Pilgrim's Pride Corporation
PILGRIMS PRIDE CORP (Form: 10-Q, Received: 11/08/2017 10:04:24)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
  (Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  _______ to _______            
Commission File number 1-9273
  PILGRIMSLOGOA04A01A01A01A03.JPG

BRANDSTRIPA01.JPG
PILGRIM’S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
75-1285071
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1770 Promontory Circle,
Greeley, CO
 
80634-9038
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code: (970) 506-8000  
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
ý
  
Accelerated Filer
 
¨
 
 
 
 
Non-accelerated Filer
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of November 7, 2017 , was 248,752,508.




INDEX
PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.

1


Table of Contents

PART I.
FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS
(Unaudited)
 
 
 
September 24, 2017
 
December 25, 2016
 
 
(In thousands)
Cash and cash equivalents
 
$
401,789

 
$
292,544

Restricted cash
 
4,841

 
4,979

Trade accounts and other receivables, less allowance for
     doubtful accounts
 
624,802

 
445,553

Accounts receivable from related parties
 
970

 
4,010

Inventories
 
1,196,201

 
975,608

Income taxes receivable
 
16,362

 

Prepaid expenses and other current assets
 
102,914

 
81,932

Assets held for sale
 
2,777

 
5,259

Total current assets
 
2,350,656

 
1,809,885

Other long-lived assets
 
20,007

 
19,260

Identified intangible assets, net
 
620,693

 
471,591

Goodwill
 
995,582

 
887,221

Property, plant and equipment, net
 
2,076,347

 
1,833,985

Total assets
 
$
6,063,285

 
$
5,021,942

 
 
 
 
 
Accounts payable
 
$
743,528

 
$
790,378

Accounts payable to related parties
 
7,091

 
4,468

Accrued expenses and other current liabilities
 
416,476

 
347,021

Income taxes payable
 
191,432

 
27,578

Current maturities of long-term debt
 
61,811

 
15,712

Total current liabilities
 
1,420,338

 
1,185,157

Long-term debt, less current maturities
 
2,548,575

 
1,396,124

Deferred tax liabilities
 
286,038

 
251,807

Other long-term liabilities
 
98,098

 
102,722

Total liabilities
 
4,353,049

 
2,935,810

Common stock
 
2,602

 
307,288

Treasury stock
 
(231,758
)
 
(217,117
)
Additional paid-in capital
 
1,926,386

 
3,100,332

Retained earnings (accumulated deficit)
 
39,606

 
(782,785
)
Accumulated other comprehensive loss
 
(36,517
)
 
(329,858
)
Total Pilgrim’s Pride Corporation stockholders’ equity
 
1,700,319

 
2,077,860

Noncontrolling interest
 
9,917

 
8,272

Total stockholders’ equity
 
1,710,236

 
2,086,132

Total liabilities and stockholders’ equity
 
$
6,063,285

 
$
5,021,942

The accompanying notes are an integral part of these Condensed Consolidated and Combined Financial Statements.

2



PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)
 
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
 
 
(In thousands, except per share data)
Net sales
 
$
2,793,885

 
$
2,495,281

 
$
8,025,511

 
$
7,507,681

Cost of sales
 
2,315,301

 
2,242,221

 
6,815,701

 
6,632,568

Gross profit
 
478,584

 
253,060

 
1,209,810

 
875,113

Selling, general and administrative expense
 
102,191

 
75,933

 
284,009

 
229,786

Administrative restructuring charges
 
4,147

 
279

 
8,496

 
279

Operating income
 
372,246

 
176,848

 
917,305

 
645,048

Interest expense, net of capitalized interest
 
24,636

 
19,119

 
66,315

 
58,480

Interest income
 
(2,128
)
 
(253
)
 
(3,600
)
 
(2,000
)
Foreign currency transaction loss (gain)
 
(888
)
 
4,569

 
(2,500
)
 
(1,769
)
Miscellaneous, net
 
(1,083
)
 
(2,371
)
 
(5,198
)
 
(7,327
)
Income before income taxes
 
351,709

 
155,784

 
862,288

 
597,664

Income tax expense
 
113,396

 
53,819

 
278,046

 
202,979

Net income
 
238,313

 
101,965

 
584,242

 
394,685

Less: Net income from Granite Holdings Sàrl prior to
acquisition by Pilgrim's Pride Corporation
 
6,093

 
3,438

 
23,486

 
25,105

Less: Net income (loss) attributable to noncontrolling
     interests
 
(460
)
 
(130
)
 
514

 
(334
)
Net income attributable to Pilgrim’s Pride Corporation
 
$
232,680

 
$
98,657

 
$
560,242

 
$
369,914

 
 
 
 
 
 
 
 
 
Weighted average shares of Pilgrim's Pride Corporation common stock outstanding:
 
 
 
 
 
 
 
 
Basic
 
248,753

 
254,460

 
248,732

 
254,607

Effect of dilutive common stock equivalents
 
235

 
460

 
230

 
430

Diluted
 
248,988

 
254,920

 
248,962

 
255,037

 
 
 
 
 
 
 
 
 
Net income attributable to Pilgrim’s Pride Corporation
     per share of common stock outstanding:
 
 
 
 
 
 
 
 
Basic
 
$
0.94

 
$
0.39

 
$
2.25

 
$
1.45

Diluted
 
$
0.93

 
$
0.39

 
$
2.25

 
$
1.45

The accompanying notes are an integral part of these Condensed Consolidated and Combined Financial Statements.


3



PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
 
 
(In thousands)
Net income
 
$
238,313

 
$
101,965

 
$
584,242

 
$
394,685

Other comprehensive loss:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
 
 
 
 
 
 
 
Gains (losses) arising during the period
 
22,378

 
(43,961
)
 
89,153

 
(171,509
)
Income tax effect
 
3,211

 

 
3,211

 

Derivative financial instruments designated as cash
flow hedges
 
 
 
 
 
 
 
 
Gains (losses) arising during the period
 
(779
)
 
65

 
(137
)
 
167

Reclassification to net earnings for losses (gains)
realized
 

 
(285
)
 
9

 
(35
)
Available-for-sale securities
 
 
 
 
 
 
 
 
Gains (losses) arising during the period
 

 

 

 
426

Income tax effect
 

 

 

 
(161
)
Reclassification to net earnings for losses (gains)
realized
 

 

 

 
(534
)
Income tax effect
 

 

 

 
202

Defined benefit plans
 
 
 
 
 
 
 
 
Gains (losses) arising during the period
 
393

 
2,852

 
(4,078
)
 
(11,500
)
Income tax effect
 
(148
)
 
(1,077
)
 
1,539

 
4,342

Reclassification to net earnings of losses realized
 
233

 
165

 
699

 
494

Income tax effect
 
(88
)
 
(62
)
 
(264
)
 
(187
)
Total other comprehensive income (loss), net of tax
 
25,200

 
(42,303
)
 
90,132

 
(178,295
)
Comprehensive income
 
263,513

 
59,662

 
674,374

 
216,390

Less: Comprehensive income (loss) for Granite
Holdings Sàrl prior to acquisition by Pilgrim's
Pride Corporation
 
460

 
(42,432
)
 
88,050

 
(152,927
)
Less: Comprehensive income (loss) attributable to
noncontrolling interests
 
(460
)
 
(130
)
 
514

 
(334
)
Comprehensive income attributable to Pilgrim's Pride
Corporation
 
$
263,513

 
$
102,224

 
$
585,810

 
$
369,651

The accompanying notes are an integral part of these Condensed Consolidated and Combined Financial Statements.



