Pilgrim’s has been and, in some cases, continues to be a party to certain transactions with affiliated companies.
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024 | | March 26, 2023 |
| (In thousands) |
Sales to related parties | | | |
JBS USA Food Company(a) | $ | 5,374 | | | $ | 7,512 | |
JBS Chile Ltd. | 1,187 | | | 946 | |
Other related parties | 570 | | | 877 | |
Total sales to related parties | $ | 7,131 | | | $ | 9,335 | |
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024 | | March 26, 2023 |
| (In thousands) |
Cost of goods purchased from related parties | | | |
JBS USA Food Company(a) | $ | 40,324 | | | $ | 49,905 | |
Seara Meat B.V. | 5,395 | | | 4,999 | |
Penasul UK LTD | 3,530 | | | 4,187 | |
Other related parties | 1,361 | | | 1,808 | |
Total cost of goods purchased from related parties | $ | 50,610 | | | $ | 60,899 | |
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024 | | March 26, 2023 |
| (In thousands) |
Expenditures paid by related parties | | | |
JBS USA Food Company(b) | $ | 17,771 | | | $ | 14,022 | |
Total expenditures paid by related parties | $ | 17,771 | | | $ | 14,022 | |
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024 | | March 26, 2023 |
| (In thousands) |
Expenditures paid on behalf of related parties | | | |
JBS USA Food Company(b) | $ | 2,689 | | | $ | 3,380 | |
Other related parties | — | | | 4 | |
Total expenditures paid on behalf of related parties | $ | 2,689 | | | $ | 3,384 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) |
Accounts receivable from related parties | | | |
JBS USA Food Company(a) | $ | 1,053 | | | $ | 967 | |
JBS Chile Ltda. | 971 | | | — | |
Other related parties | 122 | | | 811 | |
Total accounts receivable from related parties | $ | 2,146 | | | $ | 1,778 | |
|
| | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended | |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 | |
| (In thousands) | |
JBS S.A.: | | | | | | | | |
JBS S.A. Promissory Note(a) | $ | 753,704 |
| | $ | — |
| | $ | 753,704 |
| | $ | — |
| |
Expenditures paid by JBS S.A. on behalf of Pilgrim's Pride Corporation(b) | — |
| | 5,887 |
| | 3,824 |
| | 5,887 |
| |
Expenditures paid by Pilgrim's Pride Corporation on behalf of JBS S.A.(b) | — |
| | — |
| | 5 |
| | 19 |
| |
JBS USA Food Company Holdings: | | | | | | | | |
Letter of credit fees(c) | — |
| | — |
| | — |
| | 202 |
| |
JBS USA Food Company: | | | | | | | | |
Purchases from JBS USA Food Company(d) | 31,161 |
| | 28,799 |
| | 83,444 |
| | 75,687 |
| |
Expenditures paid by JBS USA Food Company on behalf of Pilgrim’s Pride Corporation(e) | 10,856 |
| | 17,242 |
| | 29,127 |
| | 33,568 |
| |
Sales to JBS USA Food Company(d) | 4,221 |
| | 4,819 |
| | 13,618 |
| | 12,235 |
| |
Expenditures paid by Pilgrim’s Pride Corporation on behalf of JBS USA Food Company(e) | 1,516 |
| | 1,142 |
| | 3,976 |
| | 9,858 |
| |
JBS Chile Ltda.: | | | | | | | | |
Sales to JBS Chile Ltda. | — |
| | 126 |
| | — |
| | 438 |
| |
JBS Global (UK) Ltd.: | | | | | | | | |
Sales to JBS Global (UK) Ltd. | — |
| | — |
| | 19,217 |
| | 122 |
| |
JBS Five Rivers: | | | | | | | | |
Sales to JBS Five Rivers | 7,271 |
| | — |
| | 23,787 |
| | — |
| |
J&F Investimentos Ltd..: | | | | | | | | |
Sales to J&F Investimentos Ltd.(f) | — |
| | — |
| | 104 |
| | — |
| |
JBS Seara International Ltd.: | | | | | | | | |
Sales to JBS Seara International Ltd.(g) | 2 |
| | — |
| | 2 |
| | — |
| |
Expenditures paid by Pilgrim’s Pride Corporation on behalf of JBS Seara International Ltd.(g) | — |
| | — |
| | — |
| | 43 |
| |
Toledo International NV: |
| |
| |
| |
|
| |
Purchases from Toledo International NV(h) | 149 |
| | 67 |
| | 190 |
| | 67 |
| |
Sales to Toledo International NV(h) | — |
| | — |
| | — |
| | 148 |
| |
JBS Seara Alimentos: | | | | | | | | |
Purchases from JBS Seara Alimentos(i) | — |
| | — |
| | 64 |
| | — |
| |
JBS Seara Meats B.V.: | | | | | | | | |
Purchases from JBS Seara Meats B.V.(j) | 3,343 |
| | 5,702 |
| | 9,719 |
| | 16,730 |
| |
Expenditures paid by Pilgrim’s Pride Corporation on behalf of JBS Seara Meats B.V.(j) | — |
| | — |
| | 4 |
| | — |
| |
| |
(a) | On September 8, 2017, Onix Investments UK Ltd., a wholly owned subsidiary of the Company, executed the JBS S.A. Promissory Note, 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. |
| |
(b) | There was no outstanding receivable from JBS S.A. at September 24, 2017. The outstanding receivable from JBS S.A. at December 25, 2016 was less than $0.1 million, respectively. |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) |
Accounts payable to related parties | | | |
JBS USA Food Company(a) | $ | 6,482 | | | $ | 34,038 | |
Seara Meats B.V. | 3,123 | | | 2,252 | |
JBS Asia Co Limited | 2,330 | | | 2,254 | |
Other related parties | 1,589 | | | 2,710 | |
Total accounts payable to related parties | $ | 13,524 | | | $ | 41,254 | |
| |
(c) | 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 behalf of the Company 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. For the thirty-nine weeks ended September 25, 2016, the Company paid JBS USA Holdings $0.2 million for letter of credit fees. |
| |
(d) | We routinely execute transactions to both purchase products from JBS USA Food Company (“JBS USA”) and sell products to them. As of September 24, 2017 and December 25, 2016, the outstanding payable to JBS USA was $5.6 million and $1.4 million, respectively. As of September 24, 2017 and December 25, 2016, the outstanding receivable from JBS USA was $0.9 million and $3.8 million, respectively. As of September 24, 2017, approximately $0.7 million of goods from JBS USA were in transit and not reflected on our Condensed Consolidated Balance Sheet. |
| |
(e) | (a)The Company routinely executes transactions to both purchase products from JBS USA Food Company (“JBS USA”) and sell products to them. As of March 31, 2024, approximately $1.1 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 its combined 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. |
| |
(f) | The outstanding receivable from J&F Investimentos Ltd. at September 24, 2017 was less than $0.1 million. There was no outstanding receivable or payable from J&F Investimentos Ltd. at December 25, 2016. |
| |
(g) | The outstanding receivable from JBS Seara International Ltd. at September 24, 2017 and December 25, 2016 was less than $0.1 million, respectively. There was no outstanding payable from JBS Seara International Ltd. at September 24, 2017 and December 25, 2016. |
| |
(h) | There was no outstanding receivable from Toledo International NV at September 24, 2017 and December 25, 2016. The outstanding payable from Toledo International NV at September 24, 2017 and December 25, 2016 was less than $0.1 million, respectively. |
| |
(i) | There was no outstanding receivable or payable from JBS Seara Alimentos at September 24, 2017 and December 25, 2016. |
| |
(j) | There was no outstanding receivable from JBS Seara Meats B.V. at September 24, 2017 and December 25, 2016. The outstanding payable from JBS Seara Meats B.V. at September 24, 2017 and December 25, 2016 was $1.3 million and $3.0 million, respectively. |
The Company entered into a tax sharing agreement during 2014 with JBS USA Holdings effectiveto allocate costs associated with JBS USA’s procurement of SAP licenses and maintenance services for tax years startingboth companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA in 2010.proportion to the percentage of licenses used by each company. The net tax receivableagreement expires on the date of $5.0 millionexpiration, 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, 2025.
18. REPORTABLE SEGMENTS
The Company operates in three reportable segments: U.S., Europe (formerly known as “U.K. and Europe”), and Mexico. The Company measures segment profit as operating income. Corporate expenses are allocated to the Mexico and Europe reportable segments based upon various apportionment methods for tax year 2016 was accrued in 2016 and paid in February 2017. The net tax receivable of $3.7 million for tax year 2015 was accrued in 2015 and paid in January 2016.specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. reportable segment.
| |
17. | COMMITMENTS AND CONTINGENCIES |
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 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.
Additional information regarding reportable segments is as follows:
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024(a) | | March 26, 2023(b) |
| (In thousands) |
Net sales | | | |
U.S. | $ | 2,579,332 | | | $ | 2,432,568 | |
Europe | 1,267,903 | | | 1,239,264 | |
Mexico | 514,699 | | | 493,796 | |
Total | $ | 4,361,934 | | | $ | 4,165,628 | |
(a)In addition to the above third party sales, for the three months ended March 31, 2024, the U.S. reportable segment had intercompany sales to the Mexico reportable segment of $47.9 million. These sales consisted of fresh products, prepared products and grain.
(b)In addition to the above third party sales, for the three months ended March 26, 2023, the U.S. reportable segment had intercompany sales to the Mexico reportable segment of $31.0 million. These sales consisted of fresh products, prepared products and grain.
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2024 | | March 26, 2023 |
| (In thousands) |
Operating income (loss) | | | |
U.S. | $ | 179,417 | | | $ | (28,106) | |
Europe | 31,116 | | | 25,261 | |
Mexico | 39,741 | | | 34,175 | |
Eliminations | — | | | 13 | |
Total operating income | 250,274 | | | 31,343 | |
Interest expense, net of capitalized interest | 41,243 | | | 42,662 | |
Interest income | (10,346) | | | (3,600) | |
Foreign currency transaction losses (gains) | (4,337) | | | 18,143 | |
Miscellaneous, net | (3,286) | | | (22,653) | |
Income (loss) before income taxes | 227,000 | | | (3,209) | |
Income tax expense (benefit) | 52,062 | | | (8,840) | |
Net income | $ | 174,938 | | | $ | 5,631 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) |
Total assets | | | |
U.S. | $ | 6,931,645 | | | $ | 7,012,211 | |
Europe | 4,277,510 | | | 4,299,985 | |
Mexico | 1,634,500 | | | 1,684,711 | |
Eliminations | (3,075,315) | | | (3,186,546) | |
Total assets | $ | 9,768,340 | | | $ | 9,810,361 | |
| | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) |
Long-lived assets(a) | | | |
U.S. | $ | 2,095,619 | | | $ | 2,085,222 | |
Europe | 1,038,884 | | | 1,041,857 | |
Mexico | 300,274 | | | 301,919 | |
Eliminations | (3,888) | | | (3,888) | |
Total long-lived assets | $ | 3,430,889 | | | $ | 3,425,110 | |
(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.
19. COMMITMENTS AND CONTINGENCIES
General
The 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.
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 (1) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (2) any tax, duty or other charge with respect to the loan (except standard income tax) or (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
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
During 2014 and 2015, the Mexican Tax Administration Service (“SAT”) opened a review of Avícola Pilgrim’s Pride de Mexico, S.A. de C.V. (“Avícola”) with regard to tax years 2009 and 2010. In 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). Avícola appealed the opinion, and on January 31, 2023, the appeal as to tax year 2009 was dismissed by the IRS asserted claims againstMexico Supreme Court. Accordingly, PPC paid $25.9 million for tax year 2009. The opinion for tax year 2010 is still under appeal. Accordingly, the Company totaling $74.7 million. Pilgrim's entered into two Stipulationshas an accrual of Settled Issues agreements$17.6 million as of March 31, 2024 with regard to the IRS (the “Stipulations”) on Decembertax year 2010.
On May 12, 20122022, the SAT 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 accounted for approximately $29.3 millionProvemex Holdings, LLC was a Mexican entity at the time of the claimsacquisition and, shouldas a result, in no additionalwas obligated to pay taxes on the sale. The Mexican subsidiaries of PPC filed a petition to nullify these assessments, which is still pending. Amounts under appeal are approximately $298.2 million for each of the two tax due. The Company is currently working with the IRS to finalize the complete tax calculations associated with the Stipulations.assessments. No provision 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 purported federal class action lawsuits styled as In re Broiler Chicken Antitrust Litigation were broughtfiled with the U.S. District Court for the Northern District of Illinois (“Illinois Court”) against Pilgrim'sPPC 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 (the “Broiler Antitrust Litigation”). 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. The plaintiffs have filed three consolidated amended complaints: one on behalf of direct purchasers and two on behalf of distinct groups of indirect purchasers. The defendants (including the Company) movedPPC has entered into agreements to dismisssettle all complaints on January 27, 2017, which are fully briefed and a rulingclaims made by the court is pending.three certified classes for an aggregate total of $195.5 million, each of which has received final approval from the Illinois Court. PPC continues to defend itself against the direct-action plaintiffs 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, we have accrued $537.4 million to cover settlements with various Broiler Opt Outs. We have recognized these settlement expenses within Selling, general and administrative expense (“SG&A”) in our Condensed Consolidated Statements of Income.
