PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
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Fifty-Two Weeks
Ended
December 25, 2016
|
|
Fifty-Two Weeks
Ended
December 27, 2015
|
|
Fifty-Two Weeks
Ended
December 28, 2014
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|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
439,729
|
|
|
$
|
645,962
|
|
|
$
|
711,438
|
|
Adjustments to reconcile net income to cash provided by operating activities:
|
|
|
|
|
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Depreciation and amortization
|
180,515
|
|
|
158,975
|
|
|
155,824
|
|
Asset impairment
|
790
|
|
|
4,813
|
|
|
—
|
|
Foreign currency transaction losses
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—
|
|
|
—
|
|
|
38,129
|
|
Accretion of bond discount
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—
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|
|
—
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|
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2,243
|
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Gain on property disposals
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(7,660
|
)
|
|
(10,372
|
)
|
|
(1,407
|
)
|
Loss on equity method investments
|
452
|
|
|
—
|
|
|
—
|
|
Share-based compensation
|
6,102
|
|
|
2,975
|
|
|
4,928
|
|
Deferred income tax expense (benefit)
|
(3,424
|
)
|
|
29,512
|
|
|
78,943
|
|
Changes in operating assets and liabilities:
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|
|
|
|
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Restricted cash and cash equivalents
|
(4,979
|
)
|
|
—
|
|
|
—
|
|
Trade accounts and other receivables
|
35,617
|
|
|
61,294
|
|
|
(9,526
|
)
|
Inventories
|
(11,905
|
)
|
|
57,078
|
|
|
10,638
|
|
Prepaid expenses and other current assets
|
18,146
|
|
|
19,840
|
|
|
(38,010
|
)
|
Accounts payable and accrued expenses
|
38,427
|
|
|
61,882
|
|
|
44,833
|
|
Income taxes
|
74,597
|
|
|
(55,428
|
)
|
|
74,705
|
|
Long-term pension and other postretirement obligations
|
(10,165
|
)
|
|
(3,500
|
)
|
|
(5,784
|
)
|
Other
|
(759
|
)
|
|
3,797
|
|
|
(262
|
)
|
Cash provided by operating activities
|
755,483
|
|
|
976,828
|
|
|
1,066,692
|
|
Cash flows from investing activities:
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|
|
|
|
|
Acquisitions of property, plant and equipment
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(272,467
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)
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|
(175,764
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)
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|
(171,443
|
)
|
Purchase of acquired business, net of cash acquired
|
—
|
|
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(373,532
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)
|
|
—
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|
Purchases of investment securities
|
—
|
|
|
—
|
|
|
(55,100
|
)
|
Proceeds from sale or maturity of investment securities
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—
|
|
|
—
|
|
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152,050
|
|
Proceeds from property disposals
|
10,805
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|
|
14,610
|
|
|
11,108
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|
Cash used in investing activities
|
(261,662
|
)
|
|
(534,686
|
)
|
|
(63,385
|
)
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Cash flows from financing activities:
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|
|
|
|
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Proceeds from notes payable to bank
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36,838
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|
|
28,726
|
|
|
—
|
|
Payments on notes payable to bank
|
(65,564
|
)
|
|
—
|
|
|
—
|
|
Proceeds from revolving line of credit and long-term borrowings
|
579,876
|
|
|
1,680,000
|
|
|
—
|
|
Payments on revolving line of credit, long-term borrowings and capital lease obligations
|
(556,658
|
)
|
|
(683,780
|
)
|
|
(910,234
|
)
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Proceeds from capital contribution under Tax Sharing Agreement between
JBS USA Food Company Holdings and Pilgrim’s Pride Corporation
|
3,690
|
|
|
—
|
|
|
3,849
|
|
Tax benefit related to share-based compensation
|
—
|
|
|
6,474
|
|
|
458
|
|
Capital contributions to subsidiary by noncontrolling stockholders
|
7,252
|
|
|
—
|
|
|
332
|
|
Payment of capitalized loan costs
|
(693
|
)
|
|
(12,364
|
)
|
|
—
|
|
Purchase of common stock under share repurchase program
|
(117,884
|
)
|
|
(99,233
|
)
|
|
—
|
|
Purchase of common stock from retirement plan participants
|
(73
|
)
|
|
—
|
|
|
—
|
|
Payment of special cash dividend
|
(699,915
|
)
|
|
(1,498,470
|
)
|
|
—
|
|
Cash used in financing activities
|
(813,131
|
)
|
|
(578,647
|
)
|
|
(905,595
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(29,775
|
)
|
Increase (decrease) in cash and cash equivalents
|
(319,310
|
)
|
|
(136,505
|
)
|
|
67,937
|
|
Cash and cash equivalents, beginning of period
|
439,638
|
|
|
576,143
|
|
|
508,206
|
|
Cash and cash equivalents, end of period
|
$
|
120,328
|
|
|
$
|
439,638
|
|
|
$
|
576,143
|
|
Supplemental Disclosure Information:
|
|
|
|
|
|
Interest paid (net of amount capitalized)
|
$
|
41,774
|
|
|
$
|
24,210
|
|
|
$
|
71,558
|
|
Income taxes paid
|
152,884
|
|
|
360,347
|
|
|
257,152
|
|
The accompanying notes are an integral part of these Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), Mexico and Puerto Rico. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company’s primary distribution is through retailers, foodservice distributors and restaurants throughout the United States and Puerto Rico and in the northern and central regions of Mexico. Additionally, the Company exports chicken products to approximately
80
countries. Pilgrim’s fresh chicken products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company’s prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in
12
U.S. states, Puerto Rico and Mexico. As of
December 25, 2016
, Pilgrim’s had approximately
39,600
employees and the capacity to process more than
36.7 million
birds per week for a total of more than
10.7 billion
pounds of live chicken annually. Approximately
4,045
contract growers supply poultry for the Company’s operations. As of
December 25, 2016
, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”) beneficially owned
78.5%
of the Company’s outstanding common stock.
Consolidated Financial Statements
The Company operates on the basis of a
52
/
53
-week fiscal year ending on the Sunday falling on or before December 31. Any reference we make to a particular year (for example,
2016
) in the notes to these Consolidated Financial Statements applies to our fiscal year and not the calendar year.
The Consolidated Financial Statements include the accounts of Pilgrim’s Pride Corporation and its majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation.
The Company measures the financial statements of its Mexico subsidiaries as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than nonmonetary assets, of the Mexico subsidiaries at current exchange rates. We remeasure nonmonetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. We remeasure income and expenses at average exchange rates in effect during the period, except for certain accounts which are remeasured at a historical rate. Currency exchange gains or losses are included in the line item
Foreign currency transaction losses (gains)
in the Consolidated Statements of Operations.
Revenue Recognition
We recognize revenue when all of the following circumstances are satisfied: (i) persuasive evidence of an arrangement exits, (ii) price is fixed or determinable, (iii) collectability is reasonably assured and (iv) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. Revenue is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give rise to the revision become known. Taxes collected from customers and remitted to governmental authorities are excluded from revenues.
Shipping and Handling Costs
Costs associated with the products shipped to customers are recognized in cost of sales.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs are included in selling, general and administrative expenses and totaled
$6.2 million
,
$4.7 million
and
$4.4 million
for
2016
,
2015
and
2014
, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs totaled
$3.4 million
,
$4.1 million
and
$3.8 million
for
2016
,
2015
and
2014
, respectively.
Cash and Cash Equivalents
The Company considers highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated Statements of Cash Flows.
Investments in Securities
The Company’s current investments are all highly liquid investments with a maturity of three months or less when acquired and are, therefore, considered cash equivalents. The Company’s current investments are comprised of fixed income securities, primarily commercial paper, and a money market fund. These investments are classified as available-for-sale. These securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a separate component of accumulated other comprehensive income. Investments in fixed income securities with remaining maturities of less than one year and those identified by management at the time of purchase for funding operations in less than one year are classified as current assets. Investments in fixed income securities with remaining maturities in excess of one year that management has not identified at the time of purchase for funding operations in less than one year are classified as long-term assets. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length of time a security is in an unrealized loss position, the extent to which fair value is less than amortized cost, the impact of changing interest rates in the short and long term, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company determines the cost of each security sold and each amount reclassified out of accumulated other comprehensive income into earnings using the specific identification method. Purchases and sales are recorded on a settlement date basis.
Investments in entities in which the Company has an ownership interest greater than 50% and exercises control over the entity are consolidated in the Consolidated Financial Statements. Investments in entities in which the Company has an ownership interest between 20% and 50% and exercises significant influence are accounted for using the equity method. The Company invests from time to time in ventures in which its ownership interest is less than 20% and over which it does not exercise significant influence. Such investments are accounted for under the cost method. The fair values for investments not traded on a quoted exchange are estimated based upon the historical performance of the ventures, the ventures’ forecasted financial performance and management’s evaluation of the ventures’ viability and business models. To the extent the book value of an investment exceeds its assessed fair value, the Company will record an appropriate impairment charge.
Accounts Receivable
The Company records accounts receivable when revenue is recognized. We record an allowance for doubtful accounts, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable, and periodic credit evaluations of our customers’ financial condition. We write off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable.
Inventories
Live chicken inventories are stated at the lower of cost or market and breeder hen inventories at the lower of cost, less accumulated amortization, or market. The costs associated with breeder hen inventories are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. Finished poultry products, feed, eggs and other inventories are stated at the lower of cost (average) or market.
We record valuation adjustments for our inventory and for estimated obsolescence at or equal to the difference between the cost of inventory and the estimated market value based upon known conditions affecting inventory, including significantly aged products, discontinued product lines, or damaged or obsolete products. We allocate meat costs between our various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as our breast meat cost.
Generally, the Company performs an evaluation of whether any lower of cost or market adjustments are required at the country level based on a number of factors, including: (i) pools of related inventory, (ii) product continuation or discontinuation,
(iii) estimated market selling prices and (iv) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, and repair and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of these assets. Estimated useful lives for building, machinery and equipment are
five
to
33
years and for automobiles and trucks are
three
to
ten
years. The charge to income resulting from amortization of assets recorded under capital leases is included with depreciation expense.
The Company records impairment charges on long-lived assets held for use when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When the above is true, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) future cash flows estimated to be generated by these assets, which are based on additional assumptions such as asset utilization, remaining length of service and estimated salvage values, (ii) estimated fair market value of the assets and (iii) determinations with respect to the lowest level of cash flows relevant to the respective impairment test, generally groupings of related operational facilities. Given the interdependency of the Company’s individual facilities during the production process, which operate as a vertically integrated network, it evaluates impairment of assets held for use at the country level (i.e., the U.S. and Mexico). Management believes this is the lowest level of identifiable cash flows for its assets that are held for use in production activities. At the present time, the Company’s forecasts indicate that it can recover the carrying value of its assets held for use based on the projected undiscounted cash flows of the operations.
The Company records impairment charges on long-lived assets held for sale when the carrying amount of those assets exceeds their fair value less appropriate selling costs. Fair value is based on amounts documented in sales contracts or letters of intent accepted by the Company, amounts included in counteroffers initiated by the Company, or, in the absence of current contract negotiations, amounts determined using a sales comparison approach for real property and amounts determined using a cost approach for personal property. Under the sales comparison approach, sales and asking prices of reasonably comparable properties are considered to develop a range of unit prices within which the current real estate market is operating. Under the cost approach, a current cost to replace the asset new is calculated and then the estimated replacement cost is reduced to reflect the applicable decline in value resulting from physical deterioration, functional obsolescence and economic obsolescence. Appropriate selling costs includes reasonable broker’s commissions, costs to produce title documents, filing fees, legal expenses and the like. We estimate appropriate closing costs as
4%
to
6%
of asset fair value. This range of rates is considered reasonable for our assets held for sale based on historical experience.
