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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 27, 2020
OR
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☐ | 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
PILGRIM’S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware | | 75-1285071 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
1770 Promontory Circle | | 80634-9038 |
Greeley | CO | | |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (970) 506-8000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol | | Name of Exchange on which Registered |
Common Stock, Par Value $0.01 | | PPC | | The Nasdaq Stock Market LLC |
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 every Interactive Data File required to be submitted 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 such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth 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.
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Large Accelerated Filer | ý | | Accelerated Filer | | ¨ |
Non-accelerated Filer | ¨ | | 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 October 28, 2020, was 243,553,038.
INDEX
PILGRIM’S PRIDE CORPORATION
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
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Item 6. | | |
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(Unaudited) |
|
| | September 27, 2020 | | December 29, 2019 |
| | | | |
| | (In thousands) |
Cash and cash equivalents | | $ | 768,031 | | | $ | 260,568 | |
Restricted cash and cash equivalents | | 17,105 | | | 20,009 | |
| | | | |
Trade accounts and other receivables, less allowance for doubtful accounts | | 706,123 | | | 741,281 | |
Accounts receivable from related parties | | 616 | | | 944 | |
Inventories | | 1,328,704 | | | 1,383,535 | |
Income taxes receivable | | 77,651 | | | 60,204 | |
Prepaid expenses and other current assets | | 159,643 | | | 131,695 | |
| | | | |
Total current assets | | 3,057,873 | | | 2,598,236 | |
Deferred tax assets | | 4,126 | | | 4,426 | |
Other long-lived assets | | 15,079 | | | 36,325 | |
Operating lease assets, net | | 284,820 | | | 301,513 | |
Identified intangible assets, net | | 566,696 | | | 596,053 | |
Goodwill | | 955,087 | | | 973,750 | |
Property, plant and equipment, net | | 2,585,818 | | | 2,592,061 | |
Total assets | | $ | 7,469,499 | | | $ | 7,102,364 | |
| | | | |
| | | | |
Accounts payable | | $ | 915,661 | | | $ | 993,780 | |
Accounts payable to related parties | | 5,752 | | | 3,819 | |
Revenue contract liability | | 57,221 | | | 41,770 | |
Accrued expenses and other current liabilities | | 691,329 | | | 575,319 | |
Income taxes payable | | — | | | 7,075 | |
Current maturities of long-term debt | | 25,485 | | | 26,392 | |
Total current liabilities | | 1,695,448 | | | 1,648,155 | |
Noncurrent operating lease liability, less current maturities | | 215,924 | | | 235,382 | |
Long-term debt, less current maturities | | 2,610,668 | | | 2,276,029 | |
Noncurrent income taxes payable | | 7,731 | | | 7,731 | |
Deferred tax liabilities | | 339,051 | | | 301,907 | |
Other long-term liabilities | | 169,365 | | | 97,100 | |
Total liabilities | | 5,038,187 | | | 4,566,304 | |
Common stock | | 2,612 | | | 2,611 | |
Treasury stock | | (342,698) | | | (234,892) | |
Additional paid-in capital | | 1,953,969 | | | 1,955,261 | |
Retained earnings | | 972,490 | | | 877,812 | |
Accumulated other comprehensive loss | | (165,520) | | | (75,129) | |
Total Pilgrim’s Pride Corporation stockholders’ equity | | 2,420,853 | | | 2,525,663 | |
Noncontrolling interest | | 10,459 | | | 10,397 | |
Total stockholders’ equity | | 2,431,312 | | | 2,536,060 | |
Total liabilities and stockholders’ equity | | $ | 7,469,499 | | | $ | 7,102,364 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
(Unaudited) |
| | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
| | (In thousands, except per share data) |
Net sales | | $ | 3,075,121 | | | $ | 2,777,970 | | | $ | 8,974,072 | | | $ | 8,345,730 | |
Cost of sales | | 2,761,279 | | | 2,495,773 | | | 8,363,272 | | | 7,476,731 | |