On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of Pilgrim’s common stock between February 21, 2014Between August 30, 2019 and October 4, 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
chicken producers, as well as
things,Webber, 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 SEC filings contained statements that were rendered materially false and misleading by its failure to disclose that (i) Pilgrim's colluded with several of its industry peersdefendants conspired to fix pricesand depress the compensation paid to Poultry Workers Class in the broiler chicken market as alleged in the In re Broiler Chicken Antitrust Litigation, (ii) the Company's conduct constituted a violation of federal antitrust laws, (iii) Pilgrim's revenues during the class period wereSherman Antitrust Act. PPC entered into an agreement to settle all claims made by the resultPoultry Workers Class for $29.0 million, though the agreement is still subject to final approval by the Maryland Court. We have recognized these settlement expenses within SG&A expense in our Condensed Consolidated Statements of illegal conduct and (iv) the Company lacked effective internal control over financial reporting, as well as stating that Pilgrim'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. The defendants moved to dismiss on June 12, 2017, and the plaintiff filed its Opposition on July 12, 2017. The defendants replied on August 1, 2017. The Court’s decision on the motion is currently pending.Income.
On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against Pilgrim'sPPC 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 the 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 AntitrustGrower Litigation, Case No. CIV-17-033-RJS. The defendants (including PPC) movedCIV-17-033. PPC continues to dismisslitigate against the consolidated amended complaintputative class plaintiffs.
On October 20, 2016, Patrick Hogan, acting on September 9, 2017. Briefing on the motions will be complete on November 22, 2017,behalf of himself and a hearing on the motions has been scheduled for January 19, 2018. In addition, on August 29, 2017,putative class of certain PPC stockholders, filed a Motion to Enforce Confirmation Order Against Growersclass action complaint in the U.S. Bankruptcy Court in the Eastern District of Texas (In re Pilgrim’s Pride Corporation, Case No. 08-45664 (DML) seeking an order enjoining the Grower Plaintiffs from pursuing the class action against PPC. A hearing on this motion was held October 12, 2017. The Court’s decision on the motion is currently 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 CountyDistrict of Weld in Colorado.Colorado (“Colorado Court”) against PPC and its named executive officers styled as Hogan v. Pilgrim’s Pride Corporation, et al., No. 16-CV-02611 (“Hogan Litigation”). 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 issuingPPC’s SEC filings contained statements that were rendered materially false and misleading statements as alleged inmisleading. PPC continues to litigate against the Hoganputative class action litigation. On April 17,plaintiffs.
U.S. State Matters
From February 21, 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. Onthrough May 4, 2017,2021, 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.Attorneys General for multiple U.S. states have issued civil investigative demands (“CIDs”). The court granted the motion on May 8, 2017, staying the proceedings pending resolution of the motion to dismiss in the Hogan action.
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,CIDs request, among other considerations, to: (1) pay fines totaling $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;things, data 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 criminalinformation related provisions of the Leniency Agreement, by the 10th Federal Court of the Federal District in Brasília, 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 it 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 Moy Park, 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).
18. SEGMENT REPORTING
We operate in three reportable segments: U.S., U.K. and Europe, 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.
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.
Information on segments and a reconciliation to income before income taxes are as follows:
|
| | | | | | | | | | | | | | | |
Net sales | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
| (In thousands) |
U.S. | $ | 1,938,542 |
| | $ | 1,724,625 |
| | $ | 5,557,089 |
| | $ | 5,072,351 |
|
U.K. and Europe | 514,325 |
| | 463,560 |
| | 1,473,854 |
| | 1,484,708 |
|
Mexico | 341,018 |
| | 307,096 |
| | 994,568 |
| | 950,622 |
|
Total net sales | $ | 2,793,885 |
| | $ | 2,495,281 |
| | $ | 8,025,511 |
| | $ | 7,507,681 |
|
|
| | | | | | | | | | | | | | | |
Operating income | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 24, 2017 | | September 25, 2016 | | September 24, 2017 | | September 25, 2016 |
| (In thousands) |
U.S. | $ | 307,962 |
| | $ | 141,195 |
| | $ | 719,121 |
| | $ | 480,280 |
|
U.K. and Europe | 18,569 |
| | 13,027 |
| | 51,874 |
| | 55,841 |
|
Mexico | 45,692 |
| | 22,603 |
| | 146,241 |
| | 108,856 |
|
Elimination | 23 |
| | 23 |
| | 69 |
| | 71 |
|
Total operating income | 372,246 |
| | 176,848 |
| | 917,305 |
| | 645,048 |
|
Interest expense, net of capitalized interest | 24,636 |
| | 19,119 |
| | 66,315 |
| | 58,480 |
|
Interest income | (2,128 | ) | | (253 | ) | | (3,600 | ) | | (2,000 | ) |
Foreign currency transaction gain | (888 | ) | | 4,569 |
| | (2,500 | ) | | (1,769 | ) |
Miscellaneous, net | (1,083 | ) | | (2,371 | ) | | (5,198 | ) | | (7,327 | ) |
Income before income taxes | $ | 351,709 |
| | $ | 155,784 |
| | $ | 862,288 |
| | $ | 597,664 |
|
In addition to the net sales reported above, the U.S. segment also generated intersegment net salesprocessing of $21.0 millionbroiler chickens and $22.0 million in the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively, and intersegment net sales of $66.7 million and $70.6 million in the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively, from transactions with the Mexico segment. These intersegment net sales were transacted at market prices.
|
| | | | | | | |
Goodwill | September 24, 2017 | | December 25, 2016 |
| (In thousands) |
U.S. | $ | 41,936 |
| | $ | — |
|
U.K. and Europe | 828,038 |
| | 761,613 |
|
Mexico | 125,608 |
| | 125,608 |
|
Total goodwill | $ | 995,582 |
| | $ | 887,221 |
|
|
| | | | | | | | |
Assets | September 24, 2017 | | December 25, 2016 | |
| (In thousands) | |
U.S. | $ | 3,515,513 |
| | $ | 2,472,931 |
| |
U.K. and Europe | 2,204,885 |
| | 2,013,725 |
| |
Mexico | 947,112 |
| | 840,088 |
| |
Eliminations | (604,225 | ) | | (304,802 | ) | (a) |
Total assets | $ | 6,063,285 |
| | $ | 5,021,942 |
| |
| |
(a) | Eliminations for the period ended September 24, 2017 include the elimination of the U.S. segment's $191.7 million investment in the Mexico segment, the elimination of $111.2 million in intersegment receivables and payables between the U.S. and Mexico segments and the elimination of the U.S. segment's $301.3 million investment in the U.K. and Europe segment. Eliminations for the period ended December 25, 2016 include the elimination of the U.S. segment's $191.8 million investment in the Mexico segment and the elimination of $113.0 million in intersegment receivables and payables between the U.S. and Mexico segments. |
19. SUBSEQUENT EVENTS
On September 29, 2017, the Company completed an offering of $250.0 million Additional Senior Notes due 2025 and a sale of $600.0 million aggregate principal amount of the Senior Notes due 2027. The Company used the net proceeds from the sale of chicken products. PPC is cooperating with the Additional Senior Notes due 2025Attorneys General in these states in producing documents pursuant to the CIDs.
On September 1, 2020, February 22, 2021, and October 28, 2021, the Senior Notes due 2027Attorneys General in New Mexico(State of New Mexico v. Koch Foods, et al., D-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 repaythose asserted in full the JBS S.A. Promissory Note issued Broiler Antitrust Litigation. PPC will seek reasonable settlements where they are available. To date, we have recognized $17.2 million to cover settlements with these states in SG&A expense in our Condensed Consolidated Statements of Income. The State of Washington claim was paid in the second quarter of 2023, leaving an accrual of $6.2 million as part of March 31, 2024 for remaining state claims.
U.S. Federal Matters
On February 9, 2022, PPC learned that the Moy Park acquisition. See “Note 11. Long-Term DebtDOJ opened a civil investigation into human resources antitrust matters, and Other Borrowing Arrangements” for additional information.
Onon October 24, 2017,6, 2022, PPC 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 PPC. PPC is cooperating with the DOJ in its investigations and CID. The DOJ has informed the Company announced that it will close the Luverne, Minnesota, poultry processing facility effective December 29, 2017. The decisionis likely to close the facility will allow the Companyfile a civil complaint pursuant to shift production and equipment to more efficient operations with the objectiveat least one of enhancing synergies and better serving the Company’s key customers.these investigations.
| |
ITEM 2. | ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Description of the Company
We areExecutive Summary
Overview
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 Ireland. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Mexico, France, Puerto Rico, The Netherlands, and Ireland. AsRepublic of September 24, 2017, we had approximately 52,000 employees and the capacity to process approximately 45.2 million birds per work week for a total of approximately 12.8 billion pounds of live chicken annually. Approximately 5,100 contract growers supply poultry for our operations. As of September 24, 2017, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owned 78.6% of our outstanding common stock. See “Note 1. Description of Business and Basis of Presentation” of our Condensed Consolidated and Combined Financial Statements included in this quarterly report for additional information.
We operate 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) in this report applies to our fiscal year and not the calendar year.
Executive Summary
Ireland. We reported net income attributable to Pilgrim’s Pride Corporation of $560.2$174.4 million, or $2.25$0.73 per diluted common share, and income before tax totaling $227.0 million, for the thirty-nine weeksthree months ended September 24, 2017.March 31, 2024. These operating results included net sales of $4.4 billion, gross profit of $1,209.8 million. During the thirty-nine weeks ended September 24, 2017, we generated $618.5$383.9 million and $271.0 million of cash from operations.provided by operating activities. We generated a consolidated operating margin of 5.7%. For the three months ended March 31, 2024, we generated EBITDA and Adjusted EBITDA of $361.2 million and $371.9 million, respectively. A reconciliation of net income to EBITDA and Adjusted EBITDA is included below.
Market prices for feed ingredients remain volatile. Consequently, there can be no assurance that our feed ingredients prices will not increase materially and that such increases would not negatively impact our financial position, results of operations and cash flow. The following table compares the highest and lowest prices reached on nearby futures for one bushel of corn and one ton of soybean meal during the current year and previous two years:
|
| | | | | | | | | | | | | | | |
| Corn | | Soybean Meal |
| Highest Price | | Lowest Price | | Highest Price | | Lowest Price |
2017: | | | | | | | |
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 attempt to mitigate price risk related to our anticipated consumption of commodity inputs such as corn, soybean meal, wheat, soybean oil and natural gas. We will sometimes take a short position on a derivative instrument to minimize the impact of a commodity’s price volatility on our operating results. We will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of our Mexico segment that are denominated in Mexican pesos and 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 Condensed Consolidated and Combined Statements of Income.Global Economic Conditions
During the thirteen weeks ended September 24, 2017first quarter of 2024, global inflation levels declined, but remain above historical averages, in commodity, labor and September 25, 2016, we recognized net gains totaling $6.9 millionother operating costs leading to reduced costs from these inputs across all our businesses. The global energy market continues to be impacted by the Russia-Ukraine war, driving up prices as supply out of the Black Sea region is disrupted and net losses totaling $16.7 million, respectively, relatedfuture production is at risk. The global feed ingredient market is less impacted by the Russia-Ukraine war in 2024 as global supply in other growing areas has developed and grain exports from the Black Sea region have remained steady throughout the first quarter of 2024. The U.K. and E.U. region saw a decrease in inflation and increased demand, leading to changescost recovery for our business and price reductions for customers, though labor costs continue to be a challenge for our Europe operations. We have and will continue to invest in our people and implement supply chain solutions to mitigate global economic impacts in our Europe operations. Inflation in Mexico has decreased and there has been a slight strengthening of the peso in the fair valuesfirst quarter of our derivative financial instruments. During2024 against the thirty-nine weeks ended September 24, 2017U.S. dollar, however, Mexico remains a relatively volatile market given continuing inflationary pressures, an evolving global protein industry, and September 25, 2016,overall business seasonality.
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 likely continue to negatively impact other global economic markets including where we recognized net gains totaling $7.3 millionoperate. The impacts have included and net losses totaling $10.5 million, respectively, relatedmay continue to changesinclude, 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. Russia’s suspension of the Black Sea Grain Initiative, which allowed Ukraine to export grain and other food items, may further exacerbate rising food prices and supply chain issues if not reinstated.
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 fair valuesregion are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply. The duration of our derivative financial instruments.
Although changesthe 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. The continued volatility in the market price paid for feed ingredients impact cash outlays atglobal markets as a result of the time we purchasewar has adversely impacted our costs by driving up prices, raising inflation and increasing pressure on the ingredients, such changes do not immediately impact cost of sales. The costsupply of feed ingredients is recognizedand energy products throughout the global markets. In the first quarter of 2024, Ukraine grain export volumes remained steady despite the ongoing conflict. Any remaining conflict-related supply constraints did not have a material impact on our costs during the first quarter.
