,648 | ) |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
Amounts recognized in accumulated other comprehensive loss at end of year: | (In thousands) |
| Net actuarial loss (gain) | $ | 54,235 |
| | $ | 46,494 |
| | $ | 35 |
| | $ | (31 | ) |
The accumulated benefit obligation for ourthe Company’s defined benefit pension plans was $178.2$237.5 million and $167.2$236.1 million atas of December 31, 20172023 and December 25, 2016,2022, respectively. Each of ourthe Company’s defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets atas of December 31, 20172023 and December 25, 2016.2022. As of December 31, 2017,2023, the weighted average duration of our defined benefit obligation is 31.0212.6 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Periodic Benefit Cost (Income)Costs
Net pension and other postretirementbenefit costs includedinclude the following components:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Interest cost | $ | 5,571 |
| | $ | 5,585 |
| | $ | 7,754 |
| | $ | 51 |
| | $ | 51 |
| | $ | 67 |
|
| Estimated return on plan assets | (5,254 | ) | | (5,256 | ) | | (6,684 | ) | | — |
| | — |
| | — |
|
| Settlement loss (gain) | — |
| | 2,064 |
| | 3,843 |
| | 2 |
| | (2 | ) | | (4 | ) |
| Amortization of net loss | 932 |
| | 659 |
| | 714 |
| | — |
| | — |
| | — |
|
| Net cost | $ | 1,249 |
| | $ | 3,052 |
| | $ | 5,627 |
| | $ | 53 |
| | $ | 49 |
| | $ | 63 |
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Interest cost | $ | 11,322 | | | $ | 6,777 | | | $ | 5,763 | | | $ | 54 | | | $ | 23 | | | $ | 18 | |
| Estimated return on plan assets | (10,393) | | | (10,298) | | | (10,562) | | | — | | | — | | | — | |
| Settlement loss | — | | | 1,591 | | | 2,313 | | | — | | | — | | | 21 | |
| Expenses paid from assets | 327 | | | 337 | | | 425 | | | — | | | — | | | — | |
| Amortization of net loss | 1,048 | | | 1,364 | | | 2,257 | | | — | | | — | | | 2 | |
| Amortization of past service cost | 17 | | | 17 | | | 19 | | | — | | | — | | | — | |
| Net cost (income) | $ | 2,321 | | | $ | (212) | | | $ | 215 | | | $ | 54 | | | $ | 23 | | | $ | 41 | |
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Benefit obligation | | | | | | | | | | | |
| Discount rate | 4.81 | % | | 5.04 | % | | 2.23 | % | | 5.06 | % | | 5.16 | % | | 2.38 | % |
| Net pension and other postretirement cost | | | | | | | | | | | |
| Discount rate | 4.93 | % | | 3.67 | % | | 2.08 | % | | 5.16 | % | | 2.38 | % | | 1.80 | % |
| Expected return on plan assets | 4.95 | % | | 4.68 | % | | 3.53 | % | | NA | | NA | | NA |
|
| | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Benefit obligation: | | | | | | | | | | | |
| Discount rate | 3.69 | % | | 4.31 | % | | 4.47 | % | | 3.39 | % | | 3.81 | % | | 4.47 | % |
| Net pension and other postretirement cost: | | | |
| Discount rate | 4.32 | % | | 4.47 | % | | 4.22 | % | | 3.81 | % | | 4.47 | % | | 4.22 | % |
| Expected return on plan assets | 5.50 | % | | 5.50 | % | | 5.50 | % | | NA |
| | NA |
| | NA |
|
The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company’s pension and other benefit obligations. The weighted average discount rate assumptions used to determine future pension obligations at December 31, 2023 and December 25, 2022 were based on the Empower Above Mean Curve, which was designed by Empower to provide a means for each plan was establishedsponsors to value the liabilities of their postretirement benefit plans. The Empower Above Mean Curve represents a series of annual discount rates from bonds with an AA minimum average credit quality rating as rated by comparing the projection of expected benefit payments to the AA Above Median yield curve.Moody’s Investor Service, Standard & Poor’s and Fitch Ratings. The expected benefit payments were discounted by each corresponding discount rate on the yield curve. For payments beyond 30 years, the Company extended the curve assuming the discount rate derived in year 30 is extended to the end of the plan’s payment expectations. Once the present value of the string of benefit payments was established, the Company determined the single rate on the yield curve, that when applied to all obligations of the plan, would exactly match the previously determined present value. The discount rate assumptions used to determine future pension obligations for the U.K. pension plans at December 31, 2023 and December 25, 2022 were based on corporate bond spot yield curves provided by Merrill Lynch. Merrill Lynch bases this calculation entirely on AA1-AA3 rated bonds. As part of the evaluation of pension and other postretirement assumptions, the Company applied assumptions for mortality that incorporate generational white and blue collar mortality trends. In determining its benefit obligations, the Company used generational tables that take into consideration increases in plan participant longevity. AllAs of December 31, 2023 and December 25, 2022, the U.S. pension and other postretirement benefit plans used variations of the RP-2006Pri-2012 mortality tabletable. The MP-2022 and the MP-2017MP-2021 mortality improvement scale asscales were used for 2023 and 2022, respectively. As of December 31, 2017. All2023 and December 25, 2022, the U.K. pension and postretirement plans used variations of the RP-2006AxC00 mortality table in combination with the CMI_2022 Sk=7.5 and CMI_2021 Sk=7.5 mortality improvement scales for 2023 and 2022, respectively, for pre-retirement employees and the MP-2016S3PMA mortality table in combination with the CMI_2022 Sk=7.5 and CMI_2021 Sk=7.5 mortality improvement scale as of December 25, 2016.scales for 2023 and 2022, respectively, for postretirement employees.
The sensitivity of the projected benefit obligation for pension benefits to changes in the discount rate is set out below. The impact of a change in the discount rate of 0.25% on the projected benefit obligation for other benefits is less than $1,000.immaterial. This sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that for calculating the liability recognized in the Consolidated and Combined Balance Sheet.Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | |
| | Increase in Discount Rate of 0.25% | | Decrease in Discount Rate of 0.25% |
| | (In thousands) |
| Impact on projected benefit obligation for pension benefits | $ | (5,087 | ) | | $ | 4,828 |
|
| | | | | | | | | | | |
| Increase in Discount Rate of 0.25% | | Decrease in Discount Rate of 0.25% |
| (In thousands) |
| Impact on projected benefit obligation for pension benefits | $ | (6,358) | | | $ | 6,693 | |
The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan’s current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Cash and cash equivalents | 2 | % | | 6 | % |
Pooled separate accounts for the Union Plan(a): | | | |
| Equity securities | 2 | % | | 2 | % |
| Fixed income securities | 2 | % | | 2 | % |
Pooled separate accounts and common collective trust funds for the GK Pension Plan(a): | | | |
| Equity securities | 25 | % | | 23 | % |
| Fixed income securities | 15 | % | | 15 | % |
| Real estate | 2 | % | | 3 | % |
Pooled separate accounts for the U.K. Plans(a): | | | |
| Equity securities | 29 | % | | 27 | % |
| Fixed income funds | 1 | % | | 1 | % |
| Liability driven investments | 15 | % | | 13 | % |
| Real estate | 7 | % | | 8 | % |
| Total assets | 100 | % | | 100 | % |
|
| | | | | |
| | 2017 | | 2016 |
| Cash and cash equivalents | 5 | % | | — | % |
Pooled separate accounts(a): | | | |
| Equity securities | 5 | % | | 5 | % |
| Fixed income securities | 4 | % | | 5 | % |
Common collective trust funds(a): | | | |
| Equity securities | 56 | % | | 60 | % |
| Fixed income securities | 30 | % | | 30 | % |
| Total assets | 100 | % | | 100 | % |
| |
(a) | Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the Securities and Exchange Commission. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments. |
Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the pooled separate accountsPSAs for the Union Plan is 50% in each of fixed income securities and equity securities, and the target asset allocation for the investment of pension assets in the common collective trust fundsPSAs and/or CCTs for the GK Pension Plan is 30%35% in fixed income securities, and 70%60% in equity securities.securities and 5% in real estate and investment of pension assets in the PSAs for the U.K. Plans is 21% overseas equity, 15% diversified alternatives, 10% real estate, 28% equity-linked liability driven investments, 11% other liability driven investments and 15% cash for the Tulip Pension Plan; and 37% global equities, 20% equity-linked liability driven investments, 18% liability driven investments, 15% corporate bonds and 10% cash for the Geo Adams Group Pension Fund. The plans only invest in fixed income and equity instruments for which there is a readyreadily available public market. We develop ourThe Company develops its expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which ourits plans invest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of December 31, 20172023 and December 25, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
| Level 1(a) | | Level 2(b) | | Level 3(c) | | Total | | Level 1(a) | | Level 2(b) | | Level 3(c) | | Total |
| | (In thousands) |
| Cash and cash equivalents | $ | 5,394 | | | $ | — | | | $ | — | | | $ | 5,394 | | | $ | 12,072 | | | $ | — | | | $ | — | | | $ | 12,072 | |
| PSAs for the Union Plan: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 2,123 | | | — | | | 2,123 | | | — | | | 1,995 | | | — | | | 1,995 | |
Small/Mid U.S. equity funds(e) | — | | | 1,133 | | | — | | | 1,133 | | | — | | | 1,055 | | | — | | | 1,055 | |
International equity funds(f) | — | | | 1,654 | | | — | | | 1,654 | | | — | | | 1,672 | | | — | | | 1,672 | |
Fixed income funds(g) | — | | | 3,640 | | | — | | | 3,640 | | | — | | | 3,838 | | | — | | | 3,838 | |
Real estate(h) | — | | | 437 | | | — | | | 437 | | | — | | | — | | | — | | | — | |
| PSAs and CCTs for the GK Pension Plan: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 27,516 | | | — | | | 27,516 | | | — | | | 23,541 | | | — | | | 23,541 | |
Small/Mid U.S. equity funds(e) | — | | | 13,991 | | | — | | | 13,991 | | | — | | | 12,446 | | | — | | | 12,446 | |
International equity funds(f) | — | | | 13,751 | | | — | | | 13,751 | | | — | | | 13,171 | | | — | | | 13,171 | |
Fixed income funds(g) | — | | | 34,111 | | | — | | | 34,111 | | | — | | | 30,865 | | | — | | | 30,865 | |
Real estate(h) | — | | | 5,174 | | | — | | | 5,174 | | | — | | | 6,458 | | | — | | | 6,458 | |
| PSAs for the U.K. Plans: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 29,648 | | | — | | | 29,648 | | | — | | | 23,149 | | | — | | | 23,149 | |
International equity funds(f) | — | | | 36,507 | | | — | | | 36,507 | | | — | | | 31,767 | | | — | | | 31,767 | |
Fixed income funds(g) | — | | | 3,376 | | | — | | | 3,376 | | | — | | | 3,081 | | | — | | | 3,081 | |
Real estate(h) | — | | | 14,985 | | | — | | | 14,985 | | | — | | | 16,297 | | | — | | | 16,297 | |
Liability driven investments(i) | — | | | 32,011 | | | — | | | 32,011 | | | — | | | 28,726 | | | — | | | 28,726 | |
| Total assets | $ | 5,394 | | | $ | 220,057 | | | $ | — | | | $ | 225,451 | | | $ | 12,072 | | | $ | 198,061 | | | $ | — | | | $ | 210,133 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016(a) |
| | Level 1(a) | | Level 2(b) | | Level 3(c) | | Total | | Level 1(a) | | Level 2(b) | | Level 3(c) | | Total |
| | (In thousands) |
| Cash and cash equivalents | $ | 6,128 |
| | $ | — |
| | $ | — |
| | $ | 6,128 |
| | $ | 119 |
| | $ | — |
| | $ | — |
| | $ | 119 |
|
| Pooled separate accounts: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — |
| | 3,483 |
| | — |
| | 3,483 |
| | — |
| | 3,302 |
| | — |
| | 3,302 |
|
Small/Mid U.S. equity funds(e) | — |
| | 420 |
| | — |
| | 420 |
| | — |
| | 406 |
| | — |
| | 406 |
|
International equity funds(f) | — |
| | 1,665 |
| | — |
| | 1,665 |
| | — |
| | 1,231 |
| | — |
| | 1,231 |
|
Fixed income funds(g) | — |
| | 4,799 |
| | — |
| | 4,799 |
| | — |
| | 4,867 |
| | — |
| | 4,867 |
|
| Common collective trusts funds: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — |
| | 22,695 |
| | — |
| | 22,695 |
| | — |
| | 24,547 |
| | — |
| | 24,547 |
|
Small/Mid U.S. equity funds(e) | — |
| | 20,592 |
| | — |
| | 20,592 |
| | — |
| | 17,344 |
| | — |
| | 17,344 |
|
International equity funds(f) | — |
| | 19,923 |
| | — |
| | 19,923 |
| | — |
| | 17,006 |
| | — |
| | 17,006 |
|
Fixed income funds(g) | — |
| | 32,865 |
| | — |
| | 32,865 |
| | — |
| | 28,704 |
| | — |
| | 28,704 |
|
| Total assets | $ | 6,128 |
| | $ | 106,442 |
| | $ | — |
| | $ | 112,570 |
| | $ | 119 |
| | $ | 97,407 |
| | $ | — |
| | $ | 97,526 |
|
| |
(a) | Unadjusted quoted prices in active markets for identical assets are used to determine fair value. |
| |
(b) | (b)Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value. |
| |
(c) | Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value. |
| |
(d) | This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods. |
| |
(e) | This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns. |
| |
(f) | This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S. |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| |
(g) | This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). It may also include real estate investment options that directly own property. These investment options typically carry more risk than short-term fixed income investment options (including, for real estate investment options, liquidity risk), but less overall risk than equities. |
The valuation of plan assets in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full termasset are used to determine fair value.
(c)Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.
(d)This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.
(e)This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.
(f)This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the financial instrument. Level 2 securities primarily include equityU.S.
(g)This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). These investment options typically carry more risk than short-term fixed income securities funds.investment options, but less overall risk than equities.
(h)This category is comprised of investment options that invest in real estate investment trusts or private equity pools that own real estate. These long-term investments are primarily in office buildings, industrial parks, apartments or retail complexes. These investment options typically carry more risk, including liquidity risk, than fixed income investment options.
(i)This category is comprised of investments that seek to ensure availability of funds to cover current and future liabilities. These investments are typically focused on both the assets and liabilities of the plan.
Benefit Payments
The following table reflects the benefits as of December 31, 20172023 expected to be paid in each ofthrough 2033 from the next five years and in the aggregate for the five years thereafter from ourCompany’s pension and other postretirement plans. Because ourThe Company’s pension plans are primarily funded plans, theplans. Therefore, anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. Because ourThe Company’s other postretirement plans are unfunded, theunfunded. Therefore, anticipated benefits with respect to these plans will come from ourthe Company’s own assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | |
| | Pension Benefits | | Other Benefits |
| | (In thousands) |
| 2018 | $ | 18,368 |
| | $ | 148 |
|
| 2019 | 11,889 |
| | 148 |
|
| 2020 | 11,687 |
| | 146 |
|
| 2021 | 11,337 |
| | 143 |
|
| 2022 | 11,160 |
| | 139 |
|
| 2023-2027 | 50,628 |
| | 611 |
|
| Total | $ | 115,069 |
| | $ | 1,335 |
|
| | | | | | | | | | | |
| Pension Benefits | | Other
Benefits |
| | (In thousands) |
| 2024 | $ | 21,857 | | | $ | 187 | |
| 2025 | 16,157 | | | 172 | |
| 2026 | 16,031 | | | 158 | |
| 2027 | 16,023 | | | 144 | |
| 2028 | 15,807 | | | 130 | |
| 2029-2033 | 75,749 | | | 452 | |
| Total | $ | 161,624 | | | $ | 1,243 | |
We anticipate contributing $12.2 million and $0.1 million, asAs required by funding regulations or laws, the Company anticipates contributing $7.7 million and less than $0.2 million to ourits pension and other postretirement plans, respectively, during 2018.2024.
Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss (Income)
The amounts in accumulated other comprehensive income (loss)loss that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Net actuarial loss (gain), beginning of year | $ | 46,494 |
| | $ | 38,115 |
| | $ | 43,907 |
| | $ | (31 | ) | | $ | (79 | ) | | $ | (127 | ) |
| Amortization | (932 | ) | | (659 | ) | | (714 | ) | | — |
| | — |
| | — |
|
| Settlement adjustments | — |
| | (2,064 | ) | | (3,843 | ) | | (2 | ) | | 2 |
| | 4 |
|
| Actuarial loss (gain) | 15,745 |
| | 10,305 |
| | (10,944 | ) | | 68 |
| | 46 |
| | 44 |
|
| Asset loss (gain) | (7,072 | ) | | 797 |
| | 9,709 |
| | — |
| | — |
| | — |
|
| Net actuarial loss (gain), end of year | $ | 54,235 |
| | $ | 46,494 |
| | $ | 38,115 |
| | $ | 35 |
| | $ | (31 | ) | | $ | (79 | ) |
The Company expects to recognize in net pension cost throughout 2018 an actuarial loss of $1.2 million that was recorded in accumulated other comprehensive income at December 31, 2017. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Net actuarial loss, beginning of year | $ | 48,121 | | | $ | 58,143 | | | $ | 95,522 | | | $ | (66) | | | $ | 118 | | | $ | 174 | |
| Amortization | (1,065) | | | (1,381) | | | (2,276) | | | — | | | — | | | (2) | |
| Settlement adjustments | — | | | (1,591) | | | (2,313) | | | — | | | — | | | (21) | |
| Actuarial loss (gain) | 238 | | | (106,909) | | | (14,535) | | | (21) | | | (184) | | | (33) | |
| Asset loss (gain) | (7,317) | | | 99,777 | | | (18,563) | | | — | | | — | | | — | |
| Net prior service cost | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation loss | 510 | | | 82 | | | 308 | | | — | | | — | | | — | |
| Net actuarial loss (gain), end of year | $ | 40,487 | | | $ | 48,121 | | | $ | 58,143 | | | $ | (87) | | | $ | (66) | | | $ | 118 | |
Risk Management
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility.The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
term.short-term. The Company monitors the level of investment risk but has no current plan to significantly modify the mixture of investments. The investment position is discussed more below.
Changes in bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
The investment position is managed and monitored by a committee of individuals from various departments. This group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The majority of equities are in U.S. large and small cap companies with some global diversification into international entities. The plans are not exposed to significant foreign currency risk.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Contribution PlansRestrictions on Dividends
The 2021 U.S. Credit Facility, the RCF and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends. Additionally, the U.K. and Europe Revolver Facility prohibits MPH(E) and other Pilgrim’s entities located in the U.K. and Republic of Ireland to, among other things, make payments and distributions to the Company.
15. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors twoprograms that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans such as the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”) the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan and the Geo Adams Group Pension Fund (together, the “U.K. Plans”), nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plan. Expenses recognized under all retirement plans totaled $32.0 million, $30.9 million and $19.2 million in 2023, 2022 and 2021, respectively.
The Company used a year-end measurement date of December 31, 2023 for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the U.S. segmentfinancial statements.
Qualified Defined Benefit Pension Plans
The Company sponsors four qualified defined benefit pension plans named the Pilgrim’s Pride Retirement SavingsPlan for Union Employees (the “Union Plan”), the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan (the “RS“Tulip Plan”) and the To-Ricos Employee Savings,Geo Adams Group Pension Fund (the “Geo Adams Plan” and, together with the Tulip Plan, the “U.K. Plans”). The Union Plan covers certain locations or work groups within PPC. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for that group as of March 31, 2007. The U.K. Plans cover certain eligible active and former U.K. employees who were employed at locations that the Company purchased through its acquisition of Tulip in 2019. Participation in the Tulip Plan was frozen as of October 31, 2007 and participation in the Geo Adams Plan was frozen as of September 5, 2008.
