Pilgrim's(PPC) - 2022 Q4 - Annual Report

PART I Part I provides an overview of business operations, risks, property details, and legal/regulatory disclosures Business PPC is a vertically integrated global protein company operating in the U.S., U.K. and Europe, and Mexico segments, offering diverse chicken and pork products - Pilgrim's Pride Corporation is a vertically integrated global protein company engaged in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken and pork products[12] - The company serves over 51,100 customers across the U.S., U.K. and Europe, Mexico, and over 120 other countries, with sales efforts largely targeted towards the foodservice industry and retail customers[13] - PPC operates in three reportable segments: U.S., U.K. and Europe, and Mexico, producing or purchasing for resale chicken and pork products[17] - In 2021, PPC acquired Pilgrim's Food Masters (PFM) for £698.8 million ($958.9 million), a leading manufacturer of branded and private label meats and ready meals in the U.K. and Republic of Ireland[15] 2022 Product Sales by Segment | Segment | Fresh Products (%) | Prepared Foods (%) | Export Products (%) | | :-------------- | :----------------- | :----------------- | :------------------ | | U.S. | 80.2 | 10.3 | 5.1 | | U.K. and Europe | 18.6 | 63.7 | 14.6 | | Mexico | 86.0 | 9.1 | N/A | Net Sales by Product Line and Segment (2020-2022, in thousands) | Product Line / Segment | 2022 ($) | 2021 ($) | 2020 ($) | | :--------------------- | :---------- | :---------- | :---------- | | U.S. reportable segment: | | | | | Fresh products | 8,624,421 | 7,264,448 | 6,137,264 | | Prepared foods | 1,107,734 | 898,614 | 714,563 | | Export | 552,823 | 459,371 | 306,478 | | Other products | 463,372 | 491,446 | 337,712 | | Total U.S. | 10,748,350| 9,113,879 | 7,496,017 | | U.K. and Europe reportable segment: | | | | | Fresh products | 908,882 | 1,151,330 | 1,594,373 | | Prepared foods | 3,104,347 | 2,214,180 | 1,237,486 | | Export | 712,685 | 458,588 | 297,414 | | Other products | 148,824 | 109,964 | 145,019 | | Total U.K. & Europe | 4,874,738 | 3,934,062 | 3,274,292 | | Mexico reportable segment: | | | | | Fresh products | 1,587,809 | 1,515,453 | 1,210,952 | | Prepared foods | 167,589 | 128,208 | 66,572 | | Other products | 89,891 | 85,856 | 44,068 | | Total Mexico | 1,845,289 | 1,729,517 | 1,321,592 | | Total net sales | 17,468,377| 14,777,458| 12,091,901| - Raw materials, primarily corn, soybean meal, and wheat, accounted for approximately 46.1%, 35.2%, and 4.6% of feed costs in 2022, respectively, with derivative financial instruments used to mitigate price volatility[26] - The company employed over 61,500 persons as of December 25, 2022, focusing on health and safety, diversity, retention, career development, and community support[37][38][39][40] Risk Factors The company faces significant risks from commodity price volatility, disease outbreaks, operational challenges, regulatory compliance, and financial leverage - The COVID-19 pandemic continues to pose risks, including reduced production, labor shortages, shifts in demand, and potential negative impacts on brand reputation[46][47][48][49] - Profitability is materially affected by cyclical fluctuations in commodity prices of feed ingredients and market prices of chicken and pork, which derivative instruments do not always successfully manage[51][52][53] - Outbreaks of livestock diseases (e.g., avian influenza, African swine fever) can significantly disrupt operations, reduce demand, and lead to governmental restrictions or destruction of flocks/herds[54][55][56] - Product contamination risks can lead to product liability claims, recalls, adverse publicity, and increased regulatory scrutiny, potentially not fully covered by insurance[57][58][59][60] - Foreign operations expose the company to currency exchange rate fluctuations, trade barriers, and regulatory changes, including data protection regulations like GDPR[61][62][63][64] - The company faces intense competition in the chicken and pork industries, where failure to manage costs and maintain efficiency could adversely affect business[65] - Dependence on contract growers and independent producers for livestock supply means failure to attract or maintain these relationships could negatively impact production[77][78] - Climate change poses long-term risks, including impacts on agricultural productivity, increased extreme weather, potential regulatory requirements for emissions reduction, and higher energy/compliance costs[80] - Significant leverage (approximately $483.7 million secured and $2.7 billion unsecured indebtedness as of December 25, 2022) could affect financial flexibility, debt servicing ability, and access to additional financing[102] - The phase-out of LIBOR by June 30, 2023, and its replacement with SOFR, requires renegotiation of credit agreements, which may impact interest rates and financial results[106][107] - Weak or unstable national/global economic conditions, including inflation, the Russia-Ukraine war, and disruptions in credit markets, can negatively affect consumer demand, raw material costs, and supply chains[109][110][111][112] Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[117] Properties Pilgrim's Pride Corporation operates a comprehensive network of owned and leased facilities across its chicken, pork, lamb, and prepared meals operations Operating Facilities Overview (as of December 25, 2022) | Operation Type | Owned | Leased | Total Facilities | Capacity | Unit of Measure | Average Utilization | | :------------------------- | :---- | :----- | :--------------- | :------------------- | :-------------- | :------------------ | | Chicken Fresh Processing | 35 | 1 | 36 | 8.7 million | Birds per day | 88.4% | | Chicken Prepared Foods | 12 | 2 | 14 | 37.3 million | Tons per year | 95.9% | | Hatcheries | 45 | 2 | 47 | 3.2 billion | Eggs per year | 90.9% | | Other Chicken Operations | 47 | 2 | 49 | 16.0 million | Tons per year | 72.0% | | Pork Fresh Processing | 3 | — | 3 | 10,913 | Pigs per day | 88.6% | | Pork Prepared Foods | 9 | — | 9 | 269,488 | Tons per year | 70.8% | | Other Pork Operations | 2 | — | 2 | 11,023 | Pigs per day | 100.0% | | Lamb Fresh Processing | 1 | — | 1 | 4,960 | Lambs per day | 64.4% | | Lamb Prepared Foods | 1 | — | 1 | 8,530 | Tons per year | 46.6% | | Prepared Meals Facilities | 5 | 4 | 9 | 288,350 | Tons per year | 68.1% | | Distribution Centers & Other | 11 | 20 | 31 | NA | NA | NA | - Substantially all U.S. property, plant, and equipment are used as collateral for the secured U.S. credit facility[119] Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 21, Commitments and Contingencies, in the Consolidated Financial Statements - Information on legal proceedings is found in Note 21. Commitments and Contingencies[122] Mine Safety Disclosures The company has no disclosures related to mine safety - No mine safety disclosures were reported[123] PART II Part II covers market information for common equity, financial data, management's discussion and analysis, and market risk disclosures Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PPC common stock is listed on Nasdaq, with JBS USA holding a controlling interest and no current dividend payment intentions - Pilgrim's Pride Corporation's common stock is listed on the Nasdaq Global Select Market under the symbol "PPC"[126] - As of February 9, 2023, there were approximately 59,300 holders of the Company's common stock[126] - The Company has no current intention to pay dividends, with any change dependent on future conditions and subject to restrictions from credit facilities and senior note indentures[127][128] - JBS S.A., through its indirect wholly-owned subsidiaries, beneficially owns 82.65% of PPC's outstanding common stock, granting it control over management, policies, and financing decisions[12] Cumulative 5-Year Total Stockholder Return (December 31, 2017 - December 25, 2022) | Date | PPC ($) | Russell 2000 ($) | Peer Group ($) | | :--------- | :------ | :--------------- | :------------- | | 12/31/17 | 100.00 | 100.00 | 100.00 | | 06/30/18 | 64.18 | 107.66 | 92.60 | | 12/30/18 | 50.19 | 88.99 | 86.69 | | 06/30/19 | 81.75 | 104.10 | 107.30 | | 12/29/19 | 106.15 | 111.70 | 121.92 | | 06/30/20 | 54.38 | 97.20 | 101.96 | | 12/27/20 | 62.30 | 134.00 | 105.86 | | 06/30/21 | 71.41 | 157.49 | 114.89 | | 12/26/21 | 88.70 | 153.85 | 125.43 | | 06/30/22 | 100.55 | 117.81 | 126.90 | | 12/25/22 | 76.63 | 122.41 | 106.20 | Selected Financial Data This item is reserved and contains no selected financial data Management's Discussion and Analysis of Financial Condition and Results of Operations PPC achieved strong 2022 financial results with $745.9 million net income and $1.0 billion profit before tax, driven by 18.2% net sales growth and improved operating income Key Financial Highlights (2022) | Metric | Amount (Millions USD) | | :---------------------------------------- | :-------------------- | | Net income attributable to PPC | $745.9 | | Diluted EPS | $3.10 | | Profit before tax | $1,000.0 | | Gross profit | $1,800.0 | | Cash from operations | $669.9 | | Operating margins | 6.7% | | EBITDA | $1,570.0 | | Adjusted EBITDA | $1,650.0 | - In 2022, the company faced significant challenges from inflation in commodity, labor, and other operating costs, exacerbated by the Russia-Ukraine war and U.K. labor shortages[138] - The company responded to challenges by negotiating with customers for cost recovery and focusing on operational initiatives for labor efficiencies, agricultural performance, and improved yields[139] - The COVID-19 pandemic continued to cause intermittent disruptions in 2022, including supply chain issues, increased broiler and chick costs, and higher payroll and benefits costs, though demand shifted back towards pre-pandemic levels[145][147] - Average chicken market prices were higher in the first half of 2022 due to stable demand and low cold storage, but declined in the second half due to increased production and stagnant volume demand[150][151] - U.K. chicken market experienced unprecedented cost increases in feed, utilities, and labor in the first three quarters of 2022, largely offset by customer negotiations[152] - Mexico chicken commodity prices increased in 2022 due to demand outpacing supply and higher production costs from feed ingredients and avian influenza impacts[153] - U.K. pork product market prices recovered in 2022, increasing 44% over the year, supported by E.U. market recovery and clearing pig backlogs, though production costs still exceeded market prices[155] - The company is committed to sustainability, aiming for net zero greenhouse gas emissions by 2040, supported by $1.0 billion in sustainability-linked bonds requiring a 30% reduction in Scope 1 and 2 emissions intensity by 2030[157][158] Net Sales by Reportable Segment (2022 vs. 2021) | Segment | 2022 Net Sales ($ thousands) | Change from 2021 ($ thousands) | Change from 2021 (%) | | :-------------- | :--------------------------- | :----------------------------- | :------------------- | | U.S. | 10,748,350 | 1,634,471 | 17.9% | | U.K. and Europe | 4,874,738 | 940,676 | 23.9% | | Mexico | 1,845,289 | 115,772 | 6.7% | | Total | 17,468,377 | 2,690,919 | 18.2% | Gross Profit and Operating Income (2022 vs. 2021) | Metric | 2022 ($ thousands) | Change from 2021 ($ thousands) | Change from 2021 (%) | | :--------------- | :----------------- | :----------------------------- | :------------------- | | Gross profit | 1,811,803 | 445,976 | 32.7% | | Operating income | 1,176,595 | 965,431 | 457.2% | - U.S. operating income increased significantly by 6,521.8% to $1,094.0 million in 2022, primarily due to a $622.1 million