In addition, the U.S. government and other governments in costjurisdictions 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 sales, on a first-in-first-out basis, atthese measures, now and in the same time thatfuture, could adversely affect our business, supply chain or customers.
Raw Materials and Pricing
Our U.S. and Mexico segments use corn and soybean meal as the sales of the chickens that consume the feed grains are recognized. Thus, there is a lag between the time cash is paidmain ingredients 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 chicken become included in cost of goods sold.
Commodities such as corn,production, while our Europe segment uses wheat, soybean meal and soybean oil are actively traded through various exchanges with futurebarley as the main ingredients for feed production.
U.S. commodity market prices quoted on a daily basis. These quoted market prices, although a good indicator 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 quoted 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 currently attrended in line with the historical five-year average during the first half of the first quarter of 2024 before accelerating during the seasonal climb in the second half of the quarter. Prices as of the end of the first quarter of 2024 were above the historical five-year average. Per the April 2024 U.S. Department of
Agriculture (or “USDA”) report on poultry slaughter, estimated industry ready-to-cook production declined relative to prior year levels by 1.0%. The decrease is due to fewer head counts while average liveweights ended the first quarter in line with the prior year.
During the first quarter of 2024, the U.S. chicken market experienced robust volume demand, supported by growth in both the retail and foodservice distribution channels throughout the quarter. Export volume in shipments were lower than the five-year historical average, but relatively flat compared to prior year. Chicken cold storage inventories ended the quarter 10.5% below prior year levels after declining 12.8% from year-end 2023 levels due to growth in domestic demand and despite lower export volumes.
Domestic volume demand growth in foodservice distribution and retail were sufficient to offsetabsorb broiler production and reduce cold storage inventories of chicken at rates that allowed for U.S. chicken market pricing to see strong seasonal improvements ending the first quarter of 2024 above the historical five-year average.
During the first quarter of 2024, the U.K. chicken market volume was higher than in same quarter prior year while stagnant compared to fourth quarter of 2023. European supplies into U.K. are increasing slightly as other markets for the E.U. are declining. Our utilities and feed ingredient costs are lower relative to first quarter of 2023. We continue to focus on managing costs, including labor and yield efficiencies, agricultural performance and increasing operational efficiency through investments in capital projects.
Commodity prices for chicken in Mexico were above prior year prices throughout the quarter, but steadily declining and ended the quarter below end of 2023 levels.
Prices for the remainder of the year will depend on (1) the evolution of foodservice, retail and export meat demand and (2) factors such as government regulation, the ongoing Russia-Ukraine war, feed ingredients. However, there can be no assurance that chicken prices will not decrease due to such factors as competition from other proteinsproduction input costs, further spread of avian influenza both domestically and substitutions by consumers of non-protein foods because ofabroad, uncertainty surrounding the general economy and unemployment.overall protein supply.
Moy Park Acquisition
On September 8, 2017, we acquired 100%U.K. market prices for pork products are flat to slightly higher than first quarter of 2023, while declining slightly from fourth quarter of 2023 per normal seasonal trends. The slight increase from prior continues the upward trend from 2022, reflecting pig reduction from a 15% reduction of the issuedEnglish sow herd since 2022. As the level of pigs stabilized, the pig prices have started to wear off and outstanding sharesthe E.U. pig price ended the quarter at 5% below the U.K. standard pig price. The pig supply is still shrinking and the first quarter of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”) from JBS S.A. for cash2024 U.K. headkill is 5% below first quarter of $301.3 million and a promissory note payable to seller of £562.5 million. Moy Park is one of the top-ten food companies2023. U.K. pig farming became profitable in the U.K., Northern Ireland's largest private sector businesssecond quarter of 2023 and oneremained profitable through the end of Europe's leading poultry producers. With 13 processing and manufacturing units in Northern Ireland, the 2023.
U.K., France, the Netherlands and Ireland, the company processes 5.6 million birds per seven-day work week, in addition to producing around 200,000 tons of prices for prepared foods per year. Moy Park currently has approximately 10,100 employees. See “Note 2. Business Acquisition” ofhave remained at elevated levels from inflationary pressure, primarily from increased pork prices. We continue to focus on partnering with our Condensed ConsolidatedKey Customers and Combined Financial Statements included in this quarterly report for additional information relating to this acquisition. The Moy Park operations constitutes our U.K. and Europe segment.increasing operational efficiency.
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. Accordingly, for the period from September 30, 2015 through September 7, 2017, the Condensed 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 Condensed 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 JFC LLC and its subsidiaries (together, “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 three plants and currently has approximately 1,700 employees. See “Note 2. Business Acquisition” of our Condensed Consolidated and Combined Financial Statements included in this quarterly report for additional information relating to this acquisition. GNP operations are included in our U.S. segment.
Segment and Geographic ReportingReportable Segments
We operate in three reportable segments: U.S., U.K.Europe (formerly known as “U.K. and Europe,Europe”), and Mexico. We measure segment profit as operating income. CorporateCertain corporate expenses are allocated to the Mexico 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 geographic reporting purposes, we include Puerto Rico withinadditional information, see “Note 18. Reportable Segments” of our U.S. segment and combine the U.K., France, the Netherlands, and Ireland operations into our U.K. and Europe segment.Condensed Consolidated Financial Statements included in this quarterly report.
Results of Operations
Thirteen WeeksThree Months Ended September 24, 2017March 31, 2024 Compared to Thirteen Weeksthe Three Months Ended September 25, 2016March 26, 2023
Net sales. Net sales generated in the thirteen weeksthree months ended September 24, 2017March 31, 2024 increased $298.6$196.3 million, or 12.0%4.7%, from net sales generated in the thirteen weeksthree months ended September 25, 2016.March 26, 2023. The following table provides net sales information:
| | | | | | | | | | | | | | | | | | | | | |
Sources of net sales | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
U.S. | | $ | 2,579,332 | | | $ | 146,764 | | | 6.0 | % | |
Europe | | 1,267,903 | | | 28,639 | | | 2.3 | % | |
Mexico | | 514,699 | | | 20,903 | | | 4.2 | % | |
Total net sales | | $ | 4,361,934 | | | $ | 196,306 | | | 4.7 | % | |
|
| | | | | | | | | | | | |
Sources of net sales | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 1,938,542 |
| | $ | 213,917 |
| | 12.4 | % | (a) |
U.K. and Europe | | 514,325 |
| | 50,765 |
| | 11.0 | % | (b) |
Mexico | | 341,018 |
| | 33,922 |
| | 11.0 | % | (c) |
Total net sales | | 2,793,885 |
| | 298,604 |
| | 12.0 | % | |
| |
(a) | U.S. net sales generated in the thirteen weeks ended September 24, 2017 increased $213.9 million, or 12.4%, from U.S. net sales generated in the thirteen weeks ended September 25, 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 operations. The impact of the acquired business contributed $108.6 million, or 6.3 percentage points, to the increase in net sales. The net sales per pound increase experienced by our existing U.S. segment contributed $199.7 million, or 11.5 percentage points, to the increase in net sales. A decrease in sales volume experienced by our existing U.S. segment partially offset the effect that the acquired business and the increase in net sales per pound had on U.S. net sales by $94.4 million, or 5.5 percentage points. Lower sales volume resulted primarily from decreased exported chicken products resulting from shipping delays at Southeastern U.S. ports following the recent hurricanes. Included in U.S. net sales generated during the thirteen weeks ended September 24, 2017 and September 25, 2016 were net sales to JBS USA Food Company totaling $11.5 million and $4.8 million, respectively. |
| |
(b) | U.K. and Europe net sales generated in the thirteen weeks ended September 24, 2017 increased $50.8 million, or 11.0%, from U.K. and Europe net sales generated in the thirteen weeks ended September 25, 2016 primarily because of an increase in sales volume. Increased sales volume resulted in an increase in net sales by $66.3 million, or 14.3 percentage points. The increase in net sales from increased sales volume was partially offset by the |
U.S. Reportable Segment. U.S. net sales generated in the three months ended March 31, 2024 increased $146.8 million, or 6.0%, from U.S. net sales generated in the three months ended March 26, 2023 primarily due to an increase in net sales per pound of $102.3 million, or 4.2 percentage points, and an increase in sales volume of $44.5 million, or 1.8 percentage points. The increase in net sales per pound was driven primarily by favorable market pricing conditions. The first quarter average commodity chicken market prices were above both prior year and the historical five-year average.
negativeEurope Reportable Segment.Europe net sales generated in the three months ended March 31, 2024 increased $28.6 million, or 2.3%, from Europe net sales generated in the three months ended March 26, 2023 primarily due to a favorable impact of foreign currency translation of $55.6 million, or 4.5 percentage points, and an increase in sales volume of $10.5 million, or 0.8 percentage points, partially offset by a decrease in net sales per pound of $2.1$37.5 million, or 0.53.0 percentage points. The decrease in net sales per pound was driven by mechanisms for cost recovery from feed ingredients, labor, utilities and other operating costs leading to a decrease in sales prices.
Mexico Reportable Segment. Mexico net sales generated in the three months ended March 31, 2024 increased $20.9 million, or 4.2%, from Mexico net sales generated in the three months ended March 26, 2023 primarily due to an increase from the impact of foreign currency remeasurement of $48.7 million, or 9.9 percentage points, and $13.4an increase in sales volume of $16.0 million, or 2.93.2 percentage points, respectively.partially offset by a decrease in net sales per pound of $43.8 million, or 8.9 percentage points. The increase in sales volume was due to a shift in product mix related to market demands, primarily due to increases in live chicken volume and imports volume. The decrease in net sales per pound resulted from a decrease in commodity prices.