Nonqualified Defined Benefit Pension Plans
The Company sponsors two nonqualified defined benefit retirement plans named the Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “To-Ricos“SERP Plan”) and the Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”). Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The RSSERP Plan is anprovides benefits on compensation in excess of certain IRC Section 401(k) salary deferral plan maintained forlimitations to certain eligible U.S. employees. Underformer executives with whom Gold Kist negotiated individual agreements. Benefits under the RSSERP Plan eligible U.S. employees may voluntarily contribute a percentagewere frozen as of their compensation. February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors.
Defined Benefit Postretirement Life Insurance Plan
The Company matches upsponsors one defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Retiree Life Plan” and together with the Union Plan, the GK Pension Plan, the SERP Plan and the Directors’ Emeriti Plan, the “U.S. Plans”). Pilgrim’s Pride assumed defined benefit postretirement medical and life insurance obligations, including the Retiree Life Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to 30.0%substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the first 2.00% to 6.00%medical insurance plan for active employees. These retired employees all reached the age of salary based on65 in 2012 and liabilities of the salary deferral and compensation levels up to $245,000. The To-Ricos Plan is an IRC Section 1165(e) salary deferralpostretirement medical plan maintained for certain eligible Puerto Rico employees. Under the To-Ricos Plan, eligible employees may voluntarily contribute a percentage of their compensation and there are various company matching provisions. The Company maintains three postretirement plans for eligible Mexico employees, as required by Mexico law, which primarily cover termination benefits. The Company maintains two defined contribution retirement savings plans in the U.K. and Europe for eligible U.K. and Europe employees, as required by U.K. and European law. Salaried employees can contribute up to 3.0% of salary and the Company matches between 4.0% and 5.5%. Weekly employees can contribute up to 1.0% of wages with a 1.0% Company match.
The Company’s expenses related to its defined contribution plans totaled $9.5 million, $8.1 million and $5.5 million in 2017, 2016 and 2015, respectively.
then ended.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Defined Benefit Plans Obligations and Assets
14.STOCKHOLDERS’ EQUITYThe change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in projected benefit obligation | (In thousands) |
| Projected benefit obligation, beginning of year | $ | 236,147 | | | $ | 373,062 | | | $ | 1,169 | | | $ | 1,346 | |
| Interest cost | 11,322 | | | 6,777 | | | 54 | | | 23 | |
| Actuarial (gains) losses | 238 | | | (106,909) | | | (21) | | | (184) | |
| Benefits paid | (17,072) | | | (12,867) | | | (42) | | | (16) | |
| Curtailments and settlements | — | | | (5,053) | | | — | | | — | |
| Currency translation (gain) loss | 6,873 | | | (18,863) | | | — | | | — | |
| Projected benefit obligation, end of year | $ | 237,508 | | | $ | 236,147 | | | $ | 1,160 | | | $ | 1,169 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in plan assets | (In thousands) |
| Fair value of plan assets, beginning of year | $ | 210,133 | | | $ | 326,409 | | | $ | — | | | $ | — | |
| Actual return on plan assets | 17,709 | | | (89,479) | | | — | | | — | |
| Contributions by employer | 8,570 | | | 9,789 | | | 42 | | | 16 | |
| Benefits paid | (17,072) | | | (12,867) | | | (42) | | | (16) | |
| Curtailments and settlements | — | | | (5,053) | | | — | | | — | |
| Expenses paid from assets | (327) | | | (337) | | | — | | | — | |
| Currency translation gain (loss) | 6,438 | | | (18,329) | | | — | | | — | |
| Fair value of plan assets, end of year | $ | 225,451 | | | $ | 210,133 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Funded status | (In thousands) |
| Unfunded benefit obligation, end of year | $ | (12,057) | | | $ | (26,014) | | | $ | (1,160) | | | $ | (1,169) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amounts recognized in the Consolidated Balance Sheets as of end of year | (In thousands) |
| Current liabilities | $ | (7,717) | | | $ | (841) | | | $ | (187) | | | $ | (177) | |
| Long-term liabilities | (4,340) | | | (25,173) | | | (973) | | | (992) | |
| Recognized liabilities | $ | (12,057) | | | $ | (26,014) | | | $ | (1,160) | | | $ | (1,169) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amounts recognized in accumulated other comprehensive loss at end of year | (In thousands) |
| Net actuarial loss (gain) | $ | 40,487 | | | $ | 48,121 | | | $ | (87) | | | $ | (66) | |
The accumulated benefit obligation for the Company’s defined benefit pension plans was $237.5 million and $236.1 million as of December 31, 2023 and December 25, 2022, respectively. Each of the Company’s defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets as of December 31, 2023 and December 25, 2022. As of December 31, 2023, the weighted average duration of our defined benefit obligation is 12.6 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Periodic Benefit Costs
Net benefit costs include the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Interest cost | $ | 11,322 | | | $ | 6,777 | | | $ | 5,763 | | | $ | 54 | | | $ | 23 | | | $ | 18 | |
| Estimated return on plan assets | (10,393) | | | (10,298) | | | (10,562) | | | — | | | — | | | — | |
| Settlement loss | — | | | 1,591 | | | 2,313 | | | — | | | — | | | 21 | |
| Expenses paid from assets | 327 | | | 337 | | | 425 | | | — | | | — | | | — | |
| Amortization of net loss | 1,048 | | | 1,364 | | | 2,257 | | | — | | | — | | | 2 | |
| Amortization of past service cost | 17 | | | 17 | | | 19 | | | — | | | — | | | — | |
| Net cost (income) | $ | 2,321 | | | $ | (212) | | | $ | 215 | | | $ | 54 | | | $ | 23 | | | $ | 41 | |
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Benefit obligation | | | | | | | | | | | |
| Discount rate | 4.81 | % | | 5.04 | % | | 2.23 | % | | 5.06 | % | | 5.16 | % | | 2.38 | % |
| Net pension and other postretirement cost | | | | | | | | | | | |
| Discount rate | 4.93 | % | | 3.67 | % | | 2.08 | % | | 5.16 | % | | 2.38 | % | | 1.80 | % |
| Expected return on plan assets | 4.95 | % | | 4.68 | % | | 3.53 | % | | NA | | NA | | NA |
The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company’s pension and other benefit obligations. The discount rate assumptions used to determine future pension obligations at December 31, 2023 and December 25, 2022 were based on the Empower Above Mean Curve, which was designed by Empower to provide a means for plan sponsors to value the liabilities of their postretirement benefit plans. The Empower Above Mean Curve represents a series of annual discount rates from bonds with an AA minimum average credit quality rating as rated by Moody’s Investor Service, Standard & Poor’s and Fitch Ratings. The expected benefit payments were discounted by each corresponding discount rate on the yield curve. For payments beyond 30 years, the Company extended the curve assuming the discount rate derived in year 30 is extended to the end of the plan’s payment expectations. Once the present value of the string of benefit payments was established, the Company determined the single rate on the yield curve, that when applied to all obligations of the plan, would exactly match the previously determined present value. The discount rate assumptions used to determine future pension obligations for the U.K. pension plans at December 31, 2023 and December 25, 2022 were based on corporate bond spot yield curves provided by Merrill Lynch. Merrill Lynch bases this calculation entirely on AA1-AA3 rated bonds. As part of the evaluation of pension and other postretirement assumptions, the Company applied assumptions for mortality that incorporate generational white and blue collar mortality trends. In determining its benefit obligations, the Company used generational tables that take into consideration increases in plan participant longevity. As of December 31, 2023 and December 25, 2022, the U.S. pension and other postretirement benefit plans used variations of the Pri-2012 mortality table. The MP-2022 and MP-2021 mortality improvement scales were used for 2023 and 2022, respectively. As of December 31, 2023 and December 25, 2022, the U.K. pension plans used variations of the AxC00 mortality table in combination with the CMI_2022 Sk=7.5 and CMI_2021 Sk=7.5 mortality improvement scales for 2023 and 2022, respectively, for pre-retirement employees and the S3PMA mortality table in combination with the CMI_2022 Sk=7.5 and CMI_2021 Sk=7.5 mortality improvement scales for 2023 and 2022, respectively, for postretirement employees.
The sensitivity of the projected benefit obligation for pension benefits to changes in the discount rate is set out below. The impact of a change in the discount rate of 0.25% on the projected benefit obligation for other benefits is immaterial. This sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that for calculating the liability recognized in the Consolidated Balance Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| Increase in Discount Rate of 0.25% | | Decrease in Discount Rate of 0.25% |
| (In thousands) |
| Impact on projected benefit obligation for pension benefits | $ | (6,358) | | | $ | 6,693 | |
The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan’s current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Cash and cash equivalents | 2 | % | | 6 | % |
Pooled separate accounts for the Union Plan(a): | | | |
| Equity securities | 2 | % | | 2 | % |
| Fixed income securities | 2 | % | | 2 | % |
Pooled separate accounts and common collective trust funds for the GK Pension Plan(a): | | | |
| Equity securities | 25 | % | | 23 | % |
| Fixed income securities | 15 | % | | 15 | % |
| Real estate | 2 | % | | 3 | % |
Pooled separate accounts for the U.K. Plans(a): | | | |
| Equity securities | 29 | % | | 27 | % |
| Fixed income funds | 1 | % | | 1 | % |
| Liability driven investments | 15 | % | | 13 | % |
| Real estate | 7 | % | | 8 | % |
| Total assets | 100 | % | | 100 | % |
(a)Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the SEC. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments.
Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the PSAs for the Union Plan is 50% in each of fixed income securities and equity securities, the target asset allocation for the investment of pension assets in the PSAs and/or CCTs for the GK Pension Plan is 35% in fixed income securities, 60% in equity securities and 5% in real estate and investment of pension assets in the PSAs for the U.K. Plans is 21% overseas equity, 15% diversified alternatives, 10% real estate, 28% equity-linked liability driven investments, 11% other liability driven investments and 15% cash for the Tulip Pension Plan; and 37% global equities, 20% equity-linked liability driven investments, 18% liability driven investments, 15% corporate bonds and 10% cash for the Geo Adams Group Pension Fund. The plans only invest in fixed income and equity instruments for which there is a readily available public market. The Company develops its expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which its plans invest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of December 31, 2023 and December 25, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
| Level 1(a) | | Level 2(b) | | Level 3(c) | | Total | | Level 1(a) | | Level 2(b) | | Level 3(c) | | Total |
| | (In thousands) |
| Cash and cash equivalents | $ | 5,394 | | | $ | — | | | $ | — | | | $ | 5,394 | | | $ | 12,072 | | | $ | — | | | $ | — | | | $ | 12,072 | |
| PSAs for the Union Plan: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 2,123 | | | — | | | 2,123 | | | — | | | 1,995 | | | — | | | 1,995 | |
Small/Mid U.S. equity funds(e) | — | | | 1,133 | | | — | | | 1,133 | | | — | | | 1,055 | | | — | | | 1,055 | |
International equity funds(f) | — | | | 1,654 | | | — | | | 1,654 | | | — | | | 1,672 | | | — | | | 1,672 | |
Fixed income funds(g) | — | | | 3,640 | | | — | | | 3,640 | | | — | | | 3,838 | | | — | | | 3,838 | |
Real estate(h) | — | | | 437 | | | — | | | 437 | | | — | | | — | | | — | | | — | |
| PSAs and CCTs for the GK Pension Plan: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 27,516 | | | — | | | 27,516 | | | — | | | 23,541 | | | — | | | 23,541 | |
Small/Mid U.S. equity funds(e) | — | | | 13,991 | | | — | | | 13,991 | | | — | | | 12,446 | | | — | | | 12,446 | |
International equity funds(f) | — | | | 13,751 | | | — | | | 13,751 | | | — | | | 13,171 | | | — | | | 13,171 | |
Fixed income funds(g) | — | | | 34,111 | | | — | | | 34,111 | | | — | | | 30,865 | | | — | | | 30,865 | |
Real estate(h) | — | | | 5,174 | | | — | | | 5,174 | | | — | | | 6,458 | | | — | | | 6,458 | |
| PSAs for the U.K. Plans: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 29,648 | | | — | | | 29,648 | | | — | | | 23,149 | | | — | | | 23,149 | |
International equity funds(f) | — | | | 36,507 | | | — | | | 36,507 | | | — | | | 31,767 | | | — | | | 31,767 | |
Fixed income funds(g) | — | | | 3,376 | | | — | | | 3,376 | | | — | | | 3,081 | | | — | | | 3,081 | |
Real estate(h) | — | | | 14,985 | | | — | | | 14,985 | | | — | | | 16,297 | | | — | | | 16,297 | |
Liability driven investments(i) | — | | | 32,011 | | | — | | | 32,011 | | | — | | | 28,726 | | | — | | | 28,726 | |
| Total assets | $ | 5,394 | | | $ | 220,057 | | | $ | — | | | $ | 225,451 | | | $ | 12,072 | | | $ | 198,061 | | | $ | — | | | $ | 210,133 | |
(a)Unadjusted quoted prices in active markets for identical assets are used to determine fair value.
(b)Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value.
(c)Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.
(d)This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.
(e)This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.
(f)This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S.
(g)This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). These investment options typically carry more risk than short-term fixed income investment options, but less overall risk than equities.
(h)This category is comprised of investment options that invest in real estate investment trusts or private equity pools that own real estate. These long-term investments are primarily in office buildings, industrial parks, apartments or retail complexes. These investment options typically carry more risk, including liquidity risk, than fixed income investment options.
(i)This category is comprised of investments that seek to ensure availability of funds to cover current and future liabilities. These investments are typically focused on both the assets and liabilities of the plan.
Benefit Payments
The following table reflects the benefits as of December 31, 2023 expected to be paid through 2033 from the Company’s pension and other postretirement plans. The Company’s pension plans are primarily funded plans. Therefore, anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. The Company’s other postretirement plans are unfunded. Therefore, anticipated benefits with respect to these plans will come from the Company’s own assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| Pension Benefits | | Other
Benefits |
| | (In thousands) |
| 2024 | $ | 21,857 | | | $ | 187 | |
| 2025 | 16,157 | | | 172 | |
| 2026 | 16,031 | | | 158 | |
| 2027 | 16,023 | | | 144 | |
| 2028 | 15,807 | | | 130 | |
| 2029-2033 | 75,749 | | | 452 | |
| Total | $ | 161,624 | | | $ | 1,243 | |
As required by funding regulations or laws, the Company anticipates contributing $7.7 million and less than $0.2 million to its pension and other postretirement plans, respectively, during 2024.
Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss
The following tables provide information regarding the changesamounts in accumulated other comprehensive loss during 2017that were not recognized as components of net periodic benefits cost and 2016:the changes in those amounts are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Net actuarial loss, beginning of year | $ | 48,121 | | | $ | 58,143 | | | $ | 95,522 | | | $ | (66) | | | $ | 118 | | | $ | 174 | |
| Amortization | (1,065) | | | (1,381) | | | (2,276) | | | — | | | — | | | (2) | |
| Settlement adjustments | — | | | (1,591) | | | (2,313) | | | — | | | — | | | (21) | |
| Actuarial loss (gain) | 238 | | | (106,909) | | | (14,535) | | | (21) | | | (184) | | | (33) | |
| Asset loss (gain) | (7,317) | | | 99,777 | | | (18,563) | | | — | | | — | | | — | |
| Net prior service cost | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation loss | 510 | | | 82 | | | 308 | | | — | | | — | | | — | |
| Net actuarial loss (gain), end of year | $ | 40,487 | | | $ | 48,121 | | | $ | 58,143 | | | $ | (87) | | | $ | (66) | | | $ | 118 | |
Risk Management
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-term. The Company monitors the level of investment risk but has no current plan to significantly modify the mixture of investments. The investment position is discussed more below.
Changes in bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
The investment position is managed and monitored by a committee of individuals from various departments. This group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The majority of equities are in U.S. large and small cap companies with some global diversification into international entities.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.
|
| | | | | | | | | | | | | | | | | | | |
| | 2017(a) |
| | Losses Related to Foreign Currency Translation | | Unrealized Gains (Losses) on Derivative Financial Instruments Classified as Cash Flow Hedges | | Losses Related to Pension and Other Postretirement Benefits | | Unrealized Holding Gains on Available-for-Sale Securities | | Total |
| | (In thousands) |
| Balance, beginning of year | $ | (265,714 | ) | | $ | 99 |
| | $ | (64,243 | ) | | $ | — |
| | $ | (329,858 | ) |
| Granite Holdings Sàrl common-control transaction | 204,577 |
| | (1,368 | ) | | — |
| | — |
| | 203,209 |
|
Other comprehensive income (loss)
before reclassifications | 103,218 |
| | 60 |
| | (7,770 | ) | | 82 |
| | 95,590 |
|
Amounts reclassified from accumulated other comprehensive loss to net income | — |
| | (639 | ) | | 579 |
| | (21 | ) | | (81 | ) |
Net current year other comprehensive income (loss) | 103,218 |
| | (579 | ) | | (7,191 | ) | | 61 |
| | 95,509 |
|
| Balance, end of year | $ | 42,081 |
| | $ | (1,848 | ) | | $ | (71,434 | ) | | $ | 61 |
| | $ | (31,140 | ) |
| | | | | | | | | | |
| | 2016(a) |
| | Losses Related to Foreign Currency Translation | | Unrealized Gains (Losses) on Derivative Financial Instruments Classified as Cash Flow Hedges | | Losses Related to Pension and Other Postretirement Benefits | | Unrealized Holding Gains on Available-for-Sale Securities | | Total |
| | (In thousands) |
| Balance, beginning of year | $ | (32,482 | ) | | $ | (61 | ) | | $ | (58,997 | ) | | $ | 67 |
| | $ | (91,473 | ) |
Other comprehensive income (loss)
before reclassifications | (233,232 | ) | | (151 | ) | | (5,657 | ) | | 277 |
| | (238,763 | ) |
Amounts reclassified from accumulated other comprehensive loss to net income | — |
| | 311 |
| | 411 |
| | (344 | ) | | 378 |
|
Net current year other comprehensive income (loss) | (233,232 | ) | | 160 |
| | (5,246 | ) | | (67 | ) | | (238,385 | ) |
| Balance, end of year | $ | (265,714 | ) | | $ | 99 |
| | $ | (64,243 | ) | | $ | — |
| | $ | (329,858 | ) |
| |
(a) | All amounts are net of tax. Amounts in parentheses indicate debits. |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | | | | | | | |
| Details about Accumulated Other Comprehensive Loss Components | | Amount Reclassified from Accumulated Other Comprehensive Loss(a) | | Affected Line Item in the Consolidated and Combined Statements of Operations |
| | 2017 | | 2016 | |
| | | (In thousands) | | |
Realized gain (loss) on settlement of derivative financial instruments classified as cash flow hedges | | $ | 639 |
| | $ | (311 | ) | | Cost of sales |
| Realized gain on sale of securities | | 34 |
| | 552 |
| | Interest income |
Amortization of pension and other
postretirement plan actuarial losses: | | | | | | |
Union employees pension plan(b) | | (24 | ) | | (20 | ) | (d) | Cost of goods sold |
Legacy Gold Kist plans(c) | | (283 | ) | | (199 | ) | (d) | Cost of goods sold |
Legacy Gold Kist plans(c) | | (625 | ) | | (440 | ) | (d) | Selling, general and administrative expense |
| Total before tax | | (259 | ) | | (418 | ) | | |
| Tax benefit | | 340 |
| | 40 |
| | |
| Total reclassification for the period | | $ | 81 |
| | (378 | ) | | |
| |
(a) | Amounts in parentheses represent debits to results of operations. |
| |
(b) | The Company sponsors the Union Plan, a qualified defined benefit pension plan covering certain locations or work groups with collective bargaining agreements. |
| |
(c) | The Company sponsors the GK Pension Plan, a qualified defined benefit pension plan covering certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007, the SERP Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist executives, the Directors’ Emeriti Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist directors and the Retiree Life Plan, a defined benefit postretirement life insurance plan covering certain retired Gold Kist employees (collectively, the “Legacy Gold Kist Plans”). |
| |
(d) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See “Note 13. Pension and Other Postretirement Benefits” to the Consolidated and Combined Financial Statements. |
Share Repurchase Program and Treasury Stock
On July 28, 2015, the Company's Board of Directors approved a $150.0 million share repurchase authorization. The Company plans to repurchase shares through various means, which may include but are not limited to open market purchases, privately negotiated transactions, the use of derivative instruments and/or accelerated share repurchase programs. The share repurchase program was originally scheduled to expire on July 27, 2016. On February 10, 2016, the Company’s Board of Directors approved an increase of the share repurchase authorization to $300.0 million and an extension of the expiration to February 9, 2017. The extent to which the Company repurchases its shares and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by the Company’s management team. The Company reserves the right to limit or terminate the repurchase program at any time without notice. As of December 31, 2017, the Company had repurchased 11.4 million shares under this program with a market value of approximately $231.8 million. The Company accounted for the shares repurchased using the cost method. The Company currently plans to maintain these shares as treasury stock.