Gross profit | | 313,842 | | | 282,197 | | | 610,800 | | | 868,999 | |
Selling, general and administrative expense | | 219,554 | | | 94,032 | | | 404,837 | | | 264,313 | |
Administrative restructuring activity | | — | | | (20) | | | — | | | (90) | |
Operating income | | 94,288 | | | 188,185 | | | 205,963 | | | 604,776 | |
Interest expense, net of capitalized interest | | 30,564 | | | 32,028 | | | 95,575 | | | 99,184 | |
Interest income | | (1,763) | | | (4,698) | | | (4,611) | | | (11,481) | |
Foreign currency transaction loss (gain) | | 9,092 | | | 3,027 | | | (3,768) | | | 7,923 | |
Miscellaneous, net | | 360 | | | 1,367 | | | (33,873) | | | 2,521 | |
| | | | | | | | |
Income before income taxes | | 56,035 | | | 156,461 | | | 152,640 | | | 506,629 | |
Income tax expense | | 22,344 | | | 46,365 | | | 57,900 | | | 142,328 | |
Net income | | 33,691 | | | 110,096 | | | 94,740 | | | 364,301 | |
Less: Net income attributable to noncontrolling interests | | 245 | | | 331 | | | 62 | | | 457 | |
Net income attributable to Pilgrim’s Pride Corporation | | $ | 33,446 | | | $ | 109,765 | | | $ | 94,678 | | | $ | 363,844 | |
| | | | | | | | |
Weighted average shares of Pilgrim's Pride Corporation common stock outstanding: | | | | | | | | |
Basic | | 244,186 | | | 249,467 | | | 246,740 | | | 249,344 | |
Effect of dilutive common stock equivalents | | 190 | | | 262 | | | 158 | | | 308 | |
Diluted | | 244,376 | | | 249,729 | | | 246,898 | | | 249,652 | |
| | | | | | | | |
Net income attributable to Pilgrim's Pride Corporation per share of common stock outstanding: | | | | | | | | |
Basic | | $ | 0.14 | | | $ | 0.44 | | | $ | 0.38 | | | $ | 1.46 | |
Diluted | | $ | 0.14 | | | $ | 0.44 | | | $ | 0.38 | | | $ | 1.46 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited) |
| |
| | Three Months Ended | | Nine Months Ended |
| | September 27, 2020 | | September 29, 2019 | | September 27, 2020 | | September 29, 2019 |
| | (In thousands) |
Net income | | $ | 33,691 | | | $ | 110,096 | | | $ | 94,740 | | | $ | 364,301 | |
Other comprehensive income: | | | | | | | | |
Foreign currency translation adjustment: | | | | | | | | |
Gains (losses) arising during the period | | 66,626 | | | (50,213) | | | (48,921) | | | (50,824) | |
| | | | | | | |
Derivative financial instruments designated as cash flow hedges: | | | | | | | | |
Gains (losses) arising during the period | | 1,281 | | | (1,669) | | | 3,182 | | | (1,269) | |
Income tax effect | | 194 | | | — | | | 194 | | | — | |
Reclassification to net earnings for losses (gains) realized | | (1,619) | | | 247 | | | (1,039) | | | 74 | |
Available-for-sale securities: | | | | | | | | |
Gains (losses) arising during the period | | (8) | | | 312 | | | 6 | | | 506 | |
Income tax effect | | — | | | (76) | | | (4) | | | (123) | |
Reclassification to net earnings for gains realized | | (6) | | | (159) | | | (18) | | | (466) | |
Income tax effect | | 1 | | | 37 | | | 4 | | | 113 | |
Defined benefit plans: | | | | | | | | |
Losses arising during the period | | 1,250 | | | (5,231) | | | (43,711) | | | (9,202) | |
Income tax effect | | (10,094) | | | 1,142 | | | (930) | | | 2,240 | |
Reclassification to net earnings of losses realized | | 376 | | | 328 | | | 1,127 | | | 984 | |
Income tax effect | | (94) | | | (79) | | | (281) | | | (239) | |
Total other comprehensive income (loss), net of tax | | 57,907 | | | (55,361) | | | (90,391) | | | (58,206) | |
Comprehensive income | | 91,598 | | | 54,735 | | | 4,349 | | | 306,095 | |
Less: Comprehensive income attributable to noncontrolling interests | | 245 | | | 331 | | | 62 | | | 457 | |
Comprehensive income attributable to Pilgrim's Pride Corporation | | $ | 91,353 | | | $ | 54,404 | | | $ | 4,287 | | | $ | 305,638 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
(Unaudited) |
|
Nine Months Ended September 27, 2020 | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total |
| | Shares | | Amount | | Shares | | Amount | |
| | (In thousands) |
Balance at December 29, 2019 | | 261,119 | | | $ | 2,611 | | | (11,547) | | | $ | (234,892) | | | $ | 1,955,261 | | | $ | 877,812 | | | $ | (75,129) | | | $ | 10,397 | | | $ | 2,536,060 | |