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(c) | Mexico net sales generated in the thirteen weeks ended September 24, 2017 increased $33.9 million, or 11.0%, from Mexico net sales generated in the thirteen weeks ended September 25, 2016 primarily because of the increase in net sales per pound and the positive impact of foreign currency remeasurement. Increased net sales per pound, which resulted primarily from higher market prices, and impact of foreign currency remeasurement resulted in an increase in net sales by $15.0 million, or 4.9 percentage points, and $16.5 million, or 5.4 percentage points, respectively. An increase in sales volume also contributed to the increase in net sales by $2.4 million, or 0.8 percentage points. |
Gross profit.profit and cost of sales. Gross profit increased by $225.5$210.9 million, or 89.1%121.9%, from $253.1$173.0 million generated in the thirteen weeksthree months ended September 25, 2016March 26, 2023 to $478.6$383.9 million generated in the thirteen weeksthree months ended September 24, 2017.March 31, 2024. The following tables provide information regarding gross profit and cost of sales information:
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Components of gross profit | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | | Percent of Net Sales | |
| | Three Months Ended | |
| Amount | | Percent | | March 31, 2024 | | March 26, 2023 | |
| | (In thousands, except percent data) | |
Net sales | | $ | 4,361,934 | | | $ | 196,306 | | | 4.7 | % | | 100.0 | % | | 100.0 | % | |
Cost of sales | | 3,978,025 | | | (14,556) | | | (0.4) | % | | 91.2 | % | | 95.8 | % | |
Gross profit | | $ | 383,909 | | | $ | 210,862 | | | 121.9 | % | | 8.8 | % | | 4.2 | % | |
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Sources of gross profit | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
U.S. | | $ | 237,292 | | | $ | 198,963 | | | 519.1 | % | |
Europe | | 92,165 | | | 7,972 | | | 9.5 | % | |
Mexico | | 54,452 | | | 3,940 | | | 7.8 | % | |
Elimination | | — | | | (13) | | | (100.0) | % | |
Total gross profit | | $ | 383,909 | | | $ | 210,862 | | | 121.9 | % | |
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Components of gross profit | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | | Percent of Net Sales | |
| | Thirteen Weeks Ended | |
| Amount | | Percent | | September 24, 2017 | | September 25, 2016 | |
| | In thousands, except percent data | |
Net sales | | $ | 2,793,885 |
| | $ | 298,604 |
| | 12.0 | % | | 100.0 | % | | 100.0 | % | |
Cost of sales | | 2,315,301 |
| | 73,080 |
| | 3.3 | % | | 82.9 | % | | 89.9 | % | (a)(b)(c) |
Gross profit | | $ | 478,584 |
| | $ | 225,524 |
| | 89.1 | % | | 17.1 | % | | 10.1 | % | |
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Sources of cost of sales | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
U.S. | | $ | 2,342,040 | | | $ | (52,199) | | | (2.2) | % | |
Europe | | 1,175,738 | | | 20,667 | | | 1.8 | % | |
Mexico | | 460,247 | | | 16,963 | | | 3.8 | % | |
Elimination | | — | | | 13 | | | (100.0) | % | |
Total cost of sales | | $ | 3,978,025 | | | $ | (14,556) | | | (0.4) | % | |
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U.S. Reportable Segment. Cost of sales incurred by our U.S. operations during the three months ended March 31, 2024 decreased $52.2 million, or 2.2%, from cost of sales incurred by our U.S. segment during the three months ended March 26, 2023. The decrease in cost of sales was primarily driven by a decrease in cost per pound sold of $96.0 million, or 4.0 percentage points, partially offset by an increase in sales volume of $43.8 million, or 1.8 percentage points. The decrease in cost per pound sold was driven by a decrease in live operations costs of $122.8 million, which resulted primarily from decreased feed ingredient costs. Prices for both corn and soy, our main ingredients in feed, were down versus prior year. The decrease in live operations costs within cost per pound sold was partially offset by an increase in cost of sales related to the prior year one-time recognition of business interruption insurance income of $25.9 million. |
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Sources of gross profit | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 377,209 |
| | $ | 197,873 |
| | 110.3 | % | (a) |
U.K. and Europe | | 46,951 |
| | 3,981 |
| | 9.3 | % | (b) |
Mexico | | 54,401 |
| | 23,671 |
| | 77.0 | % | (c) |
Elimination | | 23 |
| | (1 | ) | | (4.2 | )% | |
Total gross profit | | $ | 478,584 |
| | $ | 225,524 |
| | 89.1 | % | |
Europe Reportable Segment. Cost of sales incurred by our Europe operations during the three months ended March 31, 2024 increased $20.7 million, or 1.8%, from cost of sales incurred by our Europe segment during the three months ended March 26, 2023. The increase in cost of sales was primarily driven by the unfavorable impact of foreign currency translation of $51.6 million, or 4.5 percentage points, and an increase in sales volume of $9.6 million, or 0.8 percentage points, partially offset by a decrease in cost per pound sold of $40.3 million, or 3.5 percentage points. The decrease in cost per pound sold was driven by cost recovery from feed ingredients, labor, utilities and other operating costs and was partially offset by an increase related to the prior year one-time recognition of business interruption insurance income.Mexico Reportable Segment. Cost of sales incurred by our Mexico operations during the three months ended March 31, 2024 increased $17.0 million, or 3.8%, from cost of sales incurred by our Mexico segment during the three months ended March 26, 2023. This increase was driven by an unfavorable impact of foreign currency remeasurement and an increase in volume of $43.6 million, or 9.8 percentage points, and $14.4 million, or 3.2 percentage points, respectively. These increases in cost of sales were partially offset by a decrease in cost per pound sold of $41.0 million, or 9.2 percentage points. The increase in sales volume was due to a shift in product mix related to market demands, primarily due to increases in live chicken volume and imports volume. The decrease in cost per pound sold resulted primarily from a decrease in commodity prices. |
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Sources of cost of sales | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 1,561,333 |
| | $ | 16,044 |
| | 1.0 | % | (a) |
U.K. and Europe | | 467,374 |
| | 46,784 |
| | 11.1 | % | (b) |
Mexico | | 286,617 |
| | 10,251 |
| | 3.7 | % | (c) |
Elimination | | (23 | ) | | 1 |
| | (4.2 | )% | |
Total cost of sales | | $ | 2,315,301 |
| | $ | 73,080 |
| | 3.3 | % | |
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(a) | Cost of sales incurred by our U.S. segment during the thirteen weeks ended September 24, 2017 increased $16.0 million, or 1.0%, from cost of sales incurred by our U.S. segment during the thirteen weeks ended September 25, 2016. Cost of sales increased primarily because of costs incurred by the acquired GNP operations. Cost of sales incurred by the acquired GNP operations contributed $89.1 million, or 5.8 percentage points, to the increase in U.S. cost of sales. An decrease in cost of sales incurred by our existing U.S. segment partially offset the impact that the GNP operations had on cost of sales by $72.9 million, or 4.7 percentage points. Cost of sales incurred by our existing U.S. segment decreased primarily because of a $63.7 million decrease in feed costs, a $23.9 million net increase in derivative gains, a $4.2 million decrease in repair and maintenance costs, partially offset by a $22.4 million increase in compensation costs and $1.9 million in damages to our Puerto Rico assets resulting from Hurricane Maria. |
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(b) | Cost of sales incurred by our U.K. and Europe segment during the thirteen weeks ended September 24, 2017 increased $46.8 million, or 11.1%, from cost of sales incurred by our U.K. and Europe segment during the thirteen weeks ended September 25, 2016. U.K. and Europe cost of sales increased primarily because of a $37.8 million increase in raw material costs, a $4.2 million increase in labor costs, and a $2.4 million increase in freight costs.
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(c) | Cost of sales incurred by our Mexico segment during the thirteen weeks ended September 24, 2017 increased $10.3 million, or 3.7%, from cost of sales incurred by our Mexico segment during the thirteen weeks ended September 25, 2016. Mexico cost of sales increased primarily because of a $14.6 million increase in contracted grower pay, partially offset by a $1.4 million decrease in catching costs, a $1.1 million decrease in depreciation expense on machinery and equipment, a $1.2 increase in other income, and a $0.6 million decrease in travel and entertainment costs.
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Operating income.income and SG&A expense.Operating income increased by $195.4$218.9 million, or 110.5%698.5%, from $176.8income of $31.3 million generated in the thirteen weeksthree months ended September 25, 2016March 26, 2023 to $372.2income of $250.3 million generated in the thirteen weeksthree months ended September 24, 2017.March 31, 2024. The following tables provide information regarding operating income and selling, general and administrative (“SG&A&A”) expense:
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Components of operating income | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | | Percent of Net Sales | |
Three Months Ended | |
Amount | | Percent | | March 31, 2024 | | March 26, 2023 | |
| | (In thousands, except percent data) | |
Gross profit | | $ | 383,909 | | | $ | 210,862 | | | 121.9 | % | | 8.8 | % | | 4.2 | % | |
SG&A expense | | 119,076 | | | (14,602) | | | (10.9) | % | | 2.7 | % | | 3.2 | % | |
Restructuring activities | | 14,559 | | | 6,533 | | | 81.4 | % | | 0.3 | % | | 0.2 | % | |
Operating income | | $ | 250,274 | | | $ | 218,931 | | | 698.5 | % | | 5.7 | % | | 0.8 | % | |
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Components of operating income | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | | Percent of Net Sales | |
Thirteen Weeks Ended | |
Amount | | Percent | | September 24, 2017 | | September 25, 2016 | |
| | (In thousands, except percent data) | |
Gross profit | | $ | 478,584 |
| | $ | 225,524 |
| | 89.1 | % | | 17.1 | % | | 10.1 | % | |
SG&A expense | | 102,191 |
| | 26,257 |
| | 34.6 | % | | 3.7 | % | | 3.0 | % | (a)(b)(c) |
Administrative restructuring charges | | 4,147 |
| | 3,869 |
| | 1,386.4 | % | | 0.1 | % | | — | % | (d)(e) |
Operating income | | $ | 372,246 |
| | $ | 195,398 |
| | 110.5 | % | | 13.3 | % | | 7.1 | % | |
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Sources of operating income | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
U.S. | | $ | 179,417 | | | $ | 207,523 | | | 738.4 | % | |
Europe | | 31,116 | | | 5,855 | | | 23.2 | % | |
Mexico | | 39,741 | | | 5,566 | | | 16.3 | % | |
Eliminations | | — | | | (13) | | | (100.0) | % | |
Total operating income | | $ | 250,274 | | | $ | 218,931 | | | 698.5 | % | |
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Sources of SG&A expense | | Three Months Ended March 31, 2024 | | Change from Three Months Ended March 26, 2023 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
U.S. | | $ | 57,875 | | | $ | (8,560) | | | (12.9) | % | |
Europe | | 46,490 | | | (4,416) | | | (8.7) | % | |
Mexico | | 14,711 | | | (1,626) | | | (10.0) | % | |
Total SG&A expense | | $ | 119,076 | | | $ | (14,602) | | | (10.9) | % | |
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U.S. Reportable Segment. SG&A expense incurred by our U.S. reportable segment during the three months ended March 31, 2024 decreased $8.6 million, or 12.9%, from SG&A expense incurred by our U.S. reportable segment during the three months ended March 26, 2023. The decrease in SG&A expense resulted primarily from lower legal settlements and legal defense costs. Other factors affecting U.S. SG&A expense were individually immaterial. |
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Sources of operating income | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 307,962 |
| | $ | 166,767 |
| | 118.1 | % | |
U.K. and Europe | | 18,569 |
| | 5,542 |
| | 42.5 | % | |
Mexico | | 45,692 |
| | 23,089 |
| | 102.2 | % | |
Elimination | | 23 |
| | — |
| | — | % | |
Total operating income | | $ | 372,246 |
| | $ | 195,398 |
| | 110.5 | % | |
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Sources of SG&A expense | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 66,793 |
| | $ | 28,930 |
| | 76.4 | % | (a) |
U.K. and Europe | | 26,689 |
| | (3,255 | ) | | (10.9 | )% | (b) |
Mexico | | 8,709 |
| | 582 |
| | 7.2 | % | (c) |
Total SG&A expense | | $ | 102,191 |
| | $ | 26,257 |
| | 34.6 | % | |
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Sources of administrative restructuring charges | | Thirteen Weeks Ended September 24, 2017 | | Change from Thirteen Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 2,454 |
| | $ | 2,176 |
| | 779.6 | % | (d) |
U.K. and Europe | | 1,693 |
| | 1,693 |
| | 100.0 | % | (e) |
Mexico | | — |
| | — |
| | — | % | |
Total administrative restructuring charges | | $ | 4,147 |
| | $ | 3,869 |
| | 1,386.4 | % | |
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(a) | SG&A expense incurred by our U.S. segment during the thirteen weeks ended September 24, 2017 increased $28.9 million, or 76.4%, from SG&A expense incurred by our U.S. segment during the thirteen weeks ended September 25, 2016, primarily because of expenses incurred by the acquired GNP operations and by increases in SG&A expenses incurred by our existing operations. Expenses incurred by the acquired GNP business contributed $7.3 million, or 19.2 percentage points, to the overall increase in SG&A expenses. Expenses incurred by our existing U.S. segment contributed $21.6 million, or 57.2 percentage points, to the overall increase in SG&A expenses. SG&A expense incurred by our existing U.S. segment increased primarily because of $14.0 million in transaction costs related to the Moy Park acquisition, a $2.1 million increase in wages and benefits, a $1.8 million increase in legal fees, a $1.0 million increase in charitable contributions, and a $1.0 million increase in depreciation expenses. Other factors affecting SG&A expense were individually immaterial. |
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(b) | SG&A expense incurred by our U.K. and Europe segment during the thirteen weeks ended September 24, 2017 decreased $3.3 million, or 10.9%, from SG&A expense incurred by our U.K. and Europe segment during the thirteen weeks ended September 25, 2016. SG&A expense incurred by our U.K. and Europe segment decreased primarily because of a $5.9 million decrease in management fees paid to JBS S.A., a $0.9 million increase in other selling expenses, a $0.6 million increase in personnel expenses and a $.6 million increase in amortization expense. Other factors affecting SG&A expense were individually immaterial.
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(c) | SG&A expense incurred by our Mexico segment during the thirteen weeks ended September 24, 2017 increased $0.6 million, or 7.2%, from SG&A expense incurred by our Mexico segment during the thirteen weeks ended September 25, 2016. SG&A expense incurred by our existing Mexico segment increased primarily because of a $0.9 million increase in employee relations, offset by a $0.2 million decrease in contracted security expenses. Other factors affecting SG&A expense were individually immaterial. |
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(d) | Administrative restructuring charges incurred by our U.S. segment during the thirteen weeks ended September 24, 2017 included $2.5 million in severance costs related to the GNP acquisition. |
Europe Reportable Segment. SG&A expense incurred by our Europe reportable segment during the three months ended March 31, 2024 decreased $4.4 million, or 8.7%, from SG&A expense incurred by our Europe segment during the three months ended March 26, 2023. The decrease in SG&A expense was primarily due to a decrease in salaries expense related to the Pilgrim's Europe central restructuring initiative. Other factors affecting Europe SG&A expense were individually immaterial.
43Mexico Reportable Segment. SG&A expense incurred by our Mexico reportable segment during the three months ended March 31, 2024 decreased approximately $1.6 million, or 10.0%, from SG&A expense incurred by our Mexico segment during the three months ended March 26, 2023. The primary driver of the decrease in SG&A expense was a decrease in marketing spend and labor costs. Other factors affecting Mexico SG&A expense were individually immaterial.
Restructuring activities. Losses on restructuring activities of $14.6 million were recognized in the three months ended March 31, 2024. These losses were incurred by our Europe reportable segment as a result of the beginning phases of the Pilgrim's Europe integration plan.
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(e) | Administrative restructuring charges incurred by the U.K. and Europe segment during the thirteen weeks ended September 24, 2017 included a $1.7 million impairment of property in Dublin, Ireland. |
Net interest expense. Net interest expense increased 19.3%decreased to $22.5$30.9 million recognized in the thirteen weeksthree months ended September 24, 2017March 31, 2024 from $18.9$39.1 million recognized in the thirteen weeksthree months ended September 25, 2016 primarily because of an increaseMarch 26, 2023. The decrease in average borrowings compared to the same period in the prior year. Average borrowings increased from $1.5 billion in the thirteen weeks ended September 25, 2016 to $1.9 billion in the thirteen weeks ended September 24, 2017 due to increased borrowings necessary to fund the GNP acquisition. The weighted averagenet interest rate increased from 4.4% in the thirteen weeks ended September 25, 2016 to 4.5% in the thirteen weeks ended September 24, 2017.