Special Cash Dividends
On May 18, 2016, the Company paid a special cash dividend from retained earnings of approximately $700.0 million, or $2.75 per share, to stockholders of record on May 10, 2016. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.
On February 17, 2015, the Company paid a special cash dividend from retained earnings of approximately $1.5 billion, or $5.77 per share, to stockholders of record as of January 30, 2015. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.
Capital Contributions to a Subsidiary
In July 2016, the stockholders of Gallina Pesada, S.A.P.I. de C.V. (“GAPESA”), a subsidiary that is controlled, but not wholly owned, by the Company, contributed additional capital to fund a capacity expansion project in southern Mexico. The Company contributed $2.7 million of additional capital. This contribution was eliminated upon consolidation. The noncontrolling stockholders contributed $7.3 million of additional capital. The respective contributions did not impact either the Company or noncontrolling stockholders’ ownership percentages in GAPESA.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Restrictions on Dividends
Both theThe 2021 U.S. Credit Facility, the RCF and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends. Additionally, the U.K. and Europe Revolver Facility prohibits MPH(E) and other Pilgrim’s entities located in the U.K. and Republic of Ireland to, among other things, make payments and distributions to the Company.
The Moy Park Notes restrict, but do not prohibit, Moy Park from declaring dividends or making any distributions related to securities issues by Moy Park.
15.INCENTIVE COMPENSATION PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans such as the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”) the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan and the Geo Adams Group Pension Fund (together, the “U.K. Plans”), nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plan. Expenses recognized under all retirement plans totaled $32.0 million, $30.9 million and $19.2 million in 2023, 2022 and 2021, respectively.
The Company used a year-end measurement date of December 31, 2023 for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the financial statements.
Qualified Defined Benefit Pension Plans
The Company sponsors four qualified defined benefit pension plans named the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”), the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan (the “Tulip Plan”) and the Geo Adams Group Pension Fund (the “Geo Adams Plan” and, together with the Tulip Plan, the “U.K. Plans”). The Union Plan covers certain locations or work groups within PPC. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for that group as of March 31, 2007. The U.K. Plans cover certain eligible active and former U.K. employees who were employed at locations that the Company purchased through its acquisition of Tulip in 2019. Participation in the Tulip Plan was frozen as of October 31, 2007 and participation in the Geo Adams Plan was frozen as of September 5, 2008.
Nonqualified Defined Benefit Pension Plans
The Company sponsors two nonqualified defined benefit retirement plans named the Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “SERP Plan”) and the Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”). Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on compensation in excess of certain IRC limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits under the SERP Plan were frozen as of February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors.
Defined Benefit Postretirement Life Insurance Plan
The Company sponsors one defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Retiree Life Plan” and together with the Union Plan, the GK Pension Plan, the SERP Plan and the Directors’ Emeriti Plan, the “U.S. Plans”). Pilgrim’s Pride assumed defined benefit postretirement medical and life insurance obligations, including the Retiree Life Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. These retired employees all reached the age of 65 in 2012 and liabilities of the postretirement medical plan then ended.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Benefit Plans Obligations and Assets
The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in projected benefit obligation | (In thousands) |
| Projected benefit obligation, beginning of year | $ | 236,147 | | | $ | 373,062 | | | $ | 1,169 | | | $ | 1,346 | |
| Interest cost | 11,322 | | | 6,777 | | | 54 | | | 23 | |
| Actuarial (gains) losses | 238 | | | (106,909) | | | (21) | | | (184) | |
| Benefits paid | (17,072) | | | (12,867) | | | (42) | | | (16) | |
| Curtailments and settlements | — | | | (5,053) | | | — | | | — | |
| Currency translation (gain) loss | 6,873 | | | (18,863) | | | — | | | — | |
| Projected benefit obligation, end of year | $ | 237,508 | | | $ | 236,147 | | | $ | 1,160 | | | $ | 1,169 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Change in plan assets | (In thousands) |
| Fair value of plan assets, beginning of year | $ | 210,133 | | | $ | 326,409 | | | $ | — | | | $ | — | |
| Actual return on plan assets | 17,709 | | | (89,479) | | | — | | | — | |
| Contributions by employer | 8,570 | | | 9,789 | | | 42 | | | 16 | |
| Benefits paid | (17,072) | | | (12,867) | | | (42) | | | (16) | |
| Curtailments and settlements | — | | | (5,053) | | | — | | | — | |
| Expenses paid from assets | (327) | | | (337) | | | — | | | — | |
| Currency translation gain (loss) | 6,438 | | | (18,329) | | | — | | | — | |
| Fair value of plan assets, end of year | $ | 225,451 | | | $ | 210,133 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Funded status | (In thousands) |
| Unfunded benefit obligation, end of year | $ | (12,057) | | | $ | (26,014) | | | $ | (1,160) | | | $ | (1,169) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amounts recognized in the Consolidated Balance Sheets as of end of year | (In thousands) |
| Current liabilities | $ | (7,717) | | | $ | (841) | | | $ | (187) | | | $ | (177) | |
| Long-term liabilities | (4,340) | | | (25,173) | | | (973) | | | (992) | |
| Recognized liabilities | $ | (12,057) | | | $ | (26,014) | | | $ | (1,160) | | | $ | (1,169) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
| Amounts recognized in accumulated other comprehensive loss at end of year | (In thousands) |
| Net actuarial loss (gain) | $ | 40,487 | | | $ | 48,121 | | | $ | (87) | | | $ | (66) | |
The accumulated benefit obligation for the Company’s defined benefit pension plans was $237.5 million and $236.1 million as of December 31, 2023 and December 25, 2022, respectively. Each of the Company’s defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets as of December 31, 2023 and December 25, 2022. As of December 31, 2023, the weighted average duration of our defined benefit obligation is 12.6 years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net Periodic Benefit Costs
Net benefit costs include the following components:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Interest cost | $ | 11,322 | | | $ | 6,777 | | | $ | 5,763 | | | $ | 54 | | | $ | 23 | | | $ | 18 | |
| Estimated return on plan assets | (10,393) | | | (10,298) | | | (10,562) | | | — | | | — | | | — | |
| Settlement loss | — | | | 1,591 | | | 2,313 | | | — | | | — | | | 21 | |
| Expenses paid from assets | 327 | | | 337 | | | 425 | | | — | | | — | | | — | |
| Amortization of net loss | 1,048 | | | 1,364 | | | 2,257 | | | — | | | — | | | 2 | |
| Amortization of past service cost | 17 | | | 17 | | | 19 | | | — | | | — | | | — | |
| Net cost (income) | $ | 2,321 | | | $ | (212) | | | $ | 215 | | | $ | 54 | | | $ | 23 | | | $ | 41 | |
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Benefit obligation | | | | | | | | | | | |
| Discount rate | 4.81 | % | | 5.04 | % | | 2.23 | % | | 5.06 | % | | 5.16 | % | | 2.38 | % |
| Net pension and other postretirement cost | | | | | | | | | | | |
| Discount rate | 4.93 | % | | 3.67 | % | | 2.08 | % | | 5.16 | % | | 2.38 | % | | 1.80 | % |
| Expected return on plan assets | 4.95 | % | | 4.68 | % | | 3.53 | % | | NA | | NA | | NA |
The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company’s pension and other benefit obligations. The discount rate assumptions used to determine future pension obligations at December 31, 2023 and December 25, 2022 were based on the Empower Above Mean Curve, which was designed by Empower to provide a means for plan sponsors to value the liabilities of their postretirement benefit plans. The Empower Above Mean Curve represents a series of annual discount rates from bonds with an AA minimum average credit quality rating as rated by Moody’s Investor Service, Standard & Poor’s and Fitch Ratings. The expected benefit payments were discounted by each corresponding discount rate on the yield curve. For payments beyond 30 years, the Company extended the curve assuming the discount rate derived in year 30 is extended to the end of the plan’s payment expectations. Once the present value of the string of benefit payments was established, the Company determined the single rate on the yield curve, that when applied to all obligations of the plan, would exactly match the previously determined present value. The discount rate assumptions used to determine future pension obligations for the U.K. pension plans at December 31, 2023 and December 25, 2022 were based on corporate bond spot yield curves provided by Merrill Lynch. Merrill Lynch bases this calculation entirely on AA1-AA3 rated bonds. As part of the evaluation of pension and other postretirement assumptions, the Company applied assumptions for mortality that incorporate generational white and blue collar mortality trends. In determining its benefit obligations, the Company used generational tables that take into consideration increases in plan participant longevity. As of December 31, 2023 and December 25, 2022, the U.S. pension and other postretirement benefit plans used variations of the Pri-2012 mortality table. The MP-2022 and MP-2021 mortality improvement scales were used for 2023 and 2022, respectively. As of December 31, 2023 and December 25, 2022, the U.K. pension plans used variations of the AxC00 mortality table in combination with the CMI_2022 Sk=7.5 and CMI_2021 Sk=7.5 mortality improvement scales for 2023 and 2022, respectively, for pre-retirement employees and the S3PMA mortality table in combination with the CMI_2022 Sk=7.5 and CMI_2021 Sk=7.5 mortality improvement scales for 2023 and 2022, respectively, for postretirement employees.
The sensitivity of the projected benefit obligation for pension benefits to changes in the discount rate is set out below. The impact of a change in the discount rate of 0.25% on the projected benefit obligation for other benefits is immaterial. This sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that for calculating the liability recognized in the Consolidated Balance Sheets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| Increase in Discount Rate of 0.25% | | Decrease in Discount Rate of 0.25% |
| (In thousands) |
| Impact on projected benefit obligation for pension benefits | $ | (6,358) | | | $ | 6,693 | |
The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan’s current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Cash and cash equivalents | 2 | % | | 6 | % |
Pooled separate accounts for the Union Plan(a): | | | |
| Equity securities | 2 | % | | 2 | % |
| Fixed income securities | 2 | % | | 2 | % |
Pooled separate accounts and common collective trust funds for the GK Pension Plan(a): | | | |
| Equity securities | 25 | % | | 23 | % |
| Fixed income securities | 15 | % | | 15 | % |
| Real estate | 2 | % | | 3 | % |
Pooled separate accounts for the U.K. Plans(a): | | | |
| Equity securities | 29 | % | | 27 | % |
| Fixed income funds | 1 | % | | 1 | % |
| Liability driven investments | 15 | % | | 13 | % |
| Real estate | 7 | % | | 8 | % |
| Total assets | 100 | % | | 100 | % |
(a)Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the SEC. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments.
Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the PSAs for the Union Plan is 50% in each of fixed income securities and equity securities, the target asset allocation for the investment of pension assets in the PSAs and/or CCTs for the GK Pension Plan is 35% in fixed income securities, 60% in equity securities and 5% in real estate and investment of pension assets in the PSAs for the U.K. Plans is 21% overseas equity, 15% diversified alternatives, 10% real estate, 28% equity-linked liability driven investments, 11% other liability driven investments and 15% cash for the Tulip Pension Plan; and 37% global equities, 20% equity-linked liability driven investments, 18% liability driven investments, 15% corporate bonds and 10% cash for the Geo Adams Group Pension Fund. The plans only invest in fixed income and equity instruments for which there is a readily available public market. The Company develops its expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which its plans invest.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of December 31, 2023 and December 25, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
| Level 1(a) | | Level 2(b) | | Level 3(c) | | Total | | Level 1(a) | | Level 2(b) | | Level 3(c) | | Total |
| | (In thousands) |
| Cash and cash equivalents | $ | 5,394 | | | $ | — | | | $ | — | | | $ | 5,394 | | | $ | 12,072 | | | $ | — | | | $ | — | | | $ | 12,072 | |
| PSAs for the Union Plan: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 2,123 | | | — | | | 2,123 | | | — | | | 1,995 | | | — | | | 1,995 | |
Small/Mid U.S. equity funds(e) | — | | | 1,133 | | | — | | | 1,133 | | | — | | | 1,055 | | | — | | | 1,055 | |
International equity funds(f) | — | | | 1,654 | | | — | | | 1,654 | | | — | | | 1,672 | | | — | | | 1,672 | |
Fixed income funds(g) | — | | | 3,640 | | | — | | | 3,640 | | | — | | | 3,838 | | | — | | | 3,838 | |
Real estate(h) | — | | | 437 | | | — | | | 437 | | | — | | | — | | | — | | | — | |
| PSAs and CCTs for the GK Pension Plan: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 27,516 | | | — | | | 27,516 | | | — | | | 23,541 | | | — | | | 23,541 | |
Small/Mid U.S. equity funds(e) | — | | | 13,991 | | | — | | | 13,991 | | | — | | | 12,446 | | | — | | | 12,446 | |
International equity funds(f) | — | | | 13,751 | | | — | | | 13,751 | | | — | | | 13,171 | | | — | | | 13,171 | |
Fixed income funds(g) | — | | | 34,111 | | | — | | | 34,111 | | | — | | | 30,865 | | | — | | | 30,865 | |
Real estate(h) | — | | | 5,174 | | | — | | | 5,174 | | | — | | | 6,458 | | | — | | | 6,458 | |
| PSAs for the U.K. Plans: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — | | | 29,648 | | | — | | | 29,648 | | | — | | | 23,149 | | | — | | | 23,149 | |
International equity funds(f) | — | | | 36,507 | | | — | | | 36,507 | | | — | | | 31,767 | | | — | | | 31,767 | |
Fixed income funds(g) | — | | | 3,376 | | | — | | | 3,376 | | | — | | | 3,081 | | | — | | | 3,081 | |
Real estate(h) | — | | | 14,985 | | | — | | | 14,985 | | | — | | | 16,297 | | | — | | | 16,297 | |
Liability driven investments(i) | — | | | 32,011 | | | — | | | 32,011 | | | — | | | 28,726 | | | — | | | 28,726 | |
| Total assets | $ | 5,394 | | | $ | 220,057 | | | $ | — | | | $ | 225,451 | | | $ | 12,072 | | | $ | 198,061 | | | $ | — | | | $ | 210,133 | |
(a)Unadjusted quoted prices in active markets for identical assets are used to determine fair value.
(b)Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value.
(c)Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.
(d)This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.
(e)This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.
(f)This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S.
(g)This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). These investment options typically carry more risk than short-term fixed income investment options, but less overall risk than equities.
(h)This category is comprised of investment options that invest in real estate investment trusts or private equity pools that own real estate. These long-term investments are primarily in office buildings, industrial parks, apartments or retail complexes. These investment options typically carry more risk, including liquidity risk, than fixed income investment options.
(i)This category is comprised of investments that seek to ensure availability of funds to cover current and future liabilities. These investments are typically focused on both the assets and liabilities of the plan.
Benefit Payments
The following table reflects the benefits as of December 31, 2023 expected to be paid through 2033 from the Company’s pension and other postretirement plans. The Company’s pension plans are primarily funded plans. Therefore, anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. The Company’s other postretirement plans are unfunded. Therefore, anticipated benefits with respect to these plans will come from the Company’s own assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| Pension Benefits | | Other
Benefits |
| | (In thousands) |
| 2024 | $ | 21,857 | | | $ | 187 | |
| 2025 | 16,157 | | | 172 | |
| 2026 | 16,031 | | | 158 | |
| 2027 | 16,023 | | | 144 | |
| 2028 | 15,807 | | | 130 | |
| 2029-2033 | 75,749 | | | 452 | |
| Total | $ | 161,624 | | | $ | 1,243 | |
As required by funding regulations or laws, the Company anticipates contributing $7.7 million and less than $0.2 million to its pension and other postretirement plans, respectively, during 2024.
Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss
The amounts in accumulated other comprehensive loss that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | (In thousands) |
| Net actuarial loss, beginning of year | $ | 48,121 | | | $ | 58,143 | | | $ | 95,522 | | | $ | (66) | | | $ | 118 | | | $ | 174 | |
| Amortization | (1,065) | | | (1,381) | | | (2,276) | | | — | | | — | | | (2) | |
| Settlement adjustments | — | | | (1,591) | | | (2,313) | | | — | | | — | | | (21) | |
| Actuarial loss (gain) | 238 | | | (106,909) | | | (14,535) | | | (21) | | | (184) | | | (33) | |
| Asset loss (gain) | (7,317) | | | 99,777 | | | (18,563) | | | — | | | — | | | — | |
| Net prior service cost | — | | | — | | | — | | | — | | | — | | | — | |
| Currency translation loss | 510 | | | 82 | | | 308 | | | — | | | — | | | — | |
| Net actuarial loss (gain), end of year | $ | 40,487 | | | $ | 48,121 | | | $ | 58,143 | | | $ | (87) | | | $ | (66) | | | $ | 118 | |
Risk Management
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-term. The Company monitors the level of investment risk but has no current plan to significantly modify the mixture of investments. The investment position is discussed more below.
Changes in bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
The investment position is managed and monitored by a committee of individuals from various departments. This group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The majority of equities are in U.S. large and small cap companies with some global diversification into international entities.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Defined Contribution Plans
The Company sponsors two defined contribution retirement savings plans in the U.S. reportable segment for eligible U.S. and Puerto Rico employees. The Company maintains three postretirement plans for eligible employees in the Mexico reportable segment, as required by Mexico law, which primarily cover termination benefits. The Company maintains two defined contribution retirement savings plans in the U.K. and Europe reportable segment for eligible U.K. and Europe employees, as required by U.K. and Europe law. The Company’s expenses related to its defined contribution plans totaled $28.5 million, $27.0 million and $17.0 million in 2023, 2022 and 2021, respectively.
16. INCENTIVE COMPENSATION
The Company sponsors short-term incentive planplans that providesprovide the grant of either cash or share-basedstock-based bonus awards payable upon achievement of specified performance goals (the “STIP”). Full-time, salaried exempt employeesgoals. As of December 31, 2023, the Company and its affiliates who are selected by the administering committee are eligible to participate in the STIP. The Company has accrued $44.8$26.6 million, in costs related to the STIP at December 31, 2017$27.5 million and $8.1 million related to cash bonus awards that could potentially be awarded during 2018. The Company assumed responsibility forare recognized in the JFC LLC Long-Term Equity Incentive Plan dated January 1, 2014, as amended (the “JFC LTIP”) through its acquisition of GNP on January 6, 2017. The Company has accrued $3.3 million in costs related to the JFC LTIP at December 31, 2017. The Company assumed responsibility for the Moy Park Incentive Plan dated January 1, 2013, as amended (the “MPIP”) through its acquisition of Moy Park on September 8, 2017. The Company has accrued $0.6 million in costs related to the MPIP at December 31, 2017.U.S., U.K & Europe, and Mexico reportable segments, respectively.