4



PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Retained Earnings (Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
(In thousands)
Pilgrim's Pride Corporation balance at December 25, 2016
 
259,682

 
$
2,597

 
(10,636
)
 
$
(217,117
)
 
$
1,686,742

 
$
(520,635
)
 
$
(64,243
)
 
$
9,403

 
$
896,747

Granite Holdings Sàrl balance at December 25, 2016
 
13,000

 
304,691

 

 

 
1,413,590

 
(262,150
)
 
(265,615
)
 
(1,131
)
 
1,189,385

Combined balance at December 25, 2016
 
272,682

 
307,288

 
(10,636
)
 
(217,117
)
 
3,100,332

 
(782,785
)
 
(329,858
)
 
8,272

 
2,086,132

Net income
 

 

 

 

 

 
583,728

 

 
514

 
584,242

Other comprehensive income, net of tax
 

 

 

 

 

 

 
90,132

 

 
90,132

Share-based compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued under compensation plans
 
486

 
5

 

 

 
(5
)
 

 

 

 

Requisite service period recognition
 

 

 

 

 
2,454

 

 

 

 
2,454

Common stock purchased under share repurchase program
 

 

 
(780
)
 
(14,641
)
 

 

 

 

 
(14,641
)
Deemed equity contribution resulting from the transfer of
     Granite Holdings Sàrl net assets from JBS S.A. to Pilgrim's
     Pride Corporation in a common-control transaction
 

 

 

 

 
237,195

 

 

 

 
237,195

Transfer of Granite Holdings Sàrl net assets from JBS S.A. to
     Pilgrim's Pride Corporation in a common-control transaction
 
(13,000
)
 
(304,691
)
 

 

 
(1,413,590
)
 
238,663

 
203,209

 
1,131

 
(1,275,278
)
Balance at September 24, 2017
 
260,168

 
$
2,602

 
(11,416
)
 
$
(231,758
)
 
$
1,926,386

 
$
39,606

 
$
(36,517
)
 
$
9,917

 
$
1,710,236

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pilgrim's Pride Corporation balance at December 27, 2015
 
259,685

 
$
2,597

 
(4,862
)
 
$
(99,233
)
 
$
1,675,674

 
$
(261,252
)
 
$
(58,930
)
 
$
2,954

 
$
1,261,810

Granite Holdings Sàrl balance at December 27, 2015
 
13,000

 
304,691

 

 

 
1,414,716

 
(287,668
)
 
(32,543
)
 
(1,131
)
 
1,398,065

Combined balance at December 27, 2015
 
272,685

 
307,288

 
(4,862
)
 
(99,233
)
 
3,090,390

 
(548,920
)
 
(91,473
)
 
1,823

 
2,659,875

Net income (loss)
 

 

 

 

 

 
395,019

 

 
(334
)
 
394,685

Other comprehensive loss, net of tax
 

 

 

 

 

 

 
(178,295
)
 

 
(178,295
)
Requisite service period recognition under share-based
     compensation plans
 

 

 

 

 
5,404

 

 

 

 
5,404

Common stock purchased from retirement plan participants
 
(3
)
 

 

 

 
(73
)
 

 

 

 
(73
)
Common stock purchased under share repurchase program
 

 

 
(925
)
 
(20,333
)
 

 

 

 

 
(20,333
)
Equity contributions to subsidiary by noncontrolling stockholders
 

 

 

 

 

 

 

 
7,252

 
7,252

Dividend paid by Granite Holdings Sàrl to JBS S.A.
 

 

 

 

 

 
(14,870
)
 

 

 
(14,870
)
Special cash dividend
 

 

 
 
 
 
 

 
(699,915
)
 

 

 
(699,915
)
Other
 

 

 

 

 
(1,126
)
 

 

 

 
(1,126
)
Balance at September 25, 2016
 
272,682

 
$
307,288

 
(5,787
)
 
$
(119,566
)
 
$
3,094,595

 
$
(868,686
)
 
$
(269,768
)
 
$
8,741

 
$
2,152,604

The accompanying notes are an integral part of these Condensed Consolidated and Combined Financial Statements.

5



PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Thirty-Nine Weeks Ended
 
 
September 24, 2017
 
September 25, 2016
 
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
584,242

 
$
394,685

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
204,625

 
174,128

Foreign currency transaction loss related to borrowing arrangements
 
6,830

 

Asset impairment
 
4,947

 

Gain on property disposals
 
(540
)
 
(7,315
)
Loss (gain) on equity method investments
 
(44
)
 
194

Share-based compensation
 
2,454

 
5,404

Deferred income tax expense (benefit)
 
25,768

 
(6
)
Changes in operating assets and liabilities:
 
 
 
 
Trade accounts and other receivables
 
(146,477
)
 
(65,649
)
Inventories
 
(149,806
)
 
(18,099
)
Prepaid expenses and other current assets
 
(15,377
)
 
1,990

Accounts payable, accrued expenses and other current liabilities
 
(36,105
)
 
35,346

Income taxes
 
149,063

 
45,789

Long-term pension and other postretirement obligations
 
(9,660
)
 
(8,294
)
Other operating assets and liabilities
 
(1,429
)
 
(6,190
)
Cash provided by operating activities
 
618,491

 
551,983

Cash flows from investing activities:
 
 
 
 
Acquisitions of property, plant and equipment
 
(258,364
)
 
(221,035
)
Purchase of acquired businesses, net of cash acquired
 
(658,520
)
 

Proceeds from property disposals
 
2,585

 
12,977

Cash used in investing activities
 
(914,299
)
 
(208,058
)
Cash flows from financing activities:
 
 
 
 
Proceeds from note payable to bank
 

 
36,838

Payments on note payable to bank
 

 
(65,564
)
Proceeds from revolving line of credit and long-term borrowings
 
1,013,662

 
515,292

Payments on revolving line of credit, long-term borrowings and capital lease
obligations
 