Income taxes. Income tax expense increased to $113.4 million, a 32.2% effective tax rate, for the thirteen weeks ended September 24, 2017 compared to income tax expense of $53.8 million, a 34.5% effective tax rate, for the thirteen weeks ended September 25, 2016. The increase in income tax expense in 2017 resulted primarily from an increase in pre-tax income.
Thirty-Nine Weeks Ended September 24, 2017 Compared to Thirty-Nine Ended September 25, 2016
Net sales. Net sales generatedinterest income earned from investments in the thirty-nine weeks ended September 24, 2017 increased $517.8 million, or 6.9%, from net sales generated in the thirty-nine weeks ended September 25, 2016. The following table provides net sales information:
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Sources of net sales | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 5,557,089 |
| | $ | 484,737 |
| | 9.6 | % | (a) |
U.K. and Europe | | 1,473,854 |
| | (10,854 | ) | | (0.7 | )% | (b) |
Mexico | | 994,568 |
| | 43,946 |
| | 4.6 | % | (c) |
Total net sales | | $ | 8,025,511 |
| | $ | 517,829 |
| | 6.9 | % | |
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(a) | U.S. net sales generated in the thirty-nine weeks ended September 24, 2017 increased $484.7 million, or 9.6%, from U.S. net sales generated in the thirty-nine weeks ended September 25, 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 operations. The impact of the acquired business contributed $322.4 million, or 6.4 percentage points, to the increase in net sales. The net sales per pound increase experienced by our existing U.S. segment contributed $332.0 million, or 6.5 percentage points, to the increase in net sales. Aavailable-for-sale securities, and a decrease in sales volume experienced by our existing U.S. segment partially offset the effect that the acquired business and the increase in net sales per pound had on U.S. net sales by $169.6 million, or 3.3 percentage points. Decreased sales volume resulted primarily from lower demand for exported chicken products and domestic prepared foods products. Included in U.S. net sales generated during the thirty-nine weeks ended September 24, 2017 and September 25, 2016 were net sales to JBS USA Food Company totaling $37.4 million and $12.2 million, respectively. |
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(b) | U.K. and Europe net sales generated in the thirty-nine weeks ended September 24, 2017 decreased $10.9 million, or 0.7%, from U.K. and Europe net sales generated in the thirty-nine weeks ended September 25, 2016 primarily because of the negative impact of foreign currency translation and increased sales volume. The negative impact of foreign currency translation contributed to the decrease in net sales by $135.3 million, or 9.1 percentage points. The negative impacts of foreign currency translation were offset by increased sales volume and net sales per pound by $51.7 million, or 3.5 percentage points, and $72.7 million, or 4.9 percentage points, respectively. |
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(c) | Mexico net sales generated in the thirty-nine weeks ended September 24, 2017 increased $43.9 million, or 4.6%, from Mexico net sales generated in the thirty-nine weeks ended September 25, 2016 primarily because of the increase in net sales per pound and increased sales volume. Higher net sales per pound, which resulted primarily from higher market prices, and increased sales volume resulted in increases in net sales of $68.3 million, or 7.2 percentage points, and $14.0 million, or 1.5 percentage points, respectively. The negative impact of foreign currency remeasurement partially offset the increase in net sales by $38.3 million, or 4.0 percentage points. Other factors affecting the decrease in Mexico net sales were immaterial. |
Gross profit. Gross profit increased by $334.7 million, or 38.2%, from $875.1 million generated in the thirty-nine weeks ended September 25, 2016 to $1,209.8 million generated in the thirty-nine weeks ended September 24, 2017. The following tables provide information regarding gross profit and cost of sales information:
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Components of gross profit | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | | Percent of Net Sales | |
| | Thirty-Nine Weeks Ended | |
| Amount | | Percent | | September 24, 2017 | | September 25, 2016 | |
| | In thousands, except percent data | |
Net sales | | $ | 8,025,511 |
| | $ | 517,829 |
| | 6.9 | % | | 100.0 | % | | 100.0 | % | |
Cost of sales | | 6,815,701 |
| | 183,133 |
| | 2.8 | % | | 84.9 | % | | 88.3 | % | (a)(b) |
Gross profit | | $ | 1,209,810 |
| | $ | 334,696 |
| | 38.2 | % | | 15.1 | % | | 11.7 | % | |
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Sources of gross profit | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 900,262 |
| | $ | 298,560 |
| | 49.6 | % | (a) |
U.K. and Europe | | 137,734 |
| | (3,732 | ) | | (2.6 | )% | (b) |
Mexico | | 171,745 |
| | 39,871 |
| | 30.2 | % | (c) |
Elimination | | 69 |
| | (1 | ) | | (1.4 | )% | |
Total gross profit | | $ | 1,209,810 |
| | $ | 334,696 |
| | 38.2 | % | |
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Sources of cost of sales | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 4,656,825 |
| | $ | 186,177 |
| | 4.2 | % | (a) |
U.K. and Europe | | 1,336,123 |
| | (7,120 | ) | | (0.5 | )% | (b) |
Mexico | | 822,822 |
| | 4,073 |
| | 0.5 | % | (c) |
Elimination | | (69 | ) | | 2 |
| | (2.8 | )% | |
Total cost of sales | | $ | 6,815,701 |
| | $ | 183,133 |
| | 2.8 | % | |
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(a) | Cost of sales incurred by our U.S. segment during the thirty-nine weeks ended September 24, 2017 increased $186.2 million, or 4.2%, from cost of sales incurred by our U.S. segment during the thirty-nine weeks ended September 25, 2016. Cost of sales increased primarily because of costs incurred by the acquired GNP operations. Cost of sales incurred by the acquired GNP operations contributed $267.3 million, or 6.0 percentage points, to the increase in U.S. cost of sales. A decrease in cost of sales incurred by our existing U.S. segment partially offset the impact that the acquired business had on cost of sales by $80.9 million, or 1.8 percentage points. Cost of sales incurred by our existing operations decreased primarily because of a $103.1 million decrease in feed costs, an $18.4 million net increase in derivative gains, a $7.3 million decrease in scrapped materials, partially offset by a $49.5 million increase in compensation and benefit costs and $1.9 million in damages to our Puerto Rico assets resulting from Hurricane Maria. |
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(b) | Cost of sales incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 24, 2017 decreased $7.1 million, or 0.5%, from cost of sales incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 25, 2016. The decrease in cost of sales was due to a $23.9 million increase in cost of raw materials, offset by a $16.3 million decrease in labor costs, a $12.5 million decrease in other cost of sales, and a $3.4 million decrease in bird amortization costs.
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(c) | Cost of sales incurred by our Mexico segment during the thirty-nine weeks ended September 24, 2017 increased $4.1 million, or 0.5%, from cost of sales incurred by our Mexico segment during the thirty-nine weeks ended September 25, 2016. The increase in cost of sales was primarily due to a $29.4 million increase in grower pay and a $6.0 million increase in utility costs that were partially offset by the $27.6 million impact of inventory valuation adjustments resulting from currency rate movement and a $3.8 million decrease in catching costs.
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Operating income. Operating income increased by $272.3 million, or 42.2%, from $645.0 million generated in the thirty-nine weeks ended September 25, 2016 to $917.3 million generated in the thirty-nine weeks ended September 24, 2017. The following tables provide information regarding operating income and SG&A expense:
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| | | | | | | | | | | | | | | | | | |
Components of operating income | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | | Percent of Net Sales | |
Thirty-Nine Weeks Ended | |
Amount | | Percent | | September 24, 2017 | | September 25, 2016 | |
| | (In thousands, except percent data) | |
Gross profit | | $ | 1,209,810 |
| | $ | 334,696 |
| | 38.2 | % | | 15.1 | % | | 11.7 | % | |
SG&A expense | | 284,009 |
| | 54,223 |
| | 23.6 | % | | 3.5 | % | | 3.1 | % | (a)(b)(c) |
Administrative restructuring charges | | 8,496 |
| | 8,217 |
| | 2,945.2 | % | | 0.1 | % | | — | % | (d)(e) |
Operating income | | $ | 917,305 |
| | $ | 272,256 |
| | 42.2 | % | | 11.5 | % | | 8.6 | % | |
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| | | | | | | | | | | | |
Sources of operating income | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 719,121 |
| | $ | 238,841 |
| | 49.7 | % | |
U.K. and Europe | | 51,874 |
| | (3,967 | ) | | (7.1 | )% | |
Mexico | | 146,241 |
| | 37,385 |
| | 34.3 | % | |
Elimination | | 69 |
| | (3 | ) | | (2.8 | )% | |
Total operating income | | $ | 917,305 |
| | $ | 272,256 |
| | 42.2 | % | |
| | | | | | | |
| | | | | | | |
Sources of SG&A expense | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 174,340 |
| | $ | 53,196 |
| | 43.9 | % | (a) |
U.K. and Europe | | 84,165 |
| | (1,460 | ) | | (1.7 | )% | (b) |
Mexico | | 25,504 |
| | 2,487 |
| | 10.8 | % | (c) |
Total SG&A expense | | $ | 284,009 |
| | $ | 54,223 |
| | 23.6 | % | |
| | | | | | | |
Sources of administrative restructuring charges | | Thirty-Nine Weeks Ended September 24, 2017 | | Change from Thirty-Nine Weeks Ended September 25, 2016 | |
Amount | | Percent | |
| | (In thousands, except percent data) | |
United States | | $ | 6,803 |
| | $ | 6,524 |
| | 2,338.4 | % | (d) |
U.K. and Europe | | 1,693 |
| | 1,693 |
| | — | % | (e) |
Mexico | | — |
| | — |
| | — | % | |
Total administrative restructuring charges | | $ | 8,496 |
| | $ | 8,217 |
| | 2,945.2 | % | |
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(a) | SG&A expense incurred by our U.S. segment during the thirty-nine weeks ended September 24, 2017 increased $53.2 million, or 43.9%, from SG&A expense incurred by our U.S. segment during the thirty-nine weeks ended September 25, 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. segment. Expenses incurred by the acquired GNP business contributed $27.4 million, or 22.6 percentage points, to the overall increase in SG&A expenses. Expenses incurred by our existing U.S. segment contributed $25.8 million, or 21.3 percentage points, to the overall increase in SG&A expenses. SG&A expenses incurred by our existing U.S. segment increased primarily because of $14.0 million in transaction costs related to the Moy Park acquisition, a $4.8 million increase in allocated costs charged for administrative functions shared with JBS USA Food Company, a $2.8 million increase in legal fees and a $2.1 million increase in advertising and promotion expenses. Other factors affecting SG&A expense were individually immaterial. |
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(b) | SG&A expense incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 24, 2017 decreased $1.5 million, or 1.7%, from SG&A expense incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 25, 2016 primarily because of a $2.3 million decrease in advertising expenses and a $2.2 million decrease in management fees paid to JBS S.A. that were partially offset by a $1.2 million increase in amortization expenses and a $1.3 million increase in miscellaneous income from sale of assets. |
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(c) | SG&A expense incurred by our Mexico segment during the thirty-nine weeks ended September 24, 2017 increased $2.5 million, or 10.8%, from SG&A expense incurred by our Mexico segment during the thirty-nine weeks ended September 25, 2016 because of a $1.9 million increase in employee relations expenses and a $1.4 million increase advertising and promotion expenses that were partially offset by a $0.8 million decrease in contract service expenses. Other factors affecting SG&A expense were individually immaterial. |
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(d) | Administrative restructuring charges incurred by the U.S. segment during the thirty-nine weeks ended September 24, 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 acquisition and the elimination of prepaid costs totaling $0.7 million related to obsolete software assumed in the GNP acquisition, |
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(e) | Administrative restructuring charges incurred by the U.K. and Europe segment during the thirty-nine weeks ended September 24, 2017 included a $1.7 million impairment of property in Dublin, Ireland. |
Net interest expense. Net interest expense increased 11.1% to $62.8 million recognized in the thirty-nine weeks ended September 24, 2017 from $56.5 million million recognized in the thirty-nine weeks ended September 25, 2016 primarily because of an increase in average borrowings compared to the same period in the prior year. Average borrowings increased from $1.5 billion in the thirty-nine weeks ended September 25, 2016 to $1.8 billion in the thirty-nine weeks ended September 24, 2017 due to increased borrowings necessary to fund the GNP acquisition. The weighted average interest rate increased from 4.4% in the thirty-nine weeks ended September 25, 2016 to 4.5% in the thirty-nine weeks ended September 24, 2017.
Income taxes. Income tax expense increased to $278.0$52.1 million, a 32.2%22.9% effective tax rate, for the thirty-nine weeksthree months ended September 24, 2017March 31, 2024 compared to an income tax expensebenefit of $203.0$8.8 million, a 34.0%275.5% effective tax rate, for the thirty-nine
weeksthree months ended September 25, 2016.March 26, 2023. The increase inchange from an income tax benefit to an income tax expense in 20172024 resulted primarily from anthe increase in pre-tax income.profit before income taxes.