The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and cash-basedliability-based awards to the Company’s officers and other employees, members of the Board of Directors and any consultants (the “LTIP”). The equity-based awardsAwards that may be granted under the LTIP include “incentive stock options,” within the meaning of the IRC, nonqualified stock options, stock appreciation rights, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). AtEquity-based awards are converted into shares of the Company’s common stock shortly after award vesting. Compensation cost to be recognized for an equity-based awards grant is determined by multiplying the number of awards granted by the closing price of a share of the Company’s common stock on the award grant date. Liability-based awards granted under the LTIP are converted into cash shortly after award vesting. Compensation cost to be recognized for a liability-based awards grant is first determined by multiplying the number of awards granted by the closing price of a share of PPC’s common stock on the award grant date. However, the compensation cost to be recognized is adjusted at each subsequent milestone date (i.e., forfeiture date, vesting date or financial reporting date) by multiplying the number of awards granted by the closing price of a share of PPC’s common stock on the milestone date. On May 1, 2019, the Company’s stockholders approved the Pilgrim’s Pride Corporation 2019 Long Term Incentive Plan (the “2019 LTIP”), which replaced the expiring Pilgrim’s Pride Corporation 2009 Long-Term Incentive Plan (the “2009 LTIP”). The 2019 LTIP became effective as of December 28, 2019. As of December 31, 2017,2023, we have reservedin reserve approximately 4.80.5 million shares of common stock for future issuance under the 2019 LTIP.
The following awards were outstanding during 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Award Type | | Benefit Plan | | Awards Granted | | Grant Date | | Grant Date Fair Value per Award(a) | | Vesting Condition | | Vesting Date | | Vesting Date Fair Value per Award(a) | | Estimated Forfeiture Rate | | Awards Forfeited to Date | | Settlement Method |
| RSU | | LTIP | | 449,217 |
| | 02/19/2014 | | $ | 16.70 |
| | Service | | 12/31/2016 | | $ | 18.99 |
| | 13.49 | % | | 86,458 |
| | Stock |
| RSU | | LTIP | | 223,701 |
| | 03/03/2014 | | 17.18 |
| | Performance / Service | | 12/31/2017 | | 31.06 |
| | 12.34 | % | | 53,363 |
| | Stock |
| RSU | (b) | LTIP | | 45,961 |
| | 02/11/2015 | | 25.87 |
| | Service | | 12/31/2017 | | 31.06 |
| | 12.34 | % | | 10,965 |
| | Stock |
| RSU | | LTIP | | 251,136 |
| | 03/30/2016 | | 25.36 |
| | Performance / Service | | 12/31/2019 | | | | — | % | | 251,136 |
| (d) | Stock |
| RSU | (b) | LTIP | | 74,535 |
| | 10/13/2016 | | 20.93 |
| | Service | | 12/31/2016 | | 18.99 |
| | 13.49 | % | | — |
| | Stock |
| RSU | | LTIP | | 389,424 |
| | 01/19/2017 | | 18.38 |
| | Performance / Service | | (e) | | | | — | % | | — |
| | Stock |
| RSU | (c) | LTIP | | 48,586 |
| | 02/13/2017 | | 20.52 |
| | Service | | 12/31/2016 | | 18.99 |
| | — | % | | — |
| | Stock |
| RSU | (c) | LTIP | | 23,469 |
| | 02/13/2017 | | 20.52 |
| | Service | | 12/31/2017 | | 31.06 |
| | — | % | | 652 |
| | Stock |
| |
(a) | The fair value of each RSU granted or vested represents the closing price of the Company’s common stock on the respective grant date or vesting date. |
| |
(b) | On February 17, 2015, the Company paid a special cash dividend to stockholders of record as of January 30, 2015 totaling $5.77 per share. On January 27, 2015, the Compensation Committee of the Company’s Board of Directors agreed to grant Dividend Equivalent Rights (“DERs”) in the form of RSUs to reflect an additional $5.77 in value for each outstanding RSU. |
| |
(c) | On May 18, 2016, the Company paid a special cash dividend to stockholders of record as of May 10, 2015 totaling $2.75 per share. On October 27, 2016, the Compensation Committee of the Company's Board of Directors agreed to grant additional RSUs to LTIP participants that were equal to the amount of the dividend that would be awarded to them had their RSUs existing as of the dividend record date been vested. The additional RSUs that were granted to the LTIP participants are subject to the same vesting requirements as the underlying RSUs granted under the LTIP. |
| |
(d) | Performance conditions associated with these awards were not satisfied. Therefore, 100% of the awards were forfeited. |
| |
(e) | The subject RSUs will vest in ratable tranches on December 31, 2018, December 31, 2019, and December 31, 2020. |
Compensation costs and the income tax benefit recognized for our share-basedstock-based compensation arrangements are included below:
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| (In thousands) |
| Equity-based awards compensation cost: | | | | | |
| Cost of sales | $ | 629 | | | $ | 959 | | | $ | 3,209 | |
| Selling, general and administrative expense | 6,958 | | | 5,904 | | | 7,420 | |
| Total cost | 7,587 | | | 6,863 | | | 10,629 | |
| Income tax benefit | 1,836 | | | 1,671 | | | 2,587 | |
| Net cost | $ | 5,751 | | | $ | 5,192 | | | $ | 8,042 | |
| | | | | |
| Liability-based awards compensation cost: | | | | | |
| Selling, general and administrative expense | $ | 2,491 | | | $ | 1,773 | | | $ | 7,715 | |
| Income tax benefit | 603 | | | 432 | | | 1,878 | |
| Net cost | $ | 1,888 | | | $ | 1,341 | | | $ | 5,837 | |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Share-based compensation cost: | | | | | |
| Cost of goods sold | $ | 256 |
| | $ | 770 |
| | $ | 596 |
|
| Selling, general and administrative expenses | 2,763 |
| | 5,332 |
| | 2,379 |
|
| Total | $ | 3,019 |
| | $ | 6,102 |
| | $ | 2,975 |
|
| | | | | | |
| Income tax benefit | $ | 1,006 |
| | $ | 1,858 |
| | $ | 868 |
|
The Company’s RSA and RSU activity is included below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Number | | Weighted Average Milestone Date Fair Value(a) | | Number | | Weighted Average Milestone Date Fair Value(a) | | Number | | Weighted Average Milestone Date Fair Value(a) |
| (In thousands, except weighted average fair values) |
| Equity-based RSUs: | | | | | | | | | | | |
| Outstanding at beginning of year | 993 | | | $ | 22.00 | | | 554 | | | $ | 20.40 | | | 584 | | | $ | 22.12 | |
| Transferred to liability-based awards | — | | | — | | | — | | | — | | | (8) | | | 23.53 | |
| Granted | 324 | | | 23.67 | | | 405 | | | 23.88 | | | 817 | | | 21.58 | |
| Vested | (378) | | | 22.25 | | | (266) | | | 23.25 | | | (153) | | | 19.48 | |
| Awards reinstated (forfeited) | (28) | | | 24.99 | | | 300 | | | 23.52 | | | (686) | | | 23.44 | |
| Outstanding at end of year | 911 | | | $ | 22.40 | | | 993 | | | $ | 22.00 | | | 554 | | $ | 20.40 | |
| | | | 2017 | | 2016 | | 2015 |
| | Number | | Weighted Average Grant Date Fair Value | | Number | | Weighted Average Grant Date Fair Value | | Number | | Weighted Average Grant Date Fair Value |
| | (In thousands, except weighted average fair values) |
| RSAs: | | | | | | | | | | | |
| 2023 | | | 2023 | | 2022 | | 2021 |
| Number | | | Number | | Weighted Average Milestone Date Fair Value(a) | | Number | | Weighted Average Milestone Date Fair Value(a) | | Number | | Weighted Average Milestone Date Fair Value(a) |
| (In thousands, except weighted average fair values) | | | (In thousands, except weighted average fair values) |
| Liability-based RSUs: | |
| Outstanding at beginning of year | — |
| | $ | — |
| | — |
| | $ | — |
| | 30 |
| | $ | 8.72 |
|
| Outstanding at beginning of year | |
| Outstanding at beginning of year | |
| Transferred from equity-based awards | |
| Granted | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Vested | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Forfeited | — |
| | — |
| | — |
| | — |
| | (30 | ) | | 8.72 |
|
| Outstanding at end of year | — |
| | $ | — |
| | — |
| | $ | — |
| | — |
| | $ | — |
|
| | | | | | | | | | | | |
| RSUs: | | | | | | | | | | | |
| Outstanding at beginning of year | 906 |
| | $ | 20.00 |
| | 774 |
| | $ | 18.78 |
| | 1,120 |
| | $ | 11.97 |
|
| Granted | 461 |
| | 18.72 |
| | 325 |
| | 24.35 |
| | 428 |
| | 21.00 |
|
| Vested | (714 | ) | | 18.09 |
| | — |
| | — |
| | (671 | ) | | 8.81 |
|
| Forfeited | (264 | ) | | 25.33 |
| | (193 | ) | | 24.51 |
| | (103 | ) | | 18.90 |
|
| Outstanding at end of year | 389 |
| | $ | 18.39 |
| | 906 |
| | $ | 20.00 |
| | 774 |
| | $ | 18.78 |
|
(a)The milestone date fair value is either the closing price of the Company’s common stock on the grant date for equity-based awards or the closing price of a share of the Company’s common stock on the respective milestone date for cash-based liability-based awards (i.e., grant date, vesting date, forfeiture date or financial reporting date).
The total fair valuevalues of equity-based awards and liability-based awards vested in 2017 and 2015 was $16.3during 2023 were $9.3 million and $22.4$5.0 million, respectively. NoThe total fair values of equity-based awards and liability-based awards vested in 2016.during 2022 were $7.5 million and $5.6 million, respectively.
AtAs of December 31, 2017,2023, the total unrecognized compensation cost related to all nonvested equity-based awards was $7.2$9.0 million. ThatThis cost is expected to be recognized over a weighted average period of 2.131.93 years. As of December 31, 2023, the total unrecognized compensation cost related to all nonvested liability-based awards was $4.1 million. This cost is expected to be recognized over a weighted average period of 1.73 years.
Historically, we have issued new shares, as opposed to treasury shares, to satisfy equity-based award conversions.
16. RESTRUCTURING-RELATED ACTIVITIES17. FAIR VALUE MEASUREMENTS
During 2017,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. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:
| | | | | | | | |
| Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date; |
| |
| 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. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 in its entirety.
As of December 31, 2023 and December 25, 2022, the Company initiatedheld assets and liabilities that were required to be measured at fair value on a recurring basis. The Company’s assets and liabilities consist of fixed income securities, long and short positions on exchange-traded commodity futures instruments, commodity options instruments, sales contracts instruments, and foreign currency instruments to manage translation and remeasurement risk.
The following items were measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| Level 1 | | Level 2 | | | | Total | | Level 1 | | Level 2 | | | | Total |
| | (In thousands) | | (In thousands) |
| Assets: | | | | | | | | | | | | | | | |
| Fixed income securities | $ | 324,947 | | | $ | — | | | | | $ | 324,947 | | | $ | 167,430 | | | $ | — | | | | | $ | 167,430 | |
| Commodity derivative assets | 1,202 | | | — | | | | | 1,202 | | | 17,922 | | | — | | | | | 17,922 | |
| Foreign currency derivative assets | 175 | | | — | | | | | 175 | | | 555 | | | — | | | | | 555 | |
| Sales contract derivative assets | — | | | 960 | | | | | 960 | | | — | | | — | | | | | — | |
| Liabilities: | | | | | | | | | | | | | | | |
| Commodity derivative liabilities | (17,118) | | | — | | | | | (17,118) | | | (9,042) | | | — | | | | | (9,042) | |
| Foreign currency derivative liabilities | (723) | | | — | | | | | (723) | | | (6,170) | | | — | | | | | (6,170) | |
| Sales contract derivative liabilities | — | | | — | | | | | — | | | — | | | (3,705) | | | | | (3,705) | |
See “Note 4. Derivative Financial Instruments” and “Note 7. Investments in Securities” for additional information.
The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations. For each class of assets and liabilities not measured at fair value in the Consolidated Balance Sheets but for which fair value is disclosed, the Company is not required to provide the quantitative disclosure about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy.
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.
The carrying amounts and estimated fair values of our debt obligations recorded in the Consolidated Balance Sheets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 | | December 25, 2022 | | |
| | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value | | |
| | (In thousands) | | |
| Fixed-rate senior notes payable at 3.50%, at Level 2 inputs | (900,000) | | | (760,203) | | | (900,000) | | | (726,498) | | | |
| Fixed-rate senior notes payable at 4.25%, at Level 2 inputs | (992,711) | | | (902,650) | | | (991,691) | | | (734,349) | | | |
| Fixed-rate senior notes payable at 5.875%, at Level 2 inputs | — | | | — | | | (846,582) | | | (846,175) | | | |
| Fixed-rate senior notes payable at 6.25%, at Level 2 inputs | (993,595) | | | (1,029,020) | | | — | | | — | | | |
| Fixed-rate senior notes payable at 6.875%, at Level 2 inputs | (490,408) | | | (540,230) | | | — | | | — | | | |
| Variable-rate term note payable at 8.50%, at Level 3 inputs | — | | | — | | | (480,078) | | | (489,857) | | | |
See “Note 13. Debt” for additional information.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amounts of our cash and cash equivalents, derivative trading accounts’ margin cash, restricted cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximate their fair values due to their relatively short maturities. Derivative assets were recorded at fair value based on quoted market prices and are included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets. Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item Accrued expenses and other current liabilities on the Consolidated Balance Sheets. The fair values of the Company’s Level 2 fixed-rate debt obligations were based on the quoted market price at December 31, 2023 or December 25, 2022, as applicable. The Company had no Level 3 debt obligations outstanding as of December 31, 2023.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
18. RESTRUCTURING-RELATED ACTIVITIES
In 2022, the Company began restructuring initiativeinitiatives to capitalize on cost-saving opportunities within its GNP operations.phase out and reduce processing volumes at multiple production facilities throughout the U.K. and Europe reportable segment. Implementation of the initiativethese initiatives is expected to result in total pre-tax charges of approximately $6.8approximately $75.1 million, and approximately $5.4$49.6 million of these charges are estimated to result in cash outlays. These activities were initiated in the firstfourth quarter of 20172022 and were substantially completed by the end of 2023.
In 2023, the Company began a restructuring initiative to phase out and reduce processing volumes at a production facility in the U.K. and Europe reportable segment. Implementation of this initiative is expected to result in total pre-tax charges of approximately $3.1 million, and all of these charges are estimated to result in cash outlays. This activity was initiated in the fourth quarter of 2023 and is expected to be substantially completed by the secondend of the first quarter of 2020.2024.
The following table provides a summary of our estimates of costs associated with thisthese restructuring initiativeinitiatives by major type of cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Moy Park | | Pilgrim’s Pride Ltd. | | Pilgrim’s Food Masters 2022 | | Pilgrim’s Food Masters 2023 | | Total |
| (In thousands) |
| Earliest implementation date | October 2022 | | November 2022 | | December 2022 | | October 2023 | | |
| Expected predominant completion date | June 2023 | | July 2023 | | July 2023 | | March 2024 | | |
| Costs incurred and expected to be incurred: | | | | | | | | | |
| Employee-related costs | $ | 11,103 | | | $ | 20,098 | | | $ | 15,156 | | | $ | 3,113 | | | $ | 49,470 | |
| Asset impairment costs | 4,709 | | | — | | | 4,224 | | | — | | | 8,933 | |
| Contract termination costs | 248 | | | — | | | 358 | | | — | | | 606 | |
Other exit and disposal costs (a) | 6,245 | | | 6,638 | | | 6,330 | | | — | | | 19,213 | |
| Total exit and disposal costs | $ | 22,305 | | | $ | 26,736 | | | $ | 26,068 | | | $ | 3,113 | | | $ | 78,222 | |
| Costs incurred since earliest implementation date: | | | | | | | | | |
| Employee-related costs | $ | 11,103 | | | $ | 20,098 | | | $ | 14,490 | | | $ | 3,027 | | | $ | 48,718 | |
| Asset impairment costs | 3,476 | | | — | | | 4,141 | | | — | | | 7,617 | |
| Contract termination costs | 248 | | | — | | | — | | | — | | | 248 | |
Other exit and disposal costs (a) | 6,245 | | | 5,654 | | | 6,330 | | | — | | | 18,229 | |
| Total exit and disposal costs | $ | 21,072 | | | $ | 25,752 | | | $ | 24,961 | | | $ | 3,027 | | | $ | 74,812 | |
(a)Comprised of other costs directly related to the restructuring initiatives including Moy Park flock depletion, the write-off of Pilgrim’s Pride Ltd. prepaid maintenance costs and Pilgrim’s Food Masters consulting fees.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | |
| Type of Cost | | Total Estimated Amount Expected to be Incurred |
| | | (In thousands) |
| Employee termination benefits | | $ | 4,074 |
|
| Inventory impairments | | 699 |
|
Other(1) | | 1,983 |
|
| | | $ | 6,756 |
|
| |
(1)
| Comprised of other costs directly related to the restructuring initiative, including prepaid software impairment, St. Cloud, Minnesota office lease costs, and Luverne, Minnesota plant closure costs. |
During 2017,2023, the Company recognized the following costsexpenses and incurredpaid the following cash outlays related to thiseach restructuring initiative:
| | | | | | | | | | | |
| Expenses | | Cash Outlays |
| (In thousands) |
| Moy Park | $ | 1,747 | | | $ | 7,719 | |
| Pilgrim’s Pride Ltd. | 15,611 | | | 21,364 | |
| Pilgrim’s Food Masters 2022 | 23,960 | | | 21,350 | |
| Pilgrim’s Food Masters 2023 | 3,027 | | | 929 | |
| $ | 44,345 | | | $ | 51,362 | |
|
| | | | | | | |
| | Expenses | | Cash Outlays |
| | (In thousands) |
| Employee termination benefits | $ | 3,381 |
| | $ | 2,581 |
|
| Inventory impairments | 699 |
| | — |
|
| Other | 752 |
| | — |
|
| | $ | 4,832 |
| | $ | 2,581 |
|
These chargesexpenses are reported in the line item Administrative restructuring chargesRestructuring activities on the Consolidated and Combined Statements of Income and are recognized in the U.S. segment.Income.