net decrease in legal settlement recognition[170] Liquidity Sources (as of December 25, 2022, in millions) | Source | Amount ($) | | :-------------------------------------- | :--------- | | Cash and cash equivalents | 434.8 | | U.S. Credit Facility Revolving Note Payable (available) | 765.0 | | Mexico Credit Facility (available) | 77.5 | | U.K. and Europe Revolver Facility (available) | 124.5 | Cash Flows from Operating Activities (2022 vs. 2021, in millions) | Metric | 2022 ($) | 2021 ($) | | :--------------------------- | :------- | :------- | | Net income | 746.5 | 31.3 | | Cash provided by operations | 669.9 | 326.5 | - Cash provided by operating activities increased significantly in 2022 due to higher net income and changes in operating assets and liabilities, including a $472.2 million use of cash for inventories due to higher input costs[178][182] - Capital expenditures are projected to be $400 million to $500 million in 2023, funded by cash flow from operations and revolving credit lines, primarily for growth, efficiency, and cost reduction[189] Contractual Obligations (as of December 25, 2022, in thousands) | Obligation Type | Total ($) | Less than One Year ($) | One to Three Years ($) | Three to Five Years ($) | Greater than Five Years ($) | | :------------------- | :---------- | :--------------------- | :--------------------- | :---------------------- | :-------------------------- | | Long-term debt | 3,230,078 | 24,453 | 50,625 | 1,255,000 | 1,900,000 | | Interest | 931,235 | 130,195 | 259,369 | 251,171 | 290,500 | | Finance leases | 3,867 | 1,064 | 1,471 | 1,079 | 253 | | Operating leases | 345,183 | 90,356 | 122,993 | 71,651 | 60,183 | | Derivative liabilities | 18,917 | 18,917 | — | — | — | | Purchase obligations | 721,753 | 588,077 | 117,279 | 3,890 | 12,507 | | Total | 5,251,033 | 853,062 | 551,737 | 1,582,791 | 2,263,443 | Reconciliation of Net Income to EBITDA and Adjusted EBITDA (2022 vs. 2021, in thousands) | Metric | 2022 ($) | 2021 ($) | | :---------------------------------------- | :---------- | :---------- | | Net income | 746,538 | 31,268 | | EBITDA | 1,572,227 | 612,950 | | Adjusted EBITDA | 1,648,356 | 1,289,028 | Reconciliation of Adjusted Net Income (2022 vs. 2021, in thousands) | Metric | 2022 ($) | 2021 ($) | | :---------------------------------------- | :---------- | :---------- | | Net income attributable to Pilgrim's | 745,930 | 31,000 | | Adjusted net income attributable to Pilgrim's | 803,552 | 557,381 | | Adjusted net income per diluted share | $3.34 | $2.28 | Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from commodity prices, interest rates, and foreign currency, using derivatives to mitigate these exposures - Market risk-sensitive instruments and positions are primarily exposed to potential loss from adverse changes in commodity prices, foreign currency exchange rates, interest rates, and credit quality of available-for-sale securities[217] Impact of 10% Increase in Feed Ingredient Prices (Year Ended December 25, 2022, in thousands) | Item | Amount ($) | Impact of 10% Increase ($) | | :------------------------- | :---------- | :------------------------- | | Feed ingredient purchases | 4,536,861 | 453,686 | | Feed ingredient inventory | 240,151 | 24,015 | - A hypothetical 10% increase in interest rates would decrease the fair value of fixed-rate debt by $73.5 million as of December 25, 2022[222] - Variable-rate debt constitutes approximately 15.2% of total debt, and a 100 basis point increase in interest rates would increase interest expense by $7.2 million for the year ended December 25, 2022[223] Impact of 10% Change in Mexican Peso Exchange Rate (Year Ended December 25, 2022, in thousands) | Scenario | Foreign Currency Remeasurement Gain (Loss) ($) | | :-------------------------------------- | :--------------------------------------------- | | 10% Deterioration in Exchange Rate | (4,672) | | 10% Appreciation in Exchange Rate | 5,710 | - A 10% weakening in the British pound against the U.S. dollar would decrease the net assets of U.K. and Europe subsidiaries by $240.9 million, while a 10% strengthening would increase them by $294.4 million[228] - Global operations were significantly impacted by inflation in 2022, leading to price negotiations with customers to mitigate increased input costs, with moderate inflation anticipated for 2023[232] Financial Statements and Supplementary Data This section presents audited consolidated financial statements, including balance sheets, income statements, cash flows, and extensive notes, with an unqualified auditor's opinion - KPMG LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 25, 2022[236] - A critical audit matter identified was the evaluation of the company's qualitative goodwill impairment assessment, particularly for reporting units in the U.K. and Europe segment, due to subjective auditor judgment[243][244] Consolidated Balance Sheets (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Assets: | | | | Total current assets | 3,891,618 | 3,305,954 | | Goodwill | 1,227,944 | 1,337,252 | | Property, plant and equipment, net | 2,940,846 | 2,917,806 | | Total assets | 9,255,769 | 8,913,205 | | Liabilities & Stockholders' Equity: | | | | Total current liabilities | 2,570,169 | 2,390,823 | | Long-term debt, less current maturities | 3,166,432 | 3,191,161 | | Total liabilities | 6,402,493 | 6,324,271 | | Total stockholders' equity | 2,853,276 | 2,588,934 | Consolidated Statements of Income (Years Ended December 25, 2022, December 26, 2021, December 27, 2020, in thousands) | Item | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------------------------------- | :----------- | :----------- | :----------- | | Net sales | 17,468,377 | 14,777,458 | 12,091,901 | | Gross profit | 1,811,803 | 1,365,827 | 838,196 | | Operating income | 1,176,595 | 211,164 | 245,463 | | Income before income taxes | 1,025,473 | 92,390 | 161,825 | | Net income attributable to Pilgrim's Pride Corporation | 745,930 | 31,000 | 94,757 | | Diluted EPS | $3.10 | $0.13 | $0.39 | Consolidated Statements of Cash Flows (Years Ended December 25, 2022, December 26, 2021, December 27, 2020, in thousands) | Item | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------------------------------- | :----------- | :----------- | :----------- | | Cash provided by operating activities | 669,863 | 326,459 | 724,247 | | Cash used in investing activities | (445,252) | (1,323,713) | (327,002) | | Cash provided by (used in) financing activities | (232,014) | 901,311 | (136,708) | | End of year cash and cash equivalents | 434,759 | 450,121 | 548,406 | - The company acquired Pilgrim's Food Masters (PFM) for $958.9 million in September 2021, and Randall Parker Foods Limited (RPF) for $13.4 million in November 2021, both included in the U.K. and Europe segment[317][324] - Goodwill balance as of December 25, 2022, was $1.2 billion, with $1.1 billion related to the U.K. and Europe segment, and no goodwill impairment was deemed necessary after qualitative assessment[243][293][363] - Total net sales to customers by customer location in 2022 were $10.2 billion for U.S., $4.8 billion for Europe, and $1.9 billion for Mexico[489] - In 2022, the company initiated a restructuring initiative in the U.K. and Europe segment, expected to incur total pre-tax charges of approximately $58.0 million, with $30.5 million recognized as expenses in 2022[469][471] - The company is involved in various legal proceedings, including antitrust litigation related to broiler chickens and grower services, and tax claims in Mexico, with settlements for broiler antitrust litigation totaling $195.5 million[498][499][501][496][497] 1. Business and Summary of Significant Accounting Policies PPC is a global chicken producer operating on a 52/53-week fiscal year, recognizing revenue upon product transfer and valuing inventories at lower of cost or net realizable value - Pilgrim's Pride Corporation is one of the largest chicken producers globally, with operations in the U.S., U.K., Mexico, France, Puerto Rico, the Netherlands, and the Republic of Ireland, selling fresh, prepared, and other products to various customers[261] - The company operates on a 52/53-week fiscal year ending on the Sunday falling on or before December 31[262] - The functional currency for U.S. and Mexico operations is the U.S. dollar, for U.K. operations is the British pound, and for France, Netherlands, and Republic of Ireland operations is the euro[265] - Revenue is recognized when control of products transfers to the customer, typically upon destination, with minimal variable consideration due to commodity market pricing[268][269] - Inventories are stated at the lower of cost or net realizable value, with costs allocated using a by-product costing technique[281][282][283] - Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if indicators arise; no impairment was identified as of December 25, 2022[293] - The company uses derivative financial instruments (futures, forwards, options, swaps) to mitigate exposure to changes in commodity prices, foreign currency exchange rates, and interest rates[303] 2. Business Acquisitions In 2021, PPC acquired Pilgrim's Food Masters for $958.9 million and Randall Parker Foods for $13.4 million, expanding its European footprint and product diversification - On September 24, 2021, the Company acquired 100% of Pilgrim's Food Masters (PFM) for $958.9 million, solidifying its position as a leading European food company and diversifying its product mix[317] - PFM's acquired operations generated $1.0 billion in net sales and $8.4 million in net income during 2022[318] - The PFM acquisition resulted in $353.4 million in goodwill, attributed to strategic and synergistic benefits like complementary product offerings and enhanced market position[319][320] - On November 12, 2021, the Company acquired Randall Parker Foods Limited (RPF) for $13.4 million, integrating lamb processing and retail packaging operations into its U.K. and Europe segment[324] PFM Acquisition: Fair Values of Assets Acquired and Liabilities Assumed (as of September 24, 2021, in thousands) | Item | Amount ($) | | :---------------------------------- | :--------- | | Cash and cash equivalents | 113 | | Trade accounts and other receivables| 7,387 | | Inventories | 60,341 | | Property, plant and equipment | 247,133 | | Identified intangible assets | 415,157 | | Total assets acquired | 746,841 | | Total liabilities assumed | 141,331 | | Identified net assets | 605,510 | | Goodwill | 353,397 | | Total consideration transferred | 958,907 | 3. Revenue Recognition Revenue is recognized when control of products transfers to the customer, typically at destination, with performance obligations fulfilled rapidly - Revenue is recognized when a customer's order is accepted and control of the products transfers, typically at the destination point, or at the company's facilities for customer pick-up[325][326] - The company's performance obligations are usually fulfilled within days to weeks of order acceptance, with minimal variable consideration due to commodity market pricing[326][327] Disaggregated Revenue by Product Line and Segment (2022, in thousands) | Segment | Fresh ($) | Prepared ($) | Export ($) | Other ($) | Total Net Sales ($) | | :-------------- | :----------- | :----------- | :----------- | :--------- | :------------------ | | U.S. | 8,624,421 | 1,107,734 | 552,823 | 463,372 | 10,748,350 | | U.K. and Europe | 908,882 | 3,104,347 | 712,685 | 148,824 | 4,874,738 | | Mexico | 1,587,809 | 167,589 | — | 89,891 | 1,845,289 | | Total | 11,121,112 | 4,379,670| 1,265,508| 702,087| 17,468,377 | Revenue Contract Liabilities (2022 vs. 2021, in thousands) | Item | 2022 ($) | 2021 ($) | | :-------------------------------------- | :------- | :------- | | Balance, beginning of year | 22,321 | 65,918 | | Revenue recognized | (19,712) | (60,764) | | Cash received, excluding amounts recognized as revenue during the period | 31,877 | 17,167 | | Balance, end of year | 34,486 | 22,321 | 4. Leases The company holds operating lease agreements for various facilities across its segments, along with a limited number of finance leases - The company has operating lease agreements for various facilities across its segments, along with a limited number of finance leases in the U.S[335][336] Net Lease Cost (2022 vs. 2021, in thousands) | Item | 2022 ($) | 2021 ($) | | :-------------------------- | :------- | :------- | | Operating lease cost | 98,353 | 93,024 | | Amortization of finance lease assets | 472 | 745 | | Interest on finance leases | 132 | 128 | | Short-term lease cost | 77,100 | 63,588 | | Variable lease cost | 4,102 | 4,490 | | Net lease cost | 180,159| 161,975| Weighted-Average Lease Terms and Discount Rates (as of December 25, 2022 vs. December 26, 2021) | Metric | Dec 25, 2022 | Dec 26, 2021 | | :------------------------------------ | :----------- | :----------- | | Weighted-average remaining lease term (years): | | |\ | Operating leases | 5.80 | 6.07 | | Finance leases | 4.52 | 5.32 | | Weighted-average discount rate: | | |\ | Operating leases | 4.00% | 3.92% | | Finance leases | 3.19% | 3.32% | Future Minimum Lease Payments (as of December 25, 2022, in thousands) | Fiscal Year Ending December | Operating Leases ($) | Finance Leases ($) | | :-------------------------- | :------------------- | :----------------- | | 2023 | 90,356 | 1,064 | | 2024 | 67,082 | 908 | | 2025 | 55,911 | 563 | | 2026 | 41,955 | 553 | | 2027 | 29,697 | 526 | | Thereafter | 60,182 | 253 | | Total future minimum lease payments | 345,183 | 3,867 | | Less: imputed interest | (35,260) | (243) | | Present value of lease liabilities | 309,923 | 3,624 | 5. Derivative Financial Instruments The company uses derivative financial instruments to mitigate price risk for commodity inputs and foreign currency exchange rates - The company uses derivative financial instruments (exchange-traded futures and options) to mitigate price risk for anticipated commodity inputs for approximately the next twelve months[344] - Foreign currency forward contracts are purchased to manage translational foreign exchange risk from operations in Mexico, the U.K., France, the Netherlands, and the Republic of Ireland[345] - An interest rate swap contract was used to convert variable interest rates on U.S. long-term debt to a fixed rate, though no such contract was outstanding at year-end 2022[346] - Most derivative contracts are undesignated, with changes in fair value recognized immediately in earnings, while Cash flow hedges are applied to certain foreign currency and interest rate derivatives in the U.K. and Europe and U.S. segments, respectively[348][350][351][352] Outstanding Derivative Instruments and Cash Collateral (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Commodity derivative assets | 17,922 | 17,567 | | Commodity derivative liabilities | (9,042) | (14,119) | | Foreign currency derivative assets | 555 | 518 | | Foreign currency derivative liabilities | (6,170) | (4,958) | | Interest rate swap derivative liabilities | — | (98) | | Sales contract derivative liabilities | (3,705) | (12,691) | | Cash collateral posted with brokers | 33,771 | 22,459 | Gains and Losses of Undesignated Derivative Instruments (2022 vs. 2021 vs. 2020, in thousands) | Type of Contract | 2022 ($) | 2021 ($) | 2020 ($) | Affected Line Item in the Consolidated Statements of Income | | :-------------------------------- | :------- | :------- | :------- | :---------------------------------------------------------- | | Foreign currency derivatives gain (loss) | (35,586) | 12,806 | (6,637) | Foreign currency transaction losses (gains) | | Commodity derivative gain (loss) | 53,899 | 50,404 | 47,554 | Cost of sales | | Sales contract derivative gain (loss) | 8,985 | (12,691) | (209) | Net sales | | Total | 27,298 | 50,519 | 40,708 | | 6. Trade Accounts and Other Receivables This section details the company's trade accounts, notes, and other receivables, including those from related parties Trade Accounts and Other Receivables (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Trade accounts receivable | 984,332 | 947,697 | | Notes receivable | 33,477 | 18,697 | | Other receivables | 88,962 | 56,716 | | Receivables, gross | 1,106,771 | 1,023,110 | | Allowance for credit losses | (9,559) | (9,673) | | Receivables, net | 1,097,212 | 1,013,437 | | Accounts receivable from related parties| 2,512 | 1,345 | 7. Inventories This section provides a breakdown of the company's inventories, including raw materials, finished products, and operating supplies Inventories (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------------ | :--------------- | :--------------- | | Raw materials and work-in-process | 1,204,092 | 1,044,739 | | Finished products | 596,375 | 379,705 | | Operating supplies | 95,367 | 76,590 | | Maintenance materials and parts | 94,350 | 74,624 | | Total inventories | 1,990,184 | 1,575,658 | 8. Investments in Securities The company's current investments are highly liquid, classified as cash equivalents and available-for-sale securities - The company's current investments are highly liquid, with original maturities of three months or less, classified as cash equivalents and available-for-sale securities[362] Investments in Available-for-Sale Securities (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 Cost ($) | Dec 25, 2022 Fair Value ($) | Dec 26, 2021 Cost ($) | Dec 26, 2021 Fair Value ($) | | :-------------------- | :-------------------- | :-------------------------- | :-------------------- | :-------------------------- | | Fixed income securities | 167,366 | 167,430 | 48,851 | 48,851 | - Gross realized gains from available-for-sale securities totaled $7.1 million in 2022 and $5.4 million in 2021[362] 9. Goodwill and Intangible Assets This section details goodwill by segment and intangible assets, with no impairment identified as of December 25, 2022 Goodwill by Reportable Segment (as of December 25, 2022 vs. December 26, 2021, in thousands) | Segment | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------- | :--------------- | :--------------- | | U.S. | 41,936 | 41,936 | | U.K. and Europe | 1,058,204 | 1,167,512 | | Mexico | 127,804 | 127,804 | | Total | 1,227,944 | 1,337,252 | Intangible Assets (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :---------------------------------- | :--------------- | :--------------- | | Trade names not subject to amortization | 549,024 | 609,713 | | Trade names subject to amortization | 112,057 | 114,268 | | Customer relationships | 427,662 | 455,459 | | Non-compete agreements | — | 320 | | Accumulated amortization | (242,723) | (216,517) | | Total | 846,020 | 963,243 | - The company recognized amortization expense related to intangible assets of $33.7 million in 2022, $26.4 million in 2021, and $22.7 million in 2020[366] - No quantitative impairment tests were deemed necessary for goodwill or indefinite-lived intangible assets as of December 25, 2022, based on qualitative assessments[367] 10. Property, Plant and Equipment This section details the company's property, plant, and equipment, including depreciation expense and capital expenditures Property, Plant and Equipment, Net (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------ | :--------------- | :--------------- | | Land | 263,494 | 260,079 | | Buildings | 2,065,042 | 2,043,034 | | Machinery and equipment | 3,651,464 | 3,594,482 | | Autos and trucks | 77,865 | 76,710 | | Finance lease assets | 5,710 | 5,710 | | Construction-in-progress | 358,819 | 229,837 | | PP&E, gross | 6,422,394 | 6,209,852 | | Accumulated depreciation | (3,481,548) | (3,292,046) | | PP&E, net | 2,940,846 | 2,917,806 | - Depreciation expense was $369.4 million in 2022, $354.4 million in 2021, and $314.4 million in 2020[369] - Capital expenditures totaled $487.1 million in 2022, primarily for operational efficiencies and cost reduction[370] - The company recognized an impairment loss on PP&E of $3.6 million in 2022 due to planned restructuring activities[372] 11. Current Liabilities This section provides a detailed breakdown of the company's current liabilities, including trade accounts, compensation, and litigation settlements Current Liabilities (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Trade accounts | 1,476,552 | 1,273,297 | | Book overdrafts | 93,800 | 77,139 | | Other payables | 17,587 | 27,641 | | Total accounts payable | 1,587,939 | 1,378,077 | | Accounts payable to related parties | 12,155 | 22,317 | | Revenue contract liabilities | 34,486 | 22,321 | | Compensation and benefits | 258,098 | 224,368 | | Litigation settlements | 99,230 | 172,440 | | Current maturities of operating lease liabilities | 79,222 | 82,947 | | Insurance and self-insured claims | 72,453 | 64,697 | | Accrued sales rebates | 55,002 | 35,613 | | Taxes | 33,550 | 68,163 | | Interest and debt-related fees | 32,433 | 31,810 | | Derivative liabilities | 18,917 | 31,866 | | Other accrued expenses | 201,994 | 147,981 | | Total current liabilities (excluding income taxes and current maturities of long-term debt) | 2,485,479 | 2,282,600 | 12. Income Taxes This section details income before taxes by jurisdiction, income tax expense, and the effective tax rate, which was 27.2% in 2022 Income (Loss) Before Income Taxes by Jurisdiction (2022 vs. 2021 vs. 2020, in thousands) | Jurisdiction | 2022 ($) | 2021 ($) | 2020 ($) | | :----------- | :-------- | :--------- | :--------- | | U.S. | 928,709 | (141,940) | (27,095) | | Foreign | 96,764 | 234,330 | 188,920 | | Total | 1,025,473 | 92,390 | 161,825| Components of Income Tax Expense (Benefit) (2022 vs. 2021 vs. 2020, in thousands) | Component | 2022 ($) | 2021 ($) | 2020 ($) | | :----------- | :-------- | :-------- | :-------- | | Total current| 257,640 | 147,513 | 29,419 | | Total deferred| 21,295 | (86,391) | 37,336 | | Total | 278,935 | 61,122| 66,755| - The effective tax rate for 2022 was 27.2%, compared to 66.2% in 2021 and 41.2% in 2020, with the 2022 rate including a 3.8% increase due to a Mexican tax audit claim[376][377] - As of December 25, 2022, the company had a valuation allowance of $64.4 million, primarily for net operating loss carryforwards of certain foreign subsidiaries and U.S. foreign tax credits[379] - Unrecognized tax benefits totaled $27.6 million as of December 25, 2022, with $0.9 million that would reduce the effective tax rate if recognized[382] 13. Debt This section details long-term debt, including senior notes and credit facilities, and amendments reflecting the company's investment grade status Long-Term Debt and Other Borrowing Arrangements (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Maturity | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :------- | :--------------- | :--------------- | | Senior notes payable at 3.50% | 2032 | 900,000 | 900,000 | | Senior notes payable, net of discount of 4.25% | 2031 | 991,692 | 990,691 | | Senior notes payable, net of discount at 5.875% | 2027 | 846,582 | 845,866 | | U.S. Credit Facility Term note payable at 5.00% | 2026 | 480,078 | 506,250 | | Finance lease obligations | Various | 3,624 | 4,548 | | Long-term debt | | 3,221,976 | 3,247,358 | | Less: Current maturities of long-term debt | | (26,279) | (26,246) | | Long-term debt, less current maturities, net of capitalized financing costs | | 3,166,432 | 3,191,161 | - The 4.25% Senior Notes due 2031 are sustainability-linked, with the interest rate increasing to 4.50% if the company fails to meet its greenhouse gas emissions intensity reduction target of 17.679% by December 31, 2025[392][393] - In September 2022, amendments to the Senior Notes due 2031 and 2032 indentures permanently eliminated certain covenants to reflect PPC's investment grade status[394][397] - The U.S. Credit Facility provides an $800.0 million revolving credit commitment and a $700.0 million term loan commitment, with $480.1 million outstanding under the term loan and $765.0 million available under the revolving credit as of December 25, 2022[399][400] - The U.K. and Europe Revolver Facility provides a multicurrency revolving loan commitment of up to £150.0 million (U.S. dollar-equivalent of $124.5 million) maturing on June 24, 2027, with no outstanding borrowings as of December 25, 2022[405] - The Mexico Credit Facility provides a $1.5 billion Mexican pesos (U.S. dollar-equivalent of $77.5 million) revolving loan commitment maturing on December 14, 2023, with no outstanding borrowings as of December 25, 2022[407] 14. Stockholders' Equity This section details changes in accumulated other comprehensive loss, share repurchase authorization, and dividend restrictions Changes in Accumulated Other Comprehensive Loss (2022 vs. 2021, in thousands) | Item | 2022 ($) | 2021 ($) | | :-------------------------------------- | :--------- | :--------- | | Balance, beginning of year | (47,997) | (20,620) | | Net current year other comprehensive income (loss) | (288,451) | (27,377) | | Balance, end of year | (336,448)| (47,997) | - The company's Board of Directors approved a $200.0 million share repurchase authorization on March 8, 2022, under which approximately 7.5 million shares were repurchased for $199.6 million as of September 25, 2022[413] - Restrictions on dividends are imposed by the U.S. Credit Facility and senior note indentures, and the U.K. and Europe Revolver Facility further restricts payments and distributions from U.K. and Republic of Ireland entities to the company[414] 15. Pension and Other Postretirement Benefits The company sponsors various defined benefit pension and postretirement plans, with total expenses of $30.9 million in 2022 - The company sponsors qualified defined benefit pension plans and nonqualified defined benefit plans, along with a defined benefit postretirement life insurance plan[417][418][419] - Total expenses recognized under all retirement plans were $30.9 million in 2022, $19.2 million in 2021, and $17.4 million in 2020[415] Projected Benefit Obligation (PBO) and Fair Value of Plan Assets (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Pension Benefits 2022 ($) | Pension Benefits 2021 ($) | Other Benefits 2022 ($) | Other Benefits 2021 ($) | | :-------------------------------------- | :------------------------ | :------------------------ | :---------------------- | :---------------------- | | Projected benefit obligation, end of year | 236,147 | 373,062 | 1,169 | 1,346 | | Fair value of plan assets, end of year | 210,133 | 326,409 | — | — | | Unfunded benefit obligation, end of year| (26,014) | (46,653) | (1,169) | (1,346) | Net Periodic Benefit Costs (2022 vs. 2021 vs. 2020, in thousands) | Item | Pension Benefits 2022 ($) | Pension Benefits 2021 ($) | Pension Benefits 2020 ($) | Other Benefits 2022 ($) | Other Benefits 2021 ($) | Other Benefits 2020 ($) | | :-------------------------------------- | :------------------------ | :------------------------ | :------------------------ | :---------------------- | :---------------------- | :---------------------- | | Net cost (income) | (212) | 215 | 640 | 23 | 41 | 43 | Weighted Average Assumptions for Benefit Obligation (2022 vs. 2021 vs. 2020) | Metric | Pension Benefits 2022 | Pension Benefits 2021 | Pension Benefits 2020 | Other Benefits 2022 | Other Benefits 2021 | Other Benefits 2020 | | :------------ | :-------------------- | :-------------------- | :-------------------- | :------------------ | :------------------ | :------------------ | | Discount rate | 5.04% | 2.23% | 1.83% | 5.16% | 2.38% | 1.80% | - The company anticipates contributing $0.8 million to its pension plans and less than $0.2 million to its other postretirement plans during 2023[444] 16. Incentive Compensation The company offers short-term cash/stock-based incentive plans and a long-term equity-based incentive plan (LTIP) for employees - The company sponsors short-term incentive plans with cash or stock-based bonus awards based on performance goals, accruing $61.8 million for U.S., $6.9 million for U.K. & Europe, and $3.5 million for Mexico in 2022[451] - A performance-based, omnibus long-term incentive plan (LTIP) grants equity-based and liability-based awards to officers, employees, directors, and consultants[452] Stock-Based Compensation Costs and Income Tax Benefit (2022 vs. 2021 vs. 2020, in thousands) | Item | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------------------------------- | :------- | :------- | :------- | | Equity-based awards compensation cost | 6,863 | 10,629 | 2,776 | | Equity-based awards income tax benefit | 1,671 | 2,587 | 676 | | Liability-based awards compensation cost| 1,773 | 7,715 | 1,081 | | Liability-based awards income tax benefit | 432 | 1,878 | 263 | - As of December 25, 2022, total unrecognized compensation cost for nonvested equity-based awards was $9.5 million (weighted average period of 2.17 years) and for nonvested liability-based awards was $2.5 million (weighted average period of 1.60 years)[457] 17. Fair Value Measurements The company measures derivative assets and liabilities at fair value, categorizing them into Level 1 or Level 2 based on observable inputs - The company measures derivative assets and liabilities at fair value on a recurring basis, categorizing them into Level 1 or Level 2 based on quoted prices or observable inputs[459][460][461] Fair Value Measurements of Derivative Assets and Liabilities (as of December 25, 2022, in thousands) | Item | Level 1 ($) | Level 2 ($) | Total ($) | | :-------------------------------------- | :---------- | :---------- | :-------- | | Assets: | | | | | Commodity derivative assets | 17,922 | — | 17,922 | | Foreign currency derivative assets | 555 | — | 555 | | Liabilities: | | | | | Commodity derivative liabilities | (9,042) | — | (9,042) | | Foreign currency derivative liabilities | (6,170) | — | (6,170) | | Interest rate swap derivative liabilities | — | — | — | | Sales contract derivative liabilities | — | (3,705) | (3,705) | - The fair values of fixed-rate senior notes are based on quoted market prices (Level 2), while variable-rate term notes and secured loans are based on discounted cash flow models (Level 3)[465][467] 18. Restructuring-Related Activities In 2022, the company initiated a U.K. and Europe restructuring, expecting $58.0 million in pre-tax charges, largely completed by Q2 2023 - In 2022, the company initiated a restructuring initiative in the U.K. and Europe segment to phase out and reduce processing volumes at multiple production facilities[469] - The initiative is expected to result in total pre-tax charges of approximately $58.0 million, with $53.0 million estimated as cash outlays, and is expected to be substantially completed by Q2 2023[469] Estimated Restructuring Costs by Type (in thousands) | Type of Cost | Moy Park ($) | Pilgrim's Pride Ltd. ($) | Pilgrim's Food Masters ($) | Total Estimated Amount Expected to be Incurred ($) | | :---------------------- | :----------- | :----------------------- | :------------------------- | :------------------------------------------------- | | Contract termination | 9,437 | 833 | 2,170 | 12,440 | | Asset impairment | 3,559 | — | — | 3,559 | | Severance | 8,244 | 6,160 | 5,303 | 19,707 | | Employee retention benefits | 1,398 | 276 | — | 1,674 | | Other employee costs | 301 | 181 | 121 | 603 | | Lease termination | 458 | 642 | 1,808 | 2,908 | | Inventory adjustment | 470 | 615 | — | 1,085 | | Other charges | 7,543 | 1,386 | 7,110 | 16,039 | | Total estimated costs, net| 31,410 | 10,093 | 16,512 | 58,015 | Restructuring Expenses and Cash Outlays (2022, in thousands) | Initiative | Expenses ($) | Cash Outlays ($) | | :-------------------- | :----------- | :--------------- | | Moy Park | 19,325 | 10,526 | | Pilgrim's Pride Ltd. | 10,140 | 2,590 | | Pilgrim's Food Masters| 1,001 | 341 | | Total | 30,466 | 13,457 | 19. Related Party Transactions This section details sales, purchases, receivables, and payables with related parties, including JBS USA Food Company Sales to Related Parties (2022 vs. 2021 vs. 2020, in thousands) | Related Party | 2022 ($) | 2021 ($) | 2020 ($) | | :---------------------- | :------- | :------- | :------- | | JBS USA Food Company | 24,224 | 17,296 | 14,228 | | JBS Australia Pty. Ltd. | 2,855 | 2,439 | 2,540 | | Other related parties | 2,868 | 1,721 | 1,112 | | Total sales | 29,947 | 21,456 | 17,880 | Cost of Goods Purchased from Related Parties (2022 vs. 2021 vs. 2020, in thousands) | Related Party | 2022 ($) | 2021 ($) | 2020 ($) | | :---------------------------- | :------- | :------- | :------- | | JBS USA Food Company | 156,452 | 210,657 | 142,615 | | Seara Meats B.V. | 44,364 | 4,722 | 8,138 | | Penasul UK LTD | 13,516 | 6,697 | — | | JBS Asia CO Limited | 7,762 | 5 | — | | Other related parties | 1,476 | 1,054 | 829 | | Total cost of goods purchased | 223,570| 223,135| 151,582| Accounts Receivable from Related Parties (as of December 25, 2022 vs. December 26, 2021, in thousands) | Related Party | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------------ | :--------------- | :--------------- | | JBS USA Food Company | 2,062 | 1,059 | | Seara Meats B.V. | 61 | — | | Other related parties | 389 | 286 | | Total accounts receivable | 2,512 | 1,345 | Accounts Payable to Related Parties (as of December 25, 2022 vs. December 26, 2021, in thousands) | Related Party | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------------ | :--------------- | :--------------- | | JBS USA Food Company | 7,434 | 21,628 | | JBS Asia Co Limited | 2,099 | — | | Seara Meats B.V. | 1,565 | 534 | | Penasul UK LTD | 940 | 147 | | Other related parties | 117 | 8 | | Total accounts payable | 12,155 | 22,317 | - The company has agreements with JBS USA to allocate costs for SAP licenses and maintenance services, and for supporting business operations by a consolidated corporate team[479] - A tax sharing agreement with JBS USA Holdings resulted in a $1.6 million net tax payable for 2022, accrued as a capital distribution and related party account payable[386][480] 20. Reportable Segments The company operates in three reportable segments: U.S., U.K. and Europe, and Mexico, with segment profit measured as operating income - The company operates in three reportable segments: U.S., U.K. and Europe, and Mexico, with segment profit measured as operating income and corporate expenses allocated based on specific expenditures[481] Net Sales by Reportable Segment (2022 vs. 2021 vs. 2020, in thousands) | Segment | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------- | :----------- | :----------- | :----------- | | U.S. | 10,748,350 | 9,113,879 | 7,496,017 | | U.K. and Europe | 4,874,738 | 3,934,062 | 3,274,292 | | Mexico | 1,845,289 | 1,729,517 | 1,321,592 | | Total | 17,468,377 | 14,777,458 | 12,091,901 | Operating Income by Reportable Segment (2022 vs. 2021 vs. 2020, in thousands) | Segment | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------- | :---------- | :--------- | :--------- | | U.S. | 1,094,025 | (17,036) | 69,377 | | U.K. and Europe | (934) | (627) | 102,734 | | Mexico | 83,450 | 228,773 | 72,879 | | Eliminat