Liquidity and Capital Resources
The following table presents our available sources of liquidity as of September 24, 2017:March 31, 2024:
| | | | | | | | | | | | | | | | | | | | |
Sources of Liquidity | | Facility Amount | | Amount Outstanding | | Amount Available |
| | (In millions) |
Cash and cash equivalents | | | | | | $ | 870.8 | |
Borrowing arrangements: | | | | | | |
U.S. Credit Facility(a) | | $ | 850.0 | | | $ | — | | | 825.2 | |
Mexico Credit Facility(b) | | 67.0 | | | — | | | 67.0 | |
Europe Credit Facility(c) | | 189.3 | | | — | | | 189.3 | |
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| | | | | | | | | | | | | |
Source of Liquidity | | Facility Amount | | Amount Outstanding | | Amount Available | |
| | (In millions) | |
Cash and cash equivalents | | | | | | $ | 401.8 |
| |
Borrowing arrangements: | | | | | | | |
U.S. Credit Facility | | $ | 750.0 |
| | $ | 73.3 |
| | 631.9 |
| (a) |
Mexico Credit Facility(b) | | 84.5 |
| | 84.5 |
| | — |
| (b) |
U.K. and Europe Credit Facilities(c) | | 122.8 |
| | 13.9 |
| | 108.9 |
| |
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(a) | (a)Availability under the U.S. Credit Facility (as described below) is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at September 24, 2017 totaled $44.8 million. |
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(b) | As of September 24, 2017, the U.S. dollar-equivalent of the amount available under the Mexico Credit Facility (as described below) was $5,636. The Mexico Credit Facility provides for a loan commitment of $1.5 billion Mexican pesos. |
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(c) | As of September 24, 2017, the U.S. dollar-equivalent of the amount available under the U.K. and Europe Credit Facilities (as described below) was $108.9 million. The U.K. and Europe Credit Facilities provide for loan commitments of £45.0 million (or $60.1 million U.S. dollar equivalent), £20.0 million (or $26.8 million U.S. dollar equivalent) and €30.0 million (or $35.7 million U.S. dollar equivalent). |
Long-Term Debt and Other Borrowing Arrangements
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 due 2025 to repay $350.0 million and $150.0 million of the term loan indebtedness under the U.S. Credit Facility (defined below) on March 12, 2015 and April 22, 2015, respectively. On September 29, 2017, the Company completed an add-on offeringis also reduced by our outstanding standby letters of $250.0 million of the Senior Notes due 2025 (the “Additional Senior Notes due 2025”). 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 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 (defined below) issued as part of the Moy Park acquisition. 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 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 September 24, 2017, the company had Term Loans outstanding totaling $790.0 million and the amount available for borrowing under the revolving loan commitment was $631.9 million. The Company hadcredit. Standby letters of credit of $44.8 million and borrowings of $73.3 million outstanding under the revolving loan commitment as of September 24, 2017.at March 31, 2024 totaled $24.8 million.
(b)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 September 24, 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 September 24, 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 certaindollar-equivalent 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 commitmentfacility amount under the Mexico Credit Facility was $1.5 billion Mexican pesos. Outstanding borrowingsis $67.0 million (Mex$1.1 billion).
(c)The U.S. dollar-equivalent of the facility amount under the Mexico Credit Facility accrued interest at a rate equal to the Interbank Equilibrium Interest Rate plus 0.95%. The MexicoEurope Credit Facility is scheduled to mature on September 27, 2019. As of September 24, 2017, the U.S. dollar-equivalent loan commitment under the Mexico Credit Facility was $84.5$189.3 million and there were $84.5 million outstanding borrowings under the Mexico Credit Facility that bear interest at a per annum rate of 8.33%(£150 million). As of September 24, 2017, the U.S. dollar-equivalent borrowing availability was less than $0.1 million.
U.K. and Europe Credit Facilities
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 19, 2018. The agreement provides for a multicurrency revolving loan commitment of up to £20.0 million. As of September 24, 2017, the U.S. dollar-equivalent loan commitment under Moy Park multicurrency revolving facility was $26.8 million and there were $10.0 million outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus a margin determined by Company’s Net Debt to EBITDA ratio. The current margin stands at 2.5%. As of September 24, 2017, the U.S. dollar-equivalent borrowing availability was $16.8 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 September 24, 2017, the U.S. dollar-equivalent loan commitment under the Receivables Finance Agreement was $60.3 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 $20.1 million as of September 24, 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 September 24, 2017, the U.S. dollar-equivalent loan commitment under the Invoice Discounting Facility was $35.7 million and there were $3.9 million outstanding borrowings. As of September 24, 2017, the U.S. dollar-equivalent borrowing availability was $31.8 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.
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 $11.0 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 partyexpect cash flows from operations, combined with availability under our credit facilities, to many routine contracts in which we provide general indemnities insufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least 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.next twelve months.
Historical Flow of Funds
Cash | | | | | | | | | | | | | | |
Cash Flows from Operating Activities | | Three Months Ended |
| | March 31, 2024 | | March 26, 2023 |
| | (In millions) |
Net income | | $ | 174.9 | | | $ | 5.6 | |
Net noncash expenses | | 127.3 | | | 65.4 | |
Changes in operating assets and liabilities: | | | | |
Trade accounts and other receivables | | 72.4 | | | (132.8) | |
Inventories | | 114.5 | | | (30.3) | |
Prepaid expenses and other current assets | | (27.6) | | | (20.3) | |
Accounts payable, accrued expenses and other current liabilities | | (212.8) | | | (43.6) | |
Income taxes | | 35.8 | | | 3.2 | |
Long-term pension and other postretirement obligations | | (1.3) | | | 1.0 | |
Other operating assets and liabilities | | (12.2) | | | (9.9) | |
Cash provided by operating activities | | $ | 271.0 | | | $ | (161.7) | |
Net Noncash Expenses
Items necessary to reconcile from net income to cash flow provided by operating activities was $618.5 million and $552.0included net noncash expenses of $127.3 million for the thirty-nine weeksthree months ended September 24, 2017March 31, 2024. Net noncash expense items included depreciation and September 25, 2016, respectively. The increase inamortization of $103.4 million, deferred income tax expense of $15.5 million, stock-based compensation costs of $4.7 million, losses on property disposals of $1.8 million, loan cost amortization of $1.3 million, and accretion of discounts related to Senior Notes of $0.6 million. Other net noncash items were immaterial.
Items necessary to reconcile from net income to cash flowsflow provided by or used in operating activities was primarily a resultincluded net noncash expenses of increased net income for the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016 and an increase in net operating assets of $209.8$65.4 million for the thirty-nine weeksthree months ended September 24, 2017 as comparedMarch 26, 2023. Net noncash expense items included depreciation and amortization of $98.3 million, loan cost amortization of $1.3 million, stock-based compensation of $1.2 million and accretion of discounts related to an increase in net operating assetsSenior Notes of $15.1 million for the thirty-nine weeks ended September 25, 2016. The impact of net income and net operating assets movement on cash provided by operating activities was$0.4 million. These expense items were partially offset by increased net noncash expenses for the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016.a deferred income tax benefit of $26.3 million and gains on property disposals of $9.3 million.
TradeChanges in Operating Assets and Liabilities
The change in trade accounts and other receivables includingrepresented a $72.4 million source of cash related to operating activities for the three months ended March 31, 2024. This change primarily resulted from a decrease in trade accounts receivable and receivables from insurance recoveries. The change in trade accounts and other receivables represented a $132.8 million use of cash related parties,to operating activities for the three months ended March 26, 2023. This change primarily resulted from an increase in trade accounts receivable and receivables from insurance recoveries recognized in March 2023.
The change in inventories represented a $114.5 million source of cash related to operating activities for the three months ended March 31, 2024. This change resulted primarily from decreased raw materials and work-in-process and finished goods inventories primarily due to lower feed ingredient costs. The change in inventories represented a $30.3 million use of cash related to operating activities for the three months ended March 26, 2023. This change resulted primarily from increased $176.2raw material costs, such as feed ingredients, and increased finished goods inventories.
The change in prepaid expenses and other current assets represented a $27.6 million or 39.2%,use of cash related to $625.8 million at September 24, 2017 from $449.6 million at December 25, 2016. Theoperating activities for the three months ended March 31, 2024. This change resulted primarily from an increase in sales generatedprepaid indirect taxes in the two weeks ended September 24, 2017 as compared to sales generated in the two weeks ended December 25, 2016our Mexico and $67.6 million in increased receivables related to the GNP acquisition. Trade accounts and other receivables, including accounts receivable from related parties, increased $51.4 million, or 11.9%, to $482.9 million at September 25, 2016 from $431.5 million at December 27, 2015.Europe reportable segments. The change resulted primarily from a increase in sales generated in the two weeks ended September 25, 2016 as compared to sales generated in the two weeks ended December 27, 2015.
Inventories increased $220.6 million, or 22.6%, to $1,196.2 million at September 24, 2017 from $975.6 million at December 25, 2016. This change resulted primarily from an increase of $132.8 million for build up of freezer inventories, a $46.5 million increase in inventory related to the GNP acquisition and increased work-in-process inventories of $25.1 million. Inventories decreased $4.9 million, or 0.5%, to $968.4 million at September 25, 2016 from $973.3 million at December 27, 2015.
Prepaidprepaid expenses and other current assets increased $21.0represented a $20.3 million or 25.6%,use of cash related to $102.9 million at September 24, 2017 from $81.9 million at December 25, 2016. This increase resulted primarily from a $22.5 million net increase in value-added tax receivables. Prepaid expenses and other current assets decreased $5.6 million, or 5.2%, to $101.1 million at September 25, 2016 from $106.7 million at December 27, 2015.operating activities for the three months ended March 26, 2023. This change resulted primarily from a $6.1 million net decrease in value-added tax receivables and a $6.5 million decrease in prepaid workers compensation reserves, primarily offset by a $5.9 million increase in margin cash.VAT refund receivables.
Accounts payable, includingThe change in accounts payable, accrued expenses and other current liabilities represented a $212.8 million use of cash related to related parties, decreased $44.2 million, or 5.6%, to $750.6 million at September 24, 2017 from $794.8 million at December 25, 2016.operating activities for the three months ended March 31, 2024. This change resulted primarily from timing of payments to our suppliers and a $46.9 million decreasereduction in trade payables, partially offset by a $2.6 million increasegrain input costs. The change in the payable to related parties. Accounts payable, including accounts payable, revenue contract liabilities, accrued expenses and other current liabilities represented a $43.6 million use of cash related to related parties, increased $8.8 million, or 1.2%, to $755.2 million at September 25, 2016 from $746.4 million at December 27, 2015.operating activities for the three months ended March 26, 2023. This change resulted primarily from a $4.1million increasethe payment of bonuses accrued in trade payables and a $4.7 million increase2022.
The change in the payables to related parties.
Accrued expenses and other current liabilities increased $69.5 million, or 20.0%, to $416.5 million at September 24, 2017 from $347.0 million at December 25, 2016. This change resulted primarily from accrued expenses of $22.0 million related to the acquired GNP business, a $24.4 million increase in sales and marketing liabilities and a $20.5 million increase in contract services. Accrued expenses and other current liabilities decreased $17.4 million, or 4.7%, to $351.6 at September 25, 2016 from $369.0 million at December 27, 2015. This change resulted primarily from a $19.4 million decrease in incentive pay accruals.
Incomeincome taxes, which includes income taxes receivable, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions, and the tax components within accumulated other comprehensive loss, increased by $186.8 million, or 65.7%, torepresented a net liability position of $471.4 million at September 24, 2017 from a net liability position of $284.6 million at December 25, 2016. This change resulted primarily from tax expense recorded on our year-to-date income and the timing of estimated tax payments. Income taxes increased by $5.4 million, or 2.3%, to a net liability position of $239.1 million at September 25, 2016 from a net liability position of $233.6 million at December 27, 2015. This change resulted primarily from tax expense recorded on our year-to-date income and the timing of estimated tax payments.
Net noncash expenses totaled $244.0$35.8 million and $172.4$3.1 million source of cash for the thirty-nine weeksthree months ended September 24, 2017March 31, 2024 and September 25, 2016,March 26, 2023, respectively. Net noncash expenses
| | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | Three Months Ended |
| | March 31, 2024 | | March 26, 2023 |
| | (In millions) |
Acquisitions of property, plant and equipment | | $ | (108.4) | | | $ | (131.7) | |
Proceeds from property disposals | | 2.2 | | | 12.6 | |
Proceeds from property insurance recoveries | | — | | | 1.6 | |
Cash used in investing activities | | $ | (106.2) | | | $ | (117.5) | |
Capital expenditures were incurred for growth projects, such as the South Georgia protein conversion plant, and to improve operational efficiencies, system enhancement projects, and reduce costs for the thirty-nine weeksthree months ended September 24, 2017 included depreciation and amortization expense of $204.6 million, deferred income tax expense of $25.8 million and other net noncash expenses totaling $13.6 million. Net noncash expenses for the thirty-nine weeks ended September 25, 2016 included depreciation and amortization expense of $174.1 million, a net gain on property disposals of $7.3 million and other net noncash expenses totaling $5.6 million.March 31, 2024.