The following table is a rollforward of ourreconciles liabilities and reserves associated with thiseach restructuring initiative.initiative from its respective inception to December 31, 2023. Ending liability balances for employee termination benefits and other charges are reported in the line item Accrued expenses and other current liabilities in our Consolidated and Combined Balance Sheets. The ending reserve balance for inventory impairmentsadjustments is reported in the line item Inventories in our Consolidated and Combined Balance Sheets.
|
| | | | | | | | | | | | | | | |
| | Employee Termination Benefits | | Inventory
Impairments | | Other
Charges | | Total |
| | (In thousands) |
| Restructuring charges | $ | 3,381 |
| | $ | 699 |
| | $ | 752 |
| | $ | 4,832 |
|
| Payments | (2,581 | ) | | — |
| | — |
| | (2,581 | ) |
| Ending liability or reserve | $ | 800 |
| | $ | 699 |
| | $ | 752 |
| | $ | 2,251 |
|
During 2017, the Company also reported impairment costs of $3.5 million and $1.5 million related to its Athens, Alabama and Dublin, Ireland plants, respectively, The ending reserve balance for asset impairments is reporting in the line item Administrative restructuring charges on theProperty, plant and equipment, net in our Consolidated Statements of Income. The impairment cost related the Athens, Alabama plant was recognized in the U.S. segment, while the impairment cost related to the Dublin, Ireland plant was recognized in the U.K. and Europe segment.Balance Sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Moy Park |
| Liability or reserve as of December 25, 2022 | | Restructuring charges incurred | | Cash payments and disposals | | Currency translation | | Liability or reserve as of December 31, 2023 |
| (In thousands) |
| Asset impairment | $ | 2,391 | | | $ | (83) | | | $ | (2,751) | | | $ | 443 | | | $ | — | |
| Inventory adjustments | 1 | | | 47 | | | (48) | | | — | | | — | |
| Other charges | 6,025 | | | 162 | | | (3,315) | | | (228) | | | 2,644 | |
| Other employee costs | — | | | 1,495 | | | (1,495) | | | — | | | — | |
| Contract termination | 122 | | | 126 | | | (110) | | | 6 | | | 144 | |
| Total | $ | 8,539 | | | $ | 1,747 | | | $ | (7,719) | | | $ | 221 | | | $ | 2,788 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pilgrim’s Pride Ltd. |
| Liability or reserve as of December 25, 2022 | | Restructuring charges incurred | | Cash payments and disposals | | Currency translation | | Liability or reserve as of December 31, 2023 |
| (In thousands) |
| Employee retention benefits | $ | — | | | $ | 1,784 | | | $ | (1,810) | | | $ | 61 | | | $ | 35 | |
| Severance | 5,503 | | | 10,105 | | | (15,077) | | | 203 | | | 734 | |
| Inventory adjustments | 615 | | | 372 | | | (722) | | | 29 | | | 294 | |
| Lease termination | 800 | | | (236) | | | (597) | | | 197 | | | 164 | |
| Other charges | 501 | | | 3,586 | | | (3,158) | | | (177) | | | 752 | |
| Total | $ | 7,419 | | | $ | 15,611 | | | $ | (21,364) | | | $ | 313 | | | $ | 1,979 | |
17. PUERTO RICO HURRICANE IMPACT
Hurricane Maria became the strongest storm to make landfall in Puerto Rico in 85 years when it came ashore on September 20, 2017. The hurricane knocked out power to the entire island. Trees were uprooted, homes and other buildings were destroyed, and there was also widespread flooding. The Company suffered significant damage because of the storm. Pilgrim’s lost 2.1 million birds on the island, many of the Company’s contract growers lost their poultry houses, and the Company incurred damage at its processing plant, feed mill and hatchery. PPC does not expect that its operations on the island will be fully functional until the third quarter of 2018.
Estimated damages incurred by the Company through December 31, 2017 included property and casualty losses totaling $5.2 million and a business interruption claim totaling $8.4 million. Pilgrim’s expects to receive insurance proceeds related to
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pilgrim’s Food Masters 2022 |
| Liability or reserve as of December 25, 2022 | | Restructuring charges incurred | | Cash payments and disposals | | Currency translation | | Liability or reserve as of December 31, 2023 |
| (In thousands) |
| Severance | $ | 639 | | | $ | 13,502 | | | $ | (12,865) | | | $ | 5 | | | $ | 1,281 | |
| Asset impairment | — | | | 4,141 | | | (4,143) | | | 2 | | | — | |
| Inventory adjustments | — | | | 793 | | | (728) | | | — | | | 65 | |
| Lease termination | — | | | 1,219 | | | — | | | 70 | | | 1,289 | |
| Other charges | — | | | 4,305 | | | (3,614) | | | (6) | | | 685 | |
| Total | $ | 639 | | | $ | 23,960 | | | $ | (21,350) | | | $ | 71 | | | $ | 3,320 | |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pilgrim’s Food Masters 2023 |
| Liability or reserve as of December 25, 2022 | | Restructuring charges incurred | | Cash payments and disposals | | Currency translation | | Liability or reserve as of December 31, 2023 |
| (In thousands) |
| Employee retention benefits | $ | — | | | $ | 1,015 | | | $ | (508) | | | $ | 15 | | | $ | 522 | |
| Severance | — | | | 2,012 | | | (421) | | | 45 | | | 1,636 | |
| Total | $ | — | | | $ | 3,027 | | | $ | (929) | | | $ | 60 | | | $ | 2,158 | |
these damages in the amount of $5.5 million and has recorded a receivable from its insurance provider for that amount. The amount of insurance recovery related to both the property and casualty losses and the business interruption claim are included in Cost of sales in the Consolidated and Combined Statements of Income and are recognized in the U.S. segment.
18.19. RELATED PARTY TRANSACTIONS
Pilgrim'sPilgrim’s has been and, in some cases, continues to be a party to certain transactions with affiliated companies.
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Sales to related parties | | | | | |
JBS USA Food Company(a) | $ | 27,687 | | | $ | 24,224 | | | $ | 17,296 | |
| JBS Australia Pty. Ltd. | 4,981 | | | 2,855 | | | 2,439 | |
| Other related parties | 3,135 | | | 2,868 | | | 1,721 | |
| Total sales to related parties | $ | 35,803 | | | $ | 29,947 | | | $ | 21,456 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Cost of goods purchased from related parties | | | | | |
JBS USA Food Company(a) | $ | 185,258 | | | $ | 156,452 | | | $ | 210,657 | |
| Seara Meats B.V. | 28,828 | | | 44,364 | | | 4,722 | |
| Penasul UK LTD | 13,932 | | | 13,516 | | | 6,697 | |
| JBS Asia CO Limited | 4,953 | | | 7,762 | | | 5 | |
| Other related parties | 7,168 | | | 1,476 | | | 1,054 | |
| Total cost of goods purchased from related parties | $ | 240,139 | | | $ | 223,570 | | | $ | 223,135 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Expenditures paid by related parties | | | | | |
JBS USA Food Company(b) | $ | 156,439 | | | $ | 91,568 | | | $ | 97,713 | |
| Other related parties | 15 | | | 97 | | | 13 | |
| Total expenditures paid by related parties | $ | 156,454 | | | $ | 91,665 | | | $ | 97,726 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Expenditures paid on behalf of related parties | | | | | |
JBS USA Food Company(b) | $ | 22,734 | | | $ | 53,065 | | | $ | 42,951 | |
| Other related parties | 5 | | | 5,514 | | | — | |
| Total expenditures paid on behalf of related parties | $ | 22,739 | | | $ | 58,579 | | | $ | 42,951 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Other related party transactions | | | | | |
Capital distribution (contribution) under tax sharing agreement (c) | $ | (1,425) | | | $ | 1,592 | | | $ | 1,961 | |
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| (In thousands) |
| Accounts receivable from related parties | | | |
JBS USA Food Company(a) | $ | 967 | | | $ | 2,062 | |
| Seara Meats B.V. | 46 | | | 61 | |
| Other related parties | 765 | | | 389 | |
| Total accounts receivable from related parties | $ | 1,778 | | | $ | 2,512 | |
| | | | | | | | | | | |
| December 31, 2023 | | December 25, 2022 |
| (In thousands) |
| Accounts payable to related parties | | | |
JBS USA Food Company(a) | $ | 34,038 | | | $ | 7,434 | |
| JBS Asia Co Limited | 2,254 | | | 2,099 | |
| Seara Meats B.V. | 2,252 | | | 1,565 | |
| Penasul UK LTD | 2,187 | | | 940 | |
| Other related parties | 523 | | | 117 | |
| Total accounts payable to related parties | $ | 41,254 | | | $ | 12,155 | |
(a)The Company routinely execute transactions to both purchase products from JBS USA Food Company and sell products to them. As of December 31, 2023, approximately $0.2 million of goods from JBS USA were in transit and not reflected on our Consolidated Balance Sheets.
(b)The Company has an agreement with JBS USA to allocate costs associated with JBS USA’s procurement of SAP licenses and maintenance services for both companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA in proportion to the percentage of licenses used by each company. The agreement expires on the date of expiration, or earlier termination, of the underlying SAP license agreement. The Company also has an agreement with JBS USA to allocate the costs of supporting the business operations by one consolidated corporate team, which have historically been supported by their respective corporate teams. Expenditures paid by JBS USA on behalf of the Company will be reimbursed by the Company and expenditures paid by the Company on behalf of JBS USA will be reimbursed by JBS USA. This agreement expires on December 31, 2024.
(c)The Company entered into a TSA during 2014 with JBS USA Holdings effective for tax years starting in 2010. The net tax receivable for tax year 2023 was recorded in 2023 and will be paid in 2024. The net tax payable for tax year 2022 was accrued in 2022 and was paid in 2023. The net tax payable for tax year 2021 was accrued in 2021 and was paid in 2022.
20. REPORTABLE SEGMENTS
The Company operates in three reportable segments: U.S., U.K. and Europe and Mexico. The Company measures segment profit as operating income. Corporate expenses are allocated to the Mexico and U.K. and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. reportable segment.
We conduct separate operations in the continental U.S. and in Puerto Rico. For segment reporting purposes, the Puerto Rico operations are included in the U.S. reportable segment. The chicken products processed by the U.S. reportable segment are sold to foodservice, retail and frozen entrée customers. The segment’s primary distribution is through retailers, foodservice distributors and restaurants.
The U.K. and Europe reportable segment processes primarily fresh chicken, pork products, specialty meats, ready meals and other prepared foods that are sold to foodservice, retail and direct to consumer customers. The segment’s primary distribution is through retailers, foodservice distributors and restaurants.
The chicken products processed by the Mexico reportable segment are sold to foodservice, retail and frozen entrée customers. The segment’s primary distribution is through retailers, foodservice distributors and restaurants.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| Sales to related parties: | | | | | |
JBS USA Food Company(c) | $ | 15,289 |
| | $ | 16,534 |
| | $ | 21,743 |
|
| JBS Five Rivers | 31,004 |
| | 14,126 |
| | — |
|
| JBS Global (UK) Ltd. | 44 |
| | 122 |
| | 305 |
|
| JBS Chile Ltda. | 178 |
| | 615 |
| | 100 |
|
| J&F Investimentos Ltd. | 104 |
| | 69 |
| | — |
|
| JBS S.A. | — |
| | — |
| | — |
|
| Seara International Ltd. | 104 |
| | 4 |
| | — |
|
| JBS Toledo | — |
| | 143 |
| | — |
|
| Rigamonti Salumificio S.P.A. | — |
| | 3 |
| | — |
|
| Total sales to related parties | $ | 46,723 |
| | $ | 31,616 |
| | $ | 22,148 |
|
| | | | | | |
| Cost of goods purchased from related parties: | | | | | |
JBS USA Food Company(c) | $ | 101,685 |
| | $ | 139,476 |
| | $ | 103,542 |
|
| Seara Meats B.V. | 13,949 |
| | 21,038 |
| | 3,381 |
|
| JBS S.A. | — |
| | — |
| | — |
|
| Seara International Ltd. | 11,236 |
| | 2,746 |
| | 2,784 |
|
| JBS Toledo | 231 |
| | 123 |
| | — |
|
| Macedo Agroindustrial Ltda. | — |
| | — |
| | 60 |
|
| Rigamonti Salumificio S.P.A. | — |
| | 15 |
| | — |
|
| Total cost of goods purchased from related parties | $ | 127,101 |
| | $ | 163,398 |
| | $ | 109,767 |
|
| | | | | | |
| Expenditures paid by related parties: | | | | | |
JBS USA Food Company(d) | $ | 40,313 |
| | $ | 40,519 |
| | $ | 40,611 |
|
| JBS S.A. | 3,777 |
| | 8,125 |
| | — |
|
| Seara Alimentos | 64 |
| | — |
| | — |
|
| Total expenditures paid by related parties | $ | 44,154 |
| | $ | 48,644 |
| | $ | 40,611 |
|
| | | | | | |
| Expenditures paid on behalf of related parties: | | | | | |
JBS USA Food Company(d) | $ | 5,376 |
| | $ | 10,586 |
| | $ | 3,998 |
|
| JBS Toledo | — |
| | — |
| | — |
|
| JBS S.A. | 5 |
| | 86 |
| | 29 |
|
| Seara International Ltd. | — |
| | 72 |
| | 29 |
|
| Seara Meats B.V. | 12 |
| | — |
| | — |
|
| Rigamonti Salumificio S.P.A. | — |
| | 3 |
| | — |
|
| Total expenditures paid on behalf of related parties | $ | 5,393 |
| | $ | 10,747 |
| | $ | 4,056 |
|
| | | | | | |
| Other related party transactions: | | | | | |
Letter of credit fees(a) | $ | — |
| | $ | 202 |
| | $ | 1,268 |
|
Capital contribution under tax sharing agreement(b) | 5,558 |
| | 5,038 |
| | 3,690 |
|
| Total other related party transactions | $ | 5,558 |
| | $ | 5,240 |
| | $ | 4,958 |
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Additional information regarding reportable segments is as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023(a) | | December 25, 2022(b) | | December 26, 2021(c) |
| (In thousands) |
| Net sales | | | | | |
| U.S. | $ | 10,027,742 | | | $ | 10,748,350 | | | $ | 9,113,879 | |
| U.K. and Europe | 5,203,322 | | | 4,874,738 | | | 3,934,062 | |
| Mexico | 2,131,153 | | | 1,845,289 | | | 1,729,517 | |
| Total | $ | 17,362,217 | | | $ | 17,468,377 | | | $ | 14,777,458 | |
(a)For the year 2023, the U.S. reportable segment had intercompany sales to the Mexico reportable segment of $370.1 million. These sales consisted of fresh products, prepared products and grain and are eliminated in our consolidation.
(b)For the year 2022, the U.S. reportable segment had intercompany sales to the Mexico reportable segment of $120.9 million. These sales consisted of fresh products, prepared products, eggs and grain and are eliminated in our consolidation.. For the year 2022, the U.K. and Europe reportable segment had intercompany sales of eggs to the U.S. reportable segment of $5.3 million, which were eliminated in our consolidation.
(c)For the year 2021, the U.S. reportable segment had intercompany sales to the Mexico reportable segment of $296.9 million. These sales consisted of fresh products, prepared products and grain and are eliminated in our consolidation.
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Operating income | | | | | |
| U.S. | $ | 238,894 | | | $ | 1,094,025 | | | $ | (17,036) | |
| U.K. and Europe | 128,151 | | | (934) | | | (627) | |
| Mexico | 155,455 | | | 83,450 | | | 228,773 | |
| Eliminations | (214) | | | 54 | | | 54 | |
| Total operating income | 522,286 | | | 1,176,595 | | | 211,164 | |
| Interest expense, net of capitalized interest | 202,272 | | | 152,672 | | | 145,792 | |
| Interest income | (35,651) | | | (9,028) | | | (6,056) | |
| Foreign currency transaction losses (gains) | 20,570 | | | 30,817 | | | (9,382) | |
| Miscellaneous, net | (30,127) | | | (23,339) | | | (11,580) | |
| Income before income taxes | 365,222 | | | 1,025,473 | | | 92,390 | |
| Income tax expense | 42,905 | | | 278,935 | | | 61,122 | |
| Net income | $ | 322,317 | | | $ | 746,538 | | | $ | 31,268 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Depreciation and amortization | | | | | |
| U.S. | $ | 255,052 | | | $ | 244,617 | | | $ | 242,944 | |
| U.K. and Europe | 142,190 | | | 134,374 | | | 113,256 | |
| Mexico | 22,658 | | | 24,119 | | | 24,624 | |
| Total | $ | 419,900 | | | $ | 403,110 | | | $ | 380,824 | |
| | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
Capital expenditures(a) | | | | | |
| U.S. | $ | 417,919 | | | $ | 343,825 | | | $ | 274,934 | |
| U.K. and Europe | 109,590 | | | 114,330 | | | 87,004 | |
| Mexico | 30,244 | | | 28,955 | | | 19,733 | |
| Total | $ | 557,753 | | | $ | 487,110 | | | $ | 381,671 | |
(a) Capital expenditures incurred include those that were paid out in cash and those that are still outstanding in accounts payable as of December 31, 2023.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| | | | | | | |
| | 2017 | | 2016 |
| | (In thousands) |
| Accounts receivable from related parties: | | | |
JBS USA Food Company(c) | $ | 2,826 |
| | $ | 3,754 |
|
| JBS Chile Ltda. | 108 |
| | 159 |
|
| JBS S.A. | — |
| | 46 |
|
| Seara International Ltd. | 15 |
| | 51 |
|
| Seara Meats B.V. | 2 |
| | — |
|
| Total accounts receivable from related parties | $ | 2,951 |
| | $ | 4,010 |
|
| | | | |
| Accounts payable to related parties: | | | |
JBS USA Food Company(c) | $ | 440 |
| | $ | 1,421 |
|
| Seara Meats B.V. | 2,410 |
| | 3,026 |
|
| JBS Toledo | 39 |
| | 21 |
|
| Total accounts payable to related parties | $ | 2,889 |
| | $ | 4,468 |
|
| |
(a) | JBS USA Food Company Holdings (“JBS USA Holdings”) arranged for letters of credit to be issued on its account in the aggregate amount of $56.5 million to an insurance company on our behalf in order to allow that insurance company to return cash it held as collateral against potential workers’ compensation, auto liability and general liability claims. In return for providing this letter of credit, the Company has agreed to reimburse JBS USA Holdings for the letter of credit fees the Company would otherwise incur under its U.S. Credit Facility. The letter of credit arrangements for $40.0 million and $16.5 million were terminated on March 7, 2016 and April 1, 2016, respectively. During 2016, the Company paid JBS USA Holdings $0.2 million for letter of credit fees. |
| |
(b) | The Company entered into a tax sharing agreement during 2014 with JBS USA Holdings effective for tax years starting 2010. The net tax receivable for tax year 2017 was accrued in 2017 and will be paid in 2018. The net tax receivable for tax year 2016 was accrued in 2016 and paid in January 2017. The net tax receivable for tax year 2015 was accrued in 2015 and paid in January 2016. The net tax receivable for tax years 2010 through 2014 was accrued in 2014 and paid in January 2015. |
| |
(c) | We routinely execute transactions to both purchase products from JBS USA Food Company (“JBS USA”) and sell products to them. As of December 31, 2017 and December 25, 2016, the outstanding payable to JBS USA was $0.4 million and $1.4 million, respectively. As of December 31, 2017 and December 25, 2016, the outstanding receivable from JBS USA was $2.8 million and $3.8 million, respectively. As of December 31, 2017, approximately $1.7 million of goods from JBS USA were in transit and not reflected on our Consolidated and Combined Balance Sheet. |
| |
(d) | The Company has an agreement with JBS USA to allocate costs associated with JBS USA’s procurement of SAP licenses and maintenance services for both companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA in proportion to the percentage of licenses used by each company. The agreement expires on the date of expiration, or earlier termination, of the underlying SAP license agreement. The Company also has an agreement with JBS USA to allocate the costs of supporting the business operations by one consolidated corporate team, which have historically been supported by their respective corporate teams. Expenditures paid by JBS USA on behalf of the Company will be reimbursed by the Company and expenditures paid by the Company on behalf of JBS USA will be reimbursed by JBS USA. This agreement expires on December 31, 2019. |
| | | | | | | | | | | |
| | December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
| Total assets | | | |
| U.S. | $ | 7,012,211 | | | $ | 6,847,209 | |
| U.K. and Europe | 4,299,985 | | | 4,033,990 | |
| Mexico | 1,684,711 | | | 1,292,056 | |
| Eliminations | (3,186,546) | | | (2,917,486) | |
| Total | $ | 9,810,361 | | | $ | 9,255,769 | |
19. | | | | | | | | | | | | | | | | | |
| Year Ended |
| December 31, 2023 | | December 25, 2022 | | December 26, 2021 |
| (In thousands) |
| Net sales to customers by customer location | | | | | |
| U.S. | $ | 9,496,709 | | | $ | 10,204,411 | | | $ | 8,657,648 | |
| Europe | 5,148,931 | | | 4,813,108 | | | 3,878,475 | |
| Mexico | 2,180,418 | | | 1,895,658 | | | 1,778,355 | |
| Asia-Pacific | 384,946 | | | 390,679 | | | 317,685 | |
| Canada, Caribbean and Central America | 72,339 | | | 87,515 | | | 81,549 | |
| Africa | 66,519 | | | 61,894 | | | 47,948 | |
| South America | 12,355 | | | 15,112 | | | 15,798 | |
| | | | | |
| Total | $ | 17,362,217 | | | $ | 17,468,377 | | | $ | 14,777,458 | |
| | | | | | | | | | | |
| | December 31, 2023 | | December 25, 2022 |
| | (In thousands) |
Long-lived assets(a) | | | |
| U.S. | $ | 2,085,222 | | | $ | 1,943,967 | |
| U.K. and Europe | 1,041,857 | | | 1,011,283 | |
| Mexico | 301,919 | | | 295,069 | |
| Eliminations | (3,888) | | | (3,675) | |
| Total | $ | 3,425,110 | | | $ | 3,246,644 | |
(a)For this disclosure, we exclude financial instruments, deferred tax assets and intangible assets in accordance with ASC 280-10-50-41, Segment Reporting. Long-lived assets, as used in ASC 280-10-50-41, implies hard assets that cannot be readily removed.
