UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 (Mark One)

For the transition period from  _______ to _______            

 

PILGRIM’S PRIDE CORPORATION

(Exact name of registrant as specified in its charter)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of August 2, 2017,1, 2018, was 248,752,508.248,980,659.

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 and Puerto Rico. Pilgrim'sthe Netherlands. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company'sCompany’s primary distribution is through retailers, foodservice distributors and restaurants throughout the United States and Puerto Rico and in the northern and central regions of Mexico.countries listed above. Additionally, the Company exports chicken products to approximately 80100 countries. Pilgrim’s fresh chicken products consist of refrigerated (nonfrozen) 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. The Company’s other products include ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Mexico, France, Puerto Rico and Mexico.the Netherlands. As of June 25, 2017,July 1, 2018, Pilgrim’s had approximately 42,00051,600 employees and the capacity to process approximately 39.245.3 million birds per five-day work week for a total of approximately 11.5more than 12.8 billion pounds of live chicken annually. Approximately 4,4005,200 contract growers supply poultry for the Company’s operations. As of June 25, 2017,July 1, 2018, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owned 78.6%78.5% of the Company’s outstanding common stock.

Condensed Consolidated and Combined Financial Statements

The accompanying unaudited condensed consolidated and combined financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments unless otherwise disclosed) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six weeks ended weeks ended June 25, 2017July 1, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.30, 2018. For further information, refer to the consolidated and combined financial statements and footnotesnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 25, 2016.31, 2017.

Pilgrim’s operates on a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. The reader should assume any reference we make to a particular year (for example, 2017)2018) in the notes to these Condensed 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 in a common-control transaction. Moy Park was acquired by JBS from an unrelated third party on September 30, 2015. The Condensed Consolidated and Combined Financial Statements presented for the thirteen and twenty-six weeks ended June 25, 2017 include the accounts of the Company and its majority-owned subsidiaries.subsidiaries combined with the accounts of Moy Park. The Condensed Consolidated and Combined Financial Statements presented for the thirteen and twenty-six weeks ended July 1, 2018 and the Condensed Consolidated Balance Sheet presented as of December 31, 2017 include the accounts of the Company and its majority-owned subsidiaries, including Moy Park. We eliminate all significant affiliate accounts and transactions upon consolidation.

We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale.

Book Overdraft

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 Condensed 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 and restricted cash as reported in the Condensed Consolidated Balance Sheets to the total of the same amounts shown in the Condensed Consolidated and Combined Statements of Cash Flows:

Recent Accounting Pronouncements

In May 2014, the 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. The new standard

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. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. In transition, the entity is required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The provisions of the new guidance will be effective as of the beginning of our 2019 calendar year. We have elected to adopt the new standard as of the beginning of our 2019 fiscal year. Early adoption is permitted. We are currently assessing our leasing and other arrangements, and evaluating the impact of the new guidance on these arrangements and our financial statementsstatements. Implementation of a system solution to track, account for and have not yet selected an adoption date.

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 excluded from the scope that have the contractual right to receive cash. The provisions of the new guidance will be effective as of the 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 order 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 of December 26, 2016, the beginning of our 2017 fiscal year. An entity should apply the new guidance on a retrospective basis, wherein the statement of cash flow 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 comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items. A description of the prior-period information that has been retrospectively adjusted and the effect of the change on the statement of cash flow line items is not disclosed as it is not material.

In July 2018, the FASB issued an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share based payments. The accounting standards update is effective as of the beginning of our 2019 calendar year with early adoption permitted. We are currently evaluating the impacts of the new guidance on our financial statements and have not yet selected an adoption date.

On January 6,September 8, 2017, the Company acquiredpurchased 100% of the membership interestsissued and outstanding shares of JFC LLCMoy Park from JBS for cash of $301.3 million and its subsidiaries (together, “GNP”a note payable to the seller in the amount of £562.5 million (the "JBS S.A. Promissory Note") from Maschhoff Family Foods, LLC for cash. GNP. Moy Park is a vertically integratedone of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry business basedproducers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 6 hatcheries and 1 rendering facility currently operating in Saint Cloud, Minnesota. The acquired business has a productionNorthern Ireland, England, France and the Netherlands, Moy Park possesses the capacity of 2.1to process approximately 6.1 million birds per five-dayseven-day work week, in its three plantsaddition to the capacity to produce approximately 460.0 million pounds of prepared foods per year. Its product portfolio comprises fresh and employsfurther processed 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 1,750 people.10,300 employees as of July 1, 2018. The Moy Park operations comprise our U.K. and Europe segment.