Goodwill and Other Intangibles, net
Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise. Goodwill represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in a business combination. An impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. In accordance with ASC No. 350-20-35 in the Assets – Intangibles – Goodwill and Other topic, management first reviews relevant qualitative factors to determine if an indication of impairment exists for the reporting unit. If management determines there is an indication of impairment of goodwill, a quantitative analysis is performed. Management performed a qualitative analysis noting
no
indication of impairment of goodwill by reporting unit as of December 25, 2016.
The Company uses various market valuation techniques to determine the fair value of intangible assets.
Identifiable intangible assets with definite lives, such as customer relationships, non-compete agreements and trade names that the Company expects to use for a limited amount of time, are amortized over their estimated useful lives on a straight-line basis. The useful lives range from
three
to
15
years for trade names with indefinite lives and non-compete agreements and
13
years for customer relationships. Amortizing intangibles are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable in accordance with ASC No. 360-10-35-21 in the Assets – Property, Plant and Equipment topic. Management analyzed the carrying values of the intangible assets and determined that there were
no
impairment indicators during the fifty-two weeks ended December 25, 2016 or December 27, 2015.
Book Overdraft Balances
The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting
purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated Statements of Cash Flows.
Litigation and Contingent Liabilities
The Company is subject to lawsuits, investigations and other claims related to employment, environmental, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. The Company estimates the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. The Company expenses legal costs related to such loss contingencies as they are incurred. The accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.
Accrued Self Insurance
Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit the Company’s total exposure. Certain categories of claim liabilities are actuarially determined. The assumptions used to arrive at periodic expenses are reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.
Asset Retirement Obligations
The Company monitors certain asset retirement obligations in connection with its operations. These obligations relate to clean-up, removal or replacement activities and related costs for “in-place” exposures only when those exposures are moved or modified, such as during renovations of our facilities. These in-place exposures include asbestos, refrigerants, wastewater, oil, lubricants and other contaminants common in manufacturing environments. Under existing regulations, the Company is not required to remove these exposures and there are no plans to undertake a renovation that would require removal of the asbestos or the remediation of the other in-place exposures at this time. The facilities are expected to be maintained and repaired by activities that will not result in the removal or disruption of these in-place exposures at this time. As a result, there is an indeterminate settlement date for these asset retirement obligations because the range of time over which the Company may incur these liabilities is unknown and cannot be reasonably estimated. Therefore, the Company has not recorded the fair value of any potential liability.
Income Taxes
The Company follows provisions under ASC No. 740-10-30-27 in the Expenses-Income Taxes topic with regard to members of a group that file a consolidated tax return but issue separate financial statements. The Company files its own U.S. federal tax return, but it is included in certain state unitary returns with JBS USA Food Company Holdings (“JBS USA Holdings”). The income tax expense of the Company is computed using the separate return method. The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. For the unitary states, we have an obligation to make tax payments to JBS USA Holdings for our share of the unitary taxable income, which is included in taxes payable in our Consolidated Balance Sheets. Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.
The Company reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, potential for carry back of tax losses, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances have been established primarily for net operating loss carry forwards of certain foreign subsidiaries. See “Note 12. Income Taxes” to the Consolidated Financial Statements.
The Company deems its earnings from Mexico and Puerto Rico as of
December 25, 2016
to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided.
The Company follows provisions under ASC No. 740-10-25 that provide a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits
that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 12. Income Taxes” to the Consolidated Financial Statements.
Pension and Other Postemployment Benefits
Our pension and other postemployment benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, long-term return on plan assets and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. We determine the long-term return on plan assets based on historical portfolio results and management’s expectation of the future economic environment. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over either (i) the estimated average future service period of active plan participants if the plan is active or (ii) the estimated average future life expectancy of all plan participants if the plan is frozen.
Operating Leases
Rent expense for operating leases is recorded on a straight-line basis over the lease term unless the lease contains an escalation clause which is not fixed or determinable. The lease term begins when we have the right to control the use of the leased property, which is typically before rent payments are due under the terms of the lease. If a lease has a fixed or determinable escalation clause, the difference between rent expense and rent paid is recorded as deferred rent and is included in the Consolidated Balance Sheets. Rent for operating leases that do not have an escalation clause or where escalation is based on an inflation index is expensed over the lease term as it is payable.
Risk Management
The Company attempts to mitigate commodity purchase exposures through a program of risk management that includes the use of forward purchase contractual obligations and derivative financial instruments. The Company will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the net assets of its Mexico operations that are denominated in Mexican pesos. The Company’s Mexico subsidiaries also attempt to mitigate the foreign currency exposure on certain U.S. dollar-denominated transactions through the use of derivative financial instruments. We recognize all derivative financial instruments in the Consolidated Balance Sheets at fair value. We elected not to designate derivative financial instruments executed to mitigate commodity purchase exposures and foreign currency exposures as hedges of forecasted transactions. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to both the commodity derivative financial instruments and the foreign currency derivative financial instruments are included in the line item
Cost of sales
in the Consolidated Statements of Operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We make significant estimates in regard to receivables collectability; inventory valuation; realization of deferred tax assets; valuation of long-lived assets; valuation of contingent liabilities, liabilities subject to compromise and self insurance liabilities; valuation of pension and other postretirement benefits obligations; and valuation of acquired businesses.
Recently Issued Accounting Standards Not Adopted as of December 25, 2016
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. In June 2015, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide entities the option to adopt the new guidance as of the original effective date. The provisions of the new guidance will be effective as of the beginning of our 2018 fiscal year, but we have the option to adopt the guidance as early as the beginning of our 2017 fiscal year. We are currently identifying and cataloging the various types of revenue transactions to which we are a party. We also continue to evaluate the impact of the new guidance on our financial statements and have not yet selected either a transition approach to implement the standard or an adoption date.
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. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current accounting guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The provisions of the new guidance will be effective as of the first quarter of our 2017 fiscal year. The initial adoption of this guidance is not expected to have a material impact on our financial statements.
In February 2016, the FASB issued new accounting guidance on lease arrangements, which, in an effort to increase transparency and comparability among organizations utilizing leasing, requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. In transition, the entity is required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The provisions of the new guidance will be effective as of the beginning of our 2019 fiscal year. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In March 2016, the FASB issued new accounting guidance on employee share-based payments, which, in an effort to simplify unnecessarily complicated aspects of accounting and reporting for share-based payment transactions, requires an entity to amend accounting and reporting methodology for areas such as the income tax consequences of share-based payments, classification of share-based awards as either equity or liabilities, and classification of share-based payment transactions in the statement of cash flows. The transition approach will vary depending on the area of accounting and reporting methodology to be amended. The provisions of the new guidance will be effective as of the first quarter of our 2017 fiscal year. The initial adoption of this guidance is not expected to have a material impact on our financial statements.
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The provisions of the new guidance will be effective as of the beginning of our 2020 fiscal year. Early adoption is permitted after our 2018 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In November 2016, the FASB issued new accounting guidance on the classification and presentation of restricted cash in the statement of cash flows in order to eliminate the discrepancies that currently exist in how companies present these changes. The new guidance requires restricted cash to be included with cash and cash equivalents when explaining the changes in cash in the statement of cash flows. The new guidance will be effective as of the beginning of our 2018 fiscal year. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
2. BUSINESS ACQUISITIONS
Tyson Mexico
On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries,
100%
of the equity of Provemex Holdings, LLC and its subsidiaries (together, “Tyson Mexico”) from Tyson Foods, Inc. and certain of its subsidiaries for cash. Tyson Mexico is a vertically integrated poultry business based in Gómez Palacio, Durango, Mexico. The acquired business has a production capacity of
2.9 million
birds per five-day work week in its
three
plants and currently employs more than
4,400
people in its plants, offices and
five
distribution centers. This acquisition further strengthened the Company’s strategic position in the Mexico chicken market.
The following table summarizes the consideration paid for Tyson Mexico (in thousands):
|
|
|
|
|
Negotiated sales price
|
$
|
400,000
|
|
Working capital adjustment
|
(20,933
|
)
|
Final purchase price
|
$
|
379,067
|
|
The results of operations of the acquired business since June 29, 2015 are included in the Company’s Consolidated Statements of Operations. Net sales generated by the acquired business during
2016
and
2015
totaled
$141.4 million
and
$250.6 million
, respectively. The significant decrease in net sales during
2016
as compared to
2015
primarily resulted from a shift in sales activity from the acquired business to the Company’s legacy business operating in Mexico. The acquired business generated net income of
$6.3 million
during
2016
and incurred a net loss of
$13.7 million
during
2015
.
The assets acquired and liabilities assumed in the Tyson Mexico acquisition were measured at their fair values at June 29, 2015 as set forth below. The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce. These benefits include complementary product offerings, an enhanced footprint in Mexico and attractive synergy opportunities and value creation. The Company does not have tax basis in the goodwill, and therefore, the goodwill is not deductible for tax purposes. The fair values recorded were determined based upon various external and internal valuations.
The fair values recorded for the assets acquired and liabilities assumed for Tyson Mexico are as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
5,535
|
|
Trade accounts and other receivables
|
24,173
|
|
Inventories
|
68,130
|
|
Prepaid expenses and other current assets
|
7,661
|
|
Property, plant and equipment
|
209,139
|
|
Identifiable intangible assets
|
26,411
|
|
Other long-lived assets
|
199
|
|
Total assets acquired
|
341,248
|
|
Accounts payable
|
21,550
|
|
Other current liabilities
|
8,707
|
|
Long-term deferred tax liabilities
|
52,376
|
|
Other long-term liabilities
|
5,155
|
|
Total liabilities assumed
|
87,788
|
|
Total identifiable net assets
|
253,460
|
|
Goodwill
|
125,607
|
|
Total net assets
|
$
|
379,067
|
|
The Company performed a valuation of the assets and liabilities of Tyson Mexico at June 29, 2015. Significant assumptions used in the preliminary valuation and the bases for their determination are summarized as follows:
|
|
•
|
Property, plant and equipment, net
. Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company’s real property improvements and the majority of its personal property was based on the cost approach. The valuation of the Company’s land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
|
|
|
•
|
Indefinite-lived trade names
. The Company valued
two
indefinite-lived trade names using the income approach, specifically the relief from royalty method. Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned. Royalty rates were selected based on consideration of several factors, including (i) prior transactions involving Tyson Mexico trade names, (ii) incomes derived from license agreements on comparable trade names within the food and non-alcoholic beverages industry and (iii) the relative profitability and perceived contribution of each trade name. Royalty rates used in the determination of the fair values of the two trade names ranged from
4.0%
to
5.0%
of expected net sales related to the respective trade names and trade name maintenance costs were estimated as
1.4%
of the royalty saved. The Company anticipates using both trade names for an indefinite period as demonstrated by the sustained use of each subject trade name. In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of
3.5%
to
4.0%
annually with a terminal year growth rate of
3.8%
. Income taxes were estimated at
30.0%
of pre-tax income, a tax amortization benefit was estimated considering a rate of
15.0%
and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of
12.0%
. The two trade names were valued at
$9.7 million
under this approach.
|
|
|
•
|
Customer relationships
. The Company valued Tyson Mexico’s customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset is determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the
|
fair value of the customer relationships, net sales related to our existing customers were estimated to grow at a rate of
4.0%
annually, but we also anticipate losing existing customers at an attrition rate of
7.9%
. Income taxes were estimated at
30.0%
of pre-tax income, a tax amortization benefit was estimated considering a rate of
23.4%
and net cash flows attributable to our existing customers were discounted using a rate of
13.5%
. Customer relationships were valued at
$16.7 million
under this approach.
