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Table of Contents    
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-K
 
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 2020
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
https://cdn.kscope.io/a649d52efbcacf813a8ffd233c1ebf2f-ppc-20201227_g1.jpg
https://cdn.kscope.io/a649d52efbcacf813a8ffd233c1ebf2f-ppc-20201227_g2.jpg
PILGRIM’S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware75-1285071
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1770 Promontory Circle80634-9038
GreeleyCO
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code: (970506-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per sharePPCThe Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x No  o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  o No  x
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  x    No  o
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  x    No  o
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.
Large Accelerated FilerxAccelerated Filer o
Non-accelerated Filer
o 
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No  x
The aggregate market value of the registrant’s Common Stock, $0.01 par value, held by non-affiliates of the registrant as of June 28, 2020 was $824,401,315. The number of shares of the registrant’s Common Stock outstanding as of February 10, 2021 was 243512490 .
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’s Proxy Statement for the 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this annual report.


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PILGRIM’S PRIDE CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART IPage
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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PART I
Forward Looking Statements and Explanatory Note
This annual report contains, and management may make, certain “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project,” “imply,” “intend,” “should,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks and uncertainties. Such risks and uncertainties include those described under “Risk Factors” below and elsewhere in this annual report. Actual results could differ materially from those expressed in, or implied or projected by these forward-looking statements as a result of these risks and uncertainties, many of which are difficult to predict and beyond our control. The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made, and the Company undertakes no obligation to update its forward-looking statements. The risks described in this annual report are not the only risks we face, and additional risks and uncertainties may impair our business operations. The occurrence of any one or more of the factors described herein or other currently unknown factors could materially adversely affect our business and operating results.
Item 1. Business
Company Overview
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is primarily engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken and pork products to retailers, distributors and foodservice operators. JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owns 80.26% of our outstanding common stock.
We market our balanced portfolio of fresh, prepared and value-added meat products to a diverse set of over 6,100 customers across the U.S., the U.K. and Europe, Mexico and in approximately 115 other countries. Our sales efforts are largely targeted towards the foodservice industry, principally chain restaurants and food processors, such as Chick-fil-A® and retail customers, including grocery store chains and wholesale clubs, such as Kroger®, Costco®, Publix® and H-E-B® in the U.S., chain restaurants such as McDonald’s® and grocery store chains such as Tesco and Waitrose in the U.K. and Europe, and grocery store chains such as Wal-Mart® in Mexico.
As a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service. Our plants are strategically located to ensure that customers timely receive fresh products. With our global network of approximately 5,100 growers, 39 feed mills, 48 hatcheries, 39 processing plants, 27 prepared foods cook plants, 25 distribution centers, ten rendering facilities and four pet food plants, we believe we are well-positioned to supply the growing demand for our products.
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 for cash. 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. This 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 our U.K. and Europe reportable segment.
In 2017, we acquired (1) Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”), which 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 and (2) JFC LLC and its subsidiaries (together, “GNP”), a vertically integrated poultry business that was based in Saint Cloud, Minnesota. Moy Park is included in our U.K. and Europe reportable segment and GNP is included in our U.S. reportable segment. In 2015, we acquired (3) Provemex Holdings, LLC and its subsidiaries (together, “Tyson Mexico”), a vertically integrated poultry business based in Gómez Palacio, Durango, Mexico. Tyson Mexico is included in our Mexico reportable segment.
We operate on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. Any reference we make to a particular year, for example, 2020, applies to our fiscal year and not the calendar year. Fiscal 2020 was a 52-week fiscal year.
Reportable Segments
We operate in three reportable segments: U.S., U.K. and Europe, and Mexico. We either produce or purchase for resale chicken and pork products through our operations in the U.S., the U.K. and continental Europe, and Mexico. We conduct separate operations in the U.S., the U.K., continental Europe, Puerto Rico and Mexico; however, for geographic reporting
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purposes, we include Puerto Rico with our U.S. operations. See “Note 19. Reportable Segments” of our Consolidated Financial Statements included in this annual report for additional information.