Cash used in investing activities was $914.3 million and $208.1 million for the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively. The increase was primarily attributable to funding of the GNP and Moy Park acquisitions and an increase in capital spending. Cash of $357.2 million and $301.3 million was used to acquire GNP and Moy Park, respectively, net of cash acquired, during the thirty-nine weeks ended September 24, 2017. Capital expenditures totaled $258.4 million and $221.0 million in the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively. Capital expenditures increased by $37.3 million primarily because of the number of projects that were active during the thirty-nine weeks ended weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016. Capital expenditures for 2017 cannot exceed $500.0 million under the U.S. Credit Facility. Cash proceedsthree months ended March 26, 2023 were primarily incurred to improve operational efficiencies and reduce costs and also included investments in the Athens, GA plant expansion, the South Georgia protein conversion plant and other automation projects. Proceeds from property disposals for the three months ended March 26, 2023 were primarily for the sale of a farm in Mexico. Proceeds from property insurance recoveries for the thirty-nine weeksthree months ended September 24, 2017March 26, 2023 reflects cash received on insurance claims related to the losses incurred from the Mayfield, Kentucky tornado that occurred in December 2021.
| | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | Three Months Ended |
| | March 31, 2024 | | March 26, 2023 |
| | (In millions) |
Proceeds (distribution) from Tax Sharing Agreement with JBS USA Holdings | | $ | 1.4 | | | $ | (1.6) | |
Payments on revolving line of credit, long-term borrowings and finance lease obligations | | (0.1) | | | (6.5) | |
Proceeds from revolving line of credit and long-term borrowings | | — | | | 35.0 | |
Cash provided by financing activities | | $ | 1.3 | | | $ | 26.9 | |
The proceeds from the Tax Sharing Agreement with JBS USA Holdings were a payment of net tax incurred during the tax year 2023. Payments on revolving line of credit, long-term borrowings and September 25, 2016 were $2.6 million and $13.0 million, respectively.
Cash provided by financing activities was $389.8 million and cash used in financing activities was $743.4 million in the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively. During the thirty-nine weeks ended September 24, 2017, cash of $609.7 million was used forfinance lease obligations are primarily related to payments on ourfinance lease obligations.
For the three months ended March 26, 2023, proceeds from revolving linesline of credit and capital lease obligations, cash of $14.6 million was used to purchase common stock underlong-term borrowings include the share repurchase program and cash of $4.6 million was used to pay capitalized loan costs. Duringborrowing on the thirty-nine weeks ended September 24, 2017, cash of $1.0 billion, including $272.0 million used to purchase GNP, was provided through our revolving lines of credit and cash of $5.0 million was provided from a tax sharing agreement with JBS USA Holdings. During the thirty-nine weeks ended September 25, 2016, cash of $715.7 million was used to fund a special cash dividend, cash of $504.1 million was used for payments on our revolving lines of credit and capital lease obligations, cash of $65.6 million was used for payments on a current note payable to bank, cash of $20.3 million was used to purchase common stock under the share repurchase program and cash of $0.7 million was used to pay capitalized loan costs. During the thirty-nine weeks ended September 24, 2017, cash of $515.3 million was provided through our revolving lines of credit and cash of $36.8 million was provided through a current note payable.
Contractual Obligations
Contractual obligations at September 24, 2017 were as follows:
|
| | | | | | | | | | | | | | | | | | | | |
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) | | $ | 2,618,378 |
| | $ | 809,734 |
| | $ | 164,987 |
| | $ | 1,143,657 |
| | $ | 500,000 |
|
Interest(c) | | 431,220 |
| | 83,945 |
| | 155,926 |
| | 119,474 |
| | 71,875 |
|
Capital leases | | 10,803 |
| | 5,780 |
| | 4,999 |
| | 24 |
| | — |
|
Operating leases | | 230,887 |
| | 50,444 |
| | 78,295 |
| | 51,915 |
| | 50,233 |
|
Derivative liabilities | | 4,169 |
| | 4,169 |
| | — |
| | — |
| | — |
|
Purchase obligations(d) | | 122,505 |
| | 122,505 |
| | — |
| | — |
| | — |
|
Total | | $ | 3,417,962 |
| | $ | 1,076,577 |
| | $ | 404,207 |
| | $ | 1,315,070 |
| | $ | 622,108 |
|
| |
(a) | The total amount of unrecognized tax benefits at September 24, 2017 was $15.9 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. Included in the long-term debt maturing in less than one year is the $753.8 million JBS S.A. Promissory Note, which was paid off on October 2, 2017 using the net proceeds from the sale of Senior Notes due 2027 on September 29, 2017 and the $250.0 million add-on to existing Senior Notes.
|
| |
(c) | Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings as of September 24, 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 availabilityrevolver under the U.S. Credit Facility to provide sufficient liquidity to fund currentof $35.0 million. Payments on revolving line of credit, long-term borrowings and finance lease obligations projected working capital requirements, maturitiesinclude a principal payment of long-term debt$6.3 million on the U.S. term loan and capital spending for at leastpayments of $0.2 million on finance leases. The Distribution from Tax Sharing Agreement with JBS USA Holdings is payment of net tax incurred during the next twelve months.tax year 2022 under the tax sharing agreement.
On September 29, 2017, the Company completed an offering of $250.0 million Additional Senior Notes due 2025 and a sale of $600.0 million aggregate principal amount of the Senior Notes due 2027. The Company used the net proceeds from the sale of the Additional Senior Notes due 2025 and the Senior Notes due 2027 to repay in full the JBS S.A. Promissory Note issued as part of the Moy Park acquisition. See “Note 11.
Long-Term Debt and Other Borrowing Arrangements”Arrangements
Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and other term loan agreements. For a description, refer to “Note 12. Debt.”
Obligor Group Summarized Financial Information
All of the senior unsecured registered notes (collectively, the “Pilgrim’s Senior Notes”) issued by Pilgrim’s Pride Corporation prior to March 31, 2024 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”). As of the date of this report, there have been no significant changes to our senior unsecured reigstered notes from those described in “Part II, Item 8. Financial Statements and Supplementary Data-Note 13. Debt” in our annual report on Form 10-K for additional information.the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024 (the “2023 Annual Report”).
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 combined basis after the elimination of all intercompany balances and transactions between Pilgrim’ Pride Corporation parent company only and the Subsidiary Guarantors and investments in any non-obligated subsidiary.
| | | | | | | | | | | |
Summarized Balance Sheets | March 31, 2024 | | December 31, 2023 |
| (In millions) |
Current assets | $ | 2,052 | | | $ | 2,106 | |
Current assets due from non-obligated subsidiaries(a) | 193 | | | 192 | |
Current assets due from related parties(b) | 2 | | | — | |
Noncurrent assets | 2,082 | | | 2,063 | |
Current liabilities | 1,254 | | | 1,384 | |
Current liabilities due to non-obligated subsidiaries(a) | 326 | | | 325 | |
Current liabilities due to related parties(b) | 6 | | | 32 | |
Noncurrent liabilities | 3,590 | | | 3,578 | |
(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 affiliates.
| | | | | |
Summarized Income Statements | Three Months Ended March 31, 2024 |
| (In millions) |
Net sales | $ | 2,596 | |
Gross profit(a) | 239 | |
Operating income | 183 | |
Net income | 106 | |
Net income attributable to Obligor Group | 106 | |
(a) For the three months ended March 31, 2024, the Obligor Group recognized $46.0 million of net sales to the non-obligated subsidiaries and no purchases from the non-obligated subsidiaries.
Pillar II Tax Initiative
Starting in 2024, Pillar II legislation has come into effect in various countries, impacting multinational companies operating in these jurisdictions. As of March 31, 2024, the Company continues to monitor the impacts of Pillar II and has yet to identify any material impacts to the Condensed Consolidated Financial Statements.
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.
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 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 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 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.
See “Note 1. Description of Business and BasisSummary of Presentation”Significant Accounting Policies” of our Condensed Consolidated and Combined Financial Statements included in this quarterly report for additional information relating to these newrecent accounting pronouncements.
Critical Accounting Policies and Estimates
As of the thirteen weeks ended September 24, 2017, (i) we did not change anydate of this report, there have been no significant changes to our existing critical accounting policies (ii) no existing accounting policies became critical accounting policiesand estimates from those described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our 2023 Annual Report.
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 gains, (2) costs related to litigation settlements, (3) restructuring activities losses, and (4) net income attributable to noncontrolling interests. 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 increaseanalysis 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 cash 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 materialityfuture, 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 associated transactionscash flows;
•EBITDA does not reflect the impact of earnings or changescharges 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.
In addition, other companies in the circumstancesour 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 which associated judgmentsnet 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 estimates relateusing EBITDA and (iii) there were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed.Adjusted EBITDA only on a supplemental basis.
| | | | | |
| Three Months Ended |
| March 31, 2024 |
| (In thousands) |
Net income | $ | 174,938 | |
Add: | |
Interest expense, net | 30,897 | |
Income tax expense | 52,062 | |
Depreciation and amortization | 103,350 | |
EBITDA | 361,247 | |
Add: | |
Litigation settlements | 940 | |
Restructuring activities losses | 14,559 | |
Minus: | |
Foreign currency transaction gains | 4,337 | |
Net income attributable to noncontrolling interest | 517 | |
Adjusted EBITDA | $ | 371,892 | |
| |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
ITEM 3. 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, and soybean meal, soybean oil, and 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 September 24, 2017.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.
| | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
| Amount | | Impact of 10% Increase in Feed Ingredient Prices |
| (In thousands) |
Feed ingredient purchases(a) | $ | 890,817 | | | $ | 89,082 | |
Feed ingredient inventory(b) | 158,418 | | | 15,842 | |
(a)Based on our feed consumption, duringa 10% increase in the thirteen weeks ended September 24, 2017, such a changeprice of our feed ingredient purchases would have resulted in a change toincreased cost of sales of approximately $108.7 million, excludingfor the impact of any feed ingredients derivative financial instruments in that period. three months ended March 31, 2024.
(b)A 10.0% change10% increase in ending feed ingredient prices would have increased inventories at September 24, 2017 would be $12.1 million, excluding any potential impact on the production costsas of our chicken inventories.March 31, 2024.
The Company purchases
| | | | | | | | | | | |
| March 31, 2024 |
| Amount | | Impact of 10% Increase in Commodity Prices |
| (In thousands) |
Net commodity derivative assets(a) | $ | 40,762 | | | $ | 4,076 | |
(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% change10% increase in corn, soybean meal, and soybean oil and wheat prices on September 24, 2017 would have resulted in a change of approximately $0.4 millionan increase in the fair value of our net commodity derivative asset position, including margin cash, as of that date.March 31, 2024.
Interest Rates
Our variable-rate debt instruments represent approximately 36.1% of our total debt at September 24, 2017. 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 for the thirteen weeks ended September 24, 2017.
Fixed-rate debt.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% decreasehypothetical 10% increase in interest rates would have decreased the fair value of our fixed-rate debt by approximately $5.4$112.5 million as of September 24, 2017.March 31, 2024.
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 segment.
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 a gain of $1.2 million and a loss of $4.1 million in the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively. 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 a gain of $2.4 million and a gain of $0.8 million in the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively. The average exchange rates for the thirteen weeks ended September 24, 2017 and September 25, 2016 were 17.81 Mexican pesos to 1 U.S. dollar and 18.73 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 September 24, 2017 and September 25, 2016.March 31, 2024. However, fluctuations greater than 10.0%10% could occur. Based on the net monetary asset position of our Mexico segment at September 24, 2017, such a change would have resulted in a decrease in foreign currency transaction gains recognized in the thirteen weeks ended September 24, 2017 of approximately $2.0 million. Based on the net monetary asset position of our Mexico segment at September 25, 2016, such a change would have resulted in a decrease in foreign currency transaction gains recognized in the thirteen weeks ended September 25, 2016 of approximately $1.1 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.
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| Three Months Ended March 31, 2024 |
| Impact of 10% Deterioration in Exchange Rate | | Impact of 10% Appreciation in Exchange Rate |
| (In thousands, except for exchange rate data) |
Foreign currency remeasurement gain (loss) | $ | (15,525) | | | $ | 18,975 | |
Exchange rate of Mexican peso to the U.S. dollar: | | | |
As reported | 16.56 | | | 16.56 |
Hypothetical 10% change | 18.21 | | | 14.90 |
Additionally, weEurope Foreign Investments
We are exposed to foreign exchange-related variability of investments and earnings from our foreign investments in 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 September 24, 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 segment had net equityforeign investments.
Net Assets. As of approximately $617.7 million, or 35.2% of total net equity,March 31, 2024, our Europe subsidiaries that are denominated in British pounds after considerationhad net assets of our derivative and nonderivative financial instruments. Based on our sensitivity analysis, a$4.2 billion. A 10% adverse changeweakening in British pound against the U.S. dollar exchange ratesrate would cause a reductiondecrease in the net assets of $61.8 million to our Europe subsidiaries by $386.1 million. A 10% strengthening in the British pound against the U.S dollar exchange rate would cause an increase in the net equity. assets of our Europe subsidiaries of $471.9 million.