The Company recognized the following change in goodwill related to this acquisition during
2016
(in thousands):
|
|
|
|
|
Goodwill, beginning of period
|
$
|
156,565
|
|
Additional fair value attributed to acquired property, plant and equipment
|
(51,387
|
)
|
Deferred tax impact related to additional fair value attributed to acquired
property, plant and equipment
|
15,416
|
|
Deferred tax impact related to customer relationship intangibles
|
5,013
|
|
Goodwill, end of period
|
$
|
125,607
|
|
The following unaudited pro forma information presents the combined financial results for the Company and Tyson Mexico as if the acquisition had been completed at the beginning of
2014
.
|
|
|
|
|
|
|
|
|
|
2015
|
|
2014
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
8,493,804
|
|
|
$
|
9,233,138
|
|
Net income attributable to Pilgrim's Pride Corporation
|
654,495
|
|
|
705,223
|
|
Net income attributable to Pilgrim's Pride Corporation
per common share - diluted
|
2.53
|
|
|
2.72
|
|
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company’s results of operations would have been had it completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.
GNP
On January 6, 2017, the Company acquired
100%
of the membership interests of JFC LLC and its subsidiaries (together, “GNP”) from Maschhoff Family Foods, LLC for
$350 million
, subject to customary working capital adjustments. The purchase was funded through cash on hand and borrowings under the U.S. Credit Agreement. GNP is a vertically integrated poultry business based in St. Cloud, Minnesota. The acquired business has a production capacity of
2.1 million
birds per five-day work week in its
three
plants and currently employs approximately
1,775
people. This acquisition further strengthens the Company’s strategic position in the U.S. chicken market.
The following table summarizes the consideration paid for GNP (in thousands):
|
|
|
|
|
Negotiated sales price
|
$
|
350,000
|
|
Working capital adjustment
|
9,707
|
|
Preliminary purchase price
|
$
|
359,707
|
|
3. FAIR VALUE MEASUREMENTS
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:
|
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets for identical assets or liabilities;
|
|
|
Level 2
|
|
Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
|
|
|
Level 3
|
|
Unobservable inputs, such as discounted cash flow models or valuations.
|
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.
As of
December 25, 2016
and
December 27, 2015
, the Company held derivative assets and liabilities that were required to be measured at fair value on a recurring basis. Derivative assets and liabilities consist of long and short positions on exchange-traded commodity instruments.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following items were measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Fair value assets:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
$
|
5,341
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,341
|
|
Commodity options instruments
|
|
98
|
|
|
—
|
|
|
—
|
|
|
98
|
|
Fair value liabilities:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
(4,063
|
)
|
|
—
|
|
|
—
|
|
|
(4,063
|
)
|
Commodity options instruments
|
|
(2,764
|
)
|
|
—
|
|
|
—
|
|
|
(2,764
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 27, 2015
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Fair value assets:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59
|
|
Commodity options instruments
|
|
1,618
|
|
|
—
|
|
|
—
|
|
|
1,618
|
|
Fair value liabilities:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
(5,436
|
)
|
|
—
|
|
|
—
|
|
|
(5,436
|
)
|
See “Note 7. Derivative Financial Instruments” for additional information.
The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations.
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.
The carrying amounts and estimated fair values of our fixed-rate debt obligation recorded in the Consolidated Balance Sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
|
(In thousands)
|
|
|
Fixed-rate senior notes payable at 5.75%
|
|
$
|
(500,000
|
)
|
|
$
|
(503,395
|
)
|
|
$
|
(500,000
|
)
|
|
$
|
(488,750
|
)
|
See “Note 11. Long-Term Debt and Other Borrowing Arrangements” for additional information.
The carrying amounts of our cash and cash equivalents, derivative trading accounts' margin cash, restricted cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximate their fair values due to their relatively short maturities. Derivative assets were recorded at fair value based on quoted market prices and are included in the line item
Prepaid expenses and other current assets
on the Consolidated Balance Sheet. Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item
Accrued expenses and other current liabilities
on the Consolidated Balance Sheet. The fair values of the Company’s fixed-rate debt obligation was based on the quoted market price at
December 25, 2016
or
December 27, 2015
, as applicable.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of impairment charges when required by U.S. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
4. TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade accounts and other receivables (including accounts receivable from related parties), less allowance for doubtful accounts, consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Trade accounts receivable
|
$
|
305,337
|
|
|
$
|
342,466
|
|
Notes receivable - current
|
630
|
|
|
850
|
|
Other receivables
|
15,766
|
|
|
10,578
|
|
Receivables, gross
|
321,733
|
|
|
353,894
|
|
Allowance for doubtful accounts
|
(4,563
|
)
|
|
(4,900
|
)
|
Receivables, net
|
$
|
317,170
|
|
|
$
|
348,994
|
|
|
|
|
|
Accounts receivable from related parties
(a)
|
$
|
3,913
|
|
|
$
|
2,668
|
|
|
|
(a)
|
Additional information regarding accounts receivable from related parties is included in “Note 16. Related Party Transactions.”
|
Changes in the allowance for doubtful accounts were as follows:
|
|
|
|
|
|
|
|
Total
|
|
|
(In thousands)
|
Balance at December 27, 2015
|
|
$
|
(4,900
|
)
|
Provision charged to operating results
|
|
(114
|
)
|
Account write-offs and recoveries
|
|
451
|
|
Balance at December 25, 2016
|
|
$
|
(4,563
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Live chicken and hens
|
$
|
362,054
|
|
|
$
|
365,062
|
|
Feed, eggs and other
|
250,680
|
|
|
215,859
|
|
Finished chicken products
|
182,918
|
|
|
191,988
|
|
Total chicken inventories
|
795,652
|
|
|
772,909
|
|
Commercial feed, table eggs and other
|
17,610
|
|
|
28,448
|
|
Total inventories
|
$
|
813,262
|
|
|
$
|
801,357
|
|
6. INVESTMENTS IN SECURITIES
We recognize investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security’s length to maturity. Additionally, those securities identified by management at the time of purchase for funding operations in less than one year are classified as current.
The following table summarizes our investments in available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
Cost
|
|
Fair
Value
|
|
Cost
|
|
Fair
Value
|
|
(In thousands)
|
Cash equivalents:
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
44,865
|
|
|
$
|
44,865
|
|
|
$
|
290,795
|
|
|
$
|
290,795
|
|
Other
|
61
|
|
|
61
|
|
|
54,831
|
|
|
54,831
|
|
All of the fixed income securities classified as cash and cash equivalents above mature within 90 days and all of the fixed income securities classified as short-term investments above mature within one year. The specific identification method is used to determine the cost of each security sold and each amount reclassified out of accumulated other comprehensive loss to earnings. Gross realized gains recognized during
2016
and
2015
related to the Company’s available-for-sale securities totaled
$0.9 million
and
$1.2 million
, respectively. Gross realized losses recognized during
2016
and
2015
related to the Company’s available-for-sale securities totaled
$83,400
and
$25,400
, respectively. Proceeds received from the sale or maturity of available-for-sale securities during
2016
and
2015
are disclosed in the Consolidated Statements of Cash Flows. Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during
2016
and
2015
that have been included in accumulated other comprehensive loss and the net amount of gains and losses reclassified out of accumulated other comprehensive loss to earnings during
2016
and
2015
are disclosed in “Note 14. Stockholders’ Equity.”
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum, natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.
The Company has operations in Mexico and, therefore, has exposure to translational foreign exchange risk when the financial results of those operations are translated to U.S. dollars.
The fair value of derivative assets is included in the line item
Prepaid expenses and other current assets
on the Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item
Accrued expenses and other current liabilities
on the same statements. Our counterparties require that we post cash collateral for changes in the net fair value of the derivative contracts.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase or foreign currency transaction exposures as cash flow hedges. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to these derivative financial instruments are included in the line item
Cost of sales
in the Consolidated Statements of Operations. The Company recognized
$4.3 million
in net losses related to changes in the fair value of its derivative financial instruments during 2016. The Company recognized
$21.8 million
and
$16.1 million
in net gains related to changes in the fair value of its derivative financial instruments during
2015
and
2014
, respectively.
Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(Fair values in thousands)
|
Fair values:
|
|
|
|
Commodity derivative assets
|
$
|
5,439
|
|
|
$
|
1,677
|
|
Commodity derivative liabilities
|
(6,827
|
)
|
|
(5,436
|
)
|
Cash collateral posted with brokers
|
4,979
|
|
|
9,381
|
|
Derivatives Coverage
(a)
:
|
|
|
|
Corn
|
2.3
|
%
|
|
7.0
|
%
|
Soybean meal
|
0.3
|
%
|
|
4.1
|
%
|
Period through which stated percent of needs are covered:
|
|
|
|
Corn
|
September 2018
|
|
|
March 2017
|
|
Soybean meal
|
July 2017
|
|
|
July 2016
|
|
|
|
(a)
|
Derivatives coverage is the percent of anticipated corn and soybean meal needs covered by outstanding derivative instruments through a specified date.
|
8. IDENTIFIED INTANGIBLE ASSETS
Identified intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful Life
(Years)
|
|
Original Cost
|
|
Accumulated
Amortization
|
|
Carrying
Amount
|
|
|
|
|
|
(In thousands)
|
|
|
December 25, 2016:
|
|
|
|
|
|
|
|
Identified intangible assets subject to amortization:
|
|
|
|
|
|
|
|
Trade names
|
3–15
|
|
$
|
40,143
|
|
|
$
|
(36,537
|
)
|
|
$
|
3,606
|
|
Customer relationships
|
13
|
|
67,711
|
|
|
(42,424
|
)
|
|
25,287
|
|
Non-compete agreements
|
3
|
|
300
|
|
|
(300
|
)
|
|
—
|
|
Identified intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
Trade names
|
|
|
9,700
|
|
|
—
|
|
|
9,700
|
|
Total identified intangible assets
|
|
|
$
|
117,854
|
|
|
$
|
(79,261
|
)
|
|
$
|
38,593
|
|
|
|
|
|
|
|
|
|
December 27, 2015:
|
|
|
|
|
|
|
|
Identified intangible assets subject to amortization:
|
|
|
|
|
|
|
|
Trade names
|
3–15
|
|
$
|
40,143
|
|
|
$
|
(34,718
|
)
|
|
$
|
5,425
|
|
Customer relationships
|
13
|
|
67,711
|
|
|
(35,383
|
)
|
|
32,328
|
|
Non-compete agreements
|
3
|
|
300
|
|
|
(300
|
)
|
|
—
|
|
Identified intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
Trade names
|
|
|
9,700
|
|
|
—
|
|
|
9,700
|
|
Total identified intangible assets
|
|
|
$
|
117,854
|
|
|
$
|
(70,401
|
)
|
|
$
|
47,453
|
|
We recognized amortization expense related to identified intangible assets of
$8.9 million
in 2016,
$5.7 million
in 2015 and
$5.7 million
in 2014.
We expect to recognize amortization expense associated with identified intangible assets of
$7.1 million
in 2017,
$6.9 million
in 2018,
$5.3 million
in 2019,
$1.3 million
in 2020 and
$1.3 million
in 2021.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (“PP&E”), net consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Land
|
$
|
112,132
|
|
|
$
|
105,165
|
|
Buildings
|
1,169,984
|
|
|
1,131,379
|
|
Machinery and equipment
|
1,789,550
|
|
|
1,657,573
|
|
Autos and trucks
|
50,964
|
|
|
53,408
|
|
Construction-in-progress
|
231,874
|
|
|
152,619
|
|
Property, plant and equipment, gross
|
3,354,504
|
|
|
3,100,144
|
|
Accumulated depreciation
|
(1,848,564
|
)
|
|
(1,747,615
|
)
|
Property, plant and equipment, net
|
$
|
1,505,940
|
|
|
$
|
1,352,529
|
|
The Company recognized depreciation expense of
$167.8 million
,
$146.4 million
and
$136.4 million
during
2016
,
2015
and
2014
, respectively.
During 2016, the Company spent
$272.5 million
on capital projects and transferred
$207.1 million
of completed projects from construction-in-progress to depreciable assets. During 2015, the Company spent
$175.8 million
on capital projects and transferred
$153.5 million
of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during 2016 to improve efficiencies and reduce costs.