Net income | | — | | | — | | | — | | | — | | | — | | | 94,678 | | | — | | | 62 | | | 94,740 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | (90,391) | | | — | | | (90,391) | |
Stock-based compensation plans: | | | | | | | | | | | | | | | | | | |
Common stock issued under compensation plans | | 66 | | | 1 | | | — | | | — | | | (1) | | | — | | | — | | | — | | | — | |
Requisite service period recognition | | — | | | — | | | — | | | — | | | (1,291) | | | — | | | — | | | — | | | (1,291) | |
Common stock purchased under share repurchase program | | — | | | — | | | (5,974) | | | (107,806) | | | — | | | — | | | — | | | — | | | (107,806) | |
| | | | | | | | | | | | | | | | | | |
Balance at September 27, 2020 | | 261,185 | | | $ | 2,612 | | | (17,521) | | | $ | (342,698) | | | $ | 1,953,969 | | | $ | 972,490 | | | $ | (165,520) | | | $ | 10,459 | | | $ | 2,431,312 | |
| | | | | | | | | | | | | | | | | | |
Three Months Ended September 27, 2020 | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total |
| | Shares | | Amount | | Shares | | Amount | |
| | (In thousands) |
Balance at June 28, 2020 | | 261,185 | | | $ | 2,612 | | | (15,668) | | | $ | (312,771) | | | $ | 1,958,727 | | | $ | 939,044 | | | $ | (223,427) | | | $ | 10,214 | | | $ | 2,374,399 | |
Net income | | — | | | — | | | — | | | — | | | — | | | 33,446 | | | — | | | 245 | | | 33,691 | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | 57,907 | | | — | | | 57,907 | |
Stock-based compensation plans: | | | | | | | | | | | | | | | | | | |
Common stock issued under compensation plans | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Requisite service period recognition | | — | | | — | | | — | | | — | | | (4,758) | | | — | | | — | | | — | | | (4,758) | |
Common stock purchased under share repurchase program | | — | | | — | | | (1,853) | | | (29,927) | | | — | | | — | | | — | | | — | | | (29,927) | |
Balance at September 27, 2020 | | 261,185 | | | $ | 2,612 | | | (17,521) | | | $ | (342,698) | | | $ | 1,953,969 | | | $ | 972,490 | | | $ | (165,520) | | | $ | 10,459 | | | $ | 2,431,312 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued) |
(Unaudited) |
|
Nine Months Ended September 29, 2019 | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total |
| | Shares | | Amount | | Shares | | Amount | |
| | (In thousands) |
Balance at December 30, 2018 | | 260,396 | | | $ | 2,604 | | | (11,431) | | | $ | (231,994) | | | $ | 1,945,136 | | | $ | 421,888 | | | $ | (127,834) | | | $ | 9,785 | | | $ | 2,019,585 | |
Net income | | — | | | — | | | — | | | — | | | — | | | 363,844 | | | — | | | 457 | | | 364,301 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | (58,206) | | | — | | | (58,206) | |
Stock-based compensation plans: | | | | | | | | | | | | | | | | | | |
Common stock issued under compensation plans | | 722 | | | 7 | | | — | | | — | | | (7) | | | — | | | — | | | — | | | — | |
Requisite service period recognition | | — | | | — | | | — | | | — | | | 7,322 | | | — | | | — | | | — | | | 7,322 | |
Common stock purchased under share repurchase program | | — | | | — | | | (116) | | | (2,898) | | | — | | | — | | | — | | | — | | | (2,898) | |
Balance at September 29, 2019 | | 261,118 | | | $ | 2,611 | | | (11,547) | | | $ | (234,892) | | | $ | 1,952,451 | | | $ | 785,732 | | | $ | (186,040) | | | $ | 10,242 | | | $ | 2,330,104 | |
| | | | | | | | | | | | | | | | | | |
Three Months Ended September 29, 2019 | | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total |
| | Shares | | Amount | | Shares | | Amount | |
| | (In thousands) |
Balance at June 30, 2019 | | 260,855 | | | $ | 2,609 | | | (11,547) | | | $ | (234,892) | | | $ | 1,950,348 | | | $ | 675,967 | | | $ | (130,679) | | | $ | 9,911 | | | $ | 2,273,264 | |
Net income | | — | | | — | | | — | | | — | | | — | | | 109,765 | | | — | | | 331 | | | 110,096 | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | — | | | (55,361) | | | — | | | (55,361) | |
Stock-based compensation plans: | | | | | | | | | | | | | | | | | | |
Common stock issued under compensation plans | | 263 | | | 2 | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | |
Requisite service period recognition | | — | | | — | | | — | | | — | | | 2,105 | | | — | | | — | | | — | | | 2,105 | |
Common stock purchased under share repurchase program | | — | | | — | | | | | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
Balance at September 29, 2019 | | 261,118 | | | $ | 2,611 | | | (11,547) | | | $ | (234,892) | | | $ | 1,952,451 | | | $ | 785,732 | | | $ | (186,040) | | | $ | 10,242 | | | $ | 2,330,104 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
| | | | | | | | | | | | | | |
PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
|
| | Nine Months Ended |
| | September 27, 2020 | | September 29, 2019 |
| | (In thousands) |
Cash flows from operating activities: | | | | |
Net income | | $ | 94,740 | | | $ | 364,301 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | |
Depreciation and amortization | | 248,641 | | | 210,381 | |
Deferred income tax expense | | 37,739 | | | 2,396 | |
Gain on property disposals | | (8,009) | | | (9,546) | |
Negative adjustment to previously recognized gain on bargain purchase | | 3,746 | | | — | |
Loan cost amortization | | 3,635 | | | 3,609 | |
Stock-based compensation | | (1,291) | | | 7,322 | |
Accretion of discount related to Senior Notes | | 737 | | | 737 | |
Amortization of premium related to Senior Notes | | (501) | | | (501) | |
Loss (gain) on equity-method investments | | 297 | | | (48) | |
Foreign currency transaction loss related to borrowing arrangements | | — | | | 1,259 | |
| | | | |
| | | | |
Changes in operating assets and liabilities: | | | | |
Trade accounts and other receivables | | 44,615 | | | (46,648) | |
Inventories | | 41,292 | | | (108,117) | |
Prepaid expenses and other current assets | | (29,290) | | | 3,536 | |
Accounts payable, accrued expenses and other current liabilities | | 93,114 | | | 67,308 | |
Income taxes | | (30,868) | | | 40,549 | |
| | | | |
Long-term pension and other postretirement obligations | | (823) | | | (1,578) | |
Other operating assets and liabilities | | 10,561 | | | 544 | |
Cash provided by operating activities | | 508,335 | | | 535,504 | |
Cash flows from investing activities: | | | | |
Acquisitions of property, plant and equipment | | (242,603) | | | (258,725) | |
Proceeds from property disposals | | 21,715 | | | 15,168 | |
Purchase of acquired business, net of cash acquired | | (4,216) | | | — | |
| | | | |
| | | | |
Cash used in investing activities | | (225,104) | | | (243,557) | |
Cash flows from financing activities: | | | | |
| | | | |
| | | | |
Proceeds from revolving line of credit and long-term borrowings | | 386,696 | | | 99,638 | |
Purchase of common stock under share repurchase program | | (107,806) | | | (2,898) | |
Payments on revolving line of credit, long-term borrowings and finance lease obligations | | (56,763) | | | (123,276) | |
Payment from equity distribution under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim’s Pride Corporation | | — | | | (525) | |
| | | | |
| | | | |
Payment of capitalized loan costs | | — | | | (652) | |
| | | | |
| | | | |
Cash provided by (used in) financing activities | | 222,127 | | | (27,713) | |
Effect of exchange rate changes on cash and cash equivalents | | (799) | | | (808) | |
Increase in cash, cash equivalents and restricted cash | | 504,559 | | | 263,426 | |
Cash, cash equivalents and restricted cash, beginning of period | | 280,577 | | | 361,578 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 785,136 | | | $ | 625,004 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
Business