(609,678
)
 
(504,078
)
Proceeds from equity contribution under Tax Sharing Agreement between
    JBS USA Food Company Holdings and Pilgrim’s Pride Corporation
 
5,038

 
3,691

Capital contributions to subsidiary by noncontrolling stockholders
 

 
7,252

Payment of capitalized loan costs
 
(4,550
)
 
(693
)
Purchase of common stock under share repurchase program
 
(14,641
)
 
(20,333
)
Purchase of common stock from retirement plan participants
 

 
(73
)
Payment of special cash dividends
 

 
(715,711
)
Cash provided by (used in) financing activities
 
389,831

 
(743,379
)
Effect of exchange rate changes on cash and cash equivalents
 
15,084

 
(28,937
)
Increase (decrease) in cash, cash equivalents and restricted cash
 
109,107

 
(428,391
)
Cash, cash equivalents and restricted cash, beginning of period
 
297,523

 
696,553

Cash, cash equivalents and restricted cash, end of period
 
$
406,630

 
$
268,162

The accompanying notes are an integral part of these Condensed Consolidated and Combined Financial Statements.

6



NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
 
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
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, the Netherlands and Ireland. 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 85 countries. Pilgrim’s fresh chicken products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company’s prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Europe, Mexico and Puerto Rico. As of September 24, 2017 , Pilgrim’s had approximately 52,000 employees and the capacity to process approximately 45.2 million birds per five-day work week for a total of approximately 12.8 billion pounds of live chicken annually. Approximately 5,100 contract growers supply poultry for the Company’s operations. As of September 24, 2017 , JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owned 78.6% of the Company’s outstanding common stock.
Consolidated and Combined Financial Statements
The accompanying unaudited consolidated and combined financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments unless otherwise disclosed) considered necessary for a fair presentation have been included. Operating results for the thirty-nine weeks ended September 24, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 25, 2016 .
Pilgrim’s operates on a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. The reader should assume any reference we make to a particular year (for example, 2017 ) in the notes to these Condensed Consolidated and Combined Financial Statements applies to our fiscal year and not the calendar year.
On September 8, 2017, a subsidiary of the Company acquired 100% of the issued and outstanding shares of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”) from JBS S.A. in a common-control transaction. For the period from September 30, 2015 through September 7, 2017, the condensed 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 period from September 8, 2017 through September 24, 2017, the Condensed 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 Condensed 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, the Netherlands and Ireland 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

7



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 Condensed Consolidated and Combined 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 either Cost of sales or Foreign currency transaction loss, depending on the nature of the transaction, in the Condensed Consolidated and Combined Statements of Income.

The Company reported an adjustment resulting from the translation of a British pound-denominated note payable owed to JBS S.A. as a component of Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet as of September 24, 2017. The Company designated this note payable as a hedge of its net investment in Moy Park.
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 Condensed Consolidated and Combined Statements of Income.
Revenue Recognition
We recognize revenue when all of the following circumstances are satisfied: (i) persuasive evidence of an arrangement exists, (ii) price is fixed or determinable, (iii) collectability is reasonably assured and (iv) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. Revenue is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give rise to the revision become known.
Book Overdraft
The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Condensed Consolidated and Combined Statements of Cash Flows.
Restricted Cash
The Company is required to maintain cash balances with a broker as collateral for exchange traded futures contracts. These balances are classified as restricted cash as they are not available for use by the Company to fund daily operations. The balance of restricted cash may also include investments in U.S. Treasury Bills that qualify as cash equivalents, as required by the broker, to offset the obligation to return cash collateral.
The following table reconciles cash, cash equivalents and restricted cash as reported in the Condensed Consolidated and Combined Balance Sheets to the total of the same amounts shown in the Condensed Consolidated and Combined Statements of Cash Flows:
 
 
September 24, 2017
 
December 25, 2016
 
 
(In thousands)
Cash and cash equivalents
 
$
401,789

 
$
292,544

Restricted cash
 
4,841

 
4,979

Total cash, cash equivalents and restricted cash shown in the
Condensed Consolidated and Combined Statements of Cash Flows
 
$
406,630

 
$
297,523

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. In June 2015, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide entities the option to adopt the new guidance as of the original effective date. The provisions of the new guidance will be effective as of the beginning of our 2018 fiscal year, but we

8



had the option to adopt the guidance as early as the beginning of our 2017 fiscal year. We have elected to adopt this standard as of January 1, 2018, the beginning of our 2018 fiscal year, using the modified retrospective approach. Under this method, we would not restate the prior financial statements presented; however, we would be required to provide additional disclosures of 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 are finalizing our assessment of contracts with customers and evaluating the impact of the new guidance on these contracts. Additionally, our evaluation includes the impact of the new standard on certain common practices currently employed by us, such as slotting fees, discounts, rebates and other pricing allowances, and marketing funds. Although we are still evaluating the impact, we do not currently expect the new guidance to have a material impact on our financial statements beyond additional disclosure requirements.
In July 2015, the FASB issued new accounting guidance on the subsequent measurement of inventory, which, in an effort to simplify unnecessarily complicated accounting guidance that can result in several potential outcomes, requires an entity to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current accounting guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The provisions of the new guidance were effective as of the beginning of our 2017 fiscal year. The initial adoption of this guidance did not have a material impact on our financial statements.
In February 2016, the FASB issued new accounting guidance on lease arrangements, which, in an effort to increase transparency and comparability among organizations utilizing leasing, requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. In transition, the entity is required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The provisions of the new guidance will be effective as of the beginning of our 2019 fiscal year. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In March 2016, the FASB issued new accounting guidance on employee share-based payments, which, in an effort to simplify unnecessarily complicated aspects of accounting and reporting for share-based payment transactions, requires an entity to amend accounting and reporting methodology for areas such as the income tax consequences of share-based payments, classification of share-based awards as either equity or liabilities, and classification of share-based payment transactions in the statement of cash flows. The transition approach will vary depending on the area of accounting and reporting methodology to be amended. The Company adopted this standard on December 26, 2016, the beginning of our 2017 fiscal year, and will prospectively present excess tax benefits or deficiencies in the income statement as a component of “Provision for income taxes” rather than in the “Equity” section of the Balance Sheet. As part of the adoption, the Company did not have a cumulative-effect adjustment, as there were no previous unrecognized excess tax benefits that would impact retained earnings. As a result, there was no retrospective adjustment to the prior period statement of cash flows of excess tax benefits as an operating activity rather than a financing activity.
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The provisions of the new guidance will be effective as of the beginning of our 2020 fiscal year. Early adoption is permitted after our 2018 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In November 2016, the FASB issued new accounting guidance on the classification and presentation of restricted cash in the statement of cash flows in order to eliminate the diversity that currently exists in how companies present these changes. The new guidance requires restricted cash to be included with cash and cash equivalents when explaining the changes in cash in the statement of cash flows. We elected to early adopt this guidance as of December 26, 2016, the beginning of our 2017 fiscal year. An entity should apply the new guidance on a retrospective basis, wherein the statement of cash flow of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line items. A description of the prior-period information that has been retrospectively adjusted and the effect of the change on the statement of cash flow line items is not disclosed as it is not material.