Information regarding net sales attributable to each of our primary product lines and markets served with those products is included in “Note 2. Revenue Recognition.” We based the table on our internal sales reports and their classification of products.
21. COMMITMENTS AND CONTINGENCIES
General
We areThe Company is a party to many routine contracts in which we provideit provides general indemnities in the normal course of business to third parties for various risks. Among other considerations, we havethe Company has not recorded a liability for any of these indemnities asbecause, based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on ourits financial condition, results of operations and cash flows.
Purchase Obligations
The Company will sometimes enter into noncancelable contracts to purchase capital equipment and certain commodities such as corn, soybean meal, wheat and electricity. Atenergy. As of December 31, 2017,2023, the Company was party to outstanding purchase contracts totaling $346.7 million and less than $0.1$414.5 million payable in 20182024, $26.4 million payable in 2025, $2.0 million payable in 2026, $1.9 million payable in 2027 and 2019, respectively. There were no outstanding purchase contracts in 2019.$12.5 million payable thereafter.
Operating Leases
The Consolidated and Combined Statements of Income include rental expense forAdditional information regarding operating leases of approximately $59.0 million, $56.9 million and $32.1 millionis included in 2017, 2016 and 2015, respectively. The Company’s future minimum lease commitments under noncancelable operating leases are as follows (in thousands):
“Note 3. Leases.”
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | |
| 2018 | | $ | 54,961 |
|
| 2019 | | 47,007 |
|
| 2020 | | 37,043 |
|
| 2021 | | 31,219 |
|
| 2022 | | 26,332 |
|
| Thereafter | | 38,206 |
|
| Total | | $ | 234,768 |
|
Certain of the Company’s operating leases include rent escalations. The Company includes the rent escalation in its minimum lease payments obligations and recognizes them as a component of rental expense on a straight-line basis over the minimum lease term.
The Company also maintains operating leases for various types of equipment, some of which contain residual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease maturities range from one to ten years. The maximum potential amount of the residual value guarantees is estimated to be approximately $48.5 million; however, the actual amount would be offset by any recoverable amount based on the fair market value of the underlying leased assets. No liability has been recorded related to this contingency as the likelihood of payments under these guarantees is not considered to be probable and the fair value of such guarantees is immaterial. The Company historically has not experienced significant payments under similar residual guarantees.
Financial Instruments
The Company’s loan agreements generally obligate the Company to reimburse the applicable lender for incremental increased costs due to a change in law that imposes (i)(1) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii)(2) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii)(3) capital adequacy requirements. In addition, some of the Company’s loan agreements contain a withholding tax provision that requires the Company to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts the Company could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default and, in a secured financing transaction, would entitle the lender to foreclose upon the collateral to realize the amount due.
Litigation
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.
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. For a discussionThe Company cannot predict the outcome of the material legal proceedingslitigation matters or other actions nor when they will be resolved. The consequences of the pending litigation matters are inherently uncertain, and claims, see Part II, Item 1. “Legal Proceedings.” Below is a summary ofsettlements, adverse actions, or adverse judgments in some or all of these matters, including investigations by the U.S. Department of Justice (“DOJ”) or the Attorneys General, may result in monetary damages, fines, penalties, or injunctive relief against the Company, which could be material proceedings and claims. Thecould adversely affect its financial condition or results of operations. Any claims or litigation, even if fully indemnified or insured, could damage the Company’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future. In addition, the U.S. government’s recent focus on market dynamics in the meat processing industry could expose the Company believes it has substantial defenses to the claims madeadditional costs and intends to vigorously defend these cases.risks.
Tax Claims and Proceedings
In 2009,During 2014 and 2015, the IRS asserted claims against Pilgrim’s Pride in the Bankruptcy Court for the Northern District of Texas, Fort Worth Division, or the Bankruptcy Court, totaling $74.7 million. Following a series of objections and motions of opposition filed by both parties with the Bankruptcy Court, the Company worked with the IRS through the normal processes and procedures that are available to resolve the IRS’ claims. On December 12, 2012, the Company entered into two Stipulation of Settled Issues agreements with the IRS, or the Stipulations. The first Stipulation related to the Company’s 2003, 2005, and 2007 tax years and resolved all of the material issues in the case. The second Stipulation related to the Company as the successor in interest to Gold Kist Inc., or Gold Kist, for the tax years ended June 30, 2005 and September 30, 2005, and resolved all substantive issues in the case. These Stipulations accounted for approximately $29.3 million of the claims and should result in no additional tax due. the Company is currently working with the IRS to finalize the complete tax calculations associated with the Stipulations.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
A Mexico subsidiary of the Company is currently appealing an unfavorable tax adjustment proposed by Mexican Tax Authorities dueAdministration Service (“SAT”) opened a review of Avícola with regard to an examination of a specific transaction undertaken by the Mexico subsidiary during tax years 2009 and 2010. AtIn both instances, the SAT claims that controlled company status did not exist for certain subsidiaries because Avícola did not own 50% of the shares in voting rights of Incubadora Hidalgo, S. de R.L de C.V. and Comercializadora de Carnes de México S. de R.L de C.V. (both in 2009) and Pilgrim’s Pride, S. de R.L. de C.V. (in 2010). As a result, according to the SAT, Avícola should have considered dividends paid out of these subsidiaries partially taxable since a portion of the dividend amount was not paid from the net tax profit account (CUFIN). Avícola appealed the opinion, and on January 31, 2023, the appeal as to tax year 2009 was dismissed by the Mexico Supreme Court. Accordingly, the Company has paid $25.9 million for tax year 2009. The opinion for tax year 2010 is still under appeal. Avícola has recorded a tax reserve of $17.2 million in connection therewith.
On May 12, 2022, the Mexican Tax Authorities issued tax assessments against Pilgrim’s Pride, S. de R.L. de C.V. and Provemex Holdings, LLC in connection with PPC’s acquisition of Tyson de México. Following the acquisition, PPC re-domiciled Provemex Holdings, LLC from the U.S. to Mexico. The tax authorities claim that Provemex Holdings, LLC was a Mexican entity at the time of the transaction the Company obtained a “should” level opinion from outside legal counsel representing no additional tax dueacquisition and, as a result, was obligated to pay taxes on the sale. The Mexican subsidiaries of PPC filed a petition to nullify these assessments, and on June 7, 2023, the transaction. However, in February 2018,tax court granted the Company received a new assessment from external legal counsel indicating an unfavorable outcome to the Company as reasonably possible.petition. The Mexican Tax Authorities have appealed that decision. Amounts under appeal are $24.3 million and $16.1approximately $290.9 million for such tax years 2009 and 2010, respectively.assessments. No loss has been recorded for these amounts at this time.
Other Claims and ProceedingsU.S. Litigation
Between September 2, 2016 and October 13, 2016, a series of purportedfederal class action lawsuits styled as In re Broiler Chicken Antitrust Litigation, Case No. 1:16-cv-08637 were filed with the U.S. District Court for the Northern District of Illinois (“Illinois Court”) against the CompanyPPC and 13 other producersdefendants by and on behalf of direct and indirect purchasers of broiler chickens alleging violations of federal and state antitrust and unfair competition laws.laws and styled as In re Broiler Chicken Antitrust Litigation, Case No. 1:16-cv-08637 (“Broiler Antitrust Litigation”). The complaints seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the period of January 2008 to the present. The class plaintiffs have filed three consolidated amended complaints: one on behalf ofthe direct purchasers (“Broiler DPPs”), the commercial and two on behalf of distinct groups ofinstitutional indirect purchasers. The defendants, includingpurchasers (“Broiler CIIPPs”), and the Company,end-user consumer indirect purchasers (“Broiler EUCPs”). Between December 8, 2017 and September 1, 2021, 82 individual direct action complaints were filed motions to dismiss these actions. On November 20, 2017, the court denied all pending motions to dismiss with the exceptionIllinois Court by individual direct purchaser entities (“Broiler DAPs”) naming PPC as a defendant, the allegations of certain state-law claims by indirect purchasers that were dismissed or narrowedwhich largely mirror those in scope. Discovery is proceeding and is currently scheduled to be complete by June 13, 2019. In December 2017 and January 2018 four individual complaints (Affiliated Foods, Inc. v. Claxton Poultry Farms, Inc., Case No. 1:17-cv-08850; Winn Dixie Stores, Inc. v. Koch Foods, Inc., Case No. 1:18-cv-00245; Sysco Corp. v. Tyson Foods Inc., et al; Case No. 1:18-cv-00700; and U.S. Foods Inc.v. Tyson Foods Inc., et al; Case No. 1:18-cv-00702) were filed, mirroring the class action complaints. The class complaints, were answered in January 2018. A schedulethough some added allegations of price fixing and bid rigging on certain sales. On May 27, 2022, the Illinois Court certified each of the three classes. On June 30, 2023, the Illinois Court issued its summary judgment order that dismissed certain claims against PPC but denied dismissal as to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the supply reduction claims from 2008-2012. Thereafter, the Illinois Court issued a revised scheduling order for answerscertain plaintiffs who limited their claims to the individual complaints will be setreduction of output, and the courtfirst trial began on September 12, 2023 with Broiler DPPs and certain Broiler DAPs as plaintiffs. PPC settled with all plaintiffs in the first trial prior to its commencement, so PPC was not a participant in the trial. On October 25, 2023, the first trial concluded with a jury verdict in favor of the defendant. PPC has indicated it intendsentered into agreements to coordinate schedulingsettle all claims made by the Broiler DPPs, Broiler CIIPPs, and Broiler EUCPs, for an aggregate total of $195.5 million, each of which has received final approval from the individual complaintsIllinois Court. PPC continues to defend itself against the Broiler DAPs as well as parties that have opted out of the class settlements (collectively, the “Broiler Opt Outs”). PPC will seek reasonable settlements where they are available. To date, PPC has recognized an expense of $537.4 million to cover settlements with various Broiler Opt Outs. For the twelve months ending December 31, 2023, $23.0 million has been recognized by PPC in Selling, general and administrativeexpense (“SG&A expense”) in the Consolidated Statements of Income. Trials with the class complaints to the greatest extent possible. other Broiler Antitrust Litigation plaintiffs are not yet scheduled.
On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of the Company’s stock between February 21, 2014Between August 30, 2019 and October 6, 2016, filed16, 2019, a series of purported class action complaintlawsuits were filed in the U.S. District Court for the District of ColoradoMaryland (“Maryland Court”) against the CompanyPPC and its named executive officers. The complaint alleges, amonga number of other things, that the Company’s SEC filings contained statements that were rendered materially false and misleading by the Company’s failure to disclose that (i) the Company colluded with several of its industry peers to fix prices in the broiler-chicken market as alleged in the In re Broiler Chicken Antitrust Litigation, (ii) its conduct constituted a violation of federal antitrust laws, (iii) the Company’s revenues during the class period were the result of illegal conduct and (iv) that the Company lacked effective internal control over financial reporting,chicken producers, as well as statingWebber, Meng, Sahl & Company and Agri Stats, styled as Jien, et al. v. Perdue Farms, Inc., et al., No.19-cv-02521. The plaintiffs are a putative class of poultry processing plant production and maintenance workers (“Poultry Workers Class”) and allege that the Company’s industry was anticompetitive.defendants conspired to fix and depress the compensation paid to Poultry Workers Class in violation of the Sherman Antitrust Act. Defendants moved to dismiss on December 18, 2020, which the Maryland Court denied on March 10, 2021. On April 4, 2017,June 14, 2021, PPC entered into an agreement to settle all claims made by the court appointed another stockholder, George James Fuller, as lead plaintiff.Poultry Workers Class for $29.0 million, though the agreement is still subject to final approval by the Maryland Court. On April 26, 2017,February 16, 2022, the court set a briefing schedule for the filing of an amended complaint and the defendants’ motion to dismiss. On May 11, 2017, the plaintiffplaintiffs filed an amended complaint, which extended the end daterelevant period, added defendants, and included additional workers in the class. PPC recognizes these settlement expenses within SG&A expense in the Consolidated Statements of the putative class period to November 17, 2016. Defendants moved to dismiss on June 12, 2017, and the plaintiff filed its opposition on July 12, 2017. Defendants filed their reply on August 1, 2017. As of the date of this offering memorandum, the Colorado Court’s decision on the motion is pending.Income.
On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against the CompanyPPC and four other chicken producers in the U.S. District Court for the Eastern District of Oklahoma (the “Oklahoma Court”) alleging, among other things, a conspiracy to reduce competition for grower services and depress the price paid to growers. Plaintiffs allege violations of the Sherman Act and Packers and Stockyards Act and seek, among other relief, treble damages. The complaint was consolidated with aseveral subsequently filed consolidated amended class action complaintcomplaints and styled as In re Broiler Chicken Grower Litigation,, Case No. CIV-17-033-RJS.CIV-17-033. The defendants including the Company,(including PPC) jointly moved to dismiss the consolidated amended complaint, which the Oklahoma Court denied as to PPC and certain other defendants. PPC, therefore, continues to litigate against the putative class plaintiffs.
On October 20, 2016, Patrick Hogan, acting on September 9, 2017. During oral argument on January 19, 2018, the court consideredbehalf of himself and granted other defendants’ motions challenging jurisdiction and, as a result, granted the plaintiffs time to determine whether they will proceed forward with the case or dismiss the lawsuit. The plaintiffs have until Friday, February 2, 2018 to inform the district courtputative class of their plan course of action, and oral argument on remaining motions will be scheduled as necessary. In addition, on August 29, 2017, the Companycertain PPC stockholders, filed a Motion to Enforce Confirmation Order Against Growers in the U.S. Bankruptcy Court in the Eastern district of Texas, seeking an order enjoining the In re Broiler Chicken Grower Litigation plaintiffs from pursuing the class action against the Company. A hearing on this motion was held in October 2017 and a second is scheduled for February 13, 2018. As of the date of this offering memorandum, a court decision on this motion is pending.
On March 9, 2017, a stockholder derivative action styled as DiSalvio v. Lovette, et al., No. 2017 cv. 30207, was brought against all of the Company’s directors and its Chief Financial Officer, Fabio Sandri, in the District Court for the County of Weld in Colorado. The complaint alleges, among other things, that the named defendants breached their fiduciary duties by failing to prevent the Company and its officers from engaging in an antitrust conspiracy as alleged in the In re Broiler Chicken Antitrust Litigation, and issuing false and misleading statements as alleged in the Hogan class action litigation. On April 17, 2017, a related stockholder derivative action styled Brima v. Lovette, et al., No. 2017 cv. 30308, was brought against all of the Company’s directors
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
and its Chief Financial Officer in the District Court for the County of Weld in Colorado. The Brima complaint contains largely the same allegations as the DiSalvio complaint. On May 4, 2017, the plaintiffs in both the DiSalvio and Brima actions moved to (i) consolidate the two stockholder derivative cases, (ii) stay the consolidated action until the resolution of the motion to dismiss in the Hogan putative securities class action, and (iii) appoint co-lead counsel. The court granted the motion on May 8, 2017, staying the proceedings pending resolution of the motion to dismiss in the Hogan action.
On January 10, 2018 a shareholder derivative action was filed in the U.S. District Court for the District of Colorado (“Colorado Court”) against the the Company,PPC and its named executive officers styled as nominal defendant, as well as the Company’s directors, its Chief Financial Officer, and majority shareholder JBS S.A. in RaulHogan v. Nogueira de Souza,Pilgrim’s Pride Corporation, et al., Civil Action No. 18-cv-00069.16-CV-02611 (“Hogan Litigation”). The complaint alleges, among other things, that (i) defendants permittedPPC’s SEC filings contained statements that were rendered materially false and misleading by PPC’s failure to disclose that (1) PPC colluded with several of its industry peers to fix prices in the Company to omit material information from its proxy statements filed in 2014 through 2017 related to the conduct of former directors Wesley Mendonça Batista and Joesley Mendonça Batista and (ii) the individual defendants and JBS breached their fiduciary duties by failing to prevent the Company and its officers from engaging in an antitrust conspiracybroiler-chicken market as alleged in the BroilerBroilers Litigation, (2) its conduct constituted a violation of federal antitrust laws, and issuing false and misleading statements as alleged in(3) PPC’s revenues during the Hogan class action litigation. Theperiod were the result of illegal conduct. On July 31, 2020, defendants are currently in discussions with counsel for the Raul plaintiffs regarding the possibility of consolidating the Raul action with the consolidated state court derivative action, which is currently stayed, or in the alternative, determiningfiled a motion to dismiss, briefing schedule.which the Colorado Court granted on procedural grounds on April 19, 2021. On May 17, 2021, the plaintiff filed a motion for amended judgment, which the Colorado Court denied on November 29, 2021. The plaintiff then filed a notice of appeal on December 28, 2021, and the appeal was opened in the U.S. Court of Appeals for the Tenth Circuit. On July 13, 2023, the Tenth Circuit reversed the Colorado Court decision and remanded to consider the complaint on the merits. PPC filed a renewed motion to dismiss the complaint in the Colorado Court which was denied on December 26, 2023. PPC will therefore litigate against the putative class plaintiffs.
U.S. State Matters
From February 21, 2017 through May 4, 2021, the Attorneys General for multiple U.S. states have issued civil investigative demands (“CIDs”). The CIDs request, among other things, data and information related to the acquisition and processing of broiler chickens and the sale of chicken products. PPC is cooperating with the Attorneys General in these states in producing documents pursuant to the CIDs.