During
2016
, the Company sold certain PP&E for
$10.8 million
and recognized a gain of
$7.7 million
. PP&E sold in
2016
included a processing plant in Louisiana, poultry farms in Mexico and Texas, an office building in Texas, vacant land in Alabama and Texas and miscellaneous equipment. During
2015
, the Company sold certain PP&E for
$14.6 million
and recognized a gain of
$10.4 million
. PP&E sold in
2015
included broiler farms in Mexico, a rendering plant in Arkansas and miscellaneous equipment.
Management has committed to the sale of certain properties and related assets, including, but not limited to, a processing complex in Texas and other miscellaneous assets, which no longer fit into the operating plans of the Company. The Company is actively marketing these properties and related assets for immediate sale and believes a sale of each property can be consummated within the next 12 months. At
December 25, 2016
, the Company reported assets held for sale totaling
$5.3 million
in
Assets held for sale
on its Consolidated Balance Sheets. The Company tested the recoverability of its assets held for sale and determined that the aggregate carrying amount of the Texas processing complex asset group was no longer recoverable over the remaining life of the primary asset in that asset group. The Company recognized impairment loss of
$0.8 million
in 2016 that was reported as
Administrative restructuring charges
on the Consolidated Statement of Income.
The Company has closed or idled various processing complexes, processing plants, hatcheries, broiler farms, and feed mills throughout the U.S. Neither the Board of Directors nor JBS has determined if it would be in the best interest of the Company to divest any of these closed or idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. At
December 25, 2016
, the carrying amount of these idled assets was
$61.2 million
based on depreciable value of
$193.1 million
and accumulated depreciation of
$131.9 million
.
The Company tested the recoverability of its long-lived assets held for use during the thirteen weeks ended
December 25, 2016
by comparing the book value of its invested capital, exclusive of assets held for sale, with the undiscounted cash flows expected to result from the use and eventual disposition of its long-lived assets held for use. The Company determined that the carrying amount of its long-lived assets held for use is recoverable over the remaining life of the primary asset in the group, and the long-lived assets for use pass the Step 1 recoverability test of ASC 360-10-35,
Impairment or Disposal of Long-Lived Assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. CURRENT LIABILITIES
Current liabilities, other than income taxes and current maturities of long-term debt, consisted of the following components:
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Accounts payable:
|
|
|
|
Trade accounts
|
$
|
487,214
|
|
|
$
|
436,188
|
|
Book overdrafts
|
63,577
|
|
|
44,145
|
|
Other payables
|
4,306
|
|
|
2,621
|
|
Total accounts payable
|
555,097
|
|
|
482,954
|
|
Accounts payable to related parties
(a)
|
1,421
|
|
|
7,000
|
|
Accrued expenses and other current liabilities:
|
|
|
|
Compensation and benefits
|
110,385
|
|
|
112,583
|
|
Interest and debt-related fees
|
8,685
|
|
|
8,928
|
|
Insurance and self-insured claims
|
82,544
|
|
|
93,336
|
|
Derivative liabilities:
|
|
|
|
Futures
|
4,063
|
|
|
5,436
|
|
Options
|
2,764
|
|
|
—
|
|
Other accrued expenses
|
82,258
|
|
|
94,683
|
|
Total accrued expenses and other current liabilities
|
290,699
|
|
|
314,966
|
|
|
$
|
847,217
|
|
|
$
|
804,920
|
|
|
|
(a)
|
Additional information regarding accounts payable to related parties is included in “Note 16. Related Party Transactions.”
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term debt consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
December 25, 2016
|
|
December 27, 2015
|
Long-term debt and other long-term borrowing arrangements:
|
|
|
(In thousands)
|
Senior notes payable at 5.75%
|
2025
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
U.S. Credit Facility (defined below):
|
|
|
|
|
|
Term note payable at 1.99%
|
2020
|
|
500,000
|
|
|
500,000
|
|
Mexico Credit Facility (defined below) with notes payable at TIIE rate
plus 0.95%
|
2019
|
|
23,304
|
|
|
—
|
|
Capital lease obligations
|
Various
|
|
376
|
|
|
462
|
|
Long-term debt
|
|
|
1,023,680
|
|
|
1,000,462
|
|
Less: Current maturities of long-term debt
|
|
|
(94
|
)
|
|
(86
|
)
|
Long-term debt, less current maturities
|
|
|
1,023,586
|
|
|
1,000,376
|
|
Less: Capitalized financing costs
|
|
|
(11,728
|
)
|
|
(14,867
|
)
|
Long-term debt, less current maturities, net of capitalized
financing costs:
|
|
|
$
|
1,011,858
|
|
|
$
|
985,509
|
|
|
|
|
|
|
|
Current notes payable to banks:
|
|
|
|
|
|
Mexico Credit Facility (defined below) with notes payable at TIIE rate
plus 0.90%
|
2016
|
|
$
|
—
|
|
|
$
|
28,726
|
|
Senior and Subordinated 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”). The Company used the net proceeds from the sale of the Senior Notes to repay
$350.0 million
and
$150.0 million
of the term loan indebtedness under the U.S. Credit Facility (defined below) on March 12, 2015 and April 22, 2015, respectively. The Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the U.S. to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes 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 “Indenture”). The Indenture provides, among other things, that the Senior Notes 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. The Senior Notes 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. The Senior Notes 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 and the Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes when due, among others.
U.S. Credit Facility
On February 11, 2015, the Company and its subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., entered into a Second Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch (“Rabobank”), as administrative agent, and the other lenders party thereto. The U.S. Credit Facility provides for a revolving loan commitment of up to
$700.0 million
and a term loan commitment of up to
$1.0 billion
(the “Term Loans”). The U.S. Credit Facility also includes an accordion feature that allows us, 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 February 10, 2020. All principal on the Term Loans is due at maturity on February 10, 2020. No installments of principal are required to be made 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. The Company had Term Loans outstanding totaling
$500.0 million
as of
December 25, 2016
.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The U.S. Credit Facility includes a
$75.0 million
sub-limit for swingline loans and a
$125.0 million
sub-limit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equal to (i) in the case of LIBOR loans, LIBOR plus
1.50%
through December 25, 2016 and, based on the Company’s net senior secured leverage ratio, between LIBOR plus
1.25%
and LIBOR plus
2.75%
and (ii) in the case of alternate base rate loans, the base rate plus
0.50%
through December 25, 2016 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.
Actual borrowings by the Company under the revolving loan commitment of the U.S. Credit Facility are subject to a borrowing base, which is a formula based on certain eligible inventory, eligible receivables and restricted cash under the control of Rabobank, in its capacity as administrative agent. The borrowing base formula will be reduced by the sum of (i) inventory reserves, (ii) rent and collateral access reserves, and (iii) any amount more than
15 days
past due that is owed by the Company or its subsidiaries to any person on account of the purchase price of agricultural products or services (including poultry and livestock) if that person is entitled to any grower’s or producer’s lien or other security arrangement. As of
December 25, 2016
, the applicable borrowing base was
$675.8 million
and the amount available for borrowing under the revolving loan commitment was
$633.1 million
. The Company had outstanding letters of credit of
$42.7 million
and
no
outstanding borrowings under the revolving loan commitment as of
December 25, 2016
.
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 the Company's 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 the Company 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 will continue to be unconditionally guaranteed by certain of the Company's subsidiaries and continue to be secured by a first priority lien on (i) the accounts receivable and inventory of our Company and its non-Mexico subsidiaries, (ii)
100%
of the equity interests in the Company’s domestic subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., and
65%
of the equity interests in the Company’s direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility.
Mexico Credit Facility
On September 27, 2016, certain of our Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility is
$1.5 billion
Mexican pesos. Outstanding borrowings under the Mexico Credit Facility will accrue interest at a rate equal to the Interbank Equilibrium Interest Rate plus
0.95%
. The Mexico Credit Facility will mature on September 27, 2019. As of
December 25, 2016
, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was
$72.8 million
, and there were
$23.3 million
outstanding borrowings under the Mexico Credit Facility that bear interest at a per annum rate of
7.05%
. As of
December 25, 2016
, the U.S. dollar-equivalent borrowing availability was
$49.5 million
.
12. INCOME TAXES
Income before income taxes by jurisdiction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
U.S.
|
$
|
532,853
|
|
|
$
|
920,250
|
|
|
$
|
953,027
|
|
Foreign
|
139,782
|
|
|
72,508
|
|
|
149,364
|
|
Total
|
$
|
672,635
|
|
|
$
|
992,758
|
|
|
$
|
1,102,391
|
|
The components of income tax expense (benefit) are set forth below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Current:
|
|
|
|
Federal
|
$
|
165,989
|
|
|
$
|
248,821
|
|
|
$
|
262,403
|
|
Foreign
|
50,130
|
|
|
43,638
|
|
|
22,867
|
|
State and other
|
20,211
|
|
|
26,019
|
|
|
24,056
|
|
Total current
|
236,330
|
|
|
318,478
|
|
|
309,326
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(3,529
|
)
|
|
32,819
|
|
|
29,737
|
|
Foreign
|
(880
|
)
|
|
(11,249
|
)
|
|
31,332
|
|
State and other
|
985
|
|
|
6,748
|
|
|
20,558
|
|
Total deferred
|
(3,424
|
)
|
|
28,318
|
|
|
81,627
|
|
|
$
|
232,906
|
|
|
$
|
346,796
|
|
|
$
|
390,953
|
|
The effective tax rate for
2016
was
34.6%
compared to
34.9%
for
2015
and
35.5%
for 2014.
The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Federal income tax rate
|
35.0
|
|
%
|
35.0
|
|
%
|
35.0
|
|
%
|
State tax rate, net
|
2.4
|
|
|
2.3
|
|
|
2.6
|
|
|
Permanent items
|
(0.3
|
)
|
|
0.1
|
|
|
0.4
|
|
|
Domestic production activity
|
(1.3
|
)
|
|
(1.9
|
)
|
|
(2.4
|
)
|
|
Difference in U.S. statutory tax rate and foreign
country effective tax rate
|
(1.4
|
)
|
|
(0.9
|
)
|
|
(1.0
|
)
|
|
Tax credits
|
(0.6
|
)
|
|
(0.7
|
)
|
|
—
|
|
|
Other
|
0.8
|
|
|
1.0
|
|
|
0.9
|
|
|
Total
|
34.6
|
|
%
|
34.9
|
|
%
|
35.5
|
|
%
|
Significant components of the Company’s deferred tax liabilities and assets are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Deferred tax liabilities:
|
|
|
|
PP&E and identified intangible assets
|
$
|
182,433
|
|
|
$
|
151,761
|
|
Inventories
|
93,114
|
|
|
97,743
|
|
Insurance claims and losses
|
42,186
|
|
|
39,800
|
|
Other
|
6,252
|
|
|
15,054
|
|
Total deferred tax liabilities
|
323,985
|
|
|
304,358
|
|
Deferred tax assets:
|
|
|
|
Net operating losses
|
3,396
|
|
|
4,297
|
|
Foreign net operating losses
|
13,446
|
|
|
16,595
|
|
Credit carry forwards
|
2,080
|
|
|
2,638
|
|
Allowance for doubtful accounts
|
4,274
|
|
|
4,382
|
|
Accrued liabilities
|
57,567
|
|
|
56,753
|
|
Workers compensation
|
38,834
|
|
|
41,217
|
|
Pension and other postretirement benefits
|
21,903
|
|
|
22,559
|
|
Other
|
46,066
|
|
|
31,956
|
|
Total deferred tax assets
|
187,566
|
|
|
180,397
|
|
Valuation allowance
|
(6,232
|
)
|
|
(7,921
|
)
|
Net deferred tax assets
|
181,334
|
|
|
172,476
|
|
Net deferred tax liabilities
|
$
|
142,651
|
|
|
$
|
131,882
|
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment.