Products and Markets
Fresh Chicken and Pork Overview. Our fresh products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated, frozen whole chickens, breast fillets, mini breast fillets and prepackaged case-ready chicken, primary pork cuts, added value pork and pork ribs. Our case-ready chicken includes various combinations of freshly refrigerated, whole chickens, chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer’s fresh meat counter. Additionally, we are an important player in the live market in Mexico. In 2020, our fresh chicken sales accounted for 85.7%, 46.9%, and 94.8% of our total U.S., U.K. and Europe, and Mexico chicken sales, respectively. In 2020, our fresh pork sales accounted for 56.8% of our total U.K. and Europe pork sales.
Prepared Chicken and Pork Overview. Our prepared chicken products include portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties and bone-in chicken parts. These products are sold either refrigerated or frozen and may be fully cooked, partially cooked or raw. In addition, these products are breaded or non-breaded and either pre-marinated or non-marinated. Our prepared pork includes processed sausages, bacon, slow cooked, smoked meat, gammon joints, ready-to-cook variety of meat products, pre-packed meats, sandwich and deli counter meats, pulled pork balls, meatballs and coated foods. In 2020, our prepared chicken products sales accounted for 10.0%, 40.8%, and 5.2% of our total U.S., U.K. and Europe, and Mexico chicken sales, respectively. In 2020, our prepared pork products sales accounted for 37.8% of our total U.K. and Europe pork sales.
Exported Chicken and Pork Overview. Exported chicken and pork products primarily consist of whole chickens and chicken parts sold either refrigerated for distributors in the U.S. or frozen for distribution to export markets and primary pork cuts, hog heads and trotters frozen for distribution to export markets. In 2020, our export chicken products sales accounted for 4.3% and 12.3% of our total U.S. and U.K. and Europe chicken sales, respectively. In 2020, our export pork products sales accounted for 5.5% of our total U.K. and Europe pork sales.
Market Overview. Our foodservice market principally consists of chain restaurants, food processors, broad-line distributors and certain other institutions. Our retail market consists primarily of grocery store chains, wholesale clubs and other retail distributors. Our export market consists primarily of customers who purchase for distribution in the U.S., U.K. and continental Europe, or for export to Mexico, the Middle East, Asia, and other international markets.
Net Sales for Primary Product Lines and Markets
The following table sets forth, for the periods beginning with 2018, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types.
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Year Ended
December 27, 2020December 29, 2019December 30, 2018
(In thousands)
U.S. chicken:
Fresh$6,137,265 $6,214,954 $5,959,458 
Prepared714,563 842,365 773,983 
Export306,478 282,791 258,732 
Total U.S. chicken7,158,306 7,340,110 6,992,173 
U.K. and Europe chicken:
Fresh863,670 918,852 925,124 
Prepared751,196 817,292 865,864 
Export227,224 262,041 303,921 
Total U.K. and Europe chicken1,842,090 1,998,185 2,094,909 
Mexico chicken:
Fresh1,210,952 1,245,976 1,252,403 
Prepared66,572 95,733 76,860 
Total Mexico chicken1,277,524 1,341,709 1,329,263 
Total chicken10,277,920 10,680,004 10,416,345 
U.K. and Europe pork:
Fresh730,703 135,985 — 
Prepared486,290 134,426 — 
Export70,190 16,174 — 
Total U.K. and Europe pork1,287,183 286,585 — 
Other products:
U.S.337,711 296,606 433,488 
U.K. and Europe145,019 99,023 53,757 
Mexico44,068 47,001 34,194 
Total other products526,798 442,630 521,439 
Total net sales$12,091,901 $11,409,219 $10,937,784 
Raw Materials
Grains. The Company utilizes various raw materials in its operations, including corn, soybean meal and wheat, along with various other ingredients from which the Company produces its own formulated feeds. In 2020, corn, soybean meal and wheat accounted for approximately 41.0%, 35.9% and 5.8% of our feed costs, respectively. The production of feed ingredients is positively or negatively affected primarily by the global level of supply inventories, demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. We attempt to mitigate the impact of price volatility on our profitability by decreasing the amount of our products that are sold under longer term fixed-price contracts, broadening our product portfolio and expanding the variety of contracts within our book of business. To also manage this risk, we purchase derivative financial instruments. The Company has long standing relationships with its sources of grain and other feed ingredients and expects to have an adequate supply for its present needs.
Live chicks. The Company’s chicken operations purchase one-day old chicks from a few major breeders. These chicks, when mature, serve as the grandparent and parent stock of the broilers that these operations process for consumption. Should breeder stock from its present suppliers not be available for any reason, the Company believes that it could obtain adequate breeder stock from other suppliers in the regions in which it operates.