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico and the Netherlands. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company’s primary distribution is through retailers, foodservice distributors and restaurants throughout the countries listed above. Additionally, the Company exports chicken and pork products to approximately 110 countries. Pilgrim’s fresh products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens, selected chicken parts that are either marinated or non-marinated, primary pork cuts, added value pork and pork ribs. The Company’s prepared 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, processed sausages, bacon, slow-cooked, smoked meat and gammon joints. The Company’s other products include ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts, pre-packed meats, sandwich, deli counter meats, pulled pork balls, meat balls and coated foods. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Mexico, France, Puerto Rico and the Netherlands. As of September 27, 2020, Pilgrim’s had approximately 55,400 employees. As of September 27, 2020, PPC had the capacity to process approximately 44.9 million birds per work week for a total of more than 13.2 billion pounds of live chicken annually. Approximately 4,800 contract growers supply chicken for the Company’s operations. As of September 27, 2020, PPC had the capacity to process approximately 44,000 pigs per week for a total of 423.6 million pounds of live pork annually and approximately 295 contract growers supply pork for the Company's operations. As of September 27, 2020, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owned 80.2% of the Company’s outstanding common stock.
Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated 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 nine months ended September 27, 2020 are not necessarily indicative of the results that may be expected for the year ending December 27, 2020. For further information, refer to the consolidated and combined financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 29, 2019.
The Company operates on the basis of a 52/53 week fiscal year ending on the Sunday falling on or before December 31. Any reference we make to a particular year (for example, 2020) in the notes to these Condensed Consolidated Financial Statements applies to our fiscal year and not the calendar year. The nine months ended September 27, 2020 represents the period from December 30, 2019 through September 27, 2020. The nine months ended September 29, 2019 represents the period from December 31, 2018 through September 29, 2019.
The Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation.
The Condensed Consolidated Financial Statements have been prepared in conformity with U.S. GAAP using management’s best estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. Significant estimates made by the Company include the allowance for doubtful accounts, reserves related to inventory obsolescence or valuation, useful lives of long-lived assets, goodwill, valuation of deferred tax assets, insurance accruals, valuation of pension and other postretirement benefits obligations, income tax accruals, certain derivative positions and valuations of acquired businesses.
The functional currency of the Company's U.S. and Mexico operations and certain holding-company subsidiaries in Luxembourg, the U.K. and Ireland is the U.S. dollar. The functional currency of its U.K. operations is the British pound. The functional currency of the Company's operations in France and the Netherlands is the euro. For foreign currency-denominated
entities other than the Company's Mexico operations, translation from local currencies into U.S. dollars is performed for most assets and liabilities using the exchange rates in effect as of the balance sheet date. Income and expense accounts are remeasured using average exchange rates for the period. Adjustments resulting from translation of these financial records are reflected as a separate component of Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. For the Company's Mexico operations, remeasurement from the Mexican peso to U.S. dollars is performed for monetary assets and liabilities using the exchange rate in effect as of the balance sheet date. Remeasurement is performed for non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Income and expense accounts are remeasured using average exchange rates for the period. Net adjustments resulting from remeasurement of these financial records, as well as foreign currency transaction gains and losses, are reflected in Foreign currency transaction loss (gain) in the Condensed Consolidated Statements of Income.