On January 25, 2018 a stockholder derivative action styled as SciabacucchiSeptember 1, 2020, February 22, 2021, and October 28, 2021, the Attorneys General in New Mexico(State of New Mexico v. JBS S.A.etKoch Foods, et al., was broughtD-101-CV-2020-01891), Alaska (State of Alaska v. Agri Stats, Inc., et al., 3AN-21-04632), and Washington (State of Washington v. Tyson Foods Inc., et al., 21-2-14174-5), respectively, filed complaints against PPC and others based on allegations similar to those asserted in the Broiler Antitrust Litigation. PPC has answered all of the Company’s directors, JBS S.A., JBS USA Holdingcomplaints and several members of the Batista family,each case is now in the Court of Chancery ofdiscovery. On March 9, 2023, PPC entered into an agreement to settle all claims made by the State of Delaware.Washington for $11.0 million. The complaint alleges, among other things, that the named defendants breached their fiduciary duties in connection with the Moy Park Acquisition.
The Company believes it has strong defenses in eachState of the above litigations and intends to contest them vigorously. The Company cannot predict the outcome of these actions nor when they will be resolved. If the plaintiffs were to prevail in any of these litigations, the Company could be liable for damages, which could be material and could adversely affect its financial condition or results of operations.
J&F Investigation
On May 3, 2017, certain officers of J&F Investimentos S.A. (“J&F,” and the companies controlled by J&F, the “J&F Group”) (including two former directors of the Company), a company organized in Brazil and an indirect controlling stockholder of the Company, entered into plea bargain agreements (the "Plea Bargain Agreements") with the Brazilian Federal Prosecutor's Office (Ministério Público Federal) ("MPF") in connection with certain illicit conduct involving improper payments made to Brazilian politicians, government officials and other individuals in Brazil committed by or on behalf of J&F and certain J&F Group companies. The details of such illicit conduct are set forth in separate annexes to the Plea Bargain Agreements, and include admissions of improper payments to politicians and political parties in Brazil over the last 10 years in exchange for receiving, or attempting to receive, favorable treatment for certain J&F Group companies in Brazil.
Pursuant to the terms of the Plea Bargain Agreements, the MPF agreed to grant immunity to the officers in exchange for such officers agreeing, among other considerations, to: (1) pay fines totaling R$225.0 million; (2) cooperate with the MPF, including providing supporting evidence of the illicit conduct identifiedWashington claim was paid in the annexessecond quarter of 2023. PPC will seek reasonable settlements where they are available. To date, PPC has recognized an accrual of $5.4 million to the Plea Bargain Agreements; and (3) present any previously undisclosed illicit conduct within 120 days following the execution of the Plea Bargain Agreements as long as the description of such conduct had not been omitted in bad faith. In addition, the Plea Bargain Agreements provide that the MPF may terminate any Plea Bargain Agreement and request that the Supreme Court of Brazil (Supremo Tribunal Federal) ("STF") ratify such termination if any illicit conduct is identified that was not included in the annexes to the Plea Bargain Agreements.
On June 5, 2017, J&F, in its role as the controlling shareholder of the J&F Group, entered into a leniency agreement (the "Leniency Agreement")cover settlements with the MPF, whereby J&F assumed responsibility for the conduct that was described in the annexes to the Plea Bargain Agreements. In connection with the Leniency Agreement, J&F has agreed to pay a fine of R$10.3 billion, adjusted for inflation, over a 25- year period. In exchange, the MPF agreed not to initiate or propose any criminal, civil or administrative actions against J&F, the companies of the J&F Group or those officers of J&F with respect to such conduct. Pursuant to the terms of the Leniency Agreement, if the Plea Bargain Agreement is annulled by the STF, then the Leniency Agreement may also be terminated by the Fifth Chamber of Coordination and Reviews of the MPF or, solely with respect to the criminal related provisions of the Leniency Agreement, by the 10th Federal Court of the Federal District in Brasilia, the authorities responsible for the ratification of the Leniency Agreement.
On August 24, 2017, the Fifth Chamber ratified the Leniency Agreement. On September 8, 2017, the 10th Federal Court ratified the Leniency Agreement. In compliance with the terms of the Leniency Agreement, J&F is conducting an internal investigation involving improper payments made in Brazil by or on behalf of J&F, certain companies of the J&F Group and certain officers of J&F (including two former directors of the Company). J&F has engaged outside advisors to assist in conducting the investigation, including an assessment as to whether any of the misconduct disclosed to Brazilian authorities had any connection
other Attorneys General.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
U.S. Federal Matters
toOn February 9, 2022, the Company or resulted inlearned that the DOJ opened a violation of U.S. law. The internalcivil investigation is ongoinginto human resources antitrust matters, and on October 6, 2022, the Company learned that the DOJ opened a civil investigation into grower contracts and payment practices and on October 2, 2023, received a CID requesting information from the Company. The Company is fully cooperating with J&Fthe DOJ in connection with the investigation. We cannot predict when the investigation will be completed or the results of the investigation, including the outcome or impact of any governmentits investigations or any resulting litigation.
On September 8, 2017, at the request of the MPF, the STF issued an order temporarily revoking the immunity from prosecution previously granted to Joesley Mendonça Batista and another executive of J&F in connection with the Plea Bargain Agreements.CID. The MPF requested the revocation of their immunity following public disclosure of certain voice recordings involving them in which they discussed certain alleged illicit activities the MPF claims were not covered by the annexes to their respective Plea Bargain Agreements. On September 10, 2017, Joesley Mendonça Batista voluntarily turned himself into police in Brazil. On September 11, 2017, the 10th Federal Court suspended its ratification of the criminal provisions of the Leniency Agreement as a result of the STF's temporary revocation of Joesley Mendonça Batista immunity under his Plea Bargain Agreement. On October 11, 2017, Judge Vallisney de Souza of the 10th Federal Court revalidated the criminal provisions of the Leniency Agreement.
We cannot predict whether the Plea Bargain Agreements will be upheld or terminated by the STF, and, if terminated, whether the Leniency Agreement will be also terminated by either the Fifth Chamber and/or the 10th Federal Court, and to what extent. If the Leniency Agreement is terminated, in whole or in part, as a result of any Plea Bargain Agreement being terminated, this may materially adversely affect the public perception or reputation of the J&F Group, includingDOJ has informed the Company that it is likely to file a civil complaint pursuant to at least one of these investigations.
22. BUSINESS INTERRUPTION INSURANCE
The Company experienced business interruptions from the COVID-19 pandemic, a winter storm in Texas and could haveLouisiana during February 2021, and a material adverse effecttornado on December 10, 2021 in Mayfield, Kentucky that significantly damaged two hatcheries and a feed mill. The Company maintains certain insurance coverage, including business interruption insurance, intended to cover such circumstances. In the year ended December 31, 2023, the Company received $60.4 million in proceeds and recognized $54.4 million in income from business interruption insurance in Cost of sales on the J&F Group'sConsolidated Statement of Income. Of the total amount recognized in 2023, $43.8 million was in the U.S. reportable segment and $10.6 million was in the U.K. and Europe reportable segment. In the year ended December 25, 2022, the Company received $11.0 million in proceeds and recognized $26.4 million in income from business financial condition, resultsinterruption insurance in Cost of operations and prospects. Furthermore,sales on the terminationConsolidated Statement of the Leniency Agreement may cause the termination of certain stabilization agreements entered into by JBS S.A. and certain of its subsidiaries, which would permit the lenders of the debt that is the subject to the terms of the stabilization agreements to accelerate their debt, which could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).Income.
20.23. MARKET RISKS AND CONCENTRATIONS
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, investment securities and trade accounts receivable. The Company’s cash equivalents and investment securities are high-quality debt and equity securities placed with major banks and financial institutions. The Company’s trade accounts receivable are generally unsecured. Credit evaluations are performed on all significant customers and updated as circumstances dictate. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across geographic areas. With the exception of oneThe Company does not have a single customer that accounts for approximately 4.9% of trade accounts and other receivables at December 31, 2017, and approximately 5.9%exceeds the 10% of net sales for 2017, thesales. The Company does not believe it has significant concentrations of credit risk in its trade accounts receivable.
As of December 31, 2017,2023, we employed approximately 30,900 persons in the U.S., approximately 10,200 persons in Mexico and approximately 10,200 persons in the U.K. and Europe.over 61,200 people. Approximately 37.8% 35.2% of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 20182024 or later. We have not experienced any labor-related work stoppage at any location in over ten years.years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of an agreement, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.
AtAs of December 31, 2017,2023, the aggregate carrying amount of net assets belonging to our Mexico and European operationsU.K. and Europe reportable segments was $711.2 million$1.3 billion and $1,367.7 million,$3.1 billion, respectively. AtAs of December 25, 2016,2022, the aggregate carrying amount of net assets belonging to our Mexico and European operations was $673.0 million and $1,232.8 million, respectively.
21.BUSINESS SEGMENT AND GEOGRAPHIC REPORTING
We operate in three reportable business segments, U.S., U.K. and Europe reportable segments was $1.1 billion and Mexico. We measure segment profit as operating income. Corporate expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S.$2.8 billion, respectively.
On September 8, 2017, we acquired Moy Park, one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers, from JBS S.A. in a common-control transaction. Moy Park's results from operations subsequent to the common-control date of September 30, 2015 comprise the U.K. and Europe segment.
On January 6, 2017, the Company acquired GNP, a vertically integrated poultry business with locations in Minnesota and Wisconsin. GNP's results from operations subsequent to the acquisition date are included in the U.S. segment.
Net sales to customers by customer location and long-lived assets are as follows:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
| | | | | | | | | | | | |
| | | December 31, 2017 | | December 25, 2016 | | December 28, 2015 |
| | | (In thousands) |
| Net sales | | | | | | |
| United States | | $ | 7,443,222 |
| | $ | 6,671,403 |
| | $ | 7,143,354 |
|
| U.K. and Europe | | 1,996,319 |
| | 1,947,441 |
| | 572,568 |
|
| Mexico | | 1,328,322 |
| | 1,259,720 |
| | 1,036,750 |
|
| Total | | $ | 10,767,863 |
| | $ | 9,878,564 |
| | $ | 8,752,672 |
|
|
| | | | | | | | | | | | |
| | | December 31, 2017 | | December 25, 2016 | | December 28, 2015 |
| | | (In thousands) |
| Operating income | | | | | | |
| United States | | $ | 841,492 |
| | $ | 572,558 |
| | $ | 949,610 |
|
| U.K. and Europe | | 77,105 |
| | 78,572 |
| | 16,241 |
|
| Mexico | | 153,631 |
| | 140,857 |
| | 95,186 |
|
| Elimination | | 94 |
| | 95 |
| | 95 |
|
| Total operating income | | $ | 1,072,322 |
| | $ | 792,082 |
| | $ | 1,061,132 |
|
| Interest expense, net of capitalized interest | | 107,183 |
| | 75,636 |
| | 46,549 |
|
| Interest income | | (7,730 | ) | | (2,301 | ) | | (3,828 | ) |
| Foreign currency transaction gain | | (2,659 | ) | | 4,055 |
| | 26,148 |
|
| Miscellaneous, net | | (6,538 | ) | | (9,344 | ) | | (9,061 | ) |
| Income before income taxes | | $ | 982,066 |
| | $ | 724,036 |
| | $ | 1,001,324 |
|
|
| | | | | | | | | | | | |
| | | December 31, 2017 | | December 25, 2016 | | December 28, 2015 |
| | | (In thousands) |
| Net sales to customers by customer location: | | | | | | |
| United States | | $ | 7,452,758 |
| | $ | 6,460,787 |
| | $ | 6,722,455 |
|
| Mexico | | 1,019,170 |
| | 1,180,947 |
| | 1,116,455 |
|
| Asia | | 136,144 |
| | 101,209 |
| | 120,724 |
|
| Canada, Caribbean and Central America | | 114,543 |
| | 152,516 |
| | 176,396 |
|
| Africa | | 29,905 |
| | 17,117 |
| | 16,493 |
|
| Europe | | 2,000,843 |
| | 1,952,192 |
| | 584,651 |
|
| South America | | 13,279 |
| | 11,955 |
| | 12,114 |
|
| Pacific | | 1,221 |
| | 1,841 |
| | 3,384 |
|
| Total | | $ | 10,767,863 |
| | $ | 9,878,564 |
| | $ | 8,752,672 |
|
|
| | | | | | | |
| | December 31, 2017 | | December 25, 2016 |
| | (In thousands) |
Long-lived assets(a): | | | |
| United States | $ | 1,437,220 |
| | $ | 1,220,263 |
|
| U.K. and Europe | 368,521 |
| | 328,045 |
|
| Mexico | 289,406 |
| | 285,677 |
|
| Total | $ | 2,095,147 |
| | $ | 1,833,985 |
|
| |
(a) | For this disclosure, we exclude financial instruments, deferred tax assets and intangible assets in accordance with ASC 280-10-50-41, Segment Reporting. Long-lived assets, as used in ASC 280-10-50-41, implies hard assets that cannot be readily removed.
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following table sets forth, for the periods beginning with 2015, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (In thousands) |
| U.S. chicken: | | | | | |
| Fresh chicken | $ | 5,700,503 |
| | $ | 4,627,137 |
| | $ | 4,701,943 |
|
| Prepared chicken | 950,378 |
| | 1,269,010 |
| | 1,672,693 |
|
| Export and other chicken | 213,595 |
| | 313,827 |
| | 358,877 |
|
| Total U.S. chicken | 6,864,476 |
| | 6,209,974 |
| | 6,733,513 |
|
| U.K. and Europe chicken: | | | | | |
| Fresh chicken | 846,575 |
| | 811,127 |
| | 240,815 |
|
| Prepared chicken | 792,284 |
| | 794,880 |
| | 241,589 |
|
| Export and other chicken | 318,699 |
| | 283,276 |
| | 67,903 |
|
| Total U.K. and Europe chicken | 1,957,558 |
| | 1,889,283 |
| | 550,307 |
|
| Mexico chicken | 1,303,656 |
| | 1,245,644 |
| | 1,016,200 |
|
| Total chicken | 10,125,690 |
| | 9,344,901 |
| | 8,300,020 |
|
| Other products: | | | | | |
| U.S. | 578,746 |
| | 461,429 |
| | 409,841 |
|
| U.K. and Europe | 38,761 |
| | 58,158 |
| | 22,261 |
|
| Mexico | 24,666 |
| | 14,076 |
| | 20,550 |
|
| Total other products | 642,173 |
| | 533,663 |
| | 452,652 |
|
| Total net sales | $ | 10,767,863 |
| | $ | 9,878,564 |
| | $ | 8,752,672 |
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
22.QUARTERLY RESULTS (UNAUDITED)
|
| | | | | | | | | | | | | | | | | | | | |
| 2017 | | First (a) | | Second(b) | | Third(c) | | Fourth(d) | | Year |
| | | (In thousands, except per share data) |
| Net sales | | $ | 2,479,340 |
| | $ | 2,752,286 |
| | $ | 2,793,885 |
| | $ | 2,742,352 |
| | $ | 10,767,863 |
|
| Gross profit | | 256,388 |
| | 474,838 |
| | 478,584 |
| | 261,804 |
| | 1,471,614 |
|
Net income attributable to PPC common stockholders | | 93,921 |
| | 233,641 |
| | 232,680 |
| | 134,337 |
| | 694,579 |
|
Net income per share amounts - basic | | 0.38 |
| | 0.94 |
| | 0.94 |
| | 0.54 |
| | 2.79 |
|
Net income per share amounts - diluted | | 0.38 |
| | 0.94 |
| | 0.93 |
| | 0.54 |
| | 2.79 |
|
| Number of days in period | | 91 |
| | 91 |
| | 91 |
| | 98 |
| | 371 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| 2016 | | First | | Second | | Third | | Fourth(e) | | Year |
| | | (In thousands, except per share data) |
| Net sales | | $ | 2,460,410 |
| | $ | 2,551,990 |
| | $ | 2,495,281 |
| | $ | 2,370,883 |
| | $ | 9,878,564 |
|
| Gross profit (loss) | | 284,257 |
| | 337,796 |
| | 253,060 |
| | 228,870 |
| | 1,103,983 |
|
Net income attributable to PPC
common stockholders | | 118,371 |
| | 152,886 |
| | 98,657 |
| | 70,618 |
| | 440,532 |
|
Net income per share amounts -
basic | | 0.46 |
| | 0.60 |
| | 0.39 |
| | 0.29 |
| | 1.74 |
|
Net income per share amounts -
diluted | | 0.46 |
| | 0.60 |
| | 0.39 |
| | 0.28 |
| | 1.73 |
|
| Number of days in period | | 91 |
| | 91 |
| | 91 |
| | 91 |
| | 364 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| 2015 | | First | | Second(f) | | Third(g) | | Fourth(g) | | Year |
| | | (In thousands, except per share data) |
| Net sales | | $ | 2,052,919 |
| | $ | 2,053,876 |
| | $ | 2,112,529 |
| | $ | 2,533,348 |
| | $ | 8,752,672 |
|
| Gross profit | | 377,120 |
| | 432,020 |
| | 284,544 |
| | 205,040 |
| | 1,298,724 |
|
Net income attributable to PPC
common stockholders | | 204,215 |
| | 241,489 |
| | 137,062 |
| | 63,148 |
| | 645,914 |
|
Net income per share amounts -
basic | | 0.79 |
| | 0.93 |
| | 0.53 |
| | 0.25 |
| | 2.50 |
|
Net income per share amounts -
diluted | | 0.79 |
| | 0.93 |
| | 0.53 |
| | 0.25 |
| | 2.50 |
|
| Number of days in period | | 91 |
| | 91 |
| | 91 |
| | 91 |
| | 364 |
|
| |
(a) | In the first quarter of 2017, the company had transaction costs of approximately $0.6 million for the acquisition of GNP. |
| |
(b) | In the second quarter of 2017, the company recognized impairment charges of approximately $3.5 million related to our Athens, Alabama plant held for sale. |
| |
(c) | In the third quarter of 2017, the company had transaction costs of approximately $15 million for the acquisition of Moy Park. |
| |
(d) | In the fourth quarter of 2017, the company had transaction costs of approximately $4.5 million for the acquisition of Moy Park. |
| |
(e) | In the fourth quarter of 2016, the company recognized impairment charges of $0.8 million and $0.3 million related to our Dallas, Texas and Bossier City, Louisiana plants held for sale. |
| |
(f) | In the second quarter of 2015, the Company recognized impairment charges of $4.8 million related to our Dallas, Texas and Bossier City, Louisiana plants held for sale. |
| |
(g) | On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries, 100% of the equity of Tyson Mexico from Tyson Foods, Inc. and certain of its subsidiaries. The results of operations of the acquired business since June 29, 2015 are included in the Company’s Consolidated and Combined Statements of Operations. Net sales generated by the acquired business during the third and fourth quarters of 2015 were $128.9 million and $121.7 million, respectively. The acquired business incurred net losses of $2.9 million and $10.8 million during the third and fourth quarters of 2015, respectively. |
SCHEDULE II
PILGRIM’S PRIDE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | Additions | | | | | | |
| | Beginning Balance | | Charged to Operating Results | | Charged to Other Accounts | | Deductions | | | | Ending Balance |
| | (In thousands) |
| Trade Accounts and Other Receivables— | | | | | | | | | | | |
| Allowance for Doubtful Accounts: | | | | | | | | | | | |
| 2017 | $ | 6,661 |
| | $ | 2,683 |
| | $ | 339 |
| | $ | 1,538 |
| | (a) | | $ | 8,145 |
|
| 2016 | 9,381 |
| | 1,172 |
| | (452 | ) | | 3,440 |
| | (a) | | 6,661 |
|
| 2015 | 2,525 |
| | 1,201 |
| | 6,087 |
| (d) | 432 |
| | (a) | | 9,381 |
|
| Trade Accounts and Other Receivables— | | | | | | | | | | | |
| Allowance for Sales Adjustments: | | | | | | | | | | | |
| 2017 | $ | 4,874 |
| | $ | 185,198 |
| | $ | — |
| | $ | 180,595 |
| | (b) | | $ | 9,477 |
|
| 2016 | 5,662 |
| | 199,423 |
| | — |
| | 200,211 |
| | (b) | | 4,874 |
|
| 2015 | 7,425 |
| | 150,113 |
| | — |
| | 151,876 |
| | (b) | | 5,662 |
|
| Deferred Tax Assets— | | | | | | | | | | | |
| Valuation Allowance: | | | | | | | | | | | |
| 2017 | $ | 25,611 |
| | $ | — |
| | $ | — |
| | $ | (11,132 | ) | | (c) | | $ | 14,479 |
|
| 2016 | 27,300 |
| | — |
| | — |
| | (1,689 | ) | | (c) | | 25,611 |
|
| 2015 | 9,150 |
| | — |
| | 19,379 |
| (e) | (1,229 | ) | | (c) | | 27,300 |
|
(a) Uncollectible accounts written off, net of recoveries.