As of
December 25, 2016
, the Company believes it has sufficient positive evidence to conclude that realization of its federal and state net deferred tax assets is more likely than not to be realized. The decrease in valuation allowance of
$1.7 million
during
2016
was primarily due to a decrease in capital loss carry-forwards and foreign net operating losses. As of
December 25, 2016
, the Company’s valuation allowance is
$6.2 million
, of which
$0.7 million
relates to capital loss carry forwards and state net operating losses and
$5.5 million
relates to its Mexico operations.
As of
December 25, 2016
, the Company had state net operating loss carry forwards of approximately
$112.5 million
that will begin to expire in
2017
. The Company also had Mexico net operating loss carry forwards at
December 25, 2016
of approximately
$28.9 million
that begin to expire in
2017
.
As of
December 25, 2016
, the Company had approximately
$1.8 million
of state tax credit carry forwards that begin to expire in
2018
.
On November 6, 2009, H.R. 3548 was signed into law and included a provision that allowed most business taxpayers an increased carry back period for net operating losses incurred in 2008 or 2009. As a result, during 2009 the Company utilized
$547.7 million
of its U.S. federal net operating losses under the expanded carry back provisions of H.R. 3548 and filed a claim for refund of
$169.7 million
. The Company received
$122.6 million
in refunds from the Internal Revenue Service (“IRS”) from the carry back claims during 2010. The Company anticipates receipt of the remainder of its claim pending resolution of its litigation with the IRS. See “Note 17. Commitments and Contingencies” for additional information.
The Company has not provided any deferred income taxes on the undistributed earnings of its Mexico and Puerto Rico subsidiaries as of
December 25, 2016
based upon the determination that such earnings will be indefinitely reinvested. It is not practicable to determine the amount of incremental taxes that might arise if these earnings were to be remitted.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the fifty-two weeks ended December 25, 2016 and December 27, 2015, there is a tax effect of
$3.2 million
and
$2.2 million
, respectively, reflected in other comprehensive income.
For the fifty-two weeks ended December 27, 2015, there is a tax effect of
$6.5 million
reflected in additional paid-in capital due to excess tax benefits related to compensation on dividend equivalent rights and vested stock awards. There were
no
excess tax benefits for the fifty-two weeks ended December 25, 2016.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Unrecognized tax benefits, beginning of year
|
$
|
17,110
|
|
|
$
|
17,396
|
|
Increase as a result of tax positions taken during the current year
|
1,031
|
|
|
1,015
|
|
Increase as a result of tax positions taken during prior years
|
16
|
|
|
27
|
|
Decrease as a result of tax positions taken during prior years
|
(140
|
)
|
|
(139
|
)
|
Decrease for lapse in statute of limitations
|
(1,204
|
)
|
|
(1,189
|
)
|
Unrecognized tax benefits, end of year
|
$
|
16,813
|
|
|
$
|
17,110
|
|
Included in unrecognized tax benefits of
$16.8 million
at
December 25, 2016
, was
$7.3 million
of tax benefits that, if recognized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of
December 25, 2016
, the Company had recorded a liability of
$8.2 million
for interest and penalties. During
2016
, accrued interest and penalty amounts related to uncertain tax positions decreased by
$1.2 million
.
The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and Mexico. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2010 and is no longer subject to Mexico income tax examinations by taxing authorities for years prior to 2010.
The Company has a tax sharing agreement with JBS USA Holdings effective for tax years beginning 2010. The net tax receivable for tax year
2016
of
$5.0 million
was accrued in
2016
as a capital contribution and an account receivable from a related party in our Consolidated Balance Sheet.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan, and defined contribution retirement savings plans. Under all of our retirement plans, the Company’s expenses were
$8.1 million
,
$10.5 million
and
$5.9 million
in
2016
,
2015
and
2014
, respectively.
The Company used a year-end measurement date of
December 25, 2016
for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the financial statements.
Qualified Defined Benefit Pension Plans
The Company sponsors
two
qualified defined benefit pension plans named the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”) and the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”). The Union Plan covers certain locations or work groups within PPC. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for that group as of March 31, 2007.
Nonqualified Defined Benefit Pension Plans
The Company sponsors
two
nonqualified defined benefit retirement plans named the Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “SERP Plan”) and the Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”). Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on compensation in excess of certain IRC limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits under the SERP Plan were frozen as of February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors.
Defined Benefit Postretirement Life Insurance Plan
The Company sponsors
one
defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Retiree Life Plan”). Pilgrim’s Pride assumed defined benefit postretirement medical and life insurance obligations, including the Retiree Life Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. These retired employees all reached the age of 65 in 2012 and liabilities of the postretirement medical plan then ended.
Defined Benefit Plans Obligations and Assets
The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in projected benefit obligation:
|
(In thousands)
|
Projected benefit obligation, beginning of year
|
$
|
165,952
|
|
|
$
|
190,401
|
|
|
$
|
1,672
|
|
|
$
|
1,657
|
|
Interest cost
|
5,585
|
|
|
7,754
|
|
|
51
|
|
|
67
|
|
Actuarial losses (gains)
|
10,305
|
|
|
(10,944
|
)
|
|
46
|
|
|
44
|
|
Benefits paid
|
(6,098
|
)
|
|
(6,074
|
)
|
|
—
|
|
|
—
|
|
Settlements
(a)
|
(8,585
|
)
|
|
(15,185
|
)
|
|
(121
|
)
|
|
(96
|
)
|
Projected benefit obligation, end of year
|
$
|
167,159
|
|
|
$
|
165,952
|
|
|
$
|
1,648
|
|
|
$
|
1,672
|
|
|
|
(a)
|
A settlement is a transaction that is an irrevocable action, relieves the employer or the plan of primary responsibility for a pension or postretirement obligation and eliminates significant risks related to the obligation and the assets used to affect the settlement. A settlement can be triggered when a plan pays lump sums totaling more than the sum of the plan’s interest cost and service cost. Both the GK Pension Plan and the Retiree Life Plan met this threshold in 2016 and 2015 and the Union Pension Plan met this threshold in 2016.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Change in plan assets:
|
(In thousands)
|
Fair value of plan assets, beginning of year
|
$
|
96,947
|
|
|
$
|
113,552
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
4,460
|
|
|
(3,024
|
)
|
|
—
|
|
|
—
|
|
Contributions by employer
|
10,802
|
|
|
7,678
|
|
|
121
|
|
|
96
|
|
Benefits paid
|
(6,098
|
)
|
|
(6,074
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
(8,585
|
)
|
|
(15,185
|
)
|
|
(121
|
)
|
|
(96
|
)
|
Fair value of plan assets, end of year
|
$
|
97,526
|
|
|
$
|
96,947
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Funded status:
|
(In thousands)
|
Unfunded benefit obligation, end of year
|
$
|
(69,633
|
)
|
|
$
|
(69,005
|
)
|
|
$
|
(1,648
|
)
|
|
$
|
(1,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Amounts recognized in the Consolidated Balance Sheets at end of year:
|
(In thousands)
|
Current liability
|
$
|
(13,113
|
)
|
|
$
|
(10,779
|
)
|
|
$
|
(147
|
)
|
|
$
|
(138
|
)
|
Long-term liability
|
(56,520
|
)
|
|
(58,226
|
)
|
|
(1,501
|
)
|
|
(1,534
|
)
|
Recognized liability
|
$
|
(69,633
|
)
|
|
$
|
(69,005
|
)
|
|
$
|
(1,648
|
)
|
|
$
|
(1,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Amounts recognized in accumulated other
comprehensive loss at end of year:
|
(In thousands)
|
Net actuarial loss (gain)
|
$
|
46,494
|
|
|
$
|
38,115
|
|
|
$
|
(31
|
)
|
|
$
|
(79
|
)
|
The accumulated benefit obligation for our defined benefit pension plans was
$167.2 million
and
$166.0 million
at
December 25, 2016
and
December 27, 2015
, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at
December 25, 2016
and
December 27, 2015
. As of
December 25, 2016
, the weighted average duration of our defined benefit obligation is
32.29 years
.
Net Periodic Benefit Cost (Income)
Net pension and other postretirement costs included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Interest cost
|
$
|
5,585
|
|
|
$
|
7,754
|
|
|
$
|
8,103
|
|
|
$
|
51
|
|
|
$
|
67
|
|
|
$
|
81
|
|
Estimated return on plan assets
|
(5,256
|
)
|
|
(6,684
|
)
|
|
(6,373
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement loss (gain)
|
2,064
|
|
|
3,843
|
|
|
93
|
|
|
(2
|
)
|
|
(4
|
)
|
|
(9
|
)
|
Amortization of net loss (gain)
|
659
|
|
|
714
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cost
|
$
|
3,052
|
|
|
$
|
5,627
|
|
|
$
|
1,879
|
|
|
$
|
49
|
|
|
$
|
63
|
|
|
$
|
72
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.31
|
%
|
|
4.47
|
%
|
|
4.22
|
%
|
|
3.81
|
%
|
|
4.47
|
%
|
|
4.22
|
%
|
Net pension and other postretirement cost:
|
|
|
|
Discount rate
|
4.47
|
%
|
|
4.22
|
%
|
|
4.95
|
%
|
|
4.47
|
%
|
|
4.22
|
%
|
|
4.95
|
%
|
Expected return on plan assets
|
5.50
|
%
|
|
5.50
|
%
|
|
6.00
|
%
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company’s pension and other benefit obligations. The weighted average discount rate for each plan was established by comparing the projection of expected benefit payments to the AA Above Median yield curve. The expected benefit payments were discounted by each corresponding discount rate on the yield curve. For payments beyond 30 years, the Company extended the curve assuming the discount rate derived in year 30 is extended to the end of the plan’s payment expectations. Once the present value of the string of benefit payments was established, the Company determined the single rate on the yield curve, that when applied to all obligations of the plan, would exactly match the previously determined present value. As part of the evaluation of pension and other postretirement assumptions, the Company applied assumptions for mortality that incorporate generational white and blue collar mortality trends. In determining its benefit obligations, the Company used generational tables that take into consideration increases in plan participant longevity. As of
December 25, 2016
and
December 27, 2015
, all pension and other postretirement benefit plans used variations of the RP2014 mortality table and the MP2015 mortality improvement scale.
The sensitivity of the projected benefit obligation for pension benefits to changes in the discount rate is set out below. The impact of a change in the discount rate of 0.25% on the projected benefit obligation for other benefits is less than
$1,000
. This sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that for calculating the liability recognized in the Consolidated Balance Sheet.
|
|
|
|
|
|
|
|
|
|
Increase in Discount Rate of 0.25%
|
|
Decrease in Discount Rate of 0.25%
|
|
(In thousands)
|
Impact on projected benefit obligation for pension benefits
|
$
|
(4,486
|
)
|
|
$
|
4,725
|
|
The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan’s current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Cash and cash equivalents
|
—
|
%
|
|
—
|
%
|
Pooled separate accounts
(a)
:
|
|
|
|
Equity securities
|
5
|
%
|
|
7
|
%
|
Fixed income securities
|
5
|
%
|
|
7
|
%
|
Common collective trust funds
(a)
:
|
|
|
|
Equity securities
|
60
|
%
|
|
57
|
%
|
Fixed income securities
|
30
|
%
|
|
29
|
%
|
Total assets
|
100
|
%
|
|
100
|
%
|
|
|
(a)
|
Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the Securities and Exchange Commission. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments.
|
Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the pooled separate accounts is
50%
in each of fixed income securities and equity securities and the target asset allocation for the investment of pension assets in the common collective trust funds is
30%
in fixed income securities and
70%
in equity securities. The plans only invest in fixed income and equity instruments for which there is a ready public market. We develop our expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which our plans invest.