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 Balance Sheets to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | |
| | September 27, 2020 | | December 29, 2019 |
| | (In thousands) |
Cash and cash equivalents | | $ | 768,031 | | | $ | 260,568 | |
Restricted cash | | 17,105 | | | 20,009 | |
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows | | $ | 785,136 | | | $ | 280,577 | |
Recent Accounting Pronouncements Adopted as of September 27, 2020
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The adoption of this guidance did not have a material impact on our financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, new accounting guidance to improve the effectiveness of disclosures related to fair value measurements. The new guidance removes certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy along with the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements. Additions to the disclosure requirements include more quantitative information related to significant unobservable inputs used in Level 3 fair value measurements and gains and losses included in other comprehensive income. The adoption of this guidance did not have a material impact on our financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, new accounting guidance to improve the effectiveness of disclosures related to defined benefit plans by eliminating certain required disclosures, clarifying existing disclosures, and adding new disclosures. Changes include removing disclosures related to the amounts in accumulated other comprehensive income expected to be recognized in the next fiscal year, adding narrative disclosure of the reasons for significant gains and losses related to changes in the defined benefit obligation, and clarifying the disclosures required for plans with projected and accumulated benefit obligations in excess of plan assets. The adoption of this guidance did not have a material impact on our financial statements.
Recent Accounting Pronouncements Not Yet Adopted as of September 27, 2020
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which is intended to improve consistency and simplify several areas of existing guidance. ASU 2019-12 removes certain exceptions to the general
principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. We are currently evaluating the effect that the ASU 2019-12 will have on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to the application of current GAAP to existing contracts, hedging relationships and other transactions affected by reference rate reform. The new guidance will ease the transition to new reference rates by allowing entities to update contracts and hedging relationships without applying many of the contract modification requirements specific to those contracts. The provisions of the new guidance will be effective beginning March 12, 2020, extending through December 31, 2022 with the option to apply the guidance at any point during that time period. Once an entity elects an expedient or exception it must be applied to all eligible contracts or transactions. We currently have hedging transactions and debt agreements that reference LIBOR and will apply the new guidance as these contracts are modified to reference other rates.
2. BUSINESS ACQUISITIONS
Tulip Limited
On October 15, 2019, the Company acquired 100% of the equity of Tulip Limited and its subsidiaries (together, “Tulip”) from Danish Crown AmbA for £311.3 million, or $393.3 million. The acquisition was funded with cash on hand. Tulip, which has subsequently changed its name to Pilgrim's Pride Ltd. (“PPL”), is a leading, integrated prepared pork supplier headquartered in Warwick, U.K. The acquisition solidifies Pilgrim's as a leading European food company, creating one of the largest integrated prepared foods businesses in the U.K. The PPL operations are included in the Company’s U.K. and Europe reportable segment.
Through September 27, 2020, all transaction costs incurred in conjunction with this acquisition totaled approximately $1.4 million. These costs were expensed as incurred and are reflected within Selling, general and administrative expense in the Company’s Condensed Consolidated Statements of Income.
The results of operations of the acquired business since October 15, 2019 are included in the Company’s Condensed Consolidated Statements of Income. Net sales and net income generated by the acquired business during the three months ended September 27, 2020 totaled $341.8 million and $2.2 million, respectively. Net sales generated and net loss incurred by the acquired business during the nine months ended September 27, 2020 totaled $999.1 million and $0.3 million, respectively.
The assets acquired and liabilities assumed in the acquisition were measured at their fair values as of October 15, 2019 as set forth below. The excess of the fair values of the net tangible assets and identifiable intangible assets over the purchase price was recorded as gain on bargain purchase in the Company’s U.K. and Europe reportable segment. The fair values recorded were determined based upon various external and internal valuations. The fair values recorded for the assets acquired and liabilities assumed for PPL are as follows (in thousands):
| | | | | |
Cash and cash equivalents | $ | 6,854 | |
Trade accounts and other receivables | 146,423 | |
Inventories | 104,211 | |
Prepaid expenses and other current assets | 6,579 | |
Operating lease assets | 5,613 | |
Property, plant and equipment | 329,711 | |
Identified intangible assets | 40,418 | |
Other assets | 14,647 | |
Total assets acquired | 654,456 | |
Accounts payable | 110,296 | |
Other current liabilities | 55,830 | |
Operating lease liabilities | 5,613 | |
Deferred tax liabilities | 16,804 | |
Pension obligations | 18,435 | |
Other long-term liabilities | 1,056 | |
Total liabilities assumed | 208,034 | |
Total identifiable net assets | |