9



In March 2017, the FASB issued new accounting guidance on 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. The new guidance will be effective as of the beginning of our 2019 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 2017, the FASB issued an accounting standard update that simplifies the application of hedge accounting guidance in current GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. 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 are currently evaluating the impact the adoption of this standard will have on our financial statements.
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 13 processing and manufacturing units in Northern Ireland, the U.K., France, the Netherlands and Ireland, Moy Park processes 6.0 million birds per seven-day work week, in addition to producing around 200,000 tons 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 currently has approximately 10,100 employees. The Moy Park operations will 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 $15.0 million . These costs were expensed as incurred. 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. 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. Net sales generated by Moy Park from the September 8, 2017 acquisition date through September 24, 2017 totaled $199.9 million . Net sales generated by Moy Park from December 26, 2016 through September 7, 2017 totaled $1.3 billion . Net sales generated by Moy Park during the thirty-nine weeks ended September 25, 2016 totaled $1.5 billion . Net income generated by Moy Park from the September 8, 2017 acquisition date through September 24, 2017 totaled $2.1 million . Net income generated by Moy Park from December 26, 2016 through September 7, 2017 totaled $23.5 million . Net income generated by Moy Park during the thirty-nine weeks ended September 25, 2016 totaled $25.1 million .
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 cash. GNP is a vertically integrated poultry business based in Saint Cloud, Minnesota. The acquired business has a production capacity of 2.1 million birds per five-day work week in its three plants and employs approximately 1,700 people.
The following table summarizes the consideration paid for GNP (in thousands):

10



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 Condensed Consolidated and Combined Statements of Income. Net sales generated by the acquired business during the thirteen and thirty-nine weeks ended September 24, 2017 totaled $108.6 million and $322.3 million , respectively The acquired business generated net income during the thirteen and thirty-nine weeks ended September 24, 2017 totaling $9.8 million and $24.6 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 Certified TM /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 preliminary fair values recorded were determined based upon a preliminary valuation. The estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). The primary areas of acquisition accounting that are not yet finalized relate to the preliminary nature of the valuation of property, plant and equipment, intangible assets and residual goodwill. We continue to review inputs and assumptions used in the preliminary 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:
 
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

11



The Company performed a valuation of the assets and liabilities of GNP as of January 6, 2017. Significant assumptions used in the preliminary valuation and the bases for their determination are summarized as follows:
Property, plant and equipment, net . Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company's real property improvements and the majority of its personal property was based on the cost approach. The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
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 Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the GNP acquisition.
During the thirty-nine weeks ended September 24, 2017, the Company recognized restructuring charges in the amounts of $0.7 million and $2.6 million related to the elimination of prepaid costs associated with obsolete GNP software and severance costs related to the GNP acquisition, respectively. These charges are reported in the line item Administrative restructuring charges on the Condensed Consolidated and Combined Statements of Income. The Company expects to incur additional restructuring costs related to GNP of approximately $1.7 million during the remainder of 2017 and 2018.
The following unaudited pro forma information presents the combined financial results for the Company and GNP as if the acquisition had been completed at the beginning of the Company’s prior year, December 28, 2015.
 
Thirty-Nine Weeks
Ended
September 24, 2017
 
Thirty-Nine Weeks
Ended
September 25, 2016
 
(In thousands, except per share amount)
Net sales
$
8,031,311

 
$
7,833,406

Net income attributable to Pilgrim's Pride Corporation
572,063

 
363,735

Net income attributable to Pilgrim's Pride Corporation
per common share - diluted
2.30

 
1.40

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company’s results of operations would have been had it completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.    
3.
FAIR VALUE MEASUREMENTS
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:

12



Level 1
  
Unadjusted quoted prices in active markets for identical assets or liabilities;
 
 
Level 2
  
Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
 
 
Level 3
  
Unobservable inputs, such as discounted cash flow models or valuations.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.
As of September 24, 2017 and December 25, 2016 , 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:
 
 
September 24, 2017
 
 
Level 1
 
Total
 
 
(In thousands)
Fair value assets:
 
 
 
 
     Commodity futures instruments
 
$
2,168

 
$
2,168

     Commodity options instruments
 
1,200

 
1,200

Foreign currency instruments
 
586

 
586

Fair value liabilities:
 
 
 
 
     Commodity futures instruments
 
(1,587
)
 
(1,587
)
     Commodity options instruments
 
(2,196
)
 
(2,196
)
Foreign currency instruments
 
(387
)
 
(387
)
 
 
December 25, 2016
 
 
Level 1
 
Total
 
 
(In thousands)
Fair value assets:
 
 
 
 
     Commodity futures instruments
 
$
5,341

 
$
5,341

     Commodity options instruments
 
98

 
98

Foreign currency instruments
 
516

 
516

Fair value liabilities:
 
 
 
 
     Commodity futures instruments
 
(4,063
)
 
(4,063
)
     Commodity option instruments
 
(2,764
)
 
(2,764
)
Foreign currency instruments
 
(153
)
 
(153
)
See “Note 7. Derivative Financial Instruments” for additional information.
Fair value and carrying value for our fixed-rate debt obligation is as follows:
 
 
September 24, 2017
 
December 25, 2016
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed-rate senior notes payable at 5.75%, at Level 1 inputs
 
$
(500,000
)
 
$
(521,250
)
 
$
(500,000
)
 
$
(503,395
)
Fixed-rate senior notes payable at 6.25%, at Level 1 inputs
 
(401,983
)
 
(415,622
)
 
(369,736
)
 
(389,709
)
Chattels Mortgages, at Level 3 inputs
 
(1,015
)
 
(989
)
 
(1,432
)
 
(1,379
)
See “Note 11. Long-Term Debt and Other Borrowing Arrangements” for additional information.