The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of
December 25, 2016
and
December 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015(a)
|
|
Level 1
(a)
|
|
Level 2
(b)
|
|
Level 3
(c)
|
|
Total
|
|
Level 1
(a)
|
|
Level 2
(b)
|
|
Level 3
(c)
|
|
Total
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
119
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
119
|
|
|
$
|
147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
147
|
|
Pooled separate accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. equity funds
(d)
|
—
|
|
|
3,302
|
|
|
—
|
|
|
3,302
|
|
|
—
|
|
|
3,816
|
|
|
—
|
|
|
3,816
|
|
Small/Mid U.S. equity funds
(e)
|
—
|
|
|
406
|
|
|
—
|
|
|
406
|
|
|
—
|
|
|
969
|
|
|
—
|
|
|
969
|
|
International equity funds
(f)
|
—
|
|
|
1,231
|
|
|
—
|
|
|
1,231
|
|
|
—
|
|
|
1,606
|
|
|
—
|
|
|
1,606
|
|
Fixed income funds
(g)
|
—
|
|
|
4,867
|
|
|
—
|
|
|
4,867
|
|
|
—
|
|
|
6,337
|
|
|
—
|
|
|
6,337
|
|
Common collective trusts funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. equity funds
(d)
|
—
|
|
|
24,547
|
|
|
—
|
|
|
24,547
|
|
|
—
|
|
|
22,069
|
|
|
—
|
|
|
22,069
|
|
Small/Mid U.S. equity funds
(e)
|
—
|
|
|
17,344
|
|
|
—
|
|
|
17,344
|
|
|
—
|
|
|
16,843
|
|
|
—
|
|
|
16,843
|
|
International equity funds
(f)
|
—
|
|
|
17,006
|
|
|
—
|
|
|
17,006
|
|
|
—
|
|
|
16,629
|
|
|
—
|
|
|
16,629
|
|
Fixed income funds
(g)
|
—
|
|
|
28,704
|
|
|
—
|
|
|
28,704
|
|
|
—
|
|
|
28,531
|
|
|
—
|
|
|
28,531
|
|
Total assets
|
$
|
119
|
|
|
$
|
97,407
|
|
|
$
|
—
|
|
|
$
|
97,526
|
|
|
$
|
147
|
|
|
$
|
96,800
|
|
|
$
|
—
|
|
|
$
|
96,947
|
|
|
|
(a)
|
Unadjusted quoted prices in active markets for identical assets are used to determine fair value.
|
|
|
(b)
|
Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value.
|
|
|
(c)
|
Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.
|
|
|
(d)
|
This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.
|
|
|
(e)
|
This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.
|
|
|
(f)
|
This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(g)
|
This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). It may also include real estate investment options that directly own property. These investment options typically carry more risk than short-term fixed income investment options (including, for real estate investment options, liquidity risk), but less overall risk than equities.
|
The valuation of plan assets in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include equity and fixed income securities funds.
Benefit Payments
The following table reflects the benefits as of
December 25, 2016
expected to be paid in each of the next five years and in the aggregate for the five years thereafter from our pension and other postretirement plans. Because our pension plans are primarily funded plans, the anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. Because our other postretirement plans are unfunded, the anticipated benefits with respect to these plans will come from our own assets.
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Benefits
|
|
(In thousands)
|
2017
|
$
|
16,964
|
|
|
$
|
147
|
|
2018
|
11,617
|
|
|
147
|
|
2019
|
11,088
|
|
|
146
|
|
2020
|
11,019
|
|
|
144
|
|
2021
|
10,790
|
|
|
142
|
|
2022-2026
|
49,927
|
|
|
640
|
|
Total
|
$
|
111,405
|
|
|
$
|
1,366
|
|
We anticipate contributing
$13.1 million
and
$0.1 million
, as required by funding regulations or laws, to our pension and other postretirement plans, respectively, during
2017
.
Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss (Income)
The amounts in accumulated other comprehensive income (loss) that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Net actuarial loss (gain), beginning of year
|
$
|
38,115
|
|
|
$
|
43,907
|
|
|
$
|
16,957
|
|
|
$
|
(79
|
)
|
|
$
|
(127
|
)
|
|
$
|
(126
|
)
|
Amortization
|
(659
|
)
|
|
(714
|
)
|
|
(56
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement adjustments
|
(2,064
|
)
|
|
(3,843
|
)
|
|
(93
|
)
|
|
2
|
|
|
4
|
|
|
9
|
|
Actuarial loss (gain)
|
10,305
|
|
|
(10,944
|
)
|
|
24,670
|
|
|
46
|
|
|
44
|
|
|
(10
|
)
|
Asset loss (gain)
|
797
|
|
|
9,709
|
|
|
2,429
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net actuarial loss (gain), end of year
|
$
|
46,494
|
|
|
$
|
38,115
|
|
|
$
|
43,907
|
|
|
$
|
(31
|
)
|
|
$
|
(79
|
)
|
|
$
|
(127
|
)
|
The Company expects to recognize in net pension cost throughout
2017
an actuarial loss of
$0.9 million
that was recorded in accumulated other comprehensive income at
December 25, 2016
.
Risk Management
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility.
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
term. The Company monitors the level of investment risk but has no current plan to significantly modify the mixture of investments. The investment position is discussed more below.
Changes in bond yields.
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.
The investment position is managed and monitored by a committee of individuals from various departments. This group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The majority of equities are in U.S. large and small cap companies with some global diversification into international entities. The plans are not exposed to significant foreign currency risk.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.
Defined Contribution Plans
The Company sponsors
two
defined contribution retirement savings plans named the Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”) and the To-Ricos Employee Savings and Retirement Plan (the “To-Ricos Plan”). The RS Plan is an IRC Section 401(k) salary deferral plan maintained for certain eligible U.S. employees. Under the RS Plan, eligible U.S. employees may voluntarily contribute a percentage of their compensation. The Company matches up to
30.0%
of the first
2.00%
to
6.00%
of salary based on the salary deferral and compensation levels up to
$245,000
. The To-Ricos Plan is an IRC Section 1165(e) salary deferral plan maintained for certain eligible Puerto Rico employees. Under the To-Ricos Plan, eligible employees may voluntarily contribute a percentage of their compensation and there are various company matching provisions. The Company also maintains
three
postretirement plans for eligible Mexico employees, as required by Mexico law, which primarily cover termination benefits.
The Company’s expenses related to its defined contribution plans totaled
$5.0 million
,
$4.8 million
and
$3.9 million
in
2016
,
2015
and
2014
, respectively.
14.
STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Loss
The following tables provide information regarding the changes in accumulated other comprehensive loss during
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
(a)
|
|
2015
(a)
|
|
Losses Related to Pension and Other Postretirement Benefits
|
|
Unrealized Holding Gains on Available-for-Sale Securities
|
|
Total
|
|
Losses Related to Pension and Other Postretirement Benefits
|
|
Unrealized Holding Gains on Available-for-Sale Securities
|
|
Total
|
|
(In thousands)
|
|
|
|
|
Balance, beginning of year
|
$
|
(58,997
|
)
|
|
$
|
67
|
|
|
$
|
(58,930
|
)
|
|
$
|
(62,572
|
)
|
|
$
|
31
|
|
|
$
|
(62,541
|
)
|
Other comprehensive income (loss)
before reclassifications
|
(4,836
|
)
|
|
(411
|
)
|
|
(5,247
|
)
|
|
4,004
|
|
|
(260
|
)
|
|
3,744
|
|
Amounts reclassified from
accumulated other comprehensive
loss to net income
|
(410
|
)
|
|
344
|
|
|
(66
|
)
|
|
(429
|
)
|
|
296
|
|
|
(133
|
)
|
Net current year other
comprehensive income (loss)
|
(5,246
|
)
|
|
(67
|
)
|
|
(5,313
|
)
|
|
3,575
|
|
|
36
|
|
|
3,611
|
|
Balance, end of year
|
$
|
(64,243
|
)
|
|
$
|
—
|
|
|
$
|
(64,243
|
)
|
|
$
|
(58,997
|
)
|
|
$
|
67
|
|
|
(58,930
|
)
|
|
|
(a)
|
All amounts are net of tax. Amounts in parentheses indicate debits.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss(a)
|
|
Affected Line Item in the Consolidated Statements of Operations
|
|
2016
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Realized gain on sale of securities
|
|
$
|
552
|
|
|
$
|
476
|
|
|
Interest income
|
Amortization of pension and other
postretirement plan actuarial losses:
|
|
|
|
|
|
|
Union employees pension plan
(b)
|
|
(20
|
)
|
|
—
|
|
(d)
|
Cost of goods sold
|
Legacy Gold Kist plans
(c)
|
|
(199
|
)
|
|
(215
|
)
|
(d)
|
Cost of goods sold
|
Legacy Gold Kist plans
(c)
|
|
(440
|
)
|
|
(474
|
)
|
(d)
|
Selling, general and administrative expense
|
Total before tax
|
|
(107
|
)
|
|
(213
|
)
|
|
|
Tax benefit
|
|
40
|
|
|
80
|
|
|
|
Total reclassification for the period
|
|
$
|
(67
|
)
|
|
(133
|
)
|
|
|
|
|
(a)
|
Amounts in parentheses represent debits to results of operations.
|
|
|
(b)
|
The Company sponsors the Union Plan, a qualified defined benefit pension plan covering certain locations or work groups with collective bargaining agreements.
|
|
|
(c)
|
The Company sponsors the GK Pension Plan, a qualified defined benefit pension plan covering certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007, the SERP Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist executives, the Directors’ Emeriti Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist directors and the Retiree Life Plan, a defined benefit postretirement life insurance plan covering certain retired Gold Kist employees (collectively, the “Legacy Gold Kist Plans”).
|
|
|
(d)
|
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See “Note 13. Pension and Other Postretirement Benefits” to the Consolidated Financial Statements.
|
Share Repurchase Program and Treasury Stock
On July 28, 2015, the Company's Board of Directors approved a
$150.0 million
share repurchase authorization. The Company plans to repurchase shares through various means, which may include but are not limited to open market purchases, privately negotiated transactions, the use of derivative instruments and/or accelerated share repurchase programs. The share repurchase program was originally scheduled to expire on July 27, 2016. On February 10, 2016, the Company’s Board of Directors approved an increase of the share repurchase authorization to
$300.0 million
and an extension of the expiration to February 9, 2017. The extent to which the Company repurchases its shares and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by the Company’s management team. The Company reserves the right to limit or terminate the repurchase program at any time without notice. As of
December 25, 2016
, the Company had repurchased
10,635,861
shares under this program with a market value of approximately
$217.1 million
. The Company accounted for the shares repurchased using the cost method. The Company currently plans to maintain these shares as treasury stock.
Special Cash Dividends
On
May 18, 2016
, the Company paid a special cash dividend from retained earnings of approximately
$700.0 million
, or
$2.75
per share, to stockholders of record on
May 10, 2016
. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.
On
February 17, 2015
, the Company paid a special cash dividend from retained earnings of approximately
$1.5 billion
, or
$5.77
per share, to stockholders of record as of
January 30, 2015
. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.
Capital Contributions to a Subsidiary
In July 2016, the stockholders of Gallina Pesada, S.A.P.I. de C.V. (“GAPESA”), a subsidiary that is controlled, but not wholly owned, by the Company, contributed additional capital to fund a capacity expansion project in southern Mexico. The Company contributed
$2.7 million
of additional capital. This contribution was eliminated upon consolidation. The noncontrolling stockholders contributed
$7.3 million
of additional capital. The respective contributions did not impact either the Company or noncontrolling stockholders’ ownership percentages in GAPESA.
Restrictions on Dividends
Both the U.S. Credit Facility and the Indenture governing the Senior Notes restrict, but do not prohibit, the Company from declaring dividends.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.