At September 24, 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 $22.7 million to hedge foreign currency risk on a portion of sales generated and purchases made by our investments in Europe (including the U.K.). On the basis of our sensitivity analysis, asegment. A 10% weakening or strengthening of the U.S. dollar against the British pound by 10%and U.S. dollar against the euro would result in a $2.3 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
DueThe U.S., Mexico and most of Europe continue to lowexperience inflation at above-historical levels, though to moderate inflationa lesser degree than in the U.S., Europe (includingprior year. None of the U.K.)locations in which we operate are experiencing hyperinflation. We have responded to these inflationary challenges by continuing negotiations with customers to recoup the extraordinary costs we have experienced. We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and Mexico and our rapid inventory turnover rate, the results of operations have not been significantly affected by inflation during the past three-year period.improved yields.
Forward Looking Statements
Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “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 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,” “project,” “plan,” “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. Such risks, uncertainties and assumptions include the following:
•Matters affecting the chicken industryand pork industries generally, including fluctuations in the commodity prices of feed ingredients, pigs and chicken;
•Our ability to obtain and maintain commercially reasonable terms with vendors and service providers;
•Our ability to maintain contracts that are critical to our operations;
•Our ability to retain management and other key individuals;
•Outbreaks of avian influenza or other diseases, either in our own flocksflock or elsewhere, affecting our ability to conduct our operations and/or demand for our poultry products;
•Contamination of our products, which has previously and can in the future lead to product liability claims and product recalls;
•Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate;
•Changes in laws or regulations affecting our operations or the application thereof;
•Our ability to ensure that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations will comply with anti-corruption laws or other laws governing the conduct of business with government entities;
•New immigration legislation or increased enforcement efforts in connection with existing immigration legislation that cause our costs of business to increase, cause us to change the way in which we do business or otherwise disrupt our operations;
•Competitive factors, inflation and pricing pressures, or the loss of one or more of our largest customers;
•Inability to consummate, or effectively integrate, any acquisition including the acquisitions of Moy Park and GNP, or to realize the associated anticipated cost savings and operating synergies;
•Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign segments;segments, including risks associated with Brexit;
•Restrictions imposed by, and as a result of, Pilgrim's Pride'sPilgrim’s leverage;
•Disruptions in international markets and distribution channels;channels for various reasons, including, but not limited to, the ongoing Russia-Ukraine or Israel-Hamas wars;
•The impact of cyber-attacks, natural disasters, power losses, unauthorized access, telecommunication failures, and other problems on our information systems;
•Our ability to maintain favorable labor relations with our employees and our compliance with labor laws;
•Extreme weather or natural disasters;
•The impact of uncertainties in litigation; and
•Other risks described herein and under “Risk Factors” in our annual report on Form 10-K for the year ended December 25, 2016 as filed with the SEC.2023 Annual Report.
Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.
The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made. In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes to information contained in previous filings or communications. Although we have attempted to list comprehensively these important cautionary risk factors, we must caution investors and others that other factors may in the future prove to be important and affect our business or results of operations.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files withor submits under the U.S. Securities and Exchange Commission (“SEC”)Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our companyCompany in the reports that
it files withor submits under the SECExchange 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.
As of September 24, 2017, an evaluation was performed underMarch 31, 2024, the supervision andCompany’s management, with the participation of the Company’s management, including theCompany’s Chief Executive Officer and Chief Financial Officer, ofevaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation and subject to the foregoing, the Company’s management, including the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information we are required to disclose in our reports filed with the SEC 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.
In connection with the evaluation described above, theChanges in Internal Control over Financial Reporting
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, identified no change in the Company’s internal control over financial reporting that occurred during the thirteen weeksthree months ended September 24, 2017March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
During 2024, the Company will begin the first phase of a multi-year implementation of an enterprise resource planning (“ERP”) system. The Company's evaluation ofimplementation is not expected to materially affect our internal control over financial reporting did not include the internal control of GNP, which the Company acquired in the first quarter of 2017. The amount of total assets and revenue of GNP included in our Condensed Consolidated and Combined Financial Statements as of and for the thirty-nine weeks ended September 24, 2017 was $428.4 million and $322.4 million, respectively. Also, our evaluation of internal control over financial reporting did not include the internal control of Moy Park, which the Company acquired in the third quarter of 2017. The amount of total assets and revenue of Moy Park included in our Condensed Consolidated and Combined Financial Statements as of and for the thirty-nine weeks ended September 24, 2017 was $2.2 billion and $1.5 billion, respectively.
reporting.
PART II. OTHER INFORMATION
Tax ClaimsITEM 1. LEGAL PROCEEDINGS
The information required with respect to this item can be found in Part I, Item 1, Notes to Consolidated Financial Statements, “Note 19. Commitments and ProceedingsContingencies” in this quarterly report and is incorporated by reference into this Item 1.
In 2009, the IRS asserted claims against PPC totaling $74.7 million. PPC entered into two stipulations of Settled Issues agreements with the IRS (the “Stipulations”) on December 12, 2012 that accounted for approximately $29.3 million of the claims and should result in no additional tax due. PPC is currently working with the IRS to finalize the complete tax calculations associated with the Stipulations.
Other Claims and Proceedings
Between September 2, 2016 and October 13, 2016, a series of purported federal class action lawsuits styled as In re Broiler Chicken Antitrust Litigation, Case No. 1:16-cv-08637 were brought against PPC 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, 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. The plaintiffs have filed three consolidated amended complaints: one on behalf of direct purchasers and two on behalf of distinct groups of indirect purchasers. The defendants (including PPC) moved to dismiss all complaints on January 27, 2017, which are fully briefed and a ruling by the court is pending.
On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of PPC’s stock between February 21, 2014 and October 4, 2016, filed a class action complaint in the U.S. District Court for the District of Colorado against PPC and its named executive officers. The complaint alleges, among other things, that PPC’s SEC filings contained statements that were rendered materially false and misleading by PPC’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) PPC’s revenues during the class period were the result of illegal conduct and (iv) that PPC lacked effective internal control over financial reporting, as well as stating that PPC’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 an amended complaint and the defendants’ motion to dismiss. On May 11, 2017, 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 Plaintiff filed its opposition on July 12, 2017. Defendants filed their reply on August 1, 2017. The Court’s decision on the motion is currently pending.
On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against PPC 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 the 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 PPC) moved to dismiss the consolidated amended complaint on September 9, 2017. Briefing on the motions will be complete on November 22, 2017, and a hearing on the motions has been scheduled for January 19, 2018. In addition, on August 29, 2017, PPC filed a Motion to Enforce Confirmation Order Against Growers in the U.S. Bankruptcy Court in the Eastern District of Texas (In re Pilgrim’s Pride Corporation, Case No. 08-45664 (DML) seeking an order enjoining the Grower Plaintiffs from pursuing the class action against PPC. A hearing on this motion was held October 12, 2017. The Court’s decision on the motion is currently 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 PPC’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 PPC 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 PPC’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.
PPC believes it has strong defenses in each of the above litigations and intends to contest them vigorously. PPC cannot predict the outcome of these actions nor when they will be resolved. If the plaintiffs were to prevail in any of these ligations, PPC could be liable for damages, which could be material and could adversely affect its financial condition or results of operations.
We are also subject to various legal proceedings and claims which arise in the ordinary course of business. In our opinion, we have 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.
In addition to the other information set forth in this quarterly report, you should carefully consider the risks discussed inITEM 1A. RISK FACTORS
For a discussion of our annual report on Form 10-K for the year ended December 25, 2016, including under the heading “Item 1A. Risk Factors”, which, along with risks disclosed in this report, are risks we believe could materially affect the Company’s business, financial condition or future results. These risks are not the only risks facing the Company. Additionalpotential risks and uncertainties, not currently known to the Company or that it currently deems to be immaterial also may materially adversely affectplease see “ Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the Company’s business, financial condition or future results. The following risk factors either update or supplement those contained in our annual report on Form 10-K forperiodic filings with the year ended December 25, 2016:SEC.
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 intend to pursue additional selected growth opportunities in the future. 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.ITEM 5. OTHER INFORMATION
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) failureNone of the acquired entities to achieve expected results; (2) possible inability to retainCompany’s directors 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 and any delays or difficulties encountered in connection with the integration of these businesses could adversely affect our business, results of operations and prospects.
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 the Moy Park 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.
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, certainexecutive 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 Brasília, 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 it 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 Moy Park, 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. The provisions of the Leniency Agreement related to criminal conduct will remain suspended until the STF issues a final decision on the validity of the Plea Bargain Agreements.
We cannot predict whether the Plea Bargain Agreements will be upheldadopted, modified, 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 insiderRule 10b5-1 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).
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.
Our future financial and operating flexibility may be adversely affected by significant leverage.
On a consolidated basis, as of September 24, 2017, we had approximately $1.6 billion in secured indebtedness, $991.0 million of unsecured indebtedness and had the ability to borrow approximately $744.8 million 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:
It could affect our ability to satisfy our obligations under our credit agreements and any other financing arrangements;
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;
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 may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
Our flexibility in planning for, or reacting to, changes in our business may be limited;
It may limit our ability to pursue acquisitions and sell assets; and
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 and chicken) 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 allarrangement 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.
Assumption of unknown liabilities in acquisitions may harm our financial condition 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 uncoverednon-Rule 10b5-1 trading arrangement during pre-acquisition due diligence. For example, our acquisitions of GNP and Moy Park were structured as a stock purchase in which we effectively assumed all of the liabilities of GNP and Moy Park, respectively, including liabilities that may be unknown. Such unknown obligations and liabilities could harm our financial condition and operating results.
The vote by the U.K. electorate in favor of having the U.K. exit the European Union could adversely impact our business, results of operations and financial condition.
In a referendum held in the United Kingdom on June 23, 2016, a majority of those voting voted for the United Kingdom to leave the European Union (referred to as “Brexit”). For now, the United Kingdom remains a member of the European Union and there will not be any immediate change in either European Union or U.K. law as a consequence of the vote. European Union law does not govern contracts and the United Kingdom 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 United Kingdom’s withdrawal from, and future relationship with, the European Union will be negotiated and legislation to implement the United Kingdom’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 United Kingdom’s future relationship with the European Union. Although the timetable for U.K. withdrawal is not at all clear at this stage, it is likely that the withdrawal of the United Kingdom from the European Union will take more than two years to be negotiated and conclude.
Brexit could impair our ability to transact business in the United Kingdom 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 United Kingdom makes to retain access to markets in the European Union following the United Kingdom’s withdrawal from the European Union. In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. If the United Kingdom were 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 alter our internal operations in order to comply with new regulations. Additionally, Moy Park’s results of operations may be adversely affected if the United Kingdom is unable to secure replacement trade agreements and arrangements on terms as favorable as those currently enjoyed by the United Kingdom. Any of the effects of Brexit could adversely affect our business, business opportunities, results of operations, financial condition and cash flows.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On July 28, 2015, our Board of Directors approved a $150.0 million share repurchase authorization. We plan 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. On February 8, 2017, the Company's Board of Directors further extended the program expiration to August 9, 2017. The extent to which we repurchase our shares and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by our management team. We reserve the right to limit or terminate the repurchase program at any time without notice. As of September 24, 2017, we had repurchased 11,415,373 shares under this program with a market value at the time of purchase of approximately $231.8 million. Set forth below is information regarding our stock repurchases for the thirteen weeksfiscal quarter ended September 24, 2017.March 31, 2024.
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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 |
June 26, 2017 through July 23, 2017 | | — |
| | $ | — |
| | — |
| | $ | 72,913,018 |
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July 24, 2017 through August 27, 2017 | | — |
| | — |
| | — |
| | 72,913,018 |
|
August 28, 2017 through September 24, 2017 | | — |
| | — |
| | — |
| | 72,913,018 |
|
Total | | — |
| | $ | — |
| | — |
| | $ | 72,913,018 |
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ITEM 6. EXHIBITS
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3.1 | | | |
2.1 |
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2.2 |
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2.3 |
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2.4 |
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2.5 |
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3.1 |
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| 3.2 |
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4.13.2 | |
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4.2 |
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4.3 |
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4.4 |
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| 4.5 |
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10.131.1 | |
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10.2 |
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12 |
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31.1 |
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31.2 | |
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32.1 | |
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32.2 | |
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101.INS | |
| Inline XBRL Instance Document |
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101.SCH | |
| Inline XBRL Taxonomy Extension Schema |
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101.CAL | |
| Inline XBRL Taxonomy Extension Calculation |
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101.DEF | |
| Inline XBRL Taxonomy Extension Definition |
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101.LAB | |
| Inline XBRL Taxonomy Extension Label |
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101.PRE | |
| Inline XBRL Taxonomy Extension Presentation |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* | | Filed herewith. |
** | | |
* | | FiledFurnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | PILGRIM’S PRIDE CORPORATION | |
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Date: November 7, 2017May 1, 2024 | | /s/ Fabio Sandri
Matthew Galvanoni | |
| | Matthew Galvanoni | | Fabio Sandri
| | | Chief Financial Officer and Chief Accounting Officer | |
| | (Principal Financial Officer, ChiefPrincipal Accounting Officer and Duly Authorized Officer)Signatory) | |