13



The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations. For each class of assets and liabilities not measured at fair value in the Condensed Consolidated and Combined 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 periodic 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.
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 Condensed Consolidated and Combined Balance Sheets. 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 Condensed Consolidated and Combined Balance Sheets. The fair value of the Company’s Level 1 fixed-rate debt obligations was based on the quoted market price at September 24, 2017 or December 25, 2016 , as applicable. The fair value of the Company’s Level 3 fixed-rate debt obligation was based on discounted cash flows at September 24, 2017 or December 25, 2016 , 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, less allowance for doubtful accounts, consisted of the following:
 
 
September 24, 2017
 
December 25, 2016
 
 
(In thousands)
Trade accounts receivable
 
$
612,983

 
$
435,818

Notes receivable - current
 
5,130

 
630

Other receivables
 
14,644

 
15,766

Receivables, gross
 
632,757

 
452,214

Allowance for doubtful accounts
 
(7,955
)
 
(6,661
)
Receivables, net
 
$
624,802

 
$
445,553

 
 
 
 
 
Account receivable from related parties (a)
 
$
970

 
$
4,010

(a)      Additional information regarding accounts receivable from related parties is included in “Note 16. Related Party Transactions.”
Activity in the allowance for doubtful accounts for the thirty-nine weeks ended September 24, 2017 was as follows (in thousands):
Balance, beginning of period
 
$
(6,661
)
Provision charged to operating results
 
(1,962
)
Account write-offs and recoveries
 
858

Effect of exchange rate
 
(190
)
Balance, end of period
 
$
(7,955
)
5.
INVENTORIES
Inventories consisted of the following:

14



 
September 24, 2017
 
December 25, 2016
 
(In thousands)
Live chicken and hens
$
471,394

 
$
407,475

Feed, eggs and other
263,576

 
257,049

Finished chicken products
399,085

 
243,824

Total chicken inventories
1,134,055

 
908,348

Commercial feed and other
62,146

 
67,260

Total inventories
$
1,196,201

 
$
975,608

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:
 
 
September 24, 2017
 
December 25, 2016
 
 
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair
Value
 
 
(In thousands)
Cash equivalents:
 
 
 
 
 
 
 
 
Fixed income securities
 
$
155,216

 
$
155,216

 
$
140,480

 
$
140,480

Other
 
62

 
62

 
61

 
61

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 and gross realized losses recognized during the thirteen and thirty-nine weeks ended September 24, 2017 and September 25, 2016 related to the Company’s available-for-sale securities were immaterial. Proceeds received from the sale or maturity of available-for-sale securities recognized as either short- or long-term investments are historically disclosed in the Condensed Consolidated and Combined Statements of Cash Flows. No proceeds were received from the sale or maturity of available-for-sale securities recognized as either short- or long-term investments during the thirty-nine weeks ended September 24, 2017 and September 25, 2016 . Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during the thirty-nine weeks ended September 24, 2017 and September 25, 2016 that have been included in accumulated other comprehensive loss and the net amount of gains and losses reclassified out of accumulated other comprehensive loss to earnings during the thirty-nine weeks ended September 24, 2017 and September 25, 2016 is disclosed in “Note 14. Stockholders’ Equity - Accumulated Other Comprehensive Loss.”
7.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.
The Company has operations in Mexico and Europe (including the U.K.) and, therefore, has exposure to translational foreign exchange risk when the financial results of those operations are 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 Condensed Consolidated and Combined Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued

15



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.
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 Condensed 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 Condensed Consolidated and Combined Statements of Income.
The Company recognized net gains of $6.9 million and net losses of $16.7 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended September 24, 2017 and September 25, 2016 , respectively. The Company also recognized net gains of $7.3 million and net losses of $10.5 million related to changes in the fair value of its derivative financial instruments during the thirty-nine weeks ended September 24, 2017 and September 25, 2016 , respectively.     
Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:
 
September 24, 2017
 
December 25, 2016
 
(Fair values in thousands)
Fair values:
 
 
 
Commodity derivative assets
$
3,368

 
$
5,439

Commodity derivative liabilities
(3,782
)
 
(6,827
)
Foreign currency derivative assets
586

 
516

Foreign currency derivative liabilities
(387
)
 
(153
)
Cash collateral posted with brokers
4,841

 
4,979

Derivatives coverage (a) :
 
 
 
Corn
0.7
%
 
2.3
%
Soybean meal
0.2
%
 
0.3
%
Period through which stated percent of needs are covered:
 
 
 
Corn
September 2018

 
September 2018

Soybean meal
August 2018

 
July 2017

(a)
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:

16



 
Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
 
(In thousands)
Foreign currency derivatives
$
(779
)
 
$
(220
)
 
$
(128
)
 
$
132

Total
$
(779
)
 
$
(220
)
 
$
(128
)
 
$
132

 
 
 
 
 
 
 
 
 
Net Realized Gains (Losses) Recognized in Income on Derivative (Ineffective Portion)
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
 
(In thousands)
Foreign currency derivatives
$

 
$

 
$

 
$

Total
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Thirteen Weeks Ended
 
Thirty-Nine Weeks Ended
 
September 24, 2017
 
September 25, 2016
 
September 24, 2017
 
September 25, 2016
 
(In thousands)
Foreign currency derivatives
$

 
$
285

 
$
(9
)
 
$
35

Total
$

 
$
285

 
$
(9
)
 
$
35


At September 24, 2017, the before-tax deferred net gains on derivatives recorded in AOCI that are expected to be reclassified to the Condensed Consolidated and Combined Statements of Income during the next twelve months are $1.2 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.

The Company reported a $16.9 million adjustment resulting from the translation of a British pound-denominated note payable owed to JBS S.A. as a component of Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheet as of September 24, 2017. The Company designated this note payable as a hedge of its net investment in Moy Park.

8.
GOODWILL AND INTANGIBLE ASSETS
The activity in goodwill by segment for the thirty-nine weeks ended September 24, 2017 was as follows:
 
 
December 25, 2016
 
Additions
 
Currency Translation
 
September 24, 2017
 
 
(In thousands)
United States
 
$

 
$
41,936

 
$

 
$
41,936

U.K. and Europe
 
761,613

 

 
66,425

 
828,038

Mexico
 
125,608

 

 

 
125,608

     Total
 
$
887,221

 
$
41,936

 
$
66,425

 
$
995,582

Identified intangible assets consisted of the following:

17



 
 
December 25, 2016
 
Periodic Activity
 
September 24, 2017
 
 
Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Additions
 
Amortization
 
Currency Translation
 
Impairment
 
Net Carrying Amount
 
 
(In thousands)
Identified intangible
     assets subject to
     amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Trade names
 
$
41,369

 
$
(37,029
)
 
$
4,340

 
$
38,200

 
$
(2,794
)
 
$
61

 
$

 
$
39,807

     Customer
          relationships
 
171,152

 
(72,327
)
 
98,825

 
92,900

 
(16,418
)
 
5,851

 

 
181,158

     Non-compete
          agreements
 
300

 
(300
)
 

 
20

 
(5
)
 

 