INCENTIVE COMPENSATION
The Company sponsors a short-term incentive plan that provides the grant of either cash or share-based bonus awards payable upon achievement of specified performance goals (the “STIP”). Full-time, salaried exempt employees of the Company and its affiliates who are selected by the administering committee are eligible to participate in the STIP. The Company has accrued
$28.9 million
in costs related to the STIP at
December 25, 2016
related to cash bonus awards that could potentially be awarded during
2017
.
The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and cash-based awards to the Company’s officers and other employees, members of the Board and any consultants (the “LTIP”). The equity-based awards that may be granted under the LTIP include “incentive stock options,” within the meaning of the IRC, nonqualified stock options, stock appreciation rights, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). At
December 25, 2016
, we have reserved approximately
5.0 million
shares of common stock for future issuance under the LTIP.
The following awards were outstanding during
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award
Type
|
|
Benefit
Plan
|
|
Awards Granted
|
|
Grant
Date
|
|
Grant Date Fair Value per Award
(a)
|
|
Vesting Condition
|
|
Vesting
Date
|
|
Estimated
Forfeiture
Rate
|
|
Awards Forfeited to Date
|
|
Settlement Method
|
RSU
|
|
LTIP
|
|
449,217
|
|
|
02/19/2014
|
|
$
|
16.70
|
|
|
Service
|
|
12/31/2016
|
|
13.49
|
%
|
|
86,458
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
223,701
|
|
|
03/03/2014
|
|
17.18
|
|
|
Performance / Service
|
|
12/31/2017
|
|
12.34
|
%
|
|
55,516
|
|
|
Stock
|
DER
|
(b)
|
LTIP
|
|
45,961
|
|
|
02/11/2015
|
|
25.87
|
|
|
Performance / Service
|
|
12/31/2017
|
|
12.34
|
%
|
|
—
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
158,226
|
|
|
02/26/2015
|
|
27.51
|
|
|
Performance / Service
|
|
12/31/2018
|
|
(c)
|
|
|
158,226
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
251,136
|
|
|
03/30/2016
|
|
25.36
|
|
|
Performance / Service
|
|
12/31/2019
|
|
(d)
|
|
|
—
|
|
|
Stock
|
DER
|
(b)
|
LTIP
|
|
74,535
|
|
|
10/13/2016
|
|
20.93
|
|
|
Service
|
|
12/31/2016
|
|
13.49
|
%
|
|
—
|
|
|
Stock
|
|
|
(a)
|
The fair value of each RSA and RSU granted or vested represents the closing price of the Company’s common stock on the respective grant date or vesting date.
|
|
|
(b)
|
On February 17, 2015, the Company paid a special cash dividend to stockholders of record as of January 30, 2015 totaling
$5.77
per share. On January 27, 2015, the Compensation Committee of the Company’s Board of Directors agreed to grant Dividend Equivalent Rights (“DERs”) in the form of RSUs to reflect an additional
$5.77
in value for each outstanding RSU.
|
|
|
(c)
|
Performance conditions associated with these awards were not satisfied. Therefore,
100%
of the awards were forfeited.
|
|
|
(d)
|
The estimated forfeiture rate for these awards will be set if or when performance conditions associated with the awards are satisfied.
|
Compensation costs and the income tax benefit recognized for our share-based compensation arrangements are included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Share-based compensation cost:
|
|
|
|
|
|
Cost of goods sold
|
$
|
770
|
|
|
$
|
596
|
|
|
$
|
395
|
|
Selling, general and administrative expenses
|
5,332
|
|
|
2,379
|
|
|
4,533
|
|
Total
|
$
|
6,102
|
|
|
$
|
2,975
|
|
|
$
|
4,928
|
|
|
|
|
|
|
|
Income tax benefit
|
$
|
1,858
|
|
|
$
|
868
|
|
|
$
|
1,326
|
|
The Company’s RSA and RSU activity is included below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Number
|
|
Weighted Average Grant Date Fair Value
|
|
Number
|
|
Weighted Average Grant Date Fair Value
|
|
Number
|
|
Weighted Average Grant Date Fair Value
|
|
(In thousands, except weighted average fair values)
|
RSAs:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
—
|
|
|
$
|
—
|
|
|
30
|
|
|
$
|
8.72
|
|
|
203
|
|
|
$
|
6.59
|
|
Granted
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(173
|
)
|
|
6.62
|
|
Forfeited
|
—
|
|
|
—
|
|
|
(30
|
)
|
|
8.72
|
|
|
—
|
|
|
—
|
|
Outstanding at end of year
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
30
|
|
|
$
|
8.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs:
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
774
|
|
|
$
|
18.78
|
|
|
1,120
|
|
|
$
|
11.97
|
|
|
729
|
|
|
$
|
8.81
|
|
Granted
|
325
|
|
|
24.35
|
|
|
428
|
|
|
21.00
|
|
|
463
|
|
|
16.70
|
|
Vested
|
—
|
|
|
—
|
|
|
(671
|
)
|
|
8.81
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(193
|
)
|
|
24.51
|
|
|
(103
|
)
|
|
18.90
|
|
|
(72
|
)
|
|
10.34
|
|
Outstanding at end of year
|
906
|
|
|
$
|
20.00
|
|
|
774
|
|
|
$
|
18.78
|
|
|
1,120
|
|
|
$
|
11.97
|
|
The total fair value of awards vested in
2015
and
2014
was
$22.4 million
and
$3.2 million
, respectively.
No
awards vested in
2016
.
At
December 25, 2016
, the total unrecognized compensation cost related to all nonvested awards was
$8.6 million
. That cost is expected to be recognized over a weighted average period of
2.49
years.
Historically, we have issued new shares to satisfy award conversions.
16.
RELATED PARTY TRANSACTIONS
Pilgrim's has been and, in some cases, continues to be a party to certain transactions with affiliated companies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
JBS USA Food Company Holding:
|
|
|
|
|
|
Letter of credit fees
(a)
|
$
|
202
|
|
|
$
|
1,268
|
|
|
$
|
1,339
|
|
Capital contribution under tax sharing agreement
(b)
|
5,038
|
|
|
3,690
|
|
|
3,849
|
|
JBS USA Food Company:
|
|
|
|
|
|
Purchases from JBS USA Food Company
(c)
|
139,476
|
|
|
103,542
|
|
|
115,337
|
|
Expenditures paid by JBS USA Food Company on behalf of Pilgrim’s Pride Corporation
(d)
|
40,519
|
|
|
40,611
|
|
|
31,149
|
|
Sales to JBS USA Food Company
(c)
|
16,534
|
|
|
21,743
|
|
|
39,682
|
|
Expenditures paid by Pilgrim’s Pride Corporation on behalf of JBS USA Food Company
(d)
|
10,586
|
|
|
3,998
|
|
|
4,925
|
|
Seara International Ltd.:
|
|
|
|
|
|
Purchases from Seara International Ltd.
|
2,746
|
|
|
2,784
|
|
|
2,091
|
|
JBS Global (UK) Ltd.:
|
|
|
|
|
|
Sales to JBS Global (UK) Ltd.
|
122
|
|
|
305
|
|
|
255
|
|
JBS Chile Ltda.:
|
|
|
|
|
|
Sales to JBS Chile Ltda.
|
615
|
|
|
100
|
|
|
463
|
|
Macedo Agroindustrial Ltda.:
|
|
|
|
|
|
Purchases from Macedo Agroindustrial Ltda.
|
—
|
|
|
60
|
|
|
—
|
|
JBS Aves Ltda.:
|
|
|
|
|
|
Purchases from JBS Aves Ltda.
|
—
|
|
|
—
|
|
|
4,072
|
|
JBS Five Rivers:
|
|
|
|
|
|
Sales to JBS Five Rivers
|
14,126
|
|
|
—
|
|
|
—
|
|
J&F Investimentos Ltd.:
|
|
|
|
|
|
Sales to J&F Investimentos Ltd.
|
69
|
|
|
—
|
|
|
—
|
|
|
|
(a)
|
JBS USA Food Company Holdings (“JBS USA Holdings”) arranged for letters of credit to be issued on its account in the aggregate amount of
$56.5 million
to an insurance company on our behalf in order to allow that insurance company to return cash it held as collateral against potential workers’ compensation, auto liability and general liability claims. In return for providing this letter of credit, the Company has agreed to reimburse JBS USA Holdings for the letter of credit fees the Company would otherwise incur under its U.S. Credit Facility. The letter of credit arrangements for
$40.0 million
and
$16.5 million
were terminated on March 7, 2016 and April 1, 2016, respectively. During 2016, the Company paid JBS USA Holdings
$0.2 million
for letter of credit fees.
|
|
|
(b)
|
The Company entered into a tax sharing agreement during 2014 with JBS USA Holdings effective for tax years starting 2010. The net tax receivable for tax year 2016 was accrued in 2016 and will be paid in 2017. The net tax receivable for tax year 2015 was accrued in 2015 and paid in January 2016. The net tax receivable for tax years 2010 through 2014 was accrued in 2014 and paid in January 2015.
|
|
|
(c)
|
We routinely execute transactions to both purchase products from JBS USA Food Company (“JBS USA”) and sell products to them. As of
December 25, 2016
and December 27, 2015, the outstanding payable to JBS USA was
$1.4 million
and
$7.0 million
, respectively. As of
December 25, 2016
and December 27, 2015, the outstanding receivable from JBS USA was
$3.8 million
and
$2.6 million
, respectively. As of
December 25, 2016
, approximately
$2.9 million
of goods from JBS USA were in transit and not reflected on our Consolidated Balance Sheet.
|
|
|
(d)
|
The Company has an agreement with JBS USA to allocate costs associated with JBS USA’s procurement of SAP licenses and maintenance services for both companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA in proportion to the percentage of licenses used by each company. The agreement expires on the date of expiration, or earlier termination, of the underlying SAP license agreement. The Company also has an agreement with JBS USA to allocate the costs of supporting the business operations by one consolidated corporate team, which have historically been supported by their respective corporate teams. Expenditures paid by JBS USA on behalf of the Company will be reimbursed by the Company and expenditures paid by the Company on behalf of JBS USA will be reimbursed by JBS USA. This agreement expires on December 31, 2019.
|
17.
COMMITMENTS AND CONTINGENCIES
General
We are a party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. Among other considerations, we have not recorded a liability for any of these indemnities as based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on our financial condition, results of operations and cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase Obligations
The Company will sometimes enter into noncancelable contracts to purchase capital equipment and certain commodities such as corn, soybean meal, and electricity. At
December 25, 2016
, the Company was party to outstanding purchase contracts totaling
$178.0 million
and
$0.5 million
payable in
2017
and
2018
, respectively. There were
no
outstanding purchase contracts in 2019.
Operating Leases
The Consolidated Statements of Operations include rental expense for operating leases of approximately
$32.5 million
,
$25.3 million
and
$15.2 million
in
2016
,
2015
and
2014
, respectively. The Company’s future minimum lease commitments under noncancelable operating leases are as follows (in thousands):
|
|
|
|
|
|
2017
|
|
$
|
26,819
|
|
2018
|
|
23,386
|
|
2019
|
|
20,200
|
|
2020
|
|
14,364
|
|
2021
|
|
11,582
|
|
Thereafter
|
|
11,649
|
|
Total
|
|
$
|
108,000
|
|
Certain of the Company’s operating leases include rent escalations. The Company includes the rent escalation in its minimum lease payments obligations and recognizes them as a component of rental expense on a straight-line basis over the minimum lease term.
The Company also maintains operating leases for various types of equipment, some of which contain residual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease maturities range from
one
to
ten
years. The maximum potential amount of the residual value guarantees is estimated to be approximately
$34.7 million
; however, the actual amount would be offset by any recoverable amount based on the fair market value of the underlying leased assets. No liability has been recorded related to this contingency as the likelihood of payments under these guarantees is not considered to be probable and the fair value of such guarantees is immaterial. The Company historically has not experienced significant payments under similar residual guarantees.
Financial Instruments
The Company’s loan agreements generally obligate the Company to reimburse the applicable lender for incremental increased costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, some of the Company’s loan agreements contain a withholding tax provision that requires the Company to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts the Company could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default, and, in a secured financing transaction, would entitle the lender to foreclose upon the collateral to realize the amount due.
Litigation
We are a party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. Among other considerations, we have not recorded a liability for any of these indemnities as based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on our financial condition, results of operations and cash flows.
The Company is subject to various legal proceedings and claims which arise in the ordinary course of business. In the Company’s opinion, it has made appropriate and adequate accruals for claims where necessary; however, the ultimate liability for these matters is uncertain, and if significantly different than the amounts accrued, the ultimate outcome could have a material effect on the financial condition or results of operations of the Company. For a discussion of the material legal proceedings and claims, see Part II, Item 1. “Legal Proceedings.” Below is a summary of some of these material proceedings and claims. The Company believes it has substantial defenses to the claims made and intends to vigorously defend these cases.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax Claims and Proceedings
In 2009, the IRS asserted claims against the Company totaling
$74.7 million
. Following a series of objections, motions and opposition filed by both parties with the Bankruptcy Court, the Company worked with the IRS through the normal processes and procedures that are available to resolve the IRS’ claims. On December 12, 2012, the Company entered into
two
Stipulations of Settled Issues agreements with the IRS (the “Stipulations”). The first Stipulation related to the Company’s 2003, 2005, and 2007 tax years and resolved all of the material issues in the case. The second Stipulation related to the Company as the successor in interest to Gold Kist Inc. (“Gold Kist”) for the tax years ended June 30, 2005 and September 30, 2005, and resolved all substantive issues in the case. These Stipulations accounted for approximately
$29.3 million
of the claims and should result in no additional tax due. The Company is currently working with the IRS to finalize the complete tax calculations associated with the Stipulations.
Other Claims and Proceedings
Between September 2, 2016 and October 13, 2016,
ten
purported class action lawsuits were filed with the U.S. District Court for the Northern District of Illinois against Pilgrim’s and
13
other producers by and on behalf of direct and indirect purchasers of broiler chickens. On October 5, 2016, the Court consolidated the complaints, for pretrial purposes, into actions on behalf of three different putative classes: direct purchasers, indirect purchasers/consumers and commercial/institutional indirect purchasers. These actions are now styled
In re Broiler Chicken Antitrust Litigation
. The current operative complaints filed on behalf of each putative class allege, among other things, a conspiracy among defendants to reduce output and fix, increase, maintain, and stabilize the prices of broiler chickens in violation of the U.S. antitrust laws from the period of January 2008 to the present. The complaints on behalf of putative classes of indirect purchasers also include causes of action under various state consumer protection laws, unfair competition laws and unjust enrichment common laws. The complaints seek treble damages, injunctive relief, pre- and post-judgment interest, costs, and attorneys’ fees on behalf of the putative class. Pilgrim’s has filed motions to dismiss these actions.
On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of Pilgrim’s stock between February 21, 2014 and October 6, 2016, filed a class action complaint in the U.S. District Court for the District of Colorado against Pilgrim’s and its named executive officers. The complaint alleges, among other things, that Pilgrim’s SEC filings contained statements that were rendered materially false and misleading by Pilgrim’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) Pilgrim’s revenues during the class period were the result of illegal conduct and (iv) that Pilgrim’s lacked effective internal control over financial reporting, as well as stating that Pilgrim’s industry was anticompetitive. The Court has not yet appointed a lead plaintiff and no consolidated class action complaint has been filed.
On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against Pilgrim’s and
10
other producers in the Eastern District of Oklahoma, alleging, among other things, a conspiracy among the defendants to reduce competition in the domestic market for broiler chickens. Plaintiffs’ allegations are similar to those raised in the
In re Broiler Chicken Antitrust Litigation
, and seek, among other relief, treble damages.
We believe we have strong defenses in response to plaintiffs’ allegations and intend to contest these actions vigorously. We cannot predict the outcome of these actions nor when they will be resolved. If the plaintiffs were to prevail in any of these actions, we could be liable for damages, which could be material and could adversely affect our financial condition or results of operations.
18.
MARKET RISKS AND CONCENTRATIONS
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, investment securities and trade accounts receivable. The Company’s cash equivalents and investment securities are high-quality debt and equity securities placed with major banks and financial institutions. The Company’s trade accounts receivable are generally unsecured. Credit evaluations are performed on all significant customers and updated as circumstances dictate. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across geographic areas. With the exception of one customer that accounts for approximately
9.4%
of trade accounts and other receivables at December 25, 2016, and approximately
7.3%
of net sales for 2016, the Company does not believe it has significant concentrations of credit risk in its trade accounts receivable.
As of December 25, 2016, we employed approximately
29,850
persons in the U.S. and approximately
9,750
persons in Mexico. Approximately
42.9%
of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2017 or later, with the exception of
three
processing operations locations, where the collective bargaining agreement expired in 2016. Collective
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
bargaining agreements have been reached for
two
of these
three
processing operations locations and we expect to ratify these agreements in 2017. Negotiations are ongoing on the collective borrowing agreement for the remaining processing operations location. We have not experienced any labor-related work stoppage at any location in over
ten years
. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of an agreement, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.
The aggregate carrying amount of net assets belonging to our Mexico operations was $
673.0 million
and
$576.6 million
at December 25, 2016 and December 27, 2015, respectively.
19.
BUSINESS SEGMENT AND GEOGRAPHIC REPORTING
We operate in
one
reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale in the U.S., Puerto Rico and Mexico. We conduct separate operations in the U.S., Puerto Rico and Mexico; however, for geographic reporting purposes, we include Puerto Rico with our U.S. operations. 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.
Net sales to customers by customer location and long-lived assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(In thousands)
|
Net sales to customers by customer location:
|
|
|
|
|
|
|
United States
|
|
$
|
6,459,729
|
|
|
$
|
6,722,455
|
|
|
$
|
7,067,408
|
|
Mexico
|
|
1,180,947
|
|
|
1,116,455
|
|
|
1,075,764
|
|
Asia
|
|
99,295
|
|
|
120,288
|
|
|
246,141
|
|
Canada, Caribbean and Central America
|
|
152,058
|
|
|
176,396
|
|
|
80,121
|
|
Africa
|
|
14,124
|
|
|
16,171
|
|
|
49,810
|
|
Europe
|
|
11,174
|
|
|
12,841
|
|
|
44,377
|
|
South America
|
|
11,955
|
|
|
12,114
|
|
|
18,102
|
|
Pacific
|
|
1,841
|
|
|
3,384
|
|
|
1,642
|
|
Total
|
|
$
|
7,931,123
|
|
|
$
|
8,180,104
|
|
|
$
|
8,583,365
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
(In thousands)
|
Long-lived assets
(a)
:
|
|
|
|
United States
|
$
|
1,220,263
|
|
|
$
|
1,108,776
|
|
Mexico
|
285,677
|
|
|
243,753
|
|
Total
|
$
|
1,505,940
|
|
|
$
|
1,352,529
|
|
|
|
(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.
|
The following table sets forth, for the periods beginning with
2014
, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
U.S. chicken:
|
|
|
|
|
|
Prepared chicken
|
$
|
1,269,010
|
|
|
$
|
1,672,693
|
|
|
$
|
1,787,389
|
|
Fresh chicken
|
4,627,137
|
|
|
4,701,943
|
|
|
4,703,993
|
|
Export and other chicken
|
313,827
|
|
|
358,877
|
|
|
620,082
|
|
Total U.S. chicken
|
6,209,974
|
|
|
6,733,513
|
|
|
7,111,464
|
|
Mexico chicken
|
1,245,644
|
|
|
1,016,200
|
|
|
900,360
|
|
Total chicken
|
7,455,618
|
|
|
7,749,713
|
|
|
8,011,824
|
|
Other products:
|
|
|
|
|
|
U.S.
|
461,429
|
|
|
409,841
|
|
|
535,572
|
|
Mexico
|
14,076
|
|
|
20,550
|
|
|
35,969
|
|
Total other products
|
475,505
|
|
|
430,391
|
|
|
571,541
|
|
Total net sales
|
$
|
7,931,123
|
|
|
$
|
8,180,104
|
|
|
$
|
8,583,365
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20.
QUARTERLY RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
(a)
|
|
Year
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
1,962,937
|
|
|
$
|
2,028,315
|
|
|
$
|
2,031,721
|
|
|
$
|
1,908,150
|
|
|
$
|
7,931,123
|
|
Gross profit
|
|
237,562
|
|
|
286,131
|
|
|
210,217
|
|
|
180,450
|
|
|
914,360
|
|
Net income attributable to PPC
common stockholders
|
|
118,371
|
|
|
152,886
|
|
|
98,657
|
|
|
70,618
|
|
|
440,532
|
|
Net income per share amounts -
basic
|
|
0.46
|
|
|
0.60
|
|
|
0.39
|
|
|
0.29
|
|
|
1.74
|
|
Net income per share amounts -
diluted
|
|
0.46
|
|
|
0.60
|
|
|
0.39
|
|
|
0.28
|
|
|
1.73
|
|
Number of days in period
|
|
91
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
First
|
|
Second
(b)
|
|
Third
(c)
|
|
Fourth
(c)
|
|
Year
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
2,052,919
|
|
|
$
|
2,053,876
|
|
|
$
|
2,112,529
|
|
|
$
|
1,960,780
|
|
|
$
|
8,180,104
|
|
Gross profit (loss)
|
|
377,120
|
|
|
432,020
|
|
|
284,544
|
|
|
160,693
|
|
|
1,254,377
|
|
Net income attributable to PPC
common stockholders
|
|
204,215
|
|
|
241,489
|
|
|
137,062
|
|
|
63,148
|
|
|
645,914
|
|
Net income per share amounts -
basic
|
|
0.79
|
|
|
0.93
|
|
|
0.53
|
|
|
0.25
|
|
|
2.50
|
|
Net income per share amounts -
diluted
|
|
0.79
|
|
|
0.93
|
|
|
0.53
|
|
|
0.25
|
|
|
2.50
|
|
Number of days in period
|
|
91
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Year
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
2,018,065
|
|
|
$
|
2,186,817
|
|
|
$
|
2,268,048
|
|
|
$
|
2,110,435
|
|
|
$
|
8,583,365
|
|
Gross profit
|
|
215,106
|
|
|
349,476
|
|
|
450,265
|
|
|
379,148
|
|
|
1,393,995
|
|
Net income attributable to PPC
common stockholders
|
|
98,117
|
|
|
190,360
|
|
|
255,983
|
|
|
167,188
|
|
|
711,648
|
|
Net income per share amounts -
basic
|
|
0.38
|
|
|
0.74
|
|
|
0.99
|
|
|
0.65
|
|
|
2.75
|
|
Net income per share amounts -
diluted
|
|
0.38
|
|
|
0.73
|
|
|
0.99
|
|
|
0.64
|
|
|
2.74
|
|
Number of days in period
|
|
91
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
364
|
|
|
|
(a)
|
In the fourth quarter of 2016, the company recognized impairment charges of
$1.1 million
related to our Dallas, Texas plant held for sale.
|
|
|
(b)
|
In the second quarter of 2015, the Company recognized impairment charges of
$4.8 million
related to our Dallas, Texas and Bossier City, Louisiana plants held for sale.
|
|
|
(c)
|
On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries,
100%
of the equity of Tyson Mexico from Tyson Foods, Inc. and certain of its subsidiaries. The results of operations of the acquired business since June 29, 2015 are included in the Company’s Consolidated Statements of Operations. Net sales generated by the acquired business during the third and fourth quarters of 2015 were
$128.9 million
and
$121.7 million
, respectively. The acquired business incurred net losses of
$2.9 million
and
$10.8 million
during the third and fourth quarters of 2015, respectively.
|