Live pigs. The Company’s pork operations maintain a pig production base that makes up approximately 65% of the total number of pigs processed by the Company each year. Additionally, the Company’s pork operations procure live pigs for slaughter within a few days of purchase from numerous independent farmers throughout the U.K. Live pigs sourced from independent farmers make up approximately 35% of the total number of pigs processed by the Company each year. Although we generally expect adequate supply of live pigs in the U.K., there may be periods of imbalance in supply and demand.
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Trademarks
We own registered trademarks which are used in connection with our activity in our business. The trademarks are important to the overall marketing and branding of our products. All major trademarks in our business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks. As long as the Company continues to use its trademarks, they are renewed indefinitely. Some of the more significant owned or licensed trademarks used by the Company or its affiliates are Pilgrim’s®, Just BARE®, Gold’n Pump®, Gold Kist®, County Pride Chicken®, Pierce Chicken®, Pilgrim’s® Mexico, County Post®, Savoro, To-Ricos, Del Dia®, Moy Park, and O’Kane.
Seasonality
The demand for our chicken products generally is greatest during the spring and summer months and lowest during the winter months. The demand for our pork products generally is higher during the summer and peaks during the winter primarily due to the holiday season.
Key Customers
Our two largest customers accounted for approximately 13.1% and 12.9% of our net sales in 2020 and 2019, respectively. No single customer accounted for ten percent or more of our net sales in either 2020 or 2019.
Competition
The chicken and pork industry in the U.S., the U.K., continental Europe and Mexico is highly competitive. The competitive factors in our business include price, product quality, product development, brand identification, breadth of product line and customer service. We believe that being a vertically integrated chicken company and having a fully integrated supply chain in the pork business provides us with long-term cost and quality advantages over non-vertically integrated and other processors. We utilize numerous advertising and marketing techniques to develop and strengthen trade and consumer awareness and increase brand loyalty for consumer products. We believe our efforts to achieve and maintain brand awareness and loyalty help to achieve greater price premiums than would otherwise be the case in certain markets and support and expand our product distribution. We actively seek to identify and address consumer preferences by using sophisticated qualitative and quantitative consumer research techniques in key geographic markets to discover and validate new product ideas, packaging designs and methods. Although poultry and pork are relatively inexpensive in comparison with other meats, we compete indirectly with the producers of other meats and fish, since changes in the relative prices of these foods may alter consumer buying patterns.
Regulation and Environmental Matters
The poultry and pork industries are subject to government regulation, particularly in the health, workplace safety and environmental areas, including provisions relating to the discharge of materials into the environment, treatment and disposal of agricultural and food processing wastes, the use and maintenance of refrigeration systems, ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment and other operations, storm water, air emissions, treatment, storage and disposal of wastes, handling of hazardous substances and remediation of contaminated soil, surface water and groundwater, by the Centers for Disease Control, the United States Department of Agriculture (“USDA”), the Food and Drug Administration (“FDA”), the Environmental Protection Agency (“EPA”), the Occupational Safety and Health Administration and state and local regulatory authorities in the U.S. and by similar governmental agencies in the U.K., continental Europe and Mexico. Our chicken processing facilities in the U.S. are subject to on-site examination, inspection and regulation by the USDA. The FDA inspects the production of our feed mills in the U.S. Our food processing facilities and feed mills in the U.K., continental Europe and Mexico are subject to on-site examination, inspection and regulation by government agencies that perform functions similar to those performed by the USDA and FDA.
The EPA, environmental authorities in the U.K., continental Europe and Mexico, and/or other U.S. or Mexican state and local authorities may, from time to time, adopt revisions to environmental rules and regulations, and/or changes in the terms and conditions of our environmental permits, with which we must comply. Compliance with existing or new environmental requirements, including more stringent limitations imposed or expected in recently-renewed or soon-to be renewed environmental permits, may require capital expenditures and operating expenses which may be significant.
In the U.K., all Moy Park poultry farms which exceed a threshold size of 40,000 birds placed are required to carry out activities in compliance with their environmental permits and they must use Best Available Techniques in order to achieve a high level of environmental protection. PPL’s sites are independently audited and certified by the British Retail Consortium standard. Many of PPL’s sites are certified by additional and traceability schemes including Royal Society for the Prevention of Cruelty to Animals Assured, Soil Association, Organic Farmers and Growers and Assured Food Standards.