 
15

Identified intangible
     assets not subject
     to amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Trademarks
 
368,426

 

 
368,426

 

 

 
31,287

 

 
399,713

Total identified
     intangible assets
 
$
581,247

 
$
(109,656
)
 
$
471,591

 
$
131,120

 
$
(19,217
)
 
$
37,199

 
$

 
$
620,693

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
9.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (“PP&E”), net consisted of the following:
 
September 24, 2017
 
December 25, 2016
 
(In thousands)
Land
$
204,176

 
$
150,127

Buildings
1,650,262

 
1,487,353

Machinery and equipment
2,442,031

 
2,268,526

Autos and trucks
56,641

 
58,454

Construction-in-progress
237,323

 
255,086

PP&E, gross
4,590,433

 
4,219,546

Accumulated depreciation
(2,514,086
)
 
(2,385,561
)
PP&E, net
$
2,076,347

 
$
1,833,985

The Company recognized depreciation expense of $63.8 million and $53.4 million during the thirteen weeks ended September 24, 2017 and September 25, 2016 , respectively. The Company recognized depreciation expense of $181.1 million and $156.9 million during the thirty-nine weeks ended September 24, 2017 and September 25, 2016 , respectively.
During the thirty-nine weeks ended September 24, 2017 , Pilgrim's spent $ 258.4 million on capital projects and transferred $ 272.5  million of completed projects from construction-in-progress to depreciable assets. During the thirty-nine weeks ended September 25, 2016 , the Company spent $221.0 million on capital projects and transferred $ 176.8 million of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during the thirty-nine weeks ended September 24, 2017 to improve efficiencies and reduce costs.
During the thirty-nine weeks ended September 24, 2017 , the Company sold certain PP&E for cash of $2.6 million and recognized net gains on these sales of $0.5 million . PP&E sold in the thirty-nine weeks ended September 24, 2017 included a processing plant in Texas, a feed mill in Arkansas, poultry farms in Alabama and Texas, vacant land in Texas and miscellaneous equipment. During the thirty-nine weeks ended September 25, 2016 , the Company sold certain PP&E for cash of $13.0 million and recognized net gains on these sales of $7.3 million . PP&E sold in the thirty-nine weeks ended September 25, 2016 included

18



a processing plant in Louisiana, poultry farms in Mexico and Texas, an office building in Texas, vacant land in Alabama and Texas, and miscellaneous equipment.
  Management has committed to the sale of certain properties and related assets, including, but not limited to, a processing complex in Alabama, a processing plant in Dublin, Ireland, which no longer fit into the operating plans of the Company. The Company is actively marketing these properties and related assets for immediate sale and believes a sale of each property can be consummated within the next 12 months. At September 24, 2017 and December 25, 2016 , the Company reported properties and related assets totaling $2.8 million and $5.3 million , respectively, in the line item Assets held for sale on its Condensed Consolidated and Combined Balance Sheets. The fair values of the Alabama processing complex, which was classified as an asset held for sale as of June 25, 2017, and the Dublin processing plant, which was classified as an asset held for sale as of September 24, 2017, were both based on quoted market prices.
The Company tested the recoverability of its Alabama processing complex held for sale as of June 25, 2017 and September 24, 2017. The Company determined that the aggregate carrying amount at June 25, 2017 of this asset group was not recoverable over the remaining life of the primary asset in the group and recognized impairment cost of $3.5 million related to the U.S. segment, which it reported in the line item Administrative restructuring charges on its Condensed Consolidated and Combined Statements of Income. The Company determined that the aggregate carrying amount st September  24, 2017 of this asset group was recoverable over the remaining life of the primary asset in the group.
The Company tested the recoverability of the Dublin processing plant held for sale as of September 24, 2017. The Company determined that the aggregate carrying amount at September 26, 2014 of this asset group was not recoverable over the remaining life of the primary asset in the group and recognized impairment cost of $1.6 million related to the U.K. and Europe segment, which it reported in the line item Administrative restructuring charges on its Condensed Consolidated and Combined Statements of Income.
The Company did not recognize impairment cost during the thirteen or thirty-nine weeks ended September 25, 2016.
The Company has closed or idled various processing complexes, processing plants, hatcheries, broiler farms, and feed mills throughout the U.S. Neither the Board of Directors nor JBS has determined if it would be in the best interest of the Company to divest any of these 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 September 24, 2017 , the carrying amounts of these idled assets totaled $50.4 million based on depreciable value of $169.4 million and accumulated depreciation of $119.0 million .
The Company last tested the recoverability of its long-lived assets held and used in December 2016 . At that time, the Company determined that the carrying amount of its long-lived assets held and used was recoverable over the remaining life of the primary asset in the group and that long-lived assets held and used passed the Step 1 recoverability test under ASC 360-10-35, Impairment or Disposal of Long-Lived Assets . There were no indicators present during the thirty-nine weeks ended September 24, 2017 that required the Company to test its long-lived assets held and used for recoverability.
10.
CURRENT LIABILITIES
Current liabilities, other than current notes payable to banks, income taxes and current maturities of long-term debt, consisted of the following components:

19



 
September 24, 2017
 
December 25, 2016
 
(In thousands)
Accounts payable:
 
 
 
Trade accounts
$
653,248

 
$
722,495

Book overdrafts
77,189

 
63,577

Other payables
13,091

 
4,306

Total accounts payable
743,528

 
790,378

Accounts payable to related parties (a)
7,091

 
4,468

Accrued expenses and other current liabilities:
 
 
 
Compensation and benefits
168,551

 
160,591

Interest and debt-related fees
16,452

 
10,907

Insurance and self-insured claims
80,210

 
82,544

Derivative liabilities:
 
 
 
Commodity futures
1,587

 
4,063

Commodity options
2,196

 
2,764

Foreign currency derivatives
387

 
153

Other accrued expenses
147,093

 
85,999

Total accrued expenses and other current liabilities
416,476

 
347,021

 
$
1,167,095

 
$
1,141,867

(a)      Additional information regarding accounts payable to related parties is included in “Note 16. Related Party Transactions.”