The following table summarizesacquisition 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 consideration paidcontrol of the same parent. The accounting and reporting for GNP (in thousands):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.

The following unaudited pro forma information presents the combined financial results for the Company and GNPMoy Park as if the acquisition had been completed at the beginning of the Company’s prior year, December 28, 2015.25, 2016.

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 acquisition 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 acquisition.

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:

As of June 25, 2017July 1, 2018 and December 25, 2016,31, 2017, 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, commodity options instruments and foreign currency forward contractsinstruments to manage translation and remeasurement risk.

The following items were measured at fair value on a recurring basis:

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 Condensed Consolidated 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 periodicinterim 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.

 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.

Activity in the allowance for doubtful accounts for the twenty-six weeks ended June 25, 2017July 1, 2018 was as follows (in thousands):

Inventories consisted of the following:

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.

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 during the thirteen and twenty-six weeks ended July 1, 2018 related to the Company’s available-for-sale securities totaled $1.8 million and $2.9 million while gross realized losses recognizedwere immaterial. Gross realized gains during the thirteen and twenty-six weeks ended June 25, 2017 and June 26, 2016 related to the Company’s available-for-sale securities totaled $1.0 million and $1.1 million while gross realized losses were immaterial. Proceeds received from the sale or maturity of available-for-sale securities recognized as either short-short or long-term investments are historically disclosed in the Condensed Consolidated and Combined Statements of Cash Flows. No proceeds were received from the sale or maturity of available-for-sale securities recognized as either short- or long-term investments during the twenty-six weeks ended June 25, 2017 and June 26, 2016. Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during the thirteen and twenty-six weeks ended July 1, 2018 and June 25, 2017 and June 26, 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 the thirteen and twenty-six weeks ended July 1, 2018 and June 25, 2017 and June 26, 2016 isare disclosed in “Note 13.15. Stockholders’ Equity - Accumulated Other Comprehensive Loss.”Equity”.

The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum and energy, such as 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 12 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.) and, therefore, has exposure to translational foreign exchange risk when the financial results of those operations are translated toremeasured in U.S. dollars. The Company has purchased foreign currency forward contracts to manage this translational foreign exchange risk.

The Company recognized net losses of $24.0 million and net gains of $3.2 million and $1.8 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended July 1, 2018 and June 25, 2017, and June 26, 2016, respectively. The Company also recognized net losses of $17.6 million and net gains of $0.4 million and $5.9$0.3 million related to changes in the fair value of its derivative financial instruments during the twenty-six weeks ended July 1, 2018 and June 25, 2017, and June 26, 2016, respectively. Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:

Property, plant and equipment (“PP&E”), net consisted of the following:

The Company recognized depreciation expensesexpense of $52.0$61.9 million and $43.5$61.9 million during the thirteen weeks ended July 1, 2018 and June 25, 2017, and June 26, 2016, respectively. The Company recognized depreciation expense of $97.8$122.6 million and $81.9$117.3 million during the twenty-six weeks ended July 1, 2018 and June 25, 2017, and June 26, 2016, respectively.

During the twenty-six weeks ended June 25, 2017,July 1, 2018, Pilgrim's spent $174.2$155.2 million on capital projects and transferred $139.6 million of completed projects from construction-in-progress to depreciable assets. During the twenty-six weeks ended June 26, 2016, the Company spent $94.0 million on capital projects and transferred $128.1$109.6 million of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during the twenty-six weeks ended June 25, 2017July 1, 2018 to improve efficiencies and reduce costs. During the twenty-six weeks ended June 25, 2017, the Company spent $198.0 million on capital projects and transferred $159.1 million of completed projects from construction-in-progress to depreciable assets.

During the thirteen and twenty-six weeks ended July 1, 2018, the Company sold certain PP&E for $0.2 million and $1.2 million, respectively, in cash and recognized net loss on these sales of $0.1 million and $0.2 million, respectively. PP&E sold in twenty-six weeks ended July 1, 2018 included a processing plant in Alabama and miscellaneous equipment. During the thirteen

Current liabilities, other than current notes payable to banks, income taxes and current maturities of long-term debt, consisted of the following components: