PILGRIM’S PRIDE CORPORATION
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
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Fifty-Two Weeks Ended December 30, 2018
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Fifty-Three Weeks Ended December 31, 2017
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Fifty-Two Weeks
Ended
December 25, 2016
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(In thousands)
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Cash flows from operating activities:
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|
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Net income
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$
|
246,804
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|
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$
|
718,167
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|
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$
|
480,117
|
|
Adjustments to reconcile net income to cash provided by operating activities:
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|
|
|
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Depreciation and amortization
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279,657
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|
|
277,792
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|
|
231,708
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|
Asset impairment
|
3,504
|
|
|
5,156
|
|
|
790
|
|
Foreign currency transaction losses (gains) related to borrowing arrangements
|
5,267
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|
|
(1,387
|
)
|
|
—
|
|
Loss on early extinguishment of debt recognized as a component of interest expense
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15,818
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|
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—
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|
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—
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|
Amortization of bond premium
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(668
|
)
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|
(180
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)
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|
—
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Accretion of bond discount
|
812
|
|
|
—
|
|
|
—
|
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Gain on property disposals
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(1,889
|
)
|
|
(506
|
)
|
|
(8,914
|
)
|
Loss (gain) on equity method investments
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(63
|
)
|
|
(59
|
)
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|
452
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|
Share-based compensation
|
13,153
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|
|
3,020
|
|
|
6,102
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Deferred income tax expense (benefit)
|
32,540
|
|
|
(49,963
|
)
|
|
(5,034
|
)
|
Changes in operating assets and liabilities:
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|
|
|
|
|
Trade accounts and other receivables
|
(10,918
|
)
|
|
(82,169
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)
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|
(32,428
|
)
|
Inventories
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83,174
|
|
|
(207,399
|
)
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|
(33,083
|
)
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Prepaid expenses and other current assets
|
(11,612
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)
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|
(14,827
|
)
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|
19,270
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|
Accounts payable and accrued expenses
|
86,834
|
|
|
(22,827
|
)
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|
75,893
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Income taxes
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(248,470
|
)
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|
188,120
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|
|
75,238
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|
Long-term pension and other postretirement obligations
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(6,751
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)
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|
(10,864
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)
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|
(10,165
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)
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Other
|
4,458
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|
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(753
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)
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(4,584
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)
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Cash provided by operating activities
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491,650
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|
|
801,321
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|
|
795,362
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Cash flows from investing activities:
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|
|
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|
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Acquisitions of property, plant and equipment
|
(348,666
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)
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|
(339,872
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)
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|
(340,960
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)
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Proceeds from property disposals
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9,775
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|
|
4,475
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|
|
13,375
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Purchase of acquired business, net of cash acquired
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—
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|
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(658,520
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)
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|
—
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Proceeds from settlement of life insurance contract
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—
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|
|
1,845
|
|
|
—
|
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Cash used in investing activities
|
(338,891
|
)
|
|
(992,072
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)
|
|
(327,585
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)
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Cash flows from financing activities:
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|
|
|
|
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Payments on revolving line of credit, long-term borrowings and capital lease obligations
|
(1,117,009
|
)
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(628,677
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)
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(570,015
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)
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Proceeds from revolving line of credit and long-term borrowings
|
748,382
|
|
|
1,871,818
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|
|
593,015
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Payment of capitalized loan costs
|
(12,581
|
)
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|
(13,631
|
)
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|
(693
|
)
|
Payment on early extinguishment of debt
|
(9,781
|
)
|
|
—
|
|
|
—
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|
Proceeds from capital contribution under Tax Sharing Agreement between
JBS USA Food Company Holdings and Pilgrim’s Pride Corporation
|
5,558
|
|
|
5,038
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|
|
3,690
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|
Capital contributions to subsidiary by noncontrolling stockholders
|
1,421
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|
|
—
|
|
|
7,252
|
|
Purchase of common stock under share repurchase program
|
(236
|
)
|
|
(14,641
|
)
|
|
(117,884
|
)
|
Payment of note payable to affiliate
|
—
|
|
|
(753,512
|
)
|
|
—
|
|
Payment of cash dividend
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—
|
|
|
—
|
|
|
(714,785
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)
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Payments on notes payable to bank
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—
|
|
|
—
|
|
|
(65,564
|
)
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Proceeds from notes payable to bank
|
—
|
|
|
—
|
|
|
36,838
|
|
Purchase of common stock from retirement plan participants
|
—
|
|
|
—
|
|
|
(73
|
)
|
Cash provided by (used in) financing activities
|
(384,246
|
)
|
|
466,395
|
|
|
(828,219
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
3,534
|
|
|
16,364
|
|
|
(38,587
|
)
|
Increase (decrease) in cash and cash equivalents
|
(227,953
|
)
|
|
292,008
|
|
|
(399,029
|
)
|
Cash and cash equivalents, beginning of period
|
589,531
|
|
|
297,523
|
|
|
696,552
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Cash and cash equivalents, end of period
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$
|
361,578
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|
|
$
|
589,531
|
|
|
$
|
297,523
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|
Supplemental Disclosure Information:
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|
|
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Interest paid (net of amount capitalized)
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$
|
154,627
|
|
|
$
|
81,260
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|
|
$
|
69,857
|
|
Income taxes paid
|
253,932
|
|
|
122,956
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|
|
161,026
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|
The accompanying notes are an integral part of these Consolidated and Combined Financial Statements.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico and the Netherlands. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company’s primary distribution is through retailers, foodservice distributors and restaurants throughout the countries listed above. Additionally, the Company exports chicken products to approximately
100
countries. Pilgrim’s fresh chicken products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company’s prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. The Company’s other products include ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in
14
U.S. states, the U.K., Mexico, France, Puerto Rico and the Netherlands. As of
December 30, 2018
, Pilgrim’s had approximately
52,100
employees and the capacity to process more than
45.3 million
birds per week for a total of more than
13.4 billion
pounds of live chicken annually. Approximately
5,300
contract growers supply poultry for the Company’s operations. As of
December 30, 2018
, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”) beneficially owned
78.5%
of the Company’s outstanding common stock.
Consolidated and Combined Financial Statements
The Company operates on the basis of a
52
/
53
-week fiscal year ending on the Sunday falling on or before December 31. Any reference we make to a particular year (for example,
2018
) in the notes to these Consolidated and Combined Financial Statements applies to our fiscal year and not the calendar year.
On September 8, 2017, a subsidiary of the Company acquired
100%
of the issued and outstanding shares of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”) from JBS S.A. in a common-control transaction. Moy Park was acquired by JBS S.A. from an unrelated third party on September 30, 2015. For the period from September 30, 2015 through September 7, 2017, the Consolidated and Combined Financial Statements include the accounts of the Company and its majority-owned subsidiaries combined with the accounts of Moy Park. For the periods subsequent to September 8, 2017, the Consolidated and Combined Financial Statements include the accounts of the Company and its majority-owned subsidiaries, including Moy Park. We eliminate all significant affiliate accounts and transactions upon consolidation.
The Consolidated and Combined Financial Statements have been prepared in conformity with U.S. GAAP using management’s best estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. Significant estimates made by the Company include the allowance for doubtful accounts, reserves related to inventory obsolescence or valuation, useful lives of long-lived assets, goodwill, valuation of deferred tax assets, insurance accruals, valuation of pension and other postretirement benefits obligations, income tax accruals, certain derivative positions and valuations of acquired businesses.
The functional currency of the Company's U.S. and Mexico operations and certain holding-company subsidiaries in Luxembourg, the U.K. and Ireland is the U.S. dollar. The functional currency of its U.K. operations is the British pound. The functional currency of the Company's operations in France and the Netherlands is the euro. For foreign currency-denominated entities other than the Company's Mexico operations, translation from local currencies into U.S. dollars is performed for most assets and liabilities using the exchange rates in effect as of the balance sheet date. Income and expense accounts are remeasured using average exchange rates for the period. Adjustments resulting from translation of these financial records are reflected as a separate component of
Accumulated other comprehensive loss
in the Consolidated Balance Sheets. For the Company's Mexico operations, remeasurement from the Mexican peso to U.S. dollars is performed for monetary assets and liabilities using the exchange rate in effect as of the balance sheet date. Remeasurement is performed for non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Income and expense accounts are remeasured using average exchange rates for the period. Net adjustments resulting from remeasurement of these financial records are reflected in
Foreign currency transaction losses (gains)
in the Consolidated and Combined Statements of Income.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The Company or its subsidiaries may use derivatives for the purpose of mitigating exposure to changes in foreign currency exchange rates. Foreign currency transaction gains or losses are reported in the Consolidated and Combined Statements of Income.
During 2017, the Company reported an adjustment resulting from the translation of a British pound-denominated note payable owed to JBS as a component of
Accumulated other comprehensive loss
in the Consolidated Balance Sheet. The Company designated this note payable as a hedge of its net investment in Moy Park. This adjustment remains in
Accumulated other comprehensive loss
as of December 30, 2018 and will be reclassified if the Company disposes of its investment in Moy Park.
We made the following reclassification to the Consolidated Balance Sheet presented as of December 31, 2017 in order to conform to the Consolidated Balance Sheet presented as of
December 30, 2018
:
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|
|
|
|
|
December 31, 2017
|
|
As Presented in 2017 Annual Report on Form 10-K
|
|
Adjustment Resulting from Adoption of FASB Guidance
|
|
As Presented in the Consolidated
Balance Sheet
|
|
(In thousands)
|
Accounts payable
|
$
|
762,444
|
|
|
$
|
(29,417
|
)
|
|
$
|
733,027
|
|
Accrued expense and other current liabilities
|
417,342
|
|
|
(7,190
|
)
|
|
410,152
|
|
Revenue contract liability
|
—
|
|
|
36,607
|
|
|
36,607
|
|
Revenue Recognition
The vast majority of the Company's revenue is derived from contracts which are based upon a customer ordering its products. While there may be master agreements, the contract is only established when the customer’s order is accepted by the Company. The Company accounts for a contract, which may be verbal or written, when it is approved and committed by both parties, the rights of the parties are identified along with payment terms, the contract has commercial substance and collectability is probable.
The Company evaluates the transaction for distinct performance obligations, which are the sale of its products to customers. Since its products are commodity market-priced, the sales price is representative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or port of destination), and faithfully depicts the transfer of control and recognition of revenue. There are instances of customer pick-up at the Company's facilities, in which case control transfers to the customer at that point and the Company recognizes revenue. The Company's performance obligations are typically fulfilled within days to weeks of the acceptance of the order.
The Company makes judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is constrained. Due to the nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and updated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.
Shipping and Handling Costs
In the rare case when shipping and handling activities are performed after a customer obtains control of the good, the Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the good. When revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued. Shipping and handling costs are recorded within cost of sales.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs are included in selling, general and administrative (“SG&A”) expense and totaled
$20.8 million
,
$18.5 million
and
$12.3 million
for
2018
,
2017
and
2016
, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development costs totaled
$4.0 million
,
$3.7 million
and
$3.5 million
for
2018
,
2017
and
2016
, respectively.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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 and Combined Statements of Cash Flows.
Restricted Cash
The Company is required to maintain cash balances with a broker as collateral for exchange traded futures contracts. These balances are classified as restricted cash as they are not available for use by the Company to fund daily operations. The balance of restricted cash may also include investments in U.S. Treasury Bills that qualify as cash equivalents, as required by the broker, to offset the obligation to return cash collateral.
The following table reconciles cash, cash equivalents and restricted cash as reported in the Consolidated Balance Sheets to the total of the same amounts shown in the Consolidated and Combined Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Cash and cash equivalents
|
$
|
338,386
|
|
|
$
|
581,510
|
|
Restricted cash
|
23,192
|
|
|
8,021
|
|
Total cash, cash equivalents and restricted cash shown in the
Consolidated and Combined Statements of Cash Flows
|
$
|
361,578
|
|
|
$
|
589,531
|
|
Investments
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 and Combined Financial Statements. Investments in entities in which the Company has an ownership interest between
20%
and
50%
and exercises significant influence are accounted for using the equity method. The Company invests from time to time in ventures in which its ownership interest is less than 20% and over which it does not exercise significant influence. Such investments are accounted for under the cost method. The fair values for investments not traded on a quoted exchange are estimated based upon the historical performance of the ventures, the ventures’ forecasted financial performance and management’s evaluation of the ventures’ viability and business models. To the extent the book value of an investment exceeds its assessed fair value, the Company will record an appropriate impairment charge.
Accounts Receivable
The Company records accounts receivable when revenue is recognized. We record an allowance for doubtful accounts, 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,
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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 net realizable value and breeder hen inventories at the lower of cost, less accumulated amortization, or net realizable value. The costs associated with breeder hen inventories are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. Finished poultry products, feed, eggs and other inventories are stated at the lower of cost (average) or net realizable value.
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 net realizable value 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 represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in a business combination. Identified intangible assets represent trade names, customer relationships and non-compete agreements arising from acquisitions that are recorded at fair value as of the date acquired less accumulated amortization, if any. The Company uses various market valuation techniques to determine the fair value of its identified intangible assets.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise. For goodwill, an impairment loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill. Management first reviews relevant qualitative factors to determine if an indication of impairment exists for a reporting unit. If management determines there is an indication that the carrying amount of reporting unit goodwill might be impaired, a quantitative analysis is performed. Management performed a qualitative analysis noting no indications of goodwill impairment in any of its reporting units as of
December 30, 2018
. For indefinite-lived intangible assets, an impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value of that intangible asset. Management first reviews relevant qualitative factors to determine if an indication of impairment exists. If management determines there is an indication that the carrying amount of the intangible asset might be impaired, a quantitative analysis is performed. Management performed a qualitative analysis noting no indications of impairment for any of its indefinite-lived intangible assets as of
December 30, 2018
.
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
20
years for trade names and non-compete agreements and
5
to
16
years for customer relationships. Identified intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Management assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets with definite lives might not be recoverable and determined that there were
no
impairment indicators during the fifty-two weeks ended
December 30, 2018
and fifty-three weeks ended
December 31, 2017
.
Book Overdraft Balances
The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated and Combined Statements of Cash Flows.
Litigation and Contingent Liabilities
The Company is subject to lawsuits, investigations and other claims related to employment, environmental, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. The Company estimates the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. The Company expenses legal costs related to such loss contingencies as they are incurred. The accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.
Accrued Self Insurance
Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit the Company’s total exposure. Certain categories of claim liabilities are actuarially determined. The assumptions used to arrive at periodic expenses are reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.
Asset Retirement Obligations
The Company monitors certain asset retirement obligations in connection with its operations. These obligations relate to clean-up, removal or replacement activities and related costs for “in-place” exposures only when those exposures are moved or modified, such as during renovations of our facilities. These in-place exposures include asbestos, refrigerants, wastewater, oil, lubricants and other contaminants common in manufacturing environments. Under existing regulations, the Company is not required to remove these exposures and there are no plans to undertake a renovation that would require removal of the asbestos or the remediation of the other in-place exposures at this time. The facilities are expected to be maintained and repaired by activities that will not result in the removal or disruption of these in-place exposures at this time. As a result, there is an indeterminate settlement date for these asset retirement obligations because the range of time over which the Company may incur these liabilities is unknown and cannot be reasonably estimated. Therefore, the Company has not recorded the fair value of any potential liability.
Income Taxes
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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 and Combined Financial Statements.
The Company deems its earnings from Mexico, Puerto Rico and the United Kingdom as of
December 30, 2018
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. See “Note 12. Income Taxes” to the Consolidated and Combined Financial Statements.
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 50.0% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 12. Income Taxes” to the Consolidated and Combined Financial Statements.
Pension and Other Postemployment Benefits
Our pension and other postemployment benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, long-term return on plan assets and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. We determine the long-term return on plan assets based on historical portfolio results and management’s expectation of the future economic environment. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over either (i) 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.
Derivative Financial Instruments
The Company uses derivative financial instruments (e.g., futures, forwards and options) for the purpose of mitigating exposure to changes in commodity prices and foreign currency exchange rates.
|
|
•
|
Commodity Price Risk -
The Company utilizes various raw materials, which are all considered commodities, in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel. The Company
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
considers these raw materials to be generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company enters into derivative contracts such as physical forward contracts and exchange-traded futures or option contracts in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for periods up to 12 months. The Company may enter into longer-term derivatives on particular commodities if deemed appropriate.
|
|
•
|
Foreign Currency Risk -
The Company has foreign operations and, therefore, has exposure to foreign exchange risk when the financial results of those operations are translated to US dollars. The Company will occasionally purchase derivative financial instruments such as foreign currency forward contracts in an attempt to mitigate currency exchange rate exposure related to the net assets of its Mexico operations that are denominated in Mexican pesos. The Company’s Moy Park operation also attempts to mitigate foreign currency exposure on certain euro- and U.S. dollar-denominated transactions through the use of derivative financial instruments.
|
Pilgrim’s recognizes all commodity derivative instruments that qualify for derivative accounting treatment as either assets or liabilities and measures those instruments at fair value unless they qualify for, and we elect, the normal purchases and normal sales scope exception (“NPNS”). The permitted accounting treatments include: cash flow hedge; fair value hedge; and undesignated contracts. Undesignated contract accounting is the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria both at the time of designation and on an ongoing basis.
The Company has generally applied the NPNS exception to its forward physical grain purchase contracts. NPNS contracts are accounted for using the accrual method of accounting; therefore, there were
no
amounts recorded in the Consolidated and Combined Financial Statements at
December 30, 2018
and
December 31, 2017
.
Undesignated contracts may include contracts not designated as a hedge or for which the NPNS exception was not elected, contracts that do not qualify for hedge accounting and derivatives that do not or no longer qualify for the NPNS scope exception. The fair value of these derivatives is recognized in the Consolidated Balance Sheets within
Prepaid expenses and other current assets
or
Accrued expenses and other current liabilities
. Changes in fair value of these derivatives are recognized immediately in the Consolidated and Combined Statements of Income within
Net sales
,
Cost of sales
or
Selling, general and administrative expense
, depending on the risk they are intended to mitigate. While management believes these instruments help mitigate various market risks, they are not designated nor accounted for as hedges as a result of the extensive record keeping requirements.
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.
Recent Accounting Pronouncements Adopted in 2018
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. We adopted this standard as of January 1, 2018, the beginning of our 2018 fiscal year, using the cumulative effect adjustment, often referred to as modified retrospective approach. Under this method, we did not restate the prior financial statements presented, and would record any adjustments in the opening balance sheet for January 2018. There was no cumulative effect to be recorded as an adjustment to the opening balance of retained earnings. The comparative information was not restated and continues to be presented under the accounting standards in effect for those periods. Additional disclosures will include the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the prior guidance. We expect minimal impact from the adoption of the new standard to the financial statements on a go forward basis, except for expanded disclosures. Revenue is currently recognized at destination and will continue to be recognized at point in time under the new guidance. Additional information regarding revenue recognition is included in “Note 13. Revenue Recognition.”
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
In March 2017, the FASB issued ASU 2017-07,
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which, in an effort to improve consistency and transparency, requires the service cost component of defined benefit pension cost and postretirement benefit cost (“net benefit cost”) to be reported in the same line of the income statement as other compensation costs earned by the employee and the other components of net benefit cost to be reported below income from operations. We adopted this standard as of January 1, 2018, the beginning of our 2018 fiscal year. The initial adoption of this guidance did not have a material impact on our financial statements.
Recent Accounting Pronouncements Not Yet Adopted as of December 30, 2018
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
, along with several updates, 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 operating 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 may elect to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or the beginning of the period of adoption using a cumulative-effect adjustment approach. The provisions of the new guidance will be effective as of the beginning of our 2019 fiscal year. We will adopt the new standard as of December 31, 2018, the beginning of our 2019 fiscal year and recognize and measure leases at the beginning of the period of adoption. We will elect the package of practical expedients available under the transition guidance which, among other things, allows the carry-forward of historical lease classification. We will make an accounting policy election to not apply the new guidance to leases with a term of 12 months or less and will recognize those payments in the Consolidated Statement of Income on a straight-line basis over the lease term. We have implemented a system solution for administering our leases and facilitating compliance with the new guidance. Adoption of the standard will have a material impact on our Consolidated Balance Sheet as a result of the increase in assets and liabilities from recognition of right-of-use assets and lease liabilities. However, we do not believe the standard will have a material impact on our Consolidated Statement of Income.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): 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 August 2017, the FASB issued ASU 2017-12,
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
, an accounting standard update that simplifies the application of hedge accounting guidance in current GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. Among the simplification updates, the standard eliminates the requirement in current GAAP to separately recognize periodic hedge ineffectiveness. Mismatches between the changes in value of the hedged item and hedging instrument may still occur but they will no longer be separately reported. The standard requires the presentation of the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The standard is effective for annual and interim reporting periods beginning after December 15, 2018, but early adoption is permitted. We have elected to adopt this standard as of December 31, 2018, the beginning of our 2019 fiscal year. We do not expect the initial adoption of this guidance did not have a material impact on our financial statements.
In February 2018, the FASB issued ASU 2018-02,
Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
, an accounting standard update that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. The Company will need to decide whether to reclassify the stranded tax effects associated with the U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. If the Company chooses to reclassify we will need to calculate the amount of the reclassification and prepare the related disclosures. We have elected to adopt this standard as of December 31, 2018, the beginning of our 2019 fiscal year. We do not expect the initial adoption of this guidance did not have a material impact on our financial statements.
In July 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
, an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share based payments. The accounting standards update is effective as of the beginning of our 2019 calendar year with early adoption permitted.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
We have elected to adopt this standard as of December 31, 2018, the beginning of our 2019 fiscal year. We do not expect the initial adoption of this guidance did not have a material impact on our financial statements.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, new accounting guidance to improve the effectiveness of disclosures related to fair value measurements. The new guidance removes certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy along with the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Additions to the disclosure requirements include more quantitative information related to significant unobservable inputs used in Level 3 fair value measurements and gains and losses included in other comprehensive income. The new guidance will be effective as of our 2020 fiscal year with early adoption permitted. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In August 2018, the FASB issued ASU 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
, new accounting guidance to improve the effectiveness of disclosures related to defined benefit plans by eliminating certain required disclosures, clarifying existing disclosures, and adding new disclosures. Changes include removing disclosures related to the amounts in accumulated other comprehensive income expected to be recognized in the next fiscal year, adding narrative disclosure of the reasons for significant gains and losses related to changes in the defined benefit obligation, and clarifying the disclosures required for plans with projected and accumulated benefit obligations in excess of plan assets. The new guidance will be effective as of our 2020 fiscal year with early adoption 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
Moy Park
On September 8, 2017, the Company purchased
100%
of the issued and outstanding shares of Moy Park from JBS S.A. for cash of
$301.3 million
and a note payable to the seller in the amount of £
562.5 million
. Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers. With
4
fresh processing plants,
10
prepared foods cook plants,
3
feed mills,
6
hatcheries and
1
rendering facility in Northern Ireland, England, France, and the Netherlands, Moy Park processes
6.1 million
birds per seven-day work week, in addition to producing around
462.0 million
pounds of prepared foods per year. Its product portfolio comprises fresh and added-value poultry, ready-to-eat meals, breaded and multi-protein frozen foods, vegetarian foods and desserts, supplied to major food retailers and restaurant chains in Europe (including the U.K.). Moy Park has approximately
10,300
employees as of
December 30, 2018
. The Moy Park operations comprise our U.K. and Europe segment.
The acquisition was treated as a common-control transaction under U.S. GAAP. A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. The accounting and reporting for a transaction between entities under common control is not to be considered a business combination under U.S. GAAP. Since there is no change in control over the net assets from the parent’s perspective, there is no change in basis in the assets or liabilities. Therefore, Pilgrim's, as the receiving entity, recognized the assets and liabilities received at their historical carrying amounts, as reflected in the parent’s financial statements. The difference between the proceeds transferred and the carrying amounts of the net assets on the date of the acquisition is recognized in equity.
Transaction costs incurred in conjunction with the acquisition were approximately
$19.9 million
. These costs were expensed as incurred. Beginning September 8, 2017, the results of operations and financial position of Moy Park have been included in the consolidated results of operations and financial position of the Company. The results of operations and financial position of Moy Park have been combined with the results of operations and financial position of Pilgrim's from September 30, 2015, the common control date, through September 7, 2017. The following table summarizes the results of operations of Moy Park since the September 30, 2015 common-control date:
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
Net Income
|
|
(In thousands)
|
2018
|
$
|
2,148,666
|
|
|
$
|
52,072
|
|
September 8, 2017 through December 31, 2017
|
722,387
|
|
|
34,039
|
|
December 26, 2016 through September 7, 2017
|
1,273,932
|
|
|
23,486
|
|
2016
|
1,947,441
|
|
|
40,388
|
|
2015
|
572,568
|
|
|
17,010
|
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
GNP
On January 6, 2017, the Company acquired
100%
of the membership interests of JFC LLC and its subsidiaries (together, “GNP”) from Maschhoff Family Foods, LLC for
$350.0 million
, subject to customary working capital adjustments. The purchase was funded through cash on hand and borrowings under the U.S. Credit Agreement. GNP is a vertically integrated poultry business based in St. Cloud, Minnesota. The acquired business has a production capacity of
2.1 million
birds per five-day work week in its
two
plants and employed approximately
1,600
people as of
December 30, 2018
. This acquisition further strengthened the Company’s strategic position in the U.S. chicken market. The GNP operations are included in our U.S. segment.
The following table summarizes the consideration paid for GNP (in thousands):
|
|
|
|
|
Negotiated sales price
|
$
|
350,000
|
|
Working capital adjustment
|
7,252
|
|
Preliminary purchase price
|
$
|
357,252
|
|
Transaction costs incurred in conjunction with the purchase were approximately
$0.6 million
. These costs were expensed as incurred.
The results of operations of the acquired business since January 6, 2017 are included in the Company’s Consolidated and Combined Statements of Income. Net sales generated and net loss incurred by the acquired business during
2018
totaled
$398.4 million
and
$1.4 million
, respectively. Net sales and net income generated by the acquired business during
2017
totaled
$433.9 million
and
$30.4 million
, respectively.
The assets acquired and liabilities assumed in the GNP acquisition were measured at their fair values at January 6, 2017 as set forth below. The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce. These benefits include (i) complementary product offerings, (ii) an enhanced footprint in the U.S., (iii) shared knowledge of innovative technologies such as gas stunning, aeroscalding and automated deboning, (iv) enhanced position in the fast-growing antibiotic-free and certified organic chicken segments due to the addition of GNP’s portfolio of Just BARE® Certified Organic and Natural/American Humane CertifiedTM/No-Antibiotics-Ever product lines and (v) attractive cost-reduction synergy opportunities and value creation. The Company has tax basis in the goodwill, and therefore, the goodwill is deductible for tax purposes. The fair values recorded were determined based upon upon various external and internal valuations..
The fair values recorded for the assets acquired and liabilities assumed for GNP are as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
10
|
|
Trade accounts and other receivables
|
18,453
|
|
Inventories
|
56,459
|
|
Prepaid expenses and other current assets
|
3,414
|
|
Property, plant and equipment
|
144,138
|
|
Identifiable intangible assets
|
131,120
|
|
Other long-lived assets
|
829
|
|
Total assets acquired
|
354,423
|
|
Accounts payable
|
23,848
|
|
Other current liabilities
|
11,866
|
|
Other long-term liabilities
|
3,393
|
|
Total liabilities assumed
|
39,107
|
|
Total identifiable net assets
|
315,316
|
|
Goodwill
|
41,936
|
|
Total net assets
|
$
|
357,252
|
|
The Company recognized certain identifiable intangible assets as of January 6, 2017 due to this acquisition. The following table presents the fair values and useful lives, where applicable, of these assets:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
Fair Value
|
|
Useful Life
|
|
(In thousands)
|
|
(In years)
|
Customer relationships
|
$
|
92,900
|
|
|
13.0
|
Trade names
|
38,200
|
|
|
20.0
|
Non-compete agreement
|
20
|
|
|
3.0
|
Total fair value
|
$
|
131,120
|
|
|
|
Weighted average useful life
|
|
|
15.2
|
The Company performed a valuation of the assets and liabilities of GNP as of January 6, 2017. Significant assumptions used in the valuation and the bases for their determination are summarized as follows:
|
|
•
|
Property, plant and equipment, net
. Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company's real property improvements and the majority of its personal property was based on the cost approach. The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
|
|
|
•
|
Trade names
. The Company valued two trade names using the income approach, specifically the relief from royalty method. Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned. Royalty rates were selected based on consideration of several factors, including (i) prior transactions involving GNP trade names, (ii) incomes derived from license agreements on comparable trade names within the food industry and (iii) the relative profitability and perceived contribution of each trade name. The royalty rate used in the determination of the fair values of the two trade names was
2.0%
of expected net sales related to the respective trade names. In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of
2.5%
. Income taxes were estimated at
39.3%
of pre-tax income, a tax amortization benefit factor was estimated at
1.2098
and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of
13.8%
.
|
|
|
•
|
Customer relationships
. The Company valued GNP customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset was determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the fair value of the customer relationships, net sales related to existing GNP customers were estimated to grow at a rate of
2.5%
annually, but we also anticipate losing existing GNP customers at an attrition rate of
4.0%
. Income taxes were estimated at
39.3%
of pre-tax income, a tax amortization benefit factor was estimated at
1.2098
and net cash flows attributable to our existing customers were discounted using a rate of
13.8%
.
|
See “Note 8. Goodwill and Identified Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the GNP acquisition.
Unaudited Pro Forma Financial Information
The following unaudited pro forma information presents the combined financial results for the Company, Moy Park and GNP as if the acquisitions had been completed at the beginning of
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
10,937,784
|
|
|
$
|
10,773,662
|
|
|
$
|
10,311,325
|
|
Net income attributable to Pilgrim's Pride Corporation
|
236,026
|
|
|
664,776
|
|
|
388,188
|
|
Net income attributable to Pilgrim's Pride Corporation
per common share - diluted
|
0.95
|
|
|
2.67
|
|
|
1.53
|
|
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company’s results of operations would have been had it completed the acquisitions on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisitions.
3. FAIR VALUE MEASUREMENTS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
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 valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations. For each class of assets and liabilities not measured at fair value in the Consolidated Balance Sheet but for which fair value is disclosed, the Company is not required to provide the quantitative disclosure about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy.
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.
The 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 30, 2018
and
December 31, 2017
, the Company held derivative assets and liabilities that were required to be measured at fair value on a recurring basis. Derivative assets and liabilities consist of long and short positions on exchange-traded commodity futures instruments and foreign currency forward contracts to manage translation and remeasurement risk.
The following items were measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Fair value assets:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
$
|
2,244
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,244
|
|
Commodity options instruments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency instruments
|
|
1,311
|
|
|
—
|
|
|
—
|
|
|
1,311
|
|
Fair value liabilities:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
(1,479
|
)
|
|
—
|
|
|
—
|
|
|
(1,479
|
)
|
Commodity options instruments
|
|
(3,312
|
)
|
|
—
|
|
|
—
|
|
|
(3,312
|
)
|
Foreign currency instruments
|
|
(6,649
|
)
|
|
—
|
|
|
—
|
|
|
(6,649
|
)
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
(In thousands)
|
Fair value assets:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
$
|
301
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
301
|
|
Commodity options instruments
|
|
421
|
|
|
—
|
|
|
—
|
|
|
421
|
|
Foreign currency instruments
|
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
Fair value liabilities:
|
|
|
|
|
|
|
|
|
Commodity futures instruments
|
|
(296
|
)
|
|
—
|
|
|
—
|
|
|
(296
|
)
|
Commodity option instruments
|
|
(3,551
|
)
|
|
—
|
|
|
—
|
|
|
(3,551
|
)
|
Foreign currency instruments
|
|
(211
|
)
|
|
—
|
|
|
—
|
|
|
(211
|
)
|
See “Note 7. Derivative Financial Instruments” for additional information.
The carrying amounts and estimated fair values of our fixed-rate debt obligation recorded in the Consolidated Balance Sheets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
|
(In thousands)
|
|
|
Fixed-rate senior notes payable at 5.75%, at Level 1 inputs
|
|
$
|
(1,002,497
|
)
|
|
$
|
(937,300
|
)
|
|
$
|
(750,000
|
)
|
|
$
|
(774,375
|
)
|
Fixed-rate senior notes payable at 5.875%, at Level 1 inputs
|
|
(843,717
|
)
|
|
(768,188
|
)
|
|
(604,820
|
)
|
|
(619,080
|
)
|
Fixed-rate senior notes payable at 6.25%, at Level 1 inputs
|
|
—
|
|
|
—
|
|
|
(403,444
|
)
|
|
(418,787
|
)
|
Secured loans, at Level 3 inputs
|
|
(319
|
)
|
|
(319
|
)
|
|
(873
|
)
|
|
(855
|
)
|
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 Level 1 fixed-rate debt obligation was based on the quoted market price at
December 30, 2018
or
December 31, 2017
, as applicable. The fair values of the Company’s Level 3 fixed-rate debt obligation was based on discounted cash flows at
December 30, 2018
or
December 31, 2017
, as applicable.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
4. TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade accounts and other receivables (including accounts receivable from related parties), less allowance for doubtful accounts, consisted of the following:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Trade accounts receivable
|
$
|
533,645
|
|
|
$
|
548,472
|
|
Notes receivable - current
|
4,630
|
|
|
5,130
|
|
Other receivables
|
31,331
|
|
|
20,021
|
|
Receivables, gross
|
569,606
|
|
|
573,623
|
|
Allowance for doubtful accounts
|
(8,057
|
)
|
|
(8,145
|
)
|
Receivables, net
|
$
|
561,549
|
|
|
$
|
565,478
|
|
|
|
|
|
Accounts receivable from related parties
(a)
|
$
|
1,331
|
|
|
$
|
2,951
|
|
|
|
(a)
|
Additional information regarding accounts receivable from related parties is included in “Note 19. Related Party Transactions.”
|
Changes in the allowance for doubtful accounts were as follows:
|
|
|
|
|
|
|
|
Total
|
|
|
(In thousands)
|
Balance at December 31, 2017
|
|
$
|
(8,145
|
)
|
Provision charged to operating results
|
|
(1,633
|
)
|
Account write-offs and recoveries
|
|
1,682
|
|
Effect of exchange rate
|
|
39
|
|
Balance at December 30, 2018
|
|
$
|
(8,057
|
)
|
5. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Raw materials and work-in-process
|
$
|
747,801
|
|
|
$
|
722,083
|
|
Finished products
(a)
|
317,410
|
|
|
444,796
|
|
Operating supplies
|
43,825
|
|
|
35,442
|
|
Maintenance materials and parts
|
50,483
|
|
|
52,749
|
|
Total inventories
|
$
|
1,159,519
|
|
|
$
|
1,255,070
|
|
|
|
(a)
|
Finished products
contains a
$54.4 million
reclassification related to both in-transit and non-chicken finished products that were previously presented in
Feed, eggs and other
on our annual report on Form 10-K for the year ended December 31, 2017 to conform to the inventories presented as of December 30, 2018.
|
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:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
Cost
|
|
Fair
Value
|
|
Cost
|
|
Fair
Value
|
|
(In thousands)
|
Cash equivalents:
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
135,286
|
|
|
$
|
135,286
|
|
|
$
|
330,456
|
|
|
$
|
330,456
|
|
Other
|
67,474
|
|
|
67,474
|
|
|
942
|
|
|
942
|
|
Securities classified as cash and cash equivalents mature within 90 days. Securities classified as short-term investments mature between 91 and 365 days. Securities classified as long-term investments mature after 365 days. The specific identification method is used to determine the cost of each security sold and each amount reclassified out of accumulated other comprehensive loss to earnings. Gross realized gains recognized during
2018
and
2017
related to the Company’s available-for-sale securities totaled
$8.0 million
and
$4.0 million
, respectively, while gross realized losses were immaterial. Proceeds received from the sale or maturity of available-for-sale securities during
2018
and
2017
are disclosed in the Consolidated and Combined Statements of Cash Flows. Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during
2018
and
2017
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
2018
and
2017
are disclosed in “Note 15. Stockholders’ Equity.”
7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.
The Company has operations in Mexico and Europe (including the U.K.) and, therefore, has exposure to translational foreign exchange risk when the financial results of those operations are remeasured in U.S. dollars. The Company has purchased foreign currency forward contracts to manage this translational foreign exchange risk.
The fair value of derivative assets is included in the line item
Prepaid expenses and other current assets
on the Consolidated 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. This cash collateral is reported in the line item
Restricted cash
and
cash equivalents
on the Consolidated Balance Sheets.
We have not designated certain derivative financial instruments that we have purchased to mitigate commodity purchase or foreign currency transaction exposures on our Mexico operations as cash flow hedges. Items designated as cash flow hedges are disclosed and described further below. Therefore, we recognized 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 and Combined Statements of Income.
We have designated certain derivative financial instruments related to our U.K. and Europe segment that we have purchased to mitigate foreign currency transaction exposures as cash flow hedges. Before the settlement date of the financial derivative instruments, we recognize changes in the fair value of the effective portion of the cash flow hedge into accumulated other comprehensive income (“AOCI”) while we recognize changes in the fair value of the ineffective portion immediately in earnings. When the derivative financial instruments associated with the effective portion are settled, the amount in AOCI is then reclassified to earnings. Gains or losses related to these derivative financial instruments are included in the line item
Cost of sales
in the Consolidated and Combined Statements of Income.
The Company recognized
$27.1 million
in net losses and
$6.7 million
in net gains related to changes in the fair value of its derivative financial instruments during
2018
and
2017
, respectively. The Company recognized
$4.3 million
in net losses during 2016.
Information regarding the Company’s outstanding derivative instruments and cash collateral posted with brokers is included in the following table:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(Fair values in thousands)
|
Fair values:
|
|
|
|
Commodity derivative assets
|
$
|
2,263
|
|
|
$
|
722
|
|
Commodity derivative liabilities
|
(4,791
|
)
|
|
(3,847
|
)
|
Foreign currency derivative assets
|
1,311
|
|
|
45
|
|
Foreign currency derivative liabilities
|
(6,649
|
)
|
|
(211
|
)
|
Cash collateral posted with brokers
(a)
|
23,192
|
|
|
8,021
|
|
Derivatives Coverage
(b)
:
|
|
|
|
Corn
|
6.0
|
%
|
|
3.1
|
%
|
Soybean meal
|
6.0
|
%
|
|
1.7
|
%
|
Period through which stated percent of needs are covered:
|
|
|
|
Corn
|
March 2020
|
|
|
March 2019
|
|
Soybean meal
|
December 2019
|
|
|
December 2018
|
|
|
|
(a)
|
Collateral posted with brokers consists primarily of cash, short term treasury bills, or other cash equivalents.
|
|
|
(b)
|
Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date.
|
The following tables present the components of the gain or loss on derivatives that qualify as cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
(In thousands)
|
Foreign currency derivatives
|
|
$
|
829
|
|
|
$
|
60
|
|
|
$
|
(152
|
)
|
Total
|
|
$
|
829
|
|
|
$
|
60
|
|
|
$
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
Net Realized Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
(In thousands)
|
Foreign currency derivatives
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
(In thousands)
|
Foreign currency derivatives
|
|
$
|
(348
|
)
|
|
$
|
639
|
|
|
$
|
(310
|
)
|
Total
|
|
$
|
(348
|
)
|
|
$
|
639
|
|
|
$
|
(310
|
)
|
At
December 30, 2018
, the before-tax deferred net gains on derivatives recorded in AOCI that are expected to be reclassified to the Consolidated and Combined Statements of Income during the next twelve months are
$0.5 million
. This expectation is based on the anticipated settlements on the hedged investments in foreign currencies that will occur over the next twelve months, at which time the Company will recognize the deferred gains (losses) to earnings.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
8. GOODWILL AND INTANGIBLE ASSETS
The activity in goodwill by segment for the years ended
December 30, 2018
and
December 31, 2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Additions
|
|
Other
|
|
Currency Translation
|
|
December 30, 2018
|
|
|
(In thousands)
|
U.S.
|
|
$
|
41,936
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,936
|
|
U.K. and Europe
|
|
834,346
|
|
|
—
|
|
|
(1,156
|
)
|
|
(50,983
|
)
|
|
782,207
|
|
Mexico
|
|
125,607
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125,607
|
|
Total
|
|
$
|
1,001,889
|
|
|
$
|
—
|
|
|
$
|
(1,156
|
)
|
|
$
|
(50,983
|
)
|
|
$
|
949,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
Additions
|
|
Other
|
|
Currency Translation
|
|
December 31, 2017
|
|
|
(In thousands)
|
U.S.
|
|
$
|
—
|
|
|
$
|
41,936
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
41,936
|
|
U.K. and Europe
|
|
761,614
|
|
|
—
|
|
|
—
|
|
|
72,732
|
|
|
834,346
|
|
Mexico
|
|
125,607
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
125,607
|
|
Total
|
|
$
|
887,221
|
|
|
$
|
41,936
|
|
|
$
|
—
|
|
|
$
|
72,732
|
|
|
$
|
1,001,889
|
|
Identified intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Additions
|
|
Amortization
|
|
Currency Translation
|
|
Reclassification
|
|
December 30, 2018
|
|
(In thousands)
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
$
|
79,686
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,343
|
)
|
|
$
|
78,343
|
|
Customer relationships
|
251,952
|
|
|
—
|
|
|
—
|
|
|
(5,589
|
)
|
|
1,343
|
|
|
247,706
|
|
Non-compete agreements
|
320
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
Trade names not subject to
amortization
|
403,594
|
|
|
—
|
|
|
—
|
|
|
(23,527
|
)
|
|
—
|
|
|
380,067
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
(40,888
|
)
|
|
—
|
|
|
(3,287
|
)
|
|
—
|
|
|
623
|
|
|
(43,552
|
)
|
Customer relationships
|
(77,194
|
)
|
|
—
|
|
|
(22,441
|
)
|
|
1,817
|
|
|
(623
|
)
|
|
(98,441
|
)
|
Non-compete agreements
|
(307
|
)
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
(315
|
)
|
Total
|
$
|
617,163
|
|
|
$
|
—
|
|
|
$
|
(25,736
|
)
|
|
$
|
(27,299
|
)
|
|
$
|
—
|
|
|
$
|
564,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
Additions
|
|
Amortization
|
|
Currency Translation
|
|
Reclassification
|
|
December 31, 2017
|
|
(In thousands)
|
Carrying amount:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
$
|
41,369
|
|
|
$
|
38,200
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
—
|
|
|
$
|
79,686
|
|
Customer relationships
|
151,147
|
|
|
92,900
|
|
|
—
|
|
|
7,905
|
|
|
—
|
|
|
251,952
|
|
Non-compete agreements
|
300
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
Trade names not subject to
amortization
|
369,258
|
|
|
—
|
|
|
—
|
|
|
34,336
|
|
|
—
|
|
|
403,594
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
(37,128
|
)
|
|
—
|
|
|
(3,808
|
)
|
|
48
|
|
|
—
|
|
|
(40,888
|
)
|
Customer relationships
|
(53,055
|
)
|
|
—
|
|
|
(22,571
|
)
|
|
(1,568
|
)
|
|
—
|
|
|
(77,194
|
)
|
Non-compete agreements
|
(300
|
)
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
(307
|
)
|
Total
|
$
|
471,591
|
|
|
$
|
131,120
|
|
|
$
|
(26,386
|
)
|
|
$
|
40,838
|
|
|
$
|
—
|
|
|
$
|
617,163
|
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Intangible assets are amortized over the estimated useful lives of the assets as follows:
|
|
|
|
Customer relationships
|
5-16 years
|
Trade names
|
3-20 years
|
Non-compete agreements
|
3 years
|
The Company recognized amortization expense related to identified intangible assets of
$25.7 million
in 2018,
$26.4 million
in 2017 and
$18.7 million
in 2016.
The Company expects to recognize amortization expense associated with identified intangible assets of
$23.5 million
in 2019,
$19.7 million
in 2020,
$19.7 million
in 2021 and
$19.7 million
in 2022, and
$19.7 million
in 2023.
At
December 30, 2018
, the Company assessed qualitative factors to determine if it was necessary to perform either the two-step quantitative impairment test related to the carrying amount of its goodwill or quantitative impairment tests related to the carrying amounts of its identified intangible assets not subject to amortization. Based on these assessments, the Company determined that it was not necessary to perform either the two-step quantitative impairment test related to the carrying amount of its goodwill nor the quantitative impairment tests related to the carrying amounts of its identified intangible assets not subject to amortization at that date.
At
December 30, 2018
, the Company assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets subject to amortization might not be recoverable. There were no indicators present that required the Company to test the recoverability of the aggregate carrying amount of its identified intangible assets subject to amortization at that date.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (“PP&E”), net consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Land
|
$
|
196,769
|
|
|
$
|
205,087
|
|
Buildings
|
1,697,703
|
|
|
1,681,610
|
|
Machinery and equipment
|
2,618,213
|
|
|
2,533,522
|
|
Autos and trucks
|
59,195
|
|
|
58,159
|
|
Construction-in-progress
|
269,166
|
|
|
187,094
|
|
PP&E, gross
|
4,841,046
|
|
|
4,665,472
|
|
Accumulated depreciation
|
(2,679,344
|
)
|
|
(2,570,325
|
)
|
PP&E, net
|
$
|
2,161,702
|
|
|
$
|
2,095,147
|
|
The Company recognized depreciation expense of
$248.3 million
,
$245.4 million
and
$210.5 million
during
2018
,
2017
and
2016
, respectively.
During
2018
, the Company spent
$348.7 million
on capital projects and transferred
$246.5 million
of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during
2018
to improve operational efficiencies and reduce costs. During
2017
, the Company spent
$339.9 million
on capital projects and transferred
$411.8 million
of completed projects from construction-in-progress to depreciable assets.
During
2018
, the Company sold certain PP&E for
$9.8 million
and recognized a gain of
$1.9 million
. PP&E sold in
2018
included processing plants in Alabama and Minnesota, a residential building in Georgia, vacant land in Georgia and North Carolina, and miscellaneous equipment. During
2017
, the Company sold certain PP&E for
$4.5 million
and recognized a gain of
$0.5 million
. PP&E sold in
2017
included processing plants in Texas and Ireland, a feed mill in Arkansas, a hatchery in the U.K., poultry farms in Alabama and Texas, vacant land in Texas and miscellaneous equipment.
At
December 30, 2018
, the Company reported properties and related assets totaling
$0.2 million
in
Assets held for sale
on its Consolidated Balance Sheets. The fair values of the miscellaneous equipment that were classified as assets held for sale as of
December 30, 2018
were based on quoted market prices.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The Company tested the recoverability of its Minnesota processing complex held for sale at various effective dates during 2018. The Company determined that the aggregate carrying amount of this asset group at various times during 2018 was not recoverable over the remaining life of the primary asset in the group and recognized impairment costs of
$0.8 million
within its U.S. segment, which is reported in the line item
Administrative restructuring charges
on its Consolidated and Combined Statements of Income. The Minnesota processing complex was sold in the fourth quarter of 2018.
The Company tested the recoverability of assets owned by Rose Energy Ltd. at various effective dates during 2018. The Company determined that the aggregate carrying amount of this asset group at
December 30, 2018
was not recoverable over the remaining life of the primary asset in the group and recognized impairment costs of
$2.6 million
within its U.K. and Europe segment, which is reported in the line item
Administrative restructuring charges
on its Consolidated and Combined Statements of Income.
The Company has closed or idled various facilities in the U.S. and in the U.K. 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 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 30, 2018
, the carrying amount of these idled assets was
$44.7 million
based on depreciable value of
$154.4 million
and accumulated depreciation of
$109.7 million
. During 2018, the Company recognized an impairment loss of
$0.1 million
related to leasehold improvements at an idled administrative office.
At
December 30, 2018
, the Company assessed if events or changes in circumstances indicated that the aggregate carrying amount of its property, plant and equipment held for use might not be recoverable. There were no indicators present that required the Company to test the recoverability of the aggregate carrying amount of its property, plant and equipment held for use at that date.
10. CURRENT LIABILITIES
Current liabilities, other than income taxes and current maturities of long-term debt, consisted of the following components:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Accounts payable:
|
|
|
|
Trade accounts
|
$
|
744,105
|
|
|
$
|
661,759
|
|
Book overdrafts
|
69,475
|
|
|
56,022
|
|
Other payables
|
16,479
|
|
|
15,246
|
|
Total accounts payable
|
830,059
|
|
|
733,027
|
|
Accounts payable to related parties
(a)
|
7,269
|
|
|
2,889
|
|
Revenue contract liability
(b)
|
33,328
|
|
|
36,607
|
|
Accrued expenses and other current liabilities:
|
|
|
|
Compensation and benefits
|
149,507
|
|
|
181,678
|
|
Interest and debt-related fees
|
33,596
|
|
|
29,750
|
|
Insurance and self-insured claims
|
80,990
|
|
|
79,911
|
|
Derivative liabilities:
|
|
|
|
Commodity futures
|
1,479
|
|
|
296
|
|
Commodity options
|
3,312
|
|
|
3,551
|
|
Foreign currency derivatives
|
6,649
|
|
|
211
|
|
Other accrued expenses
|
111,408
|
|
|
114,755
|
|
Total accrued expenses and other current liabilities
|
386,941
|
|
|
410,152
|
|
Total current liabilities
|
$
|
1,257,597
|
|
|
$
|
1,182,675
|
|
(a)
Additional information regarding accounts payable to related parties is included in “Note 19. Related Party Transactions.”
(b)
Additional information regarding revenue contract liabilities is included in “Note 13. Revenue Recognition.”
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
11. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term debt consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
December 30, 2018
|
|
December 31, 2017
|
Long-term debt and other long-term borrowing arrangements:
|
|
|
(In thousands)
|
Senior notes payable, net of premium and discount at 5.75%
|
2025
|
|
$
|
1,002,497
|
|
|
$
|
754,820
|
|
Senior notes payable, net of discount at 5.875%
|
2027
|
|
843,717
|
|
|
600,000
|
|
Senior notes payable at 6.25%
|
2021
|
|
—
|
|
|
403,444
|
|
U.S. Credit Facility (defined below):
|
|
|
|
|
|
Term note payable at 3.65%
|
2023
|
|
500,000
|
|
|
780,000
|
|
Revolving note payable at 5.25%
|
2023
|
|
—
|
|
|
73,262
|
|
2016 Mexico Credit Facility (defined below) with notes payable at
TIIE plus 0.95%
|
2019
|
|
—
|
|
|
76,307
|
|
Moy Park France Invoice Discounting Revolver with payables at
EURIBOR plus 0.8%
|
2019
|
|
2,277
|
|
|
1,815
|
|
Moy Park Credit Agricole Bank Overdraft with notes payable at
EURIBOR plus 1.50%
|
On Demand
|
|
88
|
|
|
—
|
|
Moy Park Multicurrency Revolving Facility with notes payable at
LIBOR rate plus 2.5%
|
2018
|
|
—
|
|
|
9,590
|
|
Moy Park Bank of Ireland Revolving Facility with notes payable at
LIBOR or EURIBOR plus 1.25% to 2.00%
|
2023
|
|
—
|
|
|
—
|
|
Secured loans with payables at weighted average of 3.73%
|
Various
|
|
319
|
|
|
873
|
|
Capital lease obligations
|
Various
|
|
3,707
|
|
|
9,239
|
|
Long-term debt
|
|
|
2,352,605
|
|
|
2,709,350
|
|
Less: Current maturities of long-term debt
|
|
|
(30,405
|
)
|
|
(47,775
|
)
|
Long-term debt, less current maturities
|
|
|
2,322,200
|
|
|
2,661,575
|
|
Less: Capitalized financing costs
|
|
|
(27,010
|
)
|
|
(25,958
|
)
|
Long-term debt, less current maturities, net of capitalized
financing costs:
|
|
|
$
|
2,295,190
|
|
|
$
|
2,635,617
|
|
U.S. Senior Notes
On March 11, 2015, the Company completed a sale of
$500.0 million
aggregate principal amount of its
5.75%
senior notes due 2025. On September 29, 2017, the Company completed an add-on offering of
$250.0 million
of these senior notes. The issuance price of this add-on offering was
102.0%
, which created gross proceeds of
$255.0 million
. The additional
$5.0 million
will be amortized over the remaining life of the senior notes. On March 7, 2018, the Company completed another add-on offering of
$250.0 million
of these senior notes (together with the senior notes issued in March 2015 and September 2017, the “Senior Notes due 2025”). The issuance price of this add-on offering was
99.25%
, which created gross proceeds of
$248.1 million
. The
$1.9 million
discount will be amortized over the remaining life of the senior notes. Each issuance of the Senior Notes due 2025 is treated as a single class for all purposes under the 2015 Indenture (defined below) and have the same terms.
The Senior Notes due 2025 are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “2015 Indenture”). The 2015 Indenture provides, among other things, that the Senior Notes due 2025 bear interest at a rate of
5.75%
per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015 for the Senior Notes due 2025 that were issued in March 2015 and beginning on March 15, 2018 for the Senior Notes due 2025 that were issued in September 2017 and March 2018.
On September 29, 2017, the Company completed a sale of
$600.0 million
aggregate principal amount of its
5.875%
senior notes due 2027. On March 7, 2018, the Company completed an add-on offering of
$250.0 million
of these senior notes (together with the senior notes issued in September 2017, the “Senior Notes due 2027”). The issuance price of this add-on offering was
97.25%
, which created gross proceeds of
$243.1 million
. The
$6.9 million
discount will be amortized over the remaining life of the Senior Notes due 2027. Each issuance of the Senior Notes due 2027 is treated as a single class for all purposes under the 2017 Indenture (defined below) and have the same terms.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among the Company, its guarantor subsidiary and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest at a rate of
5.875%
per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on March 30, 2018 for the Senior Notes due 2027 that were issued in September 2017 and beginning on March 15, 2018 for the Senior Notes due 2027 that were issued in March 2018.
The Senior Notes due 2025 and the Senior Notes due 2027 are each guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2025 and the Senior Notes due 2027. The Senior Notes due 2025 and the Senior Notes due 2027 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2025, the 2015 Indenture, the Senior Notes due 2027 and the 2017 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2025 and the Senior Notes due 2027, respectively, when due, among others.
The Company used the net proceeds from the sale of the Senior Notes due 2025 and the Senior Notes due 2027 that were issued in September 2017 to repay in full the JBS S.A. Promissory Note issued as part of the Moy Park acquisition and for general corporate purposes. The Company used the net proceeds from the sale of the Senior Notes due 2025 and the Senior Notes due 2027 that were issued in March 2018 to pay the second tender price of Moy Park Notes (as described below), repay a portion of outstanding secured debt, and for general corporate purposes. The Senior Notes due 2025 and the Senior Notes due 2027 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
Moy Park Senior Notes
Between May 29, 2014 and April 17, 2015, Moy Park (Bondco) plc completed the sale of
£300.0 million
aggregate principal amount of its
6.25%
senior notes due 2021 (the “Moy Park Senior Notes”). Between November 3, 2017 and March 8, 2018, Moy Park (Bondco) plc completed the purchase for cash of the Moy Park Senior Notes through a tender offer. As of March 8, 2018,
£234.3 million
principal amount of Moy Park Senior Notes had been validly tendered and purchased by Moy Park (Bondco) plc.
On May 29, 2018, Moy Park (Bondco) plc redeemed all remaining Moy Park Senior Notes outstanding at the redemption price equal to
101.56%
of the principal amount, plus accrued and unpaid interest. The aggregate principal amount of the Moy Park Senior Notes redeemed on May 29, 2018 was
£65.7 million
. As of
December 30, 2018
, there are
no
Moy Park Senior Notes outstanding.
U.S. Credit Facility
On July 20, 2018, the Company, and certain of the Company’s subsidiaries entered into a Fourth Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with CoBank, ACB, as administrative agent and collateral agent, and the other lenders party thereto. The U.S. Credit Facility provides for a
$750.0 million
revolving credit commitment and a term loan commitment of up to
$500.0 million
(the “Term Loans”). The Company used the proceeds from the term loan commitment under the U.S. Credit Facility, together with cash on hand, to repay the outstanding loans under the Company’s previous credit agreement with Coöperatieve Rabobank U.A., New York Branch, as administrative agent, and the other lenders and financial institutions party thereto.
The U.S. Credit Facility includes an accordion feature that allows the Company, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional
$1.25 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 July 20, 2023. All principal on the Term Loans is due at maturity on July 20, 2023. Installments of principal are required to be made, in an amount equal to
1.25%
of
the original principal amount of the Term Loans, on a quarterly basis prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. As of
December 30, 2018
, the Company had Term Loans outstanding totaling
$500.0 million
and the amount available for borrowing under the revolving loan commitment was
$708.4 million
. The Company had letters of credit of
$41.6 million
and
no
borrowings outstanding under the revolving loan commitment as of
December 30, 2018
.
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
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
equal to (i) in the case of LIBOR loans, LIBOR plus
1.25%
through August 2, 2018 and, thereafter, based on the Company’s net senior secured leverage ratio, between LIBOR plus
1.25%
and LIBOR plus
2.75%
and (ii) in the case of alternate base rate loans, the base rate plus
0.25%
through August 2, 2018 and, based on the Company’s net senior secured leverage ratio, between the base rate plus
0.25%
and base rate plus
1.75%
thereafter.
The U.S. Credit Facility contains customary financial and other various covenants for transactions of this type, including restrictions on the Company's ability to incur additional indebtedness, incur liens, pay dividends, make certain restricted payments, consummate certain asset sales, enter into certain transactions with the Company’s affiliates, or merge, consolidate and/or sell or dispose of all or substantially all of its assets, among other things. 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.
All obligations under the U.S. Credit Facility continue to be unconditionally guaranteed by certain of the Company’s subsidiaries and continue to be secured by a first priority lien on (i) the accounts receivable and inventory of the 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 its direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility. The Company is currently in compliance with the covenants under the U.S. Credit Facility.
Mexico Credit Facility
On December 14, 2018, certain of the Company's Mexican subsidiaries entered into an unsecured credit agreement (the “2018 Mexico Credit Facility”) with Banco del Bajio, Sociedad Anónima, Institución de Banca Múltiple, as lender. The loan commitment under the 2018 Mexico Credit Facility is
$1.5 billion
Mexican pesos and can be borrowed on a revolving basis. The U.S. dollar-equivalent of the loan commitment under the 2018 Mexico Credit Facility is
$76.3 million
. Outstanding borrowings under the 2018 Mexico Credit Facility accrue interest at a rate equal to the 28-Day Interbank Equilibrium Interest Rate plus
1.50%
. The 2018 Mexico Credit Facility contains covenants and defaults that the Company believes are customary for transactions of this type. The 2018 Mexico Credit Facility will be used for general corporate and working capital purposes. The 2018 Mexico Credit Facility will mature on December 14, 2023.
The 2018 Mexico Credit Facility replaced the unsecured credit agreement (the “2016 Mexico Credit Facility”) between certain of the Company’s Mexican subsidiaries and BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender, dated September 27, 2016. The 2016 Mexico Credit Facility was terminated on December 19, 2018.
Moy Park Bank of Ireland Revolving Facility Agreement
On June 2, 2018, Moy Park Holdings (Europe) Ltd. and its subsidiaries entered into an unsecured multicurrency revolving facility agreement (the “Bank of Ireland Facility Agreement”) with the Governor and Company of the Bank of Ireland, as agent, and the other lenders party thereto. The Bank of Ireland Facility Agreement provides for a multicurrency revolving loan commitment of up to
£100.0 million
. The multicurrency revolving loan commitments under the Bank of Ireland Facility Agreement mature on June 2, 2023. Outstanding borrowings under the Bank of Ireland Facility Agreement bear interest at a rate per annum equal to the sum of (i) LIBOR or, in relation to any loan in euros, EURIBOR, plus (ii) a margin, ranging from
1.25%
to
2.00%
based on Leverage (as defined in the Bank of Ireland Facility Agreement). All obligations under the Bank of Ireland Facility Agreement are guaranteed by certain of Moy Park's subsidiaries. As of
December 30, 2018
, the U.S. dollar-equivalent loan commitment and borrowing availability were both
$127.0 million
. There were
no
outstanding borrowings under the Bank of Ireland Facility Agreement as of
December 30, 2018
.
The Bank of Ireland Facility Agreement contains representations and warranties, covenants, indemnities and conditions that the Company believes are customary for transactions of this type. Pursuant to the terms of the Bank of Ireland Facility Agreement, Moy Park is required to meet certain financial and other restrictive covenants. Additionally, Moy Park is prohibited from taking certain actions without consent of the lenders, including, without limitation, incurring additional indebtedness, entering into certain mergers or other business combination transactions, permitting liens or other encumbrances on its assets and making restricted payments, including dividends, in each case except as expressly permitted under the Bank of Ireland Facility Agreement. The Bank of Ireland Facility Agreement contains events of default that the Company believes are customary for transactions of this type. If a default occurs, any outstanding obligations under the Bank of Ireland Facility Agreement may be accelerated.
Moy Park France Invoice Discounting Facility
In June 2009, Moy Park France Sàrl entered into a
€20.0 million
invoice discounting facility with GE De Facto (the “Invoice Discounting Facility”). The facility limit was decreased by
50 percent
in June 2018. The Invoice Discounting Facility is payable on demand and the term is extended on an annual basis. The agreement can be terminated by either party with three
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
months’ notice. Outstanding borrowings under the Invoice Discounting Facility bear interest at a per annum rate equal to EURIBOR plus
0.80%
. As of
December 30, 2018
, the U.S. dollar-equivalent loan commitment, borrowing availability, and outstanding borrowings under the Invoice Discounting Facility were
$11.4 million
,
$9.2 million
and
$2.2 million
, respectively.
The Invoice Discounting Facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.
Moy Park Credit Agricole Bank Overdraft
On December 3, 2018, Moy Park entered into an unsecured
€0.5 million
bank overdraft agreement (the “Overdraft Agreement”) with Credit Agricole. The Overdraft Agreement is payable on demand and can be cancelled anytime by the Company or Credit Agricole. Outstanding borrowings under the Overdraft Agreement bears interest at a per annum rate equal to EURIBOR plus
1.50%
. As of
December 30, 2018
, the U.S. dollar-equivalent outstanding borrowing under the Overdraft Agreement was less than
$0.1 million
.
Moy Park Multicurrency Revolving Facility Agreement
On March 19, 2015, Moy Park Holdings (Europe) Ltd. and its subsidiaries, entered into an agreement with Barclays Bank plc, which expired on March 19, 2018. The agreement provided for a multicurrency revolving loan commitment of up to
£20.0 million
.
Moy Park Receivables Finance Agreement
Moy Park Ltd., entered into a
£45.0 million
receivables finance agreement on January 29, 2016 (the “Receivables Finance Agreement”), with Barclays Bank plc. Moy Park Holdings (Europe) Ltd. repaid the Receivables Finance Agreement in full using available cash and proceeds from the Bank of Ireland Facility Agreement and terminated the Receivables Finance Agreement with Barclays Bank plc on June 4, 2018.
12. INCOME TAXES
Income before income taxes by jurisdiction is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
U.S.
|
$
|
175,805
|
|
|
$
|
773,160
|
|
|
$
|
532,853
|
|
Foreign
|
156,422
|
|
|
208,906
|
|
|
191,183
|
|
Total
|
$
|
332,227
|
|
|
$
|
982,066
|
|
|
$
|
724,036
|
|
The components of income tax expense (benefit) are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Current:
|
|
|
|
Federal
|
$
|
8,835
|
|
|
$
|
213,146
|
|
|
$
|
165,989
|
|
Foreign
|
45,311
|
|
|
65,100
|
|
|
62,753
|
|
State and other
|
(1,263
|
)
|
|
35,614
|
|
|
20,211
|
|
Total current
|
52,883
|
|
|
313,860
|
|
|
248,953
|
|
Deferred:
|
|
|
|
|
|
Federal
|
41,104
|
|
|
(19,434
|
)
|
|
(3,529
|
)
|
Foreign
|
(17,160
|
)
|
|
(34,264
|
)
|
|
(2,490
|
)
|
State and other
|
8,596
|
|
|
3,737
|
|
|
985
|
|
Total deferred
|
32,540
|
|
|
(49,961
|
)
|
|
(5,034
|
)
|
|
$
|
85,423
|
|
|
$
|
263,899
|
|
|
$
|
243,919
|
|
The effective tax rate for
2018
was
25.7%
compared to
26.9%
for
2017
and
33.7%
for
2016
.
The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Federal income tax rate
|
21.0
|
|
%
|
35.0
|
|
%
|
35.0
|
|
%
|
State tax rate, net
|
3.6
|
|
|
2.6
|
|
|
2.2
|
|
|
One-time transition tax
|
7.9
|
|
|
—
|
|
|
—
|
|
|
Permanent items
|
1.4
|
|
|
—
|
|
|
0.8
|
|
|
Domestic production activity
|
—
|
|
|
(1.6
|
)
|
|
(1.2
|
)
|
|
Difference in U.S. statutory tax rate and foreign
country effective tax rate
|
2.3
|
|
|
(1.4
|
)
|
|
(2.8
|
)
|
|
Rate change
|
(2.5
|
)
|
|
(5.3
|
)
|
|
—
|
|
|
Tax credits
|
(7.9
|
)
|
|
(0.5
|
)
|
|
(0.6
|
)
|
|
Change in reserve for unrecognized tax benefits
|
(1.7
|
)
|
|
(0.7
|
)
|
|
(0.2
|
)
|
|
Change in valuation allowance
|
2.7
|
|
|
(1.2
|
)
|
|
(0.1
|
)
|
|
Other
|
(1.1
|
)
|
|
—
|
|
|
0.6
|
|
|
Total
|
25.7
|
|
%
|
26.9
|
|
%
|
33.7
|
|
%
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation (the “Tax Act”), which significantly revises the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from
35.0%
to
21.0%
, implementing a territorial tax system, imposing one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense), among other things.
The Company applied the guidance in Staff Accounting Bulletin (“SAB”) 118 when accounting for the enactment date effects of the Tax Act. As of December 30, 2018, the Company has completed its accounting for all of the tax effects of the Tax Act. As further discussed below, during 2018, the Company recognized adjustments of
$18.2
million to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense.
As of December 31, 2017, the Company estimated no tax liability on foreign unremitted earnings due to a net earnings and profits (“E&P”) deficit on accumulated post-1986 deferred foreign income. Therefore, the Company did not accrue any amount of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings going back to 1986 for the year ended December 31, 2017. Upon further analysis of certain aspects of the Tax Act and a refinement of the historical calculation of E&P on accumulated post-1986 deferred foreign income during 2018, the Company finalized the E&P analysis of its foreign subsidiaries and recalculated significant overall positive E&P. Therefore, due to this recalculation, the Company recorded a
$26.4
million tax liability for the one-time transition tax. This one-time transition tax adjustment increased the 2018 effective tax rate by approximately
7.9%
. The Company has elected to pay this liability over the eight-year period provided in the Tax Act. As of December 30, 2018, the remaining balance of the Company’s transition tax obligation is
$7.7
million, which will be paid over the next seven years. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time transition tax or any additional outside basis difference inherent in these foreign subsidiaries, as these amounts continue to be permanently reinvested in foreign operations. The undistributed earnings of our Mexico, Puerto Rico and U.K. subsidiaries totaled
$683.0 million
,
$13.2 million
and
$2.2 million
, respectively, at December 30, 2018.
As of December 31, 2017, the Company accrued
$41.5
million in provisional tax benefit related to the net change in deferred tax liabilities stemming from the Tax Act’s reduction of the U.S. federal tax rate from
35%
to
21%
for the year ended December 31, 2017. Due to return to provision adjustments which resulted from the filing of the Company’s 2017 federal income tax return, the Company recorded an additional
$8.2
million tax benefit resulting from the Tax Act’s rate reduction. This benefit reduced the 2018 effective tax rate by approximately
2.5%
.
The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5,
Accounting for GILTI
, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. As of December 30, 2018, the Company recorded a
$5.4
million federal GILTI tax liability, which increased the 2018 effective tax rate by approximately
1.6%
.
The Tax Act provides for a foreign-derived intangible income (“FDII”) deduction, which is available to domestic C corporations that derive income from the export of property and services. As of December 30, 2018, the Company recorded a
$0.1
million federal FDII benefit, which decreased the 2018 effective tax rate by an immaterial amount.
Significant components of the Company’s deferred tax liabilities and assets are as follows:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Deferred tax liabilities:
|
|
|
|
PP&E and identified intangible assets
|
$
|
217,353
|
|
|
$
|
213,500
|
|
Inventories
|
69,464
|
|
|
57,641
|
|
Insurance claims and losses
|
29,964
|
|
|
29,253
|
|
Business combinations
|
46,779
|
|
|
50,695
|
|
Other
|
23,434
|
|
|
18,519
|
|
Total deferred tax liabilities
|
386,994
|
|
|
369,608
|
|
Deferred tax assets:
|
|
|
|
Net operating losses
|
2,923
|
|
|
3,276
|
|
Foreign net operating losses
|
38,531
|
|
|
26,934
|
|
Credit carry forwards
|
14,461
|
|
|
2,425
|
|
Allowance for doubtful accounts
|
6,788
|
|
|
1,767
|
|
Deferred revenue
|
1,860
|
|
|
—
|
|
Accrued liabilities
|
52,181
|
|
|
50,389
|
|
Workers compensation
|
—
|
|
|
26,119
|
|
Pension and other postretirement benefits
|
—
|
|
|
13,379
|
|
Other
|
63,227
|
|
|
51,306
|
|
Total deferred tax assets
|
179,971
|
|
|
175,595
|
|
Valuation allowance
|
(26,150
|
)
|
|
(14,479
|
)
|
Net deferred tax assets
|
153,821
|
|
|
161,116
|
|
Net deferred tax liabilities
|
$
|
233,173
|
|
|
$
|
208,492
|
|
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 30, 2018
, the Company believes it has sufficient positive evidence to conclude that realization of its federal, state and foreign net deferred tax assets are more likely than not to be realized. The increase in valuation allowance of
$11.7 million
during
2018
was primarily due to U.S. foreign tax credits. As of
December 30, 2018
, the Company’s valuation allowance is
$26.1 million
, of which
$13.9 million
relates to U.K. operations,
$11.8 million
relates to U.S. foreign tax credits and
$0.5 million
relates to state net operating losses.
As of December 30, 2018, the Company had state net operating loss carry forwards of approximately
$87.5 million
that begin to expire in
2019
. The Company also had Mexico net operating loss carry forwards at December 30, 2018 of approximately
$17.2 million
that begin to expire in
2019
.
As of
December 30, 2018
, the Company had approximately
$2.6 million
of state tax credit carry forwards that begin to expire in
2019
.
For the fifty-two weeks ended
December 30, 2018
and fifty-three weeks ended
December 31, 2017
, there is a tax effect of
$1.6 million
and
$4.0 million
, respectively, reflected in other comprehensive income.
For the fifty-two weeks ended
December 30, 2018
, there is a tax effect of
($0.8)
million reflected in income tax expense due to excess tax benefits related to share-based compensation. For the fifty-three weeks ended December 31, 2017, there is a tax effect of
$1.1
million reflected in income tax expense due to excess tax benefits related to share-based compensation. See “Note 1. Business and Summary of Significant Accounting Policies” for additional information.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Unrecognized tax benefits, beginning of year
|
$
|
11,866
|
|
|
$
|
16,813
|
|
Increase as a result of tax positions taken during the current year
|
261
|
|
|
1,163
|
|
Increase as a result of tax positions taken during prior years
|
1,152
|
|
|
60
|
|
Decrease as a result of tax positions taken during prior years
|
—
|
|
|
(892
|
)
|
Decrease for lapse in statute of limitations
|
(867
|
)
|
|
(4,123
|
)
|
Decrease relating to settlements with taxing authorities
|
—
|
|
|
(1,155
|
)
|
Unrecognized tax benefits, end of year
|
$
|
12,412
|
|
|
$
|
11,866
|
|
Included in unrecognized tax benefits of
$12.4 million
at
December 30, 2018
, was
$1.4 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 30, 2018
, the Company had recorded a liability of
$1.5 million
for interest and penalties. During
2018
, accrued interest and penalty amounts related to uncertain tax positions decreased by
$5.6 million
.
The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and several foreign locations including Mexico and the U.K. With few exceptions, the Company is no longer subject to examinations by taxing authorities for years prior to 2014 in U.S. federal, state and local jurisdictions, for years prior to 2011 in Mexico, and for years prior to 2016 in the U.K.
The Company has a tax sharing agreement with JBS USA Company Holdings effective for tax years beginning 2010. The net tax payable for tax year
2018
of
$0.5 million
was accrued in
2018
as a capital distribution and an account payable to a related party in our Consolidated Balance Sheet.
13. REVENUE RECOGNITION
The vast majority of the Company's revenue is derived from contracts which are based upon a customer ordering our products. While there may be master agreements, the contract is only established when the customer’s order is accepted by the Company. The Company accounts for a contract, which may be verbal or written, when it is approved and committed by both parties, the rights of the parties are identified along with payment terms, the contract has commercial substance and collectability is probable.
The Company evaluates the transaction for distinct performance obligations, which are the sale of its products to customers. Since its products are commodity market-priced, the sales price is representative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or port of destination), and faithfully depicts the transfer of control and recognition of revenue. There are instances of customer pick-up at the Company's facilities, in which case control transfers to the customer at that point and the Company recognizes revenue. The Company's performance obligations are typically fulfilled within days to weeks of the acceptance of the order.
The Company makes judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is constrained. Due to the nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and updated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.
Disaggregated Revenue
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Revenue has been disaggregated into the categories below to show how economic factors affect the nature, amount, timing and uncertainty of revenue and cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-Two Weeks Ended December 30, 2018
|
|
Domestic
|
|
Export
|
|
Net Sales
|
|
(In thousands)
|
U.S.
|
$
|
7,166,929
|
|
|
$
|
258,732
|
|
|
$
|
7,425,661
|
|
U.K. and Europe
|
1,844,745
|
|
|
303,921
|
|
|
2,148,666
|
|
Mexico
|
1,363,457
|
|
|
—
|
|
|
1,363,457
|
|
Net Sales
|
$
|
10,375,131
|
|
|
$
|
562,653
|
|
|
$
|
10,937,784
|
|
Shipping and Handling Costs
In the rare case when shipping and handling activities are performed after a customer obtains control of the good, the Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the good. When revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued. Shipping and handling costs are recorded within
Cost of sales
.
Contract Costs
The Company can incur incremental costs to obtain or fulfill a contract such as broker expenses that are not expected to be recovered. The amortization period for such expenses is less than one year; therefore, the costs are expensed as incurred.
Taxes
There is no change in accounting for taxes due to the adoption of the new revenue standard, as there is no material change to the timing of revenue recognition. We exclude all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added, and some excise taxes) from the transaction price.
Contract Balances
The Company receives payment from customers based on terms established with the customer. Payments are typically due within two weeks of delivery. There are rarely contract assets related to costs incurred to perform in advance of scheduled billings. Revenue contract liabilities relate to payments received in advance of satisfying the performance under the customer contract. The revenue contract liability relates to customer prepayments and the advanced consideration received from governmental agency contracts for which performance obligations to the end customer have not been satisfied.
Changes in the revenue contract liability balances during the
fifty-two
weeks ended
December 30,
2018
are as follows (in thousands):
|
|
|
|
|
Balance, beginning of period
|
$
|
36,607
|
|
Revenue recognized
|
(59,332
|
)
|
Cash received, excluding amounts recognized as revenue during the period
|
56,053
|
|
Balance, end of period
|
$
|
33,328
|
|
Accounts Receivable
The Company records accounts receivable when revenue is recognized. The Company records an allowance for doubtful accounts to reduce the receivables balance to an amount it estimates is collectible from 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 customers’ financial condition. The Company writes 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.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
14.
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. Expenses recognized under all these retirement plans were as follows: Under all of our retirement plans, the Company’s expenses were
$12.1 million
,
$10.8 million
and
$11.2 million
in
2018
,
2017
and
2016
, respectively.
The Company used a year-end measurement date of
December 30, 2018
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
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Change in projected benefit obligation:
|
(In thousands)
|
Projected benefit obligation, beginning of year
|
$
|
178,247
|
|
|
$
|
167,159
|
|
|
$
|
1,603
|
|
|
$
|
1,648
|
|
Interest cost
|
5,463
|
|
|
5,571
|
|
|
46
|
|
|
51
|
|
Actuarial losses (gains)
|
(15,635
|
)
|
|
15,745
|
|
|
(72
|
)
|
|
68
|
|
Benefits paid
|
(10,456
|
)
|
|
(10,228
|
)
|
|
—
|
|
|
—
|
|
Settlements
(a)
|
—
|
|
|
—
|
|
|
(115
|
)
|
|
(164
|
)
|
Projected benefit obligation, end of year
|
$
|
157,619
|
|
|
$
|
178,247
|
|
|
$
|
1,462
|
|
|
$
|
1,603
|
|
|
|
(a)
|
A settlement is a transaction that is an irrevocable action, relieves the employer or the plan of primary responsibility for a pension or postretirement obligation and eliminates significant risks related to the obligation and the assets used to affect the settlement. A settlement can be triggered when a plan pays lump sums totaling more than the sum of the plan’s interest cost and service cost. The Retiree Life Plan met this threshold in
2018
and
2017
.
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Change in plan assets:
|
(In thousands)
|
Fair value of plan assets, beginning of year
|
$
|
112,570
|
|
|
$
|
97,526
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
(10,881
|
)
|
|
12,325
|
|
|
—
|
|
|
—
|
|
Contributions by employer
|
11,181
|
|
|
12,947
|
|
|
115
|
|
|
164
|
|
Benefits paid
|
(10,456
|
)
|
|
(10,228
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
|
(115
|
)
|
|
(164
|
)
|
Fair value of plan assets, end of year
|
$
|
102,414
|
|
|
$
|
112,570
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Funded status:
|
(In thousands)
|
Unfunded benefit obligation, end of year
|
$
|
(55,205
|
)
|
|
$
|
(65,677
|
)
|
|
$
|
(1,462
|
)
|
|
$
|
(1,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amounts recognized in the Consolidated Balance Sheets at end of year:
|
(In thousands)
|
Current liability
|
$
|
(8,267
|
)
|
|
$
|
(12,168
|
)
|
|
$
|
(149
|
)
|
|
$
|
(149
|
)
|
Long-term liability
|
(46,938
|
)
|
|
(53,509
|
)
|
|
(1,313
|
)
|
|
(1,454
|
)
|
Recognized liability
|
$
|
(55,205
|
)
|
|
$
|
(65,677
|
)
|
|
$
|
(1,462
|
)
|
|
$
|
(1,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Amounts recognized in accumulated other
comprehensive loss at end of year:
|
(In thousands)
|
Net actuarial loss (gain)
|
$
|
54,343
|
|
|
$
|
54,235
|
|
|
$
|
(34
|
)
|
|
$
|
35
|
|
The accumulated benefit obligation for our defined benefit pension plans was
$157.6 million
and
$178.2 million
at
December 30, 2018
and
December 31, 2017
, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at
December 30, 2018
and
December 31, 2017
. As of
December 30, 2018
, the weighted average duration of our defined benefit obligation is
29.95
years.
Net Benefit Costs
Net benefit costs include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Interest cost
|
$
|
5,463
|
|
|
$
|
5,571
|
|
|
$
|
5,585
|
|
|
$
|
46
|
|
|
$
|
51
|
|
|
$
|
51
|
|
Estimated return on plan assets
|
(6,065
|
)
|
|
(5,254
|
)
|
|
(5,256
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement loss (gain)
|
—
|
|
|
—
|
|
|
2,064
|
|
|
(3
|
)
|
|
2
|
|
|
(2
|
)
|
Amortization of net loss
|
1,203
|
|
|
932
|
|
|
659
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cost
|
$
|
601
|
|
|
$
|
1,249
|
|
|
$
|
3,052
|
|
|
$
|
43
|
|
|
$
|
53
|
|
|
$
|
49
|
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
For 2018, the Company reported net benefit costs in the line item
Miscellaneous, net
on its Consolidated and Combined Statements of Income. For 2017 and 2016, the Company reported net benefit costs in the line items
Cost of sales
and
Selling, general and administrative expense
on its Consolidated and Combined Statements of Income.
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.40
|
%
|
|
3.69
|
%
|
|
4.31
|
%
|
|
4.07
|
%
|
|
3.39
|
%
|
|
3.81
|
%
|
Net pension and other postretirement cost:
|
|
|
|
Discount rate
|
3.69
|
%
|
|
4.32
|
%
|
|
4.47
|
%
|
|
3.39
|
%
|
|
3.81
|
%
|
|
4.47
|
%
|
Expected return on plan assets
|
5.50
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company’s pension and other benefit obligations. The weighted average discount rate 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 30, 2018
and December 31, 2017, all defined benefit pension and other postretirement benefit plans used variations of the RP-2014 mortality table and the MP-2015 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
|
$
|
(3,924
|
)
|
|
$
|
4,122
|
|
The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan’s current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Cash and cash equivalents
|
—
|
%
|
|
5
|
%
|
Pooled separate accounts
(a)
:
|
|
|
|
Equity securities
|
4
|
%
|
|
5
|
%
|
Fixed income securities
|
5
|
%
|
|
4
|
%
|
Common collective trust funds
(a)
:
|
|
|
|
Equity securities
|
45
|
%
|
|
56
|
%
|
Fixed income securities
|
41
|
%
|
|
30
|
%
|
Real estate
|
5
|
%
|
|
—
|
%
|
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 30, 2018
and
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
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
|
$
|
110
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
110
|
|
|
$
|
6,128
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,128
|
|
Pooled separate accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. equity funds
(d)
|
—
|
|
|
2,491
|
|
|
—
|
|
|
2,491
|
|
|
—
|
|
|
3,483
|
|
|
—
|
|
|
3,483
|
|
Small/Mid U.S. equity funds
(e)
|
—
|
|
|
292
|
|
|
—
|
|
|
292
|
|
|
—
|
|
|
420
|
|
|
—
|
|
|
420
|
|
International equity funds
(f)
|
—
|
|
|
1,489
|
|
|
—
|
|
|
1,489
|
|
|
—
|
|
|
1,665
|
|
|
—
|
|
|
1,665
|
|
Fixed income funds
(g)
|
—
|
|
|
4,763
|
|
|
—
|
|
|
4,763
|
|
|
—
|
|
|
4,799
|
|
|
—
|
|
|
4,799
|
|
Common collective trusts funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large U.S. equity funds
(d)
|
—
|
|
|
17,351
|
|
|
—
|
|
|
17,351
|
|
|
—
|
|
|
22,695
|
|
|
—
|
|
|
22,695
|
|
Small/Mid U.S. equity funds
(e)
|
—
|
|
|
5,880
|
|
|
—
|
|
|
5,880
|
|
|
—
|
|
|
20,592
|
|
|
—
|
|
|
20,592
|
|
International equity funds
(f)
|
—
|
|
|
22,516
|
|
|
—
|
|
|
22,516
|
|
|
—
|
|
|
19,923
|
|
|
—
|
|
|
19,923
|
|
Fixed income funds
(g)
|
—
|
|
|
42,217
|
|
|
—
|
|
|
42,217
|
|
|
—
|
|
|
32,865
|
|
|
—
|
|
|
32,865
|
|
Real estate
(h)
|
—
|
|
|
5,305
|
|
|
—
|
|
|
5,305
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
110
|
|
|
$
|
102,304
|
|
|
$
|
—
|
|
|
$
|
102,414
|
|
|
$
|
6,128
|
|
|
$
|
106,442
|
|
|
$
|
—
|
|
|
$
|
112,570
|
|
|
|
(a)
|
Unadjusted quoted prices in active markets for identical assets are used to determine fair value.
|
|
|
(b)
|
Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value.
|
|
|
(c)
|
Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.
|
|
|
(d)
|
This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.
|
|
|
(e)
|
This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.
|
|
|
(f)
|
This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S.
|
|
|
(g)
|
This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). 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.
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
(h)
|
This category is comprised of investment options that invest in real estate investment trusts or private equity pools that own real estate. These long-term investments are primarily in office buildings, industrial parks, apartments or retail complexes. These investment options typically carry more risk, including liquidity risk, than fixed income investment options.
|
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 30, 2018
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)
|
2019
|
$
|
17,972
|
|
|
$
|
149
|
|
2020
|
11,526
|
|
|
147
|
|
2021
|
11,200
|
|
|
145
|
|
2022
|
10,891
|
|
|
141
|
|
2023
|
10,627
|
|
|
137
|
|
2024-2028
|
48,429
|
|
|
589
|
|
Total
|
$
|
110,645
|
|
|
$
|
1,308
|
|
We anticipate contributing
$8.3 million
and
$0.1 million
, as required by funding regulations or laws, to our pension and other postretirement plans, respectively, during
2019
.
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
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Net actuarial loss (gain), beginning of year
|
$
|
54,235
|
|
|
$
|
46,494
|
|
|
$
|
38,115
|
|
|
$
|
35
|
|
|
$
|
(31
|
)
|
|
$
|
(79
|
)
|
Amortization
|
(1,203
|
)
|
|
(932
|
)
|
|
(659
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlement adjustments
|
—
|
|
|
—
|
|
|
(2,064
|
)
|
|
3
|
|
|
(2
|
)
|
|
2
|
|
Actuarial loss (gain)
|
(15,635
|
)
|
|
15,745
|
|
|
10,305
|
|
|
(72
|
)
|
|
68
|
|
|
46
|
|
Asset loss (gain)
|
16,946
|
|
|
(7,072
|
)
|
|
797
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net actuarial loss (gain), end of year
|
$
|
54,343
|
|
|
$
|
54,235
|
|
|
$
|
46,494
|
|
|
$
|
(34
|
)
|
|
$
|
35
|
|
|
$
|
(31
|
)
|
The Company expects to recognize in net pension cost throughout
2019
an actuarial loss of
$1.3 million
that was recorded in accumulated other comprehensive income at
December 30, 2018
.
Risk Management
Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:
Asset volatility.
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
term. 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 in the U.S. segment named the Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”) and the To-Ricos Employee Savings, 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 maintains
three
postretirement plans for eligible Mexico employees, as required by Mexico law, which primarily cover termination benefits. The Company maintains
two
defined contribution retirement savings plans in the U.K. and Europe for eligible U.K. and Europe employees, as required by U.K. and Europe law. Salaried employees can contribute up to
3.0%
of salary and the Company matches between
4.0%
and
5.5%
. Weekly employees can contribute up to
1.0%
of wages with a
1.0%
Company match.
The Company’s expenses related to its defined contribution plans totaled
$11.4 million
,
$9.5 million
and
$8.1 million
in
2018
,
2017
and
2016
, respectively.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
15.
STOCKHOLDERS’ EQUITY
Accumulated Other Comprehensive Loss
The following tables provide information regarding the changes in accumulated other comprehensive loss during
2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
(a)
|
|
Losses Related to Foreign Currency Translation
|
|
Unrealized Gains (Losses) on Derivative Financial Instruments Classified as Cash Flow Hedges
|
|
Losses Related to Pension and Other Postretirement Benefits
|
|
Unrealized Holding Gains on Available-for-Sale Securities
|
|
Total
|
|
(In thousands)
|
Balance, beginning of year
|
$
|
42,081
|
|
|
$
|
(1,848
|
)
|
|
$
|
(71,434
|
)
|
|
$
|
61
|
|
|
$
|
(31,140
|
)
|
Other comprehensive income (loss)
before reclassifications
|
(97,851
|
)
|
|
829
|
|
|
(939
|
)
|
|
867
|
|
|
(97,094
|
)
|
Amounts reclassified from
accumulated other comprehensive
loss to net income
|
—
|
|
|
348
|
|
|
910
|
|
|
(846
|
)
|
|
412
|
|
Impact of currency translation
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Net current year other comprehensive income (loss)
|
(97,851
|
)
|
|
1,165
|
|
|
(29
|
)
|
|
21
|
|
|
(96,694
|
)
|
Balance, end of year
|
$
|
(55,770
|
)
|
|
$
|
(683
|
)
|
|
$
|
(71,463
|
)
|
|
$
|
82
|
|
|
$
|
(127,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
2017
(a)
|
|
Losses Related to Foreign Currency Translation
|
|
Unrealized Gains (Losses) on Derivative Financial Instruments Classified as Cash Flow Hedges
|
|
Losses Related to Pension and Other Postretirement Benefits
|
|
Unrealized Holding Gains on Available-for-Sale Securities
|
|
Total
|
|
(In thousands)
|
Balance, beginning of year
|
$
|
(265,714
|
)
|
|
$
|
99
|
|
|
$
|
(64,243
|
)
|
|
$
|
—
|
|
|
$
|
(329,858
|
)
|
Granite-Holdings Sarl common-control
transaction
|
204,577
|
|
|
(1,368
|
)
|
|
—
|
|
|
—
|
|
|
203,209
|
|
Other comprehensive income (loss)
before reclassifications
|
103,218
|
|
|
60
|
|
|
(7,770
|
)
|
|
82
|
|
|
95,590
|
|
Amounts reclassified from accumulated
other comprehensive loss to net
income
|
—
|
|
|
(639
|
)
|
|
579
|
|
|
(21
|
)
|
|
(81
|
)
|
Net current year other comprehensive
income (loss)
|
103,218
|
|
|
(579
|
)
|
|
(7,191
|
)
|
|
61
|
|
|
95,509
|
|
Balance, end of year
|
$
|
42,081
|
|
|
$
|
(1,848
|
)
|
|
$
|
(71,434
|
)
|
|
$
|
61
|
|
|
$
|
(31,140
|
)
|
|
|
(a)
|
All amounts are net of tax. Amounts in parentheses indicate debits.
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Loss Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Loss(a)
|
|
Affected Line Item in the Consolidated and Combined Statements of Income
|
|
2018
|
|
2017
|
|
|
|
(In thousands)
|
|
|
Realized gain (loss) on settlement of
derivative financial instruments
classified as cash flow hedges
|
|
$
|
(348
|
)
|
|
$
|
639
|
|
|
Cost of sales
|
Realized gain on sale of securities
|
|
1,118
|
|
|
34
|
|
|
Interest income
|
Amortization of pension and other
postretirement plan actuarial losses:
|
|
|
|
|
|
|
Union employees pension plan
(b)(d)
|
|
(49
|
)
|
|
(24
|
)
|
|
2018-Miscellaneous, net; 2017-Cost of sales
|
Legacy Gold Kist plans
(c)(d)
|
|
(360
|
)
|
|
(283
|
)
|
|
2018-Miscellaneous, net; 2017-Cost of sales
|
Legacy Gold Kist plans
(c)(d)
|
|
(794
|
)
|
|
(625
|
)
|
|
2018-Miscellaneous, net; 2017-SG&A expense
|
Total before tax
|
|
(433
|
)
|
|
(259
|
)
|
|
|
Tax expense
|
|
21
|
|
|
340
|
|
|
|
Total reclassification for the period
|
|
$
|
(412
|
)
|
|
$
|
81
|
|
|
|
|
|
(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 14. Pension and Other Postretirement Benefits” to the Consolidated and Combined Financial Statements.
|
Share Repurchase Program and Treasury Stock
On July 28, 2015, the Company's Board of Directors approved a
$150.0 million
share repurchase authorization. The 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
that expired on February 9, 2017.
On October 31, 2018, the Company’s Board of Directors approved a
$200.0 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 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 30, 2018
, the Company had repurchased approximately
15,600
shares under this program with a market value of approximately
$0.2 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.
Capital Contributions to a Subsidiary
In December 2018, 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
$0.6 million
of additional capital. This capital contribution was eliminated upon consolidation. The noncontrolling stockholders contributed
$1.4 million
of additional capital.
In July 2016, the stockholders of GAPESA contributed additional capital to fund a capacity expansion project in southern Mexico. The Company contributed
$2.7 million
of additional capital. This contribution was eliminated upon consolidation. The noncontrolling stockholders contributed
$7.3 million
of additional capital. The respective contributions did not impact either the Company or noncontrolling stockholders’ ownership percentages in GAPESA.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Restrictions on Dividends
Both the U.S. Credit Facility and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends.
The Moy Park Multicurrency Revolving Facility Agreement restrict Moy Park’s ability and the ability of certain of Moy Park’s subsidiaries to, among other things, make payments and distributions to the Company.
16.
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. Certain full-time, salaried employees of the Company’s Mexico operations are eligible to participate in the Pilgrim’s Mexico Incentive Plan (“PMIP”). At
December 30, 2018
, the Company has accrued
$11.1 million
in costs related to cash bonus awards that could potentially be awarded under the STIP and the PMIP during
2019
. The Company assumed responsibility for the JFC LLC Long-Term Equity Incentive Plan dated January 1, 2014, as amended (the “JFC LTIP”) through its acquisition of GNP on January 6, 2017. The Company has accrued
$2.2 million
in costs related to the JFC LTIP at
December 30, 2018
. The Company assumed responsibility for the Moy Park Incentive Plan dated January 1, 2013, as amended (the “MPIP”) through its acquisition of Moy Park on September 8, 2017. The Company has accrued
$6.2 million
in costs related to the MPIP at
December 30, 2018
.
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 30, 2018
, we have reserved approximately
4.1 million
shares of common stock for future issuance under the LTIP.
The following awards were outstanding during
2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Award
Type
|
|
Benefit
Plan
|
|
Awards Granted
|
|
Grant
Date
|
|
Grant Date Fair Value per Award
(a)
|
|
Vesting
Condition
|
|
Vesting
Date
|
|
Awards Forfeited to Date
|
|
Settlement Method
|
RSU
|
|
LTIP
|
|
389,424
|
|
|
01/19/2017
|
|
18.38
|
|
Performance / Service
|
|
(b)
|
|
389,424
|
|
(b)
|
Stock
|
RSU
|
|
LTIP
|
|
410,000
|
|
|
02/14/2018
|
|
25.59
|
|
Service
|
|
01/01/2019
|
|
—
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
163,764
|
|
|
03/01/2018
|
|
24.93
|
|
Service
|
|
(c)
|
|
12,107
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
266,478
|
|
|
03/01/2018
|
|
24.93
|
|
Performance / Service
|
|
(d)
|
|
32,452
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
11,144
|
|
|
05/10/2018
|
|
21.54
|
|
(e)
|
|
(e)
|
|
—
|
|
|
Stock
|
RSU
|
|
LTIP
|
|
262,500
|
|
|
12/18/2018
|
|
16.06
|
|
Service
|
|
07/01/2019
|
|
—
|
|
|
Stock
|
|
|
(a)
|
The fair value of each RSU granted or vested represents the closing price of the Company’s common stock on the respective grant date or vesting date.
|
|
|
(b)
|
Performance conditions associated with these awards were not satisfied. Therefore,
100%
of the awards were forfeited during
2018
.
|
|
|
(c)
|
These restricted stock units vest in ratable tranches on December 31, 2018, December 31, 2019 and December 31, 2020. Expected compensation cost related to these units totals
$4.1 million
based on a closing stock price for the Company’s common stock of
$24.93
per share on March 1, 2018. Compensation cost will be amortized to profit/loss over the remaining vesting period.
|
|
|
(d)
|
If performance conditions related to the Company's 2018 operating results are satisfied, these restricted stock units vest in ratable tranches on December 31, 2019, December 31, 2020 and December 31, 2021. Expected compensation cost related to these units before considering the impact of individual participant forfeitures totals
$6.6 million
based on a closing stock price for the Company's common stock of
$24.93
per share on March 1, 2018. Compensation cost will be amortized to profit/loss upon satisfaction of the performance conditions over the remaining vesting period.
|
|
|
(e)
|
These restricted stock units were granted to the four non-employees who currently serve on the Company's Board of Directors. Each participating director's units will vest upon his departure from the Company's Board of Directors. Compensation cost was recognized in profit/loss upon the grant date.
|
Compensation costs and the income tax benefit recognized for our share-based compensation arrangements are included below:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Share-based compensation cost:
|
|
|
|
|
|
Cost of sales
|
$
|
389
|
|
|
$
|
256
|
|
|
$
|
770
|
|
Selling, general and administrative expenses
|
12,764
|
|
|
2,763
|
|
|
5,332
|
|
Total
|
$
|
13,153
|
|
|
$
|
3,019
|
|
|
$
|
6,102
|
|
|
|
|
|
|
|
Income tax benefit
|
$
|
3,202
|
|
|
$
|
1,006
|
|
|
$
|
1,858
|
|
The Company’s RSU activity is included below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
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)
|
Outstanding at beginning of year
|
389
|
|
|
$
|
18.39
|
|
|
906
|
|
|
$
|
20.00
|
|
|
774
|
|
|
$
|
18.78
|
|
Granted
|
1,114
|
|
|
23.05
|
|
|
461
|
|
|
18.72
|
|
|
325
|
|
|
24.35
|
|
Vested
|
—
|
|
|
—
|
|
|
(714
|
)
|
|
18.09
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(434
|
)
|
|
19.06
|
|
|
(264
|
)
|
|
25.33
|
|
|
(193
|
)
|
|
24.51
|
|
Outstanding at end of year
|
1,069
|
|
|
$
|
22.97
|
|
|
389
|
|
|
$
|
18.39
|
|
|
906
|
|
|
$
|
20.00
|
|
The total fair value of awards vested in
2017
was $
16.3 million
. No awards vested in 2018 or 2016.
At
December 30, 2018
, the total unrecognized compensation cost related to all nonvested awards was
$11.4 million
. That cost is expected to be recognized over a weighted average period of
1.42
years.
Historically, we have issued new shares to satisfy award conversions.
17. RESTRUCTURING-RELATED ACTIVITIES
In 2018, the Company elected to close its 40 North Foods product incubator operation located in Boulder, Colorado. Implementation of this restructuring initiative is expected to result in total pre-tax charges of approximately
$0.7 million
, and approximately
$0.6 million
of these charges are estimated to result in cash outlays. These activities were initiated in the second quarter of 2018 and are expected to be substantially completed by the third quarter of 2019.
In 2017, the Company initiated a restructuring initiative to capitalize on cost-saving opportunities within its GNP operations located in Luverne, Minnesota and St. Cloud, Minnesota. Implementation of the initiative is expected to result in total pre-tax charges of approximately
$7.0 million
, and approximately
$5.4 million
of these charges are estimated to result in cash outlays. These activities initiated in the first quarter of 2017 and are expected to be substantially completed by the second quarter of 2020.
The following table provides a summary of our estimates of costs associated with these restructuring initiatives by major type of cost:
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Cost
|
GNP
|
|
40 North Foods
|
|
Total Estimated Amount Expected to be Incurred
|
|
(In thousands)
|
Employee termination benefits
|
$
|
4,074
|
|
|
$
|
449
|
|
|
$
|
4,523
|
|
Inventory impairments
|
472
|
|
|
—
|
|
|
472
|
|
Asset impairments
|
470
|
|
|
103
|
|
|
573
|
|
Other charges
(a)
|
1,983
|
|
|
150
|
|
|
2,133
|
|
|
$
|
6,999
|
|
|
$
|
702
|
|
|
$
|
7,701
|
|
|
|
(a)
|
Comprised of other costs directly related to the restructuring initiatives, including prepaid software impairment, St. Cloud, Minnesota office lease costs, Luverne, Minnesota plant closure costs, and Boulder, Colorado office lease costs.
|
During 2018, the Company recognized the following costs and incurred the following cash outlays related to these restructuring initiatives:
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
Cash Outlays
|
|
(In thousands)
|
GNP Initiative:
|
|
|
|
Employee termination benefits
|
$
|
936
|
|
|
$
|
1,500
|
|
Inventory impairments
|
(227
|
)
|
|
—
|
|
Asset impairments
|
781
|
|
|
—
|
|
Other charges
|
(17
|
)
|
|
65
|
|
|
1,473
|
|
|
1,565
|
|
40 North Foods Initiative:
|
|
|
|
Employee termination benefits
|
$
|
449
|
|
|
$
|
449
|
|
Asset impairments
|
103
|
|
|
—
|
|
Other
|
115
|
|
|
29
|
|
|
$
|
2,140
|
|
|
$
|
2,043
|
|
During 2017, the Company recognized the following costs and incurred the following cash outlays related to the GNP restructuring initiative:
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
Cash Outlays
|
|
(In thousands)
|
Employee termination benefits
|
$
|
3,381
|
|
|
$
|
2,581
|
|
Inventory impairments
|
699
|
|
|
—
|
|
Other charges
|
752
|
|
|
—
|
|
|
$
|
4,832
|
|
|
$
|
2,581
|
|
These expenses are reported in the line item
Administrative restructuring charges
on the Consolidated and Combined Statements of Income and are recognized in the U.S. segment.
The following table reconciles liabilities and reserves associated with each restructuring initiative from initiative inception to
December 30, 2018
. Ending liability balances for employee termination benefits and other charges are reported in the line item
Accrued expenses and other current liabilities
in our Consolidated Balance Sheets. The ending reserve balance for inventory impairments is reported in the line item
Inventories
in our Consolidated Balance Sheets.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GNP Initiative
|
|
40 North Foods Initiative
|
|
Employee Termination Benefits
|
|
Inventory
Impairments
|
|
Other
Charges
|
|
Total
|
|
Employee Termination Benefits
|
|
Other Charges
|
|
Total
|
|
(In thousands)
|
Restructuring charges incurred
|
$
|
3,381
|
|
|
$
|
699
|
|
|
$
|
752
|
|
|
$
|
4,832
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Payments and disposals
|
(2,581
|
)
|
|
—
|
|
|
—
|
|
|
(2,581
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Liability or reserve at December 31,
2017
|
800
|
|
|
699
|
|
|
752
|
|
|
2,251
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Restructuring charges incurred
|
936
|
|
|
(227
|
)
|
|
(17
|
)
|
|
692
|
|
|
449
|
|
|
115
|
|
|
564
|
|
Payments and disposals
|
(1,500
|
)
|
|
(472
|
)
|
|
(735
|
)
|
|
(2,707
|
)
|
|
(449
|
)
|
|
(29
|
)
|
|
(478
|
)
|
Liability or reserve at December 30,
2018
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
86
|
|
|
$
|
86
|
|
In 2018, the Company also reported impairment costs of
$2.6 million
related to tangible assets of its Rose Energy Ltd. subsidiary in the line item
Administrative restructuring charges
on the Consolidated and Combined Statements of Income. This impairment cost was recognized in the U.K. and Europe segment.
In 2017, the Company also reported impairment costs of
$3.5 million
and
$1.5 million
related to its Athens, Alabama and Dublin, Ireland plants, respectively, in the line item
Administrative restructuring charges
on the Consolidated and Combined Statements of Income. The impairment cost related the Athens, Alabama plant was recognized in the U.S. segment, while the impairment cost related to the Dublin, Ireland plant was recognized in the U.K. and Europe segment.
18. PUERTO RICO HURRICANE IMPACT
Hurricane Maria became the strongest storm to make landfall in Puerto Rico in
85
years when it came ashore on September 20, 2017. The Company suffered significant damage because of the storm. Pilgrim’s lost
2.1 million
birds on the island, many of the Company’s contract growers lost their poultry houses, and the Company incurred damage at its processing plant, feed mill and hatchery.
Estimated damages incurred by the Company through
December 30, 2018
included property and casualty losses related to its facilities totaling
$5.2 million
and a business interruption loss, resulting primarily from damages suffered by its contract growers and damage to the island’s roadways and power grid, totaling
$15.1 million
. Pilgrim’s expected to receive insurance proceeds in the amount of
$11.9 million
related to the business interruption loss and had recorded a receivable from its insurance provider for that amount. The Company learned in the fourth quarter of 2018 that it was not eligible for the recovery because the actual damage to its facilities was not significant. The Company eliminated the receivable and recognized the business interruption loss in
Cost of sales
in the Consolidated and Combined Statements of Income. This loss was recognized in the U.S. segment.
19.
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 AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
Sales to related parties:
|
|
|
|
|
|
JBS USA Food Company
(c)
|
$
|
13,843
|
|
|
$
|
15,289
|
|
|
$
|
16,534
|
|
JBS Five Rivers
|
7,096
|
|
|
31,004
|
|
|
14,126
|
|
JBS Global (UK) Ltd.
|
—
|
|
|
44
|
|
|
122
|
|
JBS Chile Ltda.
|
60
|
|
|
178
|
|
|
615
|
|
J&F Investimentos Ltd.
|
—
|
|
|
104
|
|
|
69
|
|
Combo, Mercado de Congelados
|
159
|
|
|
—
|
|
|
—
|
|
Seara International Ltd.
|
—
|
|
|
104
|
|
|
4
|
|
JBS Toledo NV
|
—
|
|
|
—
|
|
|
143
|
|
Rigamonti Salumificio S.P.A.
|
—
|
|
|
—
|
|
|
3
|
|
Total sales to related parties
|
$
|
21,158
|
|
|
$
|
46,723
|
|
|
$
|
31,616
|
|
|
|
|
|
|
|
Cost of goods purchased from related parties:
|
|
|
|
|
|
JBS USA Food Company
(c)
|
$
|
117,596
|
|
|
$
|
101,685
|
|
|
$
|
139,476
|
|
Seara Meats B.V.
|
36,223
|
|
|
13,949
|
|
|
21,038
|
|
JBS Aves Ltda.
|
1,123
|
|
|
—
|
|
|
—
|
|
Seara International Ltd.
|
—
|
|
|
11,236
|
|
|
2,746
|
|
JBS Toledo NV
|
445
|
|
|
231
|
|
|
123
|
|
JBS Global (UK) Ltd.
|
21
|
|
|
—
|
|
|
—
|
|
Rigamonti Salumificio S.P.A.
|
—
|
|
|
—
|
|
|
15
|
|
Total cost of goods purchased from related parties
|
$
|
155,408
|
|
|
$
|
127,101
|
|
|
$
|
163,398
|
|
|
|
|
|
|
|
Expenditures paid by related parties:
|
|
|
|
|
|
JBS USA Food Company
(d)
|
$
|
62,189
|
|
|
$
|
40,313
|
|
|
$
|
40,519
|
|
JBS S.A.
|
—
|
|
|
3,777
|
|
|
8,125
|
|
JBS Chile Ltda.
|
33
|
|
|
—
|
|
|
—
|
|
Seara Alimentos
|
—
|
|
|
64
|
|
|
—
|
|
Total expenditures paid by related parties
|
$
|
62,222
|
|
|
$
|
44,154
|
|
|
$
|
48,644
|
|
|
|
|
|
|
|
Expenditures paid on behalf of related parties:
|
|
|
|
|
|
JBS USA Food Company
(d)
|
$
|
9,192
|
|
|
$
|
5,376
|
|
|
$
|
10,586
|
|
JBS S.A.
|
170
|
|
|
5
|
|
|
86
|
|
Seara International Ltd.
|
45
|
|
|
—
|
|
|
72
|
|
Seara Meats B.V.
|
—
|
|
|
12
|
|
|
—
|
|
Rigamonti Salumificio S.P.A.
|
—
|
|
|
—
|
|
|
3
|
|
Total expenditures paid on behalf of related parties
|
$
|
9,407
|
|
|
$
|
5,393
|
|
|
$
|
10,747
|
|
|
|
|
|
|
|
Other related party transactions:
|
|
|
|
|
|
Letter of credit fees
(a)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
202
|
|
Capital contribution (distribution) under tax sharing agreement
(b)
|
(525
|
)
|
|
5,558
|
|
|
5,038
|
|
Total other related party transactions
|
$
|
(525
|
)
|
|
$
|
5,558
|
|
|
$
|
5,240
|
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
(In thousands)
|
Accounts receivable from related parties:
|
|
|
|
JBS USA Food Company
(c)
|
$
|
1,236
|
|
|
$
|
2,826
|
|
JBS Chile Ltda.
|
—
|
|
|
108
|
|
Combo, Mercado de Congelados
|
79
|
|
|
—
|
|
Seara International Ltd.
|
16
|
|
|
15
|
|
Seara Meats B.V.
|
—
|
|
|
2
|
|
Total accounts receivable from related parties
|
$
|
1,331
|
|
|
$
|
2,951
|
|
|
|
|
|
Accounts payable to related parties:
|
|
|
|
JBS USA Food Company
(c)
|
$
|
5,121
|
|
|
$
|
440
|
|
Seara Meats B.V.
|
2,142
|
|
|
2,410
|
|
JBS Chile Ltda.
|
6
|
|
|
—
|
|
JBS Toledo
|
—
|
|
|
39
|
|
Total accounts payable to related parties
|
$
|
7,269
|
|
|
$
|
2,889
|
|
|
|
(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 payable for tax year 2018 was accrued in 2018 and was paid in 2019. The net tax receivable for tax year 2017 was accrued in 2017 and was paid in 2018. The net tax receivable for tax year 2016 was accrued in 2016 and paid in January 2017.
|
|
|
(c)
|
We routinely execute transactions to both purchase products from JBS USA Food Company (“JBS USA”) and sell products to them. As of
December 30, 2018
and
December 31, 2017
, the outstanding payable to JBS USA was
$5.1 million
and
$0.4 million
, respectively. As of
December 30, 2018
and
December 31, 2017
, the outstanding receivable from JBS USA was
$1.2 million
and
$2.8 million
, respectively. As of
December 30, 2018
, approximately
$1.1 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.
|
20.
COMMITMENTS AND CONTINGENCIES
General
The Company is a party to many routine contracts in which it provide general indemnities in the normal course of business to third parties for various risks. Among other considerations, the Company has not recorded a liability for any of these indemnities because, 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.
Purchase Obligations
The Company will sometimes enter into noncancelable contracts to purchase capital equipment and certain commodities such as corn, soybean meal, wheat and electricity. At
December 30, 2018
, the Company was party to outstanding purchase contracts totaling
$433.8 million
and
$6.7 million
payable in
2019
and
2020
, respectively. There were
no
outstanding purchase contracts in 2021.
Operating Leases
The Consolidated and Combined Statements of Income include rental expense for operating leases of approximately
$60.3 million
,
$59.0 million
and
$56.9 million
in
2018
,
2017
and
2016
, respectively. The Company’s future minimum lease commitments under noncancelable operating leases are as follows (in thousands):
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
2019
|
|
$
|
84,220
|
|
2020
|
|
63,196
|
|
2021
|
|
53,908
|
|
2022
|
|
45,557
|
|
2023
|
|
36,136
|
|
Thereafter
|
|
66,637
|
|
Total
|
|
$
|
349,654
|
|
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
$55.9 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
The Company is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks. Among other considerations, the Company has not recorded a liability for any of these indemnities because, 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 I, Item 3. “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.
Tax Claims and Proceedings
A Mexico subsidiary of the Company is currently appealing an unfavorable tax adjustment proposed by Mexican Tax Authorities due to an examination of a specific transaction undertaken by the Mexico subsidiary during tax years 2009 and 2010. Amounts under appeal are
$24.3 million
and
$16.1 million
for tax years 2009 and 2010, respectively. No loss has been recorded for these amounts at this time.
Other Claims and Proceedings
Between September 2, 2016 and October 13, 2016, a series of purported federal class action lawsuits styled as
In re Broiler Chicken Antitrust Litigation
, Case No. 1:16-cv-08637 were filed with the U.S. District Court for the Northern District of Illinois against PPC and
13
other producers by and on behalf of direct and indirect purchasers of broiler chickens alleging violations
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
of federal and state antitrust and unfair competition laws. The complaints seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the period of January 2008 to the present. The class plaintiffs have filed three consolidated amended complaints: one on behalf of direct purchasers and two on behalf of distinct groups of indirect purchasers. Between December 2017 and January 2019,
eighteen
individual direct action complaints (
Affiliated Foods, Inc., et al., v. Claxton Poultry Farms, Inc., et al.
, Case No. 1:17-cv-08850;
Sysco Corp. v. Tyson Foods Inc., et al
, Case No. 1:18-cv-00700;
US Foods Inc. v. Tyson Foods Inc., et al
, Case No. 1:18-cv-00702;
Action Meat Distributors, Inc. et al., v. Claxton Poultry Farms, Inc., et al.
, Case No. 1:18-cv-03471;
Holdings, LLC, v. Tyson Foods, Inc. et al.
, Case No. 1:18-cv-04000;
Associated Grocers of the South, Inc. et al., v. Tyson Foods, Inc., et al.
, Case No. 1:18-cv-4616;
The Kroger Co., et al. v. Tyson Foods, Inc., et al.
, Case No. 1:18-cv-04534;
Ahold Delhaize USA, Inc. v. Koch Foods, Inc., et al.
, Case No. 1:18-cv-05351;
Samuels as Trustee In Bankruptcy for Central Grocers, Inc. et al v. Norman W. Fries, Inc., d/b/a Claxton Poultry Farms, Inc. et al.
, Case No. 1:18-cv-05341;
W. Lee Flowers & Company, Inc. v. Norman W. Fries, Inc., d/b/a Claxton Poultry Farms, Inc. et al.
, Case No. 1:18-cv-05345;
BJ's Wholesale Club, Inc. v. Tyson Foods, Inc., et al.
, Case No. 1:18-cv-05877;
United Supermarkets LLC, et al. v. Tyson Foods Inc., et al.
, Case No. 1:18-cv-06693;
Associated Wholesale Grocers, Inc. v. Koch Foods, Inc., et al.
, Case No. 1:18-cv-06316 (transferred from the U.S. District Court for the District of Kansas on September 17, 2018, following Defendants’ successful motion to transfer);
Shamrock Foods Company and United Food Service, Inc. v. Tyson Foods, Inc., et al.,
Case No. 18-cv-7284;
Winn-Dixie Stores, Inc., et al. v. Koch Foods, Inc., et al.
, Case No. 1:18-cv-00245;
Quirch Foods, LLC, f/k/a Quirch Foods Co. v. Koch Foods, Inc., et al.,
Case No. 18-cv-08511;
Sherwood Food Distributors, L.L.C.,
et al. v. Tyson Foods, Inc., et al.,
Case No. 19-cv-00354), and
Hooters of America, LLC v. Tyson Foods, Inc., et al
, Case No. 1:19-cv-00390 (N.D. Ill.) were filed with the U.S. District Court for the Northern District of Illinois by individual direct purchaser entities, the allegations of which largely mirror those in the class action complaints. Substantial completion of document discovery for most Defendants, including PPC, occurred on July 18, 2018. The Court’s scheduling order currently requires completion of fact discovery on October 14, 2019; class certification briefing and expert reports proceeding from November 12, 2019 to July 14, 2020; and summary judgment to proceed 60 days after the Court rules on motions for class certification. The Court has ordered the parties to coordinate scheduling of the direct action complaints with the class complaints with any necessary modifications to reflect time of filing. Discovery will be consolidated.
On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of PPC’s stock between February 21, 2014 and October 6, 2016, filed a class action complaint in the U.S. District Court for the District of Colorado against PPC and its named executive officers. The complaint alleges, among other things, that PPC’s SEC filings contained statements that were rendered materially false and misleading by PPC’s failure to disclose that (i) the Company colluded with several of its industry peers to fix prices in the broiler-chicken market as alleged in the
In re Broiler Chicken Antitrust Litigation
, (ii) its conduct constituted a violation of federal antitrust laws, (iii) PPC’s revenues during the class period were the result of illegal conduct and (iv) that PPC lacked effective internal control over financial reporting. The complaint also states that PPC’s industry was anticompetitive. On April 4, 2017, the Court appointed another stockholder, George James Fuller, as lead plaintiff. On May 11, 2017, the plaintiff filed an amended complaint, which extended the end date of the putative class period to November 17, 2017. PPC and the other defendants moved to dismiss on June 12, 2017, and the plaintiff filed its opposition on July 12, 2017. PPC and the other defendants filed their reply on August 1, 2017. On March 14, 2018, the Court dismissed the plaintiff’s complaint without prejudice and issued final judgment in favor of PPC and the other defendants. On April 11, 2018, the plaintiff moved for reconsideration of the Court’s decision and for permission to file a Second Amended Complaint. PPC and the other defendants filed a response to the plaintiff’s motion on April 25, 2018. On November 19, 2018, the Court denied the plaintiff’s motion for reconsideration and granted plaintiff leave to file a Second Amended Complaint. As of January 18, 2019, plaintiff has not yet filed a Second Amended Complaint.
On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against PPC and
four
other producers in the Eastern District of Oklahoma, alleging, among other things, a conspiracy to reduce competition for grower services and depress the price paid to growers. Plaintiffs allege violations of the Sherman Act and the Packers and Stockyards Act and seek, among other relief, treble damages. The complaint was consolidated with a subsequently filed consolidated amended class action complaint styled as
In re Broiler Chicken Grower Litigation
, Case No. CIV-17-033-RJS (the “Grower Litigation”). The defendants (including PPC) jointly moved to dismiss the consolidated amended complaint on September 9, 2017. The Court initially held oral argument on January 19, 2018, during which it considered and granted only motions from certain other defendants who were challenging jurisdiction. Oral argument on the remaining pending motions in the Oklahoma court occurred on April 20, 2018. Rulings on the motion are pending. In addition, on March 12, 2018, the Northern District of Texas, Fort Worth Division (“Bankruptcy Court”) enjoined plaintiffs from litigating the Grower Litigation complaint as pled against the Company because allegations in the consolidated complaint violate the confirmation order relating to the Company’s 2008-2009 bankruptcy proceedings. Specifically, the 2009 bankruptcy confirmation order bars any claims against the Company based on conduct occurring before December 28, 2009. On March 13, 2018, Pilgrim’s notified the trial court of the Bankruptcy Court’s injunction. To date, plaintiffs have not amended the consolidated complaint to comply with the Bankruptcy Court’s injunction order or the confirmation order.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
On March 9, 2017, a stockholder derivative action styled as
DiSalvio v. Lovette, et al.
, No. 2017 cv. 30207, was brought against all of PPC’s directors and its Chief Financial Officer, Fabio Sandri, in the District Court for the County of Weld in Colorado. The complaint alleges, among other things, that the named defendants breached their fiduciary duties by failing to prevent PPC and its officers from engaging in an antitrust conspiracy as alleged in the
In re Broiler Chicken Antitrust Litigation
, and issuing false and misleading statements as alleged in the Hogan class action litigation. On April 17, 2017, a related stockholder derivative action styled
Brima v. Lovette, et al.
, No. 2017 cv. 30308, was brought against all of PPC’s directors and its Chief Financial Officer in the District Court for the County of Weld in Colorado. The Brima complaint contains largely the same allegations as the DiSalvio complaint. On May 4, 2017, the plaintiffs in both the DiSalvio and Brima actions moved to (i) consolidate the two stockholder derivative cases, (ii) stay the consolidated action until the resolution of the motion to dismiss in the Hogan putative securities class action, and (iii) appoint co-lead counsel. The Court granted the motion on May 8, 2017, staying the proceedings pending resolution of the motion to dismiss in the Hogan action.
In January 2018, a stockholder derivative action entitled
Raul v. Nogueira de Souza, et al.
, was filed in the U.S. District Court for the District of Colorado against the Company, as nominal defendant, as well as the Company’s directors, its Chief Financial Officer, and majority stockholder, JBS S.A. The complaint alleges, among other things, that (i) defendants permitted the Company to omit material information from its proxy statements filed in 2014 through 2017 related to the conduct of Wesley Mendonça Batista and Joesley Mendonça Batista, (ii) the individual defendants and JBS S.A. breached their fiduciary duties by failing to prevent the Company and its officers from engaging in an antitrust conspiracy as alleged in the Broiler Litigation and (iii) issuing false and misleading statements as alleged in the Hogan class action litigation. On May 17, 2018, the plaintiffs filed an unopposed motion to stay proceedings pending a final resolution of the Hogan class action litigation. The court-ordered deadline for the defendants to file an answer or otherwise respond to the complaint was originally set for July 30, 2018. This deadline was extended to August 31, 2018, at which time the plaintiffs filed an unopposed motion to voluntarily dismiss the complaint without prejudice. The Court granted the plaintiffs’ motion on September 4, 2018.
On January 25, 2018, a stockholder derivative action styled as
Sciabacucchi v. JBS S.A., et al.
, was brought against all of PPC’s directors, JBS S.A., JBS USA Holding Lux S.à r.l. (“JBS Holding Lux”) and several members of the Batista family, in the Court of Chancery of the State of Delaware (the “Chancery”). The complaint alleges, among other things, that the named defendants breached their fiduciary duties arising out of the Company’s acquisition of Moy Park. On March 15, 2018, the members of the Batista family were dismissed from the action without prejudice by stipulation. On March 20, 2018, nominal defendant PPC filed its answer. On March 20, 2018, the remaining defendants, including PPC’s directors, JBS S.A., and JBS Holding Lux moved to dismiss the complaint. On April 19, 2018, director defendants Bell, Macaluso, and Cooper filed their opening brief in support of their motion to dismiss. On April 19, 2018, defendants JBS S.A., JBS Holding Lux, and director defendants Lovette, Nogueira de Souza, Tomazoni, Farahat, Molina, and de Vasconcellos, Jr. filed their opening brief in support of their motion to dismiss. On May 24, 2018, Employees Retirement System of the City of St. Louis filed a derivative complaint, which was virtually identical to the Sciabacucchi complaint. On July 2, 2018, the Chancery granted a stipulation consolidating the cases and making the first complaint (Sciabacucchi) the operative complaint. On July 3, 2018, the plaintiffs dismissed the Special Committee defendants—Bell, Macaluso and Cooper. On July 9, 2018, the plaintiffs dismissed de Vasconcellos, Jr. and filed their opposition to the motion to dismiss by the entity and non-Special Committee defendants, who filed their reply on August 9, 2018. On November 15, 2018, the parties argued the dismissal of the remaining defendants (JBS S.A.; JBS Holding Lux; and director defendants Lovette, Nogueira de Souza, Tomazoni, Farahat, and Molina) before the Chancery. After arguments concluded, the Chancery asked the parties to submit supplemental briefing on the viability of an additional ground for dismissal. The parties filed their respective supplemental briefs on December 21, 2018. The Chancery has yet to issue it’s decision.
The Company believes it has strong defenses in each of the above litigations and intends to contest them vigorously. The Company cannot predict the outcome of these actions nor when they will be resolved. If the plaintiffs were to prevail in any of these litigations, the Company could be liable for damages, which could be material and could adversely affect its financial condition or results of operations.
J&F Investigation
On May 3, 2017, certain officers of J&F Investimentos S.A. (“J&F,” and together with the companies controlled by J&F, the “J&F Group”), a company organized in Brazil and an indirect controlling stockholder of the Company, including a former senior executive and former board members of the Company, entered into plea bargain agreements (collectively, the “Plea Bargain Agreements”) with the Brazilian Federal Prosecutor’s Office (Ministério Público Federal) (the “MPF”) in connection with certain misconduct by J&F and such individuals acting in their capacity as J&F executives. The details of such misconduct are set forth in separate annexes to the Plea Bargain Agreements, and include admissions of payments to politicians and political parties in Brazil during a ten-year period in exchange for receiving, or attempting to receive, favorable treatment for certain J&F Group companies in Brazil.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
On June 5, 2017, J&F, for itself and as the controlling shareholder of the J&F Group companies, entered into a leniency agreement (the “Leniency Agreement”) with the MPF, whereby J&F assumed responsibility for the conduct that was described in the annexes to the Plea Bargain Agreements. In connection with the Leniency Agreement, J&F has agreed to pay a fine of
10.3 billion
Brazilian reais, adjusted for inflation, over a
25
-year period. Various proceedings by Brazilian governmental authorities remain pending against J&F and certain of its officers to potentially invalidate the Plea Bargain Agreements and impose more severe penalties for additional alleged misconduct that were not disclosed in the annexes to the Plea Bargain Agreements.
J&F is conducting an internal investigation in accordance with the terms of the Leniency Agreement, and has engaged outside advisors to assist in conducting this investigation, which is ongoing, and with which we are fully cooperating. JBS S.A. and the Company have engaged outside U.S. legal counsel to: (i) conduct an independent investigation in connection with matters disclosed in the Leniency Agreement and the Plea Bargain Agreements; and (ii) communicate with relevant U.S. authorities, including the Department of Justice regarding the factual findings of that investigation. Additionally, JBS S.A. and the Company have taken, and are continuing to take, measures to enhance their compliance programs, including to prevent and detect bribery and corruption. We cannot predict when the J&F and JBS S.A. investigations will be completed or the results of such investigations, including whether any litigation will be brought against us or the outcome or impact of any resulting litigation. We will monitor the results of the investigations. Any proceedings that require us to make substantial payments, affect our reputation or otherwise interfere with our business operations could have a material adverse effect on our business, financial condition and operating results.
Any further developments in these, or other, matters involving the controlling shareholders, directors, or officers of J&F, or other parties affiliated with us, could subject JBS S.A. and its subsidiaries (including the Company) to potential fines or penalties, may materially adversely affect the public perception or reputation of JBS S.A. and its subsidiaries (including the Company) and could have a material adverse effect on JBS S.A. and its subsidiaries (including the Company).
21.
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. The Company does not have a single customer that exceeds the 10% of net sales. For the year ended
December 30, 2018
, our largest single customer was
6.3%
of net sales. The Company does not believe it has significant concentrations of credit risk in its trade accounts receivable.
As of
December 30, 2018
, we employed approximately
31,100
persons in the U.S., approximately
10,700
persons in Mexico and approximately
10,300
persons in the U.K. and Europe. Approximately
37.1%
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 2019 or later. We have not experienced any labor-related work stoppage at any location in over
ten years
. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of an agreement, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.
At
December 30, 2018
, the aggregate carrying amount of net assets belonging to our Mexico and U.K. and Europe operations was
$829.7 million
and
$1.6 billion
, respectively. At
December 31, 2017
, the aggregate carrying amount of net assets belonging to our Mexico and U.K. and Europe operations was
$711.2 million
and $
1.4 billion
, respectively.
22.
BUSINESS SEGMENT AND GEOGRAPHIC REPORTING
The Company operates in
three
reportable business segments, U.S., U.K. and Europe, and Mexico. The Company measures segment profit as operating income. Corporate expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S.
On September 8, 2017, the Company acquired Moy Park, one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers, from JBS S.A. in a common-control transaction. Moy Park's results from operations subsequent to the common-control date of September 30, 2015 comprise the U.K. and Europe segment.
On January 6, 2017, the Company acquired GNP, a vertically integrated poultry business with locations in Minnesota and Wisconsin. GNP's results from operations subsequent to the acquisition date are included in the U.S. segment.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Net sales to customers by customer location and long-lived assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
|
(In thousands)
|
Net sales
|
|
|
|
|
|
|
U.S.
|
|
$
|
7,425,661
|
|
|
$
|
7,443,222
|
|
|
$
|
6,671,403
|
|
U.K. and Europe
|
|
2,148,666
|
|
|
1,996,319
|
|
|
1,947,441
|
|
Mexico
|
|
1,363,457
|
|
|
1,328,322
|
|
|
1,259,720
|
|
Total
|
|
$
|
10,937,784
|
|
|
$
|
10,767,863
|
|
|
$
|
9,878,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
|
(In thousands)
|
Operating income
|
|
|
|
|
|
|
U.S.
|
|
$
|
291,381
|
|
|
$
|
841,492
|
|
|
$
|
572,558
|
|
U.K. and Europe
|
|
84,524
|
|
|
77,105
|
|
|
78,572
|
|
Mexico
|
|
119,649
|
|
|
153,631
|
|
|
140,857
|
|
Elimination
|
|
132
|
|
|
94
|
|
|
95
|
|
Total operating income
|
|
$
|
495,686
|
|
|
$
|
1,072,322
|
|
|
$
|
792,082
|
|
Interest expense, net of capitalized interest
|
|
162,812
|
|
|
107,183
|
|
|
75,636
|
|
Interest income
|
|
(13,811
|
)
|
|
(7,730
|
)
|
|
(2,301
|
)
|
Foreign currency transaction gain
|
|
17,160
|
|
|
(2,659
|
)
|
|
4,055
|
|
Miscellaneous, net
|
|
(2,702
|
)
|
|
(6,538
|
)
|
|
(9,344
|
)
|
Income before income taxes
|
|
$
|
332,227
|
|
|
$
|
982,066
|
|
|
$
|
724,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
|
(In thousands)
|
Net sales to customers by customer location:
|
|
|
|
|
|
|
U.S.
|
|
$
|
7,173,280
|
|
|
$
|
7,452,758
|
|
|
$
|
6,460,787
|
|
Mexico
|
|
1,411,727
|
|
|
1,019,170
|
|
|
1,180,947
|
|
Asia
|
|
158,864
|
|
|
136,144
|
|
|
101,209
|
|
Canada, Caribbean and Central America
|
|
26,450
|
|
|
114,543
|
|
|
152,516
|
|
Africa
|
|
21,286
|
|
|
29,905
|
|
|
17,117
|
|
Europe
|
|
2,134,822
|
|
|
2,000,843
|
|
|
1,952,192
|
|
South America
|
|
10,704
|
|
|
13,279
|
|
|
11,955
|
|
Pacific
|
|
651
|
|
|
1,221
|
|
|
1,841
|
|
Total
|
|
$
|
10,937,784
|
|
|
$
|
10,767,863
|
|
|
$
|
9,878,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
December 25, 2016
|
|
|
(In thousands)
|
Depreciation and amortization:
|
|
|
|
|
|
|
U.S.
|
|
$
|
201,126
|
|
|
$
|
199,749
|
|
|
$
|
151,527
|
|
U.K. and Europe
|
|
51,108
|
|
|
51,040
|
|
|
51,193
|
|
Mexico
|
|
27,423
|
|
|
27,003
|
|
|
28,988
|
|
Total
|
|
$
|
279,657
|
|
|
$
|
277,792
|
|
|
$
|
231,708
|
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
December 31, 2017
|
|
(In thousands)
|
Long-lived assets
(a)
:
|
|
|
|
U.S.
|
$
|
1,506,217
|
|
|
$
|
1,437,220
|
|
U.K. and Europe
|
359,621
|
|
|
368,521
|
|
Mexico
|
295,864
|
|
|
289,406
|
|
Total
|
$
|
2,161,702
|
|
|
$
|
2,095,147
|
|
|
|
(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
2016
, 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 products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
(In thousands)
|
U.S. chicken:
|
|
|
|
|
|
Fresh chicken
|
$
|
5,959,458
|
|
|
$
|
5,700,503
|
|
|
$
|
4,627,137
|
|
Prepared chicken
|
773,983
|
|
|
950,378
|
|
|
1,269,010
|
|
Export and other chicken
|
258,732
|
|
|
213,595
|
|
|
313,827
|
|
Total U.S. chicken
|
6,992,173
|
|
|
6,864,476
|
|
|
6,209,974
|
|
U.K. and Europe chicken:
|
|
|
|
|
|
Fresh chicken
|
925,124
|
|
|
846,575
|
|
|
811,127
|
|
Prepared chicken
|
865,864
|
|
|
792,284
|
|
|
794,880
|
|
Export and other chicken
|
303,921
|
|
|
318,699
|
|
|
283,276
|
|
Total U.K. and Europe chicken
|
2,094,909
|
|
|
1,957,558
|
|
|
1,889,283
|
|
Mexico chicken:
|
|
|
|
|
|
Fresh chicken
|
1,252,403
|
|
|
1,245,144
|
|
|
1,154,355
|
|
Prepared chicken
|
76,860
|
|
|
58,512
|
|
|
91,289
|
|
Total Mexico chicken
|
1,329,263
|
|
|
1,303,656
|
|
|
1,245,644
|
|
Total chicken
|
10,416,345
|
|
|
10,125,690
|
|
|
9,344,901
|
|
Other products:
|
|
|
|
|
|
U.S.
|
433,488
|
|
|
578,746
|
|
|
461,429
|
|
U.K. and Europe
|
53,757
|
|
|
38,761
|
|
|
58,158
|
|
Mexico
|
34,194
|
|
|
24,666
|
|
|
14,076
|
|
Total other products
|
521,439
|
|
|
642,173
|
|
|
533,663
|
|
Total net sales
|
$
|
10,937,784
|
|
|
$
|
10,767,863
|
|
|
$
|
9,878,564
|
|
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
23.
QUARTERLY RESULTS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
First
(a)
|
|
Second
(b)
|
|
Third
(c)
|
|
Fourth
(d)
|
|
Year
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
2,746,678
|
|
|
$
|
2,836,713
|
|
|
$
|
2,697,604
|
|
|
$
|
2,656,789
|
|
|
$
|
10,937,784
|
|
Gross profit
|
|
287,665
|
|
|
274,222
|
|
|
169,741
|
|
|
111,848
|
|
|
843,476
|
|
Net income (loss) attributable to PPC
common stockholders
|
|
119,418
|
|
|
106,541
|
|
|
29,310
|
|
|
(7,324
|
)
|
|
247,945
|
|
Net income per share amounts -
basic
|
|
0.48
|
|
|
0.43
|
|
|
0.12
|
|
|
(0.03
|
)
|
|
1.00
|
|
Net income per share amounts -
diluted
|
|
0.48
|
|
|
0.43
|
|
|
0.12
|
|
|
(0.03
|
)
|
|
1.00
|
|
Number of days in period
|
|
91
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
First
(e)
|
|
Second
(f)
|
|
Third
(g)
|
|
Fourth
(h)
|
|
Year
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
2,479,340
|
|
|
$
|
2,752,286
|
|
|
$
|
2,793,885
|
|
|
$
|
2,742,352
|
|
|
$
|
10,767,863
|
|
Gross profit
|
|
256,388
|
|
|
474,838
|
|
|
478,584
|
|
|
261,804
|
|
|
1,471,614
|
|
Net income attributable to PPC
common stockholders
|
|
93,921
|
|
|
233,641
|
|
|
232,680
|
|
|
134,337
|
|
|
694,579
|
|
Net income per share amounts -
basic
|
|
0.38
|
|
|
0.94
|
|
|
0.94
|
|
|
0.54
|
|
|
2.79
|
|
Net income per share amounts -
diluted
|
|
0.38
|
|
|
0.94
|
|
|
0.93
|
|
|
0.54
|
|
|
2.79
|
|
Number of days in period
|
|
91
|
|
|
91
|
|
|
91
|
|
|
98
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
(i)
|
|
Year
|
|
|
(In thousands, except per share data)
|
Net sales
|
|
$
|
2,460,410
|
|
|
$
|
2,551,990
|
|
|
$
|
2,495,281
|
|
|
$
|
2,370,883
|
|
|
$
|
9,878,564
|
|
Gross profit
|
|
284,257
|
|
|
337,796
|
|
|
253,060
|
|
|
228,870
|
|
|
1,103,983
|
|
Net income attributable to PPC
common stockholders
|
|
118,371
|
|
|
152,886
|
|
|
98,657
|
|
|
70,618
|
|
|
440,532
|
|
Net income per share amounts -
basic
|
|
0.46
|
|
|
0.60
|
|
|
0.39
|
|
|
0.29
|
|
|
1.74
|
|
Net income per share amounts -
diluted
|
|
0.46
|
|
|
0.60
|
|
|
0.39
|
|
|
0.28
|
|
|
1.73
|
|
Number of days in period
|
|
91
|
|
|
91
|
|
|
91
|
|
|
91
|
|
|
364
|
|
|
|
(a)
|
In the first quarter of 2018, the Company recognized impairment charges of approximately
$0.5 million
related to the Luverne, Minnesota plant held for sale. Also in the first quarter of 2018, the Company had transaction costs of approximately
$0.2 million
related to the acquisition of Moy Park and GNP.
|
|
|
(b)
|
In the second quarter of 2018, the Company recognized impairment charges of approximately
$0.1 million
related to its 40 North Foods leasehold improvements.
|
|
|
(c)
|
In the third quarter of 2018, the Company recognized impairment charges of approximately
$0.3 million
related to the Luverne, Minnesota plant held for sale.
|
|
|
(d)
|
In the fourth quarter of 2018, the Company recognized impairment charges of approximately
$2.6 million
related to Rose Energy Ltd. within its U.K. and Europe segment. Also in the fourth quarter of 2018, the Company recognized nonrecurring charges of
$3.0 million
and
$11.9 million
related to Hurricane Michael and Hurricane Maria, respectively. Hurricane Michael hit the Company’s Live Oak complex in October 2018, causing two days of plant closure. Hurricane Maria hit the Company’s Puerto Rico complex in September 2017, causing six months of plant closure.
|
|
|
(e)
|
On January 6, 2017, the Company acquired
100%
of the membership interests of GNP from Maschhoff Family Foods, LLC for a cash purchase price of
$350 million
. In the first quarter, the Company had transaction costs of approximately
$0.6 million
for the acquisition of GNP.
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(f)
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In the second quarter of 2017, the Company recognized impairment charges of approximately
$3.5 million
related to its Athens, Alabama plant held for sale.
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(g)
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In the third quarter of 2017, the Company had transaction costs of approximately
$15.0 million
for the acquisition of Moy Park.
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(h)
|
In the fourth quarter of 2017, the Company had transaction costs of approximately
$4.5 million
for the acquisition of Moy Park.
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(i)
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In the fourth quarter of 2016, the Company recognized impairment charges of
$0.8 million
and
$0.3 million
related to its Dallas, Texas and Bossier City, Louisiana plants held for sale.
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