20



11.
LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term debt and other borrowing arrangements, including current notes payable to banks, consisted of the following components:  
 
Maturity
 
September 24, 2017
 
December 25, 2016
 
 
 
(In thousands)
Long-term debt and other long-term borrowing arrangements:
 
 
 
 
 
Senior notes payable at 5.75%
2025
 
$
500,000

 
$
500,000

Senior notes payable at 6.25%
2021
 
401,982

 
369,736

U.S. Credit Facility (defined below):
 
 
 
 
 
Term note payable at 2.55%
2022
 
790,000

 
500,000

Revolving note payable at 2.48%
2022
 
73,262

 

Mexico Credit Facility (defined below) with notes payable at
TIIE Rate plus 0.95%
2019
 
84,524

 
23,304

Moy Park Multicurrency Revolving Facility with notes payable at
     LIBOR rate plus 2.5%

2018
 
9,953

 
11,985

Moy Park Receivable with payables at LIBOR plus 1.5%
2020
 

 

Moy Park France Invoice Discounting Revolver with payables at
     EURIBOR plus 0.8%
2018
 
3,930

 
8,918

Chattels mortgages with payables at weighted average of 3.74%
Various
 
1,015

 
1,432

JBS S.A. Promissory Note at 0.0%
2018
 
753,705

 

Term Loan Agence L'eau
2018
 
6

 
6

Capital lease obligations
Various
 
10,703

 
14,600

Long-term debt
 
 
2,629,080

 
1,429,981

Less: Current maturities of long-term debt
 
 
(61,811
)
 
(15,712
)
Long-term debt, less current maturities
 
 
2,567,269

 
1,414,269

Less: Capitalized financing costs
 
 
(18,694
)
 
(18,145
)
Long-term debt, less current maturities, net of capitalized financing costs:
 
 
$
2,548,575

 
$
1,396,124

U.S. Senior Notes
On March 11, 2015, the Company completed a sale of $500.0 million aggregate principal amount of its 5.75% senior notes due 2025 (the “Senior Notes due 2025”). The Company used the net proceeds from the sale of the Senior Notes due 2025 to repay $350.0 million and $150.0 million of the term loan indebtedness under the U.S. Credit Facility (defined below) on March 12, 2015 and April 22, 2015, respectively. On September 29, 2017, the Company completed an add-on offering of $250.0 million of the Senior Notes due 2025 (the “Additional Senior Notes due 2025”). The Additional Senior Notes due 2025 will be treated as a single class with the existing Senior Notes due 2025 for all purposes under the 2015 Indenture (defined below) and will have the same terms as those of the existing Senior Notes due 2025. The Additional Senior Notes due 2025 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes due 2025 and the Additional Senior Notes due 2025 are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “2015 Indenture”). The 2015 Indenture provides, among other things, that the Senior Notes due 2025 and the Additional Senior Notes due 2025 bear interest at a rate of 5.75% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015 for the Senior Notes due 2025 and March, 15 2018 for the Additional Senior Notes due 2025. The Senior Notes due 2025 and the Additional Senior Notes due 2025 are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2025 and the Additional Senior Notes due 2025. The Senior Notes due 2025 and the Additional Senior Notes due 2025 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2025 and the Additional Senior Notes due 2025 and the 2015 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2025 and the Additional Senior Notes due 2025 when due, among others.

21



On September 29, 2017, the Company completed a sale of  $600.0 million  aggregate principal amount of its  5.875%  senior notes due 2027 (the “Senior Notes due 2027”). The Company used the net proceeds from the sale of the Senior Notes due 2027 to repay in full the JBS S.A. Promissory Note (defined below) issued as part of the Moy Park acquisition. The Senior Notes due 2027 were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among the Company, its guarantor subsidiary and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest at a rate of 5.875%  per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on March 30, 2018. The Senior Notes due 2027 are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2027. The Senior Notes due 2027 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2027 and the 2017 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2027 when due, among others.
Moy Park Senior Notes
On May 29, 2014, Moy Park (Bondco) Plc completed the sale of a £ 200.0 million aggregate principal amount of its 6.25% senior notes due 2021 (the “Moy Park Notes”). On April 17, 2015, an add-on offering of £ 100.0 million of the Moy Park Notes (the “Additional Moy Park Notes”) was completed. The Moy Park Notes and the Additional Moy Park Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act .
The Moy Park Notes and the Additional Moy Park Notes are governed by, and were issued pursuant to, an indenture dated as of May 29, 2014 by Moy Park (Bondco) Plc, as issuer, Moy Park Holdings (Europe) Limited, Moy Park (Newco) Limited, Moy Park Limited, O’Kane Poultry Limited, as guarantors, and The Bank of New York Mellon, as trustee (the “Moy Park Indenture”). The Moy Park Indenture provides, among other things, that the Moy Park Notes and the Additional Moy Park Notes bear interest at a rate of 6.25% per annum from the date of issuance until maturity, payable semiannually in cash in arrears, beginning on November 29, 2014 for the Moy Park Notes and May 28, 2015 for the Additional Moy Park Notes. The Moy Park Notes and the Additional Moy Park Notes are guaranteed by each of the subsidiary guarantors described above. The Moy Park Indenture contains customary covenants and events of default that may limit Moy Park (Bondco) Plc’s ability and the ability of certain subsidiaries to incur additional debt, declare or pay dividends or make certain investments, among others.
On November 2, 2017, Moy Park (Bondco) Plc announced the final results of its previously announced tender offer to purchase for cash any and all of its issued and outstanding Moy Park Notes and Moy Park Additional Notes. As of November 2, 2017, £1,185,000 principal amount of Moy Park Notes and Moy Park Additional Notes had been validly tendered (and not validly withdrawn). Moy Park (Bondco) Plc has purchased all validly tendered (and not validly withdrawn) Moy Park Notes and Moy Park Additional Notes on or prior to November 2, 2017, with such settlement occurring on November 3, 2017.
U.S. Credit Facility
On May 8, 2017, the Company and certain of its subsidiaries entered into a Third Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with Coöperatieve Rabobank U.A., New York Branch (“Rabobank”), as administrative agent and collateral agent, and the other lenders party thereto. The U.S. Credit Facility provides for a revolving loan commitment of up to $750.0 million and a term loan commitment of up to $800.0 million (the “Term Loans”). The U.S. Credit Facility also includes an accordion feature that allows the Company, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $1.0 billion , subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase.
The revolving loan commitment under the U.S. Credit Facility matures on May 6, 2022. All principal on the Term Loans is due at maturity on May 6, 2022. Installments of principal are required to be made, in an amount equal to 1.25% of the original principal amount of the Term Loans, on a quarterly basis prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. As of September 24, 2017 , the company had Term Loans outstanding totaling $790.0 million and the amount available for borrowing under the revolving loan commitment was $631.9 million . The Company had letters of credit of $44.8 million and borrowings of $73.3 million outstanding under the revolving loan commitment as of September 24, 2017 .