(b) Deductions either written off, rebilled or reclassified as liabilities for market development fund rebates.
(c) Reductions in the valuation allowance.
(d) Allowance for doubtful accounts assumed with the acquisition of Moy Park.
(e) Valuation allowance assumed with the acquisition of Moy Park.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of December 31, 2017, an evaluation was performed under the supervision and with the participation of the Company’s management, including the 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 inUnder Rules 13a-15(e) and 15d-15(e) underof the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded the Company’s disclosure, “disclosure controls and procedures” means controls and other procedures were effectivethat are designed to ensure that information required to be disclosed by the Company in the 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 CommissionCommission’s (the “SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
In connectionThe Company’s management, with the evaluation described above,participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, identifiedevaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2023. Based on that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2023, the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no changeschange in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended December 31, 2017, and2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
On May 14, 2013,During 2024, the CommitteeCompany will begin the first phase of Sponsoring Organizationsa multi-year implementation of the Treadway Commission (COSO) published Internal Control-Integrated Framework (2013) (the “2013 Framework”an enterprise resource planning (“ERP”) and related illustrative documents as an updatesystem. The implementation is not expected to Internal Control-Integrated Framework (1992) (the “1992 Framework”). While the 2013 Framework’smaterially affect our internal control components (i.e., control environment, risk assessment, control activities, information and communication, and monitoring activities) are the same as those in the 1992 Framework, the 2013 Framework, among other matters, requires companies to assess whether 17 principles are present and functioning in determining whether their system of internal control is effective. The Company adopted the 2013 Framework during the fiscal year ending December 27, 2015.over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Pilgrim’s Pride Corporation’s (“PPC”) management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). PPC’s internal control is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.
Under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, PPC'sPPC’s management assessed the design and operating effectiveness of the Company’s internal control over financial reporting as of December 31, 20172023 based on the 2013 Framework.Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Integrated Framework (2013). Based on this assessment, management concluded that PPC’s internal control over financial reporting was effective as of December 31, 2017. 2023.
KPMG LLP, an independent registered public accounting firm which audited our Consolidated Financial Statements included in this Form 10-K, has issued an unqualified report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2023. That report is included in thisPart I, Item 9A8. Financial Statements and Supplementary Data, of this annual report.
The Company’s evaluation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 9B.Other Information
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMNone.
The Stockholders and Board of DirectorsItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Pilgrims Pride Corporation:Not applicable.
Opinion on Internal Control over Financial Reporting
We have audited Pilgrim’s Pride Corporation’s (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated and combined balance sheets of the Company as of December 31, 2017 and December 25, 2016, and the related combined and consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the fifty-three weeks ended December 31, 2017, the fifty-two weeks ended December 25, 2016, and the fifty-two weeks ended December 27, 2015, and related notes and financial statement schedule II, and our report dated February 15, 2018 expressed an unqualified opinion on those consolidated and combined financial statements.
The Company acquired Granite Holdings Sàrl (Moy Park) during 2017, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, Moy Park’s internal control over financial reporting associated with total assets of $2.2 billion and total revenues of $2.0 billion included in the consolidated and combined financial statements of the Company as of and for the fifty-three weeks ended December 31, 2017. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Moy Park.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Denver, Colorado
February 15, 2018
PART III
Item 10.Directors, and Executive Officers and Corporate Governance
Certain information regarding our executive officers has been presented under “Executive“Information about our Executive Officers” included in “Item 1. Business,” above.
Reference is made to the sections entitled “Security Ownership,” “Election of JBS Directors,” “Election of Equity Directors and the Founder Director,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Committees of the Board of Directors” and “Related Party Transactions” of the Company’s Proxy Statement for its 2018 Annual Meeting of Stockholders, which sections are incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics, which applies to all employees, including our Chief Executive Officer and our Chief Financial Officer and Principal Accounting Officer. The full text of our Code of Business Conduct and Ethics is published on our website, at www.pilgrims.com, under the “Investors-Corporate Governance” caption. We intend to disclose, if required, future amendments to, or waivers from, certain provisions of this Code on our website within four business days following the date of such amendment or waiver.
The other information required by Item 11.Executive Compensation
Reference10 is made to the sections entitled “Security Ownership,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “2017 Director Compensation Table,” “Report of the Compensation Committee,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Related Party Transactions” ofincorporated by reference herein from the Company’s Definitive Proxy Statement for its 20182024 Annual Meeting of Stockholders to be filed no later than 120 days after the close of the fiscal year covered by this report, which sections are incorporated herein by reference.
Item 11.Executive Compensation
The information required by Item 11 is incorporated by reference herein from the Company’s Definitive Proxy Statement for its 2024 Annual Meeting of Stockholders to be filed no later than 120 days after the close of the fiscal year covered by this report, which sections are incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
| | | | | | | | | | | | | | | | | | | | |
Plan Category(a) | | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights(b) | | Weighted-Average Exercise Price of Outstanding Option, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) |
| Equity compensation plans approved by securities holders | | 901,086 | | | $ | 22.36 | | | 20,148,249 | |
| Equity compensation plans not approved by securities holders | | — | | | — | | | — | |
| Total | | 901,086 | | | $ | 22.36 | | | 20,148,249 | |
(a)The following table provides certain information about our common stock that may be issued under the Long Term Incentive Plan (the “LTIP”), as of December 31, 2017.2023. For additional information concerning terms of the LTIP, see Part II. Item 8, Notes to Consolidated Financial Statements, “Note 15.16. Incentive Compensation” of our Consolidated and Combined Financial Statements included in this annual report.
(b)These amounts represent restricted stock units outstanding, but not yet vested, under the 2019 LTIP as of December 31, 2023. |
| | | | | | | | | |
Plan Category | | Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Option, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) |
Equity compensation plans approved by securities holders | | — |
| | — |
| | 4,825,825 |
|
Equity compensation plans not approved by securities holders | | — |
| | — |
| | — |
|
Total | | — |
| | — |
| | 4,825,825 |
|
ReferenceThe other information required by Item 12 is made to the section entitled “Security Ownership,” ofincorporated by reference herein from the Company’s Definitive Proxy Statement for its 20182024 Annual Meeting of Stockholders to be filed no later than 120 days after the close of the fiscal year covered by this report, which section issections are incorporated herein by reference.
Item 13.Certain Relationships and Related Transactions, and Director Independence
ReferenceThe information required by Item 13 is made to the sections entitled “Corporate Governance” and “Related Party Transactions” ofincorporated by reference herein from the Company’s Definitive Proxy Statement for its 20182024 Annual Meeting of Stockholders to be filed no later than 120 days after the close of the fiscal year covered by this report, which sections are incorporated herein by reference.
Item 14.Principal Accounting Fees and Services
Our independent registered public accounting firm is KPMG LLP, Denver, CO, Auditor Firm ID: 185.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The information required by this itemItem 14 is incorporated herein by reference herein from the section entitled “Independent Registered Public Accounting Firm Fee Information” of the Company’s Definitive Proxy Statement for its 20182024 Annual Meeting of Stockholders.Stockholders to be filed no later than 120 days after the close of the fiscal year covered by this report, which sections are incorporated herein by reference.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PART IV
Item 15. Exhibits and Financial Statement Schedules
| |
(1) | The financial statements and schedules listed in the index to financial statements and schedules on page 1 of this annual report are filed as part of this annual report. |
| |
(2) | All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and therefore have been omitted. |
| |
(3) | The financial statements schedule entitled “Valuation and Qualifying Accounts and Reserves” is filed as part of this annual report on page 85. |
(a)Financial Statements
(i)The financial statements and schedules listed in the index to financial statements and schedules on page 1 of this annual report are filed as part of this annual report.
(ii)All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable and therefore have been omitted.
(b)Exhibits
Exhibit Number
| | | | | | | | | |
| 3.1 | | | |
2.1 |
| | |
| | |
2.2 |
| | |
| | |
2.3 |
| | |
| | |
2.4 |
| | |
| | |
2.5 |
| |
|
| | |
3.1 |
| | | |
| | | |
| 3.2 | |
|
| |
| | | |
| 4.1 | |
| |
| |
4.2 |
| | |
| |
4.3 |
| | | |
| | | |
4.44.2 | |
| | |
| | | |
4.54.3 | |
| |
4.9 |
| | Indenture dated as of September 29, 2017 among the Company, Pilgrim’s Pride Corporation of West Virginia, Inc., Gold’n Plump Poultry, LLC, Gold’n Plump Farms, LLC, JFC LLC and U.S. Bank National Association, as Trustee (incorporated by reference from Exhibit 4.2 of the Company’s Current Report on Form 8-K (No. 001-09273) filed on October 3, 2017).
| |
| | | |
4.104.4 | |
|
|
|
| | | |
| | |
4.11 |
| |
| |
| | | |
10.14.5 | |
| 2005 Deferred Compensation PlanIndenture dated as of April 8, 2021 among the Company, Pilgrim’s Pride Corporation of West Virginia, Inc., Gold’n Plump Poultry, LLC, Gold’n Plump Farms, LLC, JFC LLC and Regions Bank, as Trustee (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K (No. 001-09273) dated December 27, 2004). † |
| | |
10.2 |
| | |
| |
10.3 |
| | | |
| | | |
10.44.6 | |
| | |
| | | |
| 4.7 | | | Indenture, dated as of September 2, 2021 among the Company, as issuer, Pilgrim's Pride Corporation of West Virginia, Inc., Gold'n Plump Poultry, LLC, Gold'n Plump Farms, LLC and JFC LLC, as Guarantors, and Regions Bank, as Trustee (incorporated by reference from Exhibit 4.1 of the Company’s Current Report on Form 8-K (No. 001-09273) filed on September 2, 2021). | |
| | | |
| 4.8 | | | | |
| | | |
| 4.9 | | | | |
| | | |
| 4.10 | | First Supplemental Indenture, dated as of September 22, 2022 among the Company, as issuer, Pilgrim’s Pride Corporation of West Virginia, Inc., Gold’n Plump Poultry, LLC, Gold’n Plump Farms, LLC and JFC LLC, as Guarantors, and Regions Bank, as Trustee (incorporated by reference from Exhibit 4.1 of the Company's Current Report on Form 8-K (No. 001-09273) filed on September 26, 2022). | |
| | | |
| 4.11 | | First Supplemental Indenture, dated as of September 22, 2022 among the Company, as issuer, Pilgrim’s Pride Corporation of West Virginia, Inc., Gold’n Plump Poultry, LLC, Gold’n Plump Farms, LLC and JFC LLC, as Guarantors, and Regions Bank, as Trustee (incorporated by reference from Exhibit 4.1 of the Company's Current Report on Form 8-K (No. 001-09273) filed on September 26, 2022). | |
| | | |
| 10.1 | | | |
| | | |
10.510.2 | |
| |
| | |
10.6 |
| | |
| |
10.7 |
| | |
| |
10.8 |
| | |
| | |
10.9 |
| | |
| | |
10.10 |
| | |
| |
10.11 |
| | | |
| | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | |
10.1210.3 | |
| |
| | | |
| 10.4 | | SecondRevolving Line of Credit Agreement, dated as of December 14, 2018, by and among Banco del Bajío, Sociedad Anónima, Institución de Banca Múltiple as lender, Avícola Pilgrim’s Pride de México, Sociedad Anónima de Capital Variable as borrower, and Comercializadora de Carnes de México, Sociedad de Responsabilidad Limitada de Capital Variable, Pilgrim’s Pride, Sociedad de Responsabilidad Limitada de Capital Variable, and Pilgrim’s Operaciones Laguna, Sociedad de Responsabilidad Limitada de Capital Variable, as guarantors (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K (No. 001-09273) filed on December 20, 2018). | |
| | | |
| 10.5 | | | |
| | | |
| 10.6 | | Fifth Amended and Restated Credit Agreement, dated February 11, 2015as of August 9, 2021, by and among Pilgrim’s Pride Corporation, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch,certain of its subsidiaries, CoBank, ACB, as administrative agent and collateral agent, and the other lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K (No. 001-09273) filed on February 12, 2015)August 11, 2021, as amended on August 16, 2021). | |
| | | |
10.1310.7 | |
| |
| | | |
| 10.8 | | | |
| | |
| 10.9 | | | |
| | | |
| 10.10 | | | |
| | | |
| 10.11 | | | Revolving Syndicated Facility Agreement, dated as of October 4, 2023, by and among Pilgrim’s Pride Corporation, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch,certain of its subsidiaries, CoBank, ACB, as administrative agent and the other lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s QuarterlyCompany's Current Report on Form 10-Q8-K (No. 001-09273)001-02973) filed on July 28, 2016)October 10, 2023). | |
| | | |
10.1410.12 | |
| | |
| | | |
| 10.13 | | | Checking Account Loan Opening ContractRevolving Line of Credit Agreement, dated July 23, 2014as of August 15, 2023, by and among AvícolaBBVA México as lender, and Pilgrim’s Pride, Sociedad de Mexico, S.A.Responsabilidad Limitada de C.V., as borrower, Pilgrim’s Pride S. de R.L. de C.V. and Comercializadora de Carnes de Mexico, S. de R.L. de C.V., as guarantors, and BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer,Capital Variable, as borrower (incorporated by reference from Exhibit 10.24.6 of the Company’s Quarterly Report on Form 10-Q (No. 001-09273) filed on July 28, 2016). |
| | |
10.15 |
| | Agreement to Modify Checking Account Loan Opening Contract dated November 3, 2015 among Avícola Pilgrim’s Pride de Mexico, S.A. de C.V., as borrower, Pilgrim’s Pride S. de R.L. de C.V. and Comercializadora de Carnes de Mexico, S. de R.L. de C.V., as guarantors, and BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as borrower (incorporated by reference from Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q (No. 001-09273) filed on July 28, 2016). |
| | |
|
| | | |
10.16 |
| | Checking Account Loan Opening Contract dated September 27, 2016 among Avícola Pilgrim’s Pride de Mexico, S.A. de C.V., as borrower, Pilgrim’s Pride S. de R.L. de C.V. and Comercializadora de Carnes de Mexico, S. de R.L. de C.V., as guarantors, and BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as borrower (incorporated by reference from Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (No. 001-09273)001-02973) filed on October 27, 2016)26, 2023). | |
| | | |
10.1721 | |
| Second Amendment to the Second Amended and Restated Credit Agreement dated October 21, 2016 among Pilgrim’s Pride Corporation, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q (No. 001-09273) filed on October 27, 2016). |
| | |
10.18 |
| | |
| | |
10.19 |
| | |
| | |
10.20 |
| |
|
| | |
10.21 |
| | |
| | |
12 |
| | |
| |
21 |
| | | |
| | | |
23.122.1 | |
| |
| | | |
| 23.1 | | | | |
| | | |
| 31.1 | |
| | |
| | | |
| 31.2 | |
| | |
| | | |
| 32.1 | |
| | |
| | | |
| 32.2 | |
| | |
| | | |
101.INS97 | |
| |
| | | |
| 101.INS | | Inline XBRL Instance Document | |
| | | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | |
| 101.SCH | |
| Inline XBRL Taxonomy Extension Schema | |
| | | |
| 101.CAL | |
| Inline XBRL Taxonomy Extension Calculation | |
| | | |
| 101.DEF | |
| Inline XBRL Taxonomy Extension Definition | |
| | | |
| 101.LAB | |
| Inline XBRL Taxonomy Extension Label | |
| | | |
| 101.PRE | |
| Inline XBRL Taxonomy Extension Presentation | |
| | | |
| 104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| | | | | | | | |
| * | | Filed herewith |
| | |
| ** | | Furnished herewith |
| * | | Filed herewith
| † | | |
** | | Furnished herewith |
| | |
† | | Represents a management contract or compensation plan arrangement |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 14, 2018.
| | | | | | | | |
| | |
| | PILGRIM’S PRIDE CORPORATION |
| | |
| By: | | /s/ Matthew Galvanoni |
| By: | /s/ Fabio SandriMatthew Galvanoni |
| | Fabio Sandri |
| | Chief Financial Officer and Chief Accounting Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT that the undersigned officers and directors of Pilgrim’s Pride Corporation do hereby constitute and appoint Matthew Galvanoni as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorney-in-fact and agent, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the datedates indicated.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| Signature | | Title | Date |
| | | | |
| | |
| /s/ Gilberto Tomazoni | | Chairman of the Board | | February 14, 201827, 2024 |
| Gilberto Tomazoni | | | |
| | | | |
| | | | | | | |
/s/ William W. Lovette | | President and Chief Executive Officer | | February 14, 2018 |
William W. Lovette | | (Principal Executive Officer) | | |
| | | | |
| | Chief Financial Officer | | |
| /s/ Fabio Sandri | | President and Chief Executive Officer | | (Principal Financial Officer and | February 14, 201827, 2024 |
| Fabio Sandri | | (Principal Executive Officer) | | |
| | | | |
| | | | |
| /s/ Matthew Galvanoni | | Chief Financial Officer and Chief Accounting Officer | | February 27, 2024 |
| Matthew Galvanoni | | (Principal Financial Officer and Principal Accounting Officer) | | |
| | | | |
| | | | |
| /s/ Farha Aslam | | Director | | February 27, 2024 |
| Farha Aslam | | | |
| | | | |
| | | | |
| /s/ Joesley Mendonça Batista | | Director | | February 27, 2024 |
| Joesley Mendonça Batista | | | | |
| | | | |
| | | | |
| /s/ Wesley Mendonça Batista | | Director | | February 27, 2024 |
| Wesley Mendonça Batista | | | | |
| | | | |
/s/ David E. BellArquimedes A. Celis | | Director | Director | | February 14, 201827, 2024 |
David E. BellArquimedes A. Celis | | | | |
| | | | |
| | | | |
| /s/ Raul Padilla | | Director | | February 27, 2024 |
| Raul Padilla | | | | |
| | | | |
| /s/ Michael L. Cooper | | Director | | February 14, 2018
Michael L. Cooper | | | | |
| | | | |
| | | | |
| /s/ Wallim Cruz de Vasconcellos Junior | | Director | Director | | February 14, 201827, 2024 |
| Wallim Cruz de Vasconcellos Junior | | | | |
| | | | |
| | | | |
| /s/ Ajay Menon | | Director | | February 27, 2024 |
| Ajay Menon | | | | |
| | | | |
| | | Director | | February 14, 2018
Charles Macaluso | | |
| | | | |
| | | | |
/s/ Denilson Molina | | Director | | February 14, 2018 |
Denilson Molina | | |
| | | | |
| | | | |
| /s/ Andre Nogueira de Souza | | Director | Director | | February 14, 201827, 2024 |
| Andre Nogueira de Souza | | | | |