22



The U.S. Credit Facility includes a $75.0 million sub-limit for swingline loans and a $125.0 million sub-limit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equal to (i) in the case of LIBOR loans, LIBOR plus 1.50% through September 24, 2017 and, thereafter, based on the Company’s net senior secured leverage ratio, between LIBOR plus 1.25% and LIBOR plus 2.75% and (ii) in the case of alternate base rate loans, the base rate plus 0.50% through September 24, 2017 and, based on the Company’s net senior secured leverage ratio, between the base rate plus 0.25% and base rate plus 1.75% thereafter.
The U.S. Credit Facility contains financial covenants and various other covenants that may adversely affect the Company’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS and the Company’s other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The U.S. Credit Facility also provides that we may not incur capital expenditures in excess of $500.0 million in any fiscal year. The Company is currently in compliance with the covenants under the U.S. Credit Facility.
All obligations under the U.S. Credit Facility continue to be unconditionally guaranteed by certain of the Company’s subsidiaries and continue to be secured by a first priority lien on (i) the accounts receivable and inventory of our company and its non-Mexico subsidiaries, (ii) 100% of the equity interests in our domestic subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., and 65% of the equity interests in our direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility.
Mexico Credit Facility
On September 27, 2016, certain of our Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility was $ 1.5 billion Mexican pesos. Outstanding borrowings under the Mexico Credit Facility accrued interest at a rate equal to the Interbank Equilibrium Interest Rate plus 0.95% . The Mexico Credit Facility is scheduled to mature on September 27, 2019. As of September 24, 2017 , the U.S. dollar-equivalent loan commitment under the Mexico Credit Facility was $84.5 million , and there were $84.5 million outstanding borrowings under the Mexico Credit Facility that bear interest at a per annum rate of 8.33% . As of September 24, 2017 , the U.S. dollar-equivalent borrowing availability was less than $0.1 million.
Moy Park Multicurrency Revolving Facility Agreement
On March 19, 2015, Moy Park Holdings (Europe) Limited, a subsidiary of Granite Holdings Sàrl, and its subsidiaries, entered into an agreement with Barclays Bank plc which matures on March 19, 2018. The agreement provides for a multicurrency revolving loan commitment of up to £ 20.0 million . As of September 24, 2017 , the U.S. dollar-equivalent loan commitment under Moy Park multicurrency revolving facility was $26.8 million and there were $10.0 million outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus a margin determined by Company’s Net Debt to EBITDA ratio. The current margin stands at 2.5% . As of September 24, 2017 , the U.S. dollar-equivalent borrowing availability was $16.8 million .
The facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain assets sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of the Moy Park's assets.
Moy Park Receivables Finance Agreement
Moy Park Limited, a subsidiary of Granite Holdings Sàrl, entered into a £45.0 million receivables finance agreement on January 29, 2016 (the “Receivables Finance Agreement”), with Barclays Bank plc, which matures on January 29, 2020. As of September 24, 2017 , the U.S. dollar-equivalent loan commitment under the Receivables Finance Agreement was $60.3 million and there were no outstanding borrowings. Outstanding borrowings under the facility bear interest at a per annum rate equal to LIBOR plus 1.5% . The Receivables Finance Agreement includes an accordion feature that allows us, at any time, to increase the commitments by up to an additional £ 15.0 million (U.S. dollar-equivalent $20.1 million as of September 24, 2017 ), subject to the satisfaction of certain conditions.
The Receivables Finance Agreement contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.

23



Moy Park France Invoice Discounting Facility
In June 2009, Moy Park France Sàrl, a subsidiary of Granite Holdings Sàrl, entered into a €20.0 million invoice discounting facility with GE De Facto (the “Invoice Discounting Facility”). The facility limit was increased €10.0 million in September 2016 to €30.0 million . The Invoice Discounting Facility is payable on demand and the term is extended on an annual basis. The agreement can be terminated with three months’ notice. As of September 24, 2017 , the U.S. dollar-equivalent loan commitment under the Invoice Discounting Facility was $35.7 million and there were $3.9 million outstanding borrowings. As of September 24, 2017 , the U.S. dollar-equivalent borrowing availability was $31.8 million . Outstanding borrowings under the Invoice Discounting Facility bear interest at a per annum rate equal to EURIBOR plus a margin of 0.80% .
The Invoice Discounting Facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.
JBS S.A. Promissory Note
On September 8, 2017, Onix Investments UK Ltd., a wholly owned subsidiary of Pilgrim’s Pride Corporation, executed a subordinated promissory note payable to JBS S.A. (the “JBS S.A. Promissory Note”) for £562.5 million , which had a maturity date of September 6, 2018. Interest on the outstanding principal balance of the JBS S.A. Promissory Note accrued at the rate per annum equal to (i) from and after November 8, 2017 and prior to January 7, 2018, 4.00% , (ii) from and after January 7, 2018 and prior to March 8, 2018, 6.00% and (iii) from and after March 8, 2018, 8.00% . The JBS S.A. Promissory Note was repaid in full on October 2, 2017 using the net proceeds from the sale of Senior Notes due 2027 and the Additional Senior Notes due 2025.
12.
INCOME TAXES
The Company recorded income tax expense of $278.0 million , a 32.2% effective tax rate, for the thirty-nine weeks ended September 24, 2017 compared to income tax expense of $203.0 million , a 34.0% effective tax rate, for the thirty-nine weeks ended September 25, 2016 . The increase in income tax expense in 2017 resulted primarily from an increase in pre-tax income.
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 September 24, 2017 , the Company did not believe it had sufficient positive evidence to conclude that realization of its federal capital loss carry forwards and a portion of its foreign net deferred tax assets are more likely than not to be realized.
For the thirty-nine weeks ended September 24, 2017 and September 25, 2016 , there is a tax effect of $4.5 million and $4.2 million , respectively, reflected in other comprehensive income.
Beginning in 2017, as a result of new FASB guidance on share-based payments, excess tax benefits are now required to be reported in income tax expense rather than in additional paid-in capital. For the thirty-nine weeks ended September 24, 2017 , there is an immaterial tax effect reflected in income tax expense due to excess tax benefits related to share-based compensation. For the thirty-nine weeks ended September 25, 2016 , there is no tax effect reflected in additional paid-in capital due to excess tax benefits related to share-based compensation. See “Note 1. Description of Business and Basis of Presentation” for additional information.
The Company and its subsidiaries file a variety of consolidated and standalone income tax returns in various jurisdictions. In the normal course of business, our income tax filings are subject to review by various taxing authorities. In general, tax returns filed by our company and our subsidiaries for years prior to 2010 are no longer subject to examination by tax authorities.
The United States Fifth Circuit Court of Appeals rendered judgment in favor of the Company regarding the IRS’ amended proof of claim relating to the tax year ended June 26, 2004 for Gold Kist Inc. (“Gold Kist”). See “Note 17. Commitments and Contingencies” for additional information.
13.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plans. Expenses recognized under all of these retirement plans totaled $2.8 million

24



and $2.3 million in the thirteen weeks ended September 24, 2017 and September 25, 2016