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Human Capital Resources
As of December 27, 2020, we employed approximately 30,900 persons in the U.S., approximately 10,500 persons in Mexico and approximately 15,000 persons in the U.K. and Europe. Our success is largely dependent on the skills, experience and efforts of our employees. We rely on an adequate number of skilled employees to serve in critical production roles, such as processing workers and operations supervisors. In managing our business, we focus on a number of human capital measures or objectives, which are rooted in our core values and include the following items:
Health and Safety. A core tenet of our Company is the promotion of a healthy and safe working environment. Key examples of our focus and commitment include:
We conduct safety audits of all facilities on an annual basis. These audits include auditing the physical state of the plant, policies, safety culture and our occupational health clinics.
We engage with our team members through the use of safety committees and other safety initiatives to improve the overall safety of the workplace and advance a safety first culture.
We seek to control ergonomic risks and prevent injuries by conducting focused annual ergonomic and physical hazard assessment at all facilities.
Our efforts have resulted in year-over-year reductions in severe injuries, total recordable incident rate, lost time incident rate and days away restricted or transferred of 12%, 22%, 7% and 19%, respectively.
As discussed in “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19,” we have implemented and continue to implement numerous health and safety policies and procedures focused on reducing the spread of novel coronavirus (“COVID-19”) and protecting our facility workers from risks of illness while maintaining our business continuity.
Diversity and Inclusion. We believe that promoting diversity and inclusion among our workforce helps to create a trusting and productive workplace. We encourage the management teams at each facility to hire from the local regions in which they are located. In addition:
Our Equal Employment Opportunity Policy (“EEO Policy”) affirms our commitment to employ and support employees of all races, religions, colors, national origins, sexes, sexual orientations, gender identities and ages. Through the EEO Policy, we have been involved in diversity hiring initiatives and partnered with universities with an aim of recruiting from a diverse talent pool.
We track our progress in our efforts to promote diversity and inclusion. For example, in 2019, women comprised 43%, 37% and 35% of our total workforce in the U.S., the U.K. and Europe, and Mexico, respectively, and 68% of our total workforce in the U.S. were minorities.
Our management team members are expected to attend People First leadership training, which includes a model dedicated to training and awareness on diversity and inclusion.
We provide workshops on diversity and inclusion for our employees and we engage in targeted recruitment at 20 of the nation’s largest historically black colleges and universities.
Retention and Career Development. We are committed to retaining talented employees at both production and management levels by offering competitive compensation and benefits, as well as leadership training and development opportunities.
We strive to provide competitive pay to our team members and reward top performers. Our benefits offerings include a minimum paid time off and paid sick leave for salaried employees, life and disability insurance and Company-matching retirement plans.
We have extensive leadership training programs, such as our Summit Program, designed to improve the skill set of our senior leadership, and our Supervisor Development Program, created to help identify and develop production workers into frontline supervisors. We have found that recognizing our employees’ efforts through training for continued advancement strengthens their performance and helps with our goals to achieve business results. Our employees completed over 390,000 training hours during 2019 and over 330,000 training hours during 2020 for our career development programs.
Community Support. We are focused on supporting the communities in which we operate and serve.
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Hometown Strong Initiative. During 2020, we launched our Hometown Strong initiative to help the communities in which we operate respond to the unexpected challenges on society, such as the COVID-19 pandemic. We believe the Hometown Strong initiative will provide consequential investment projects and help them prepare for unanticipated challenges and build for the future. For 2020, we committed to Hometown Strong donations of $20.0 million and during the year ended December 27, 2020 we recorded $15.0 million in incremental donations expense relating to this initiative.
Tomorrow Fund. During 2019, we launched the Tomorrow Fund, a scholarship program designed to support the collegiate scholastic pursuits of our employees and their direct dependents. The Tomorrow Fund awards certain employees scholarships to an eligible university of their choice.
Employee Relations. We respect our team members’ rights of association, including by joining labor unions and collective bargaining. Approximately 35.2% of our workforce are covered by a collective bargaining agreement. For additional information, see “Item 1A. Risk Factors - Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.”
Available Information
The Company’s website is www.pilgrims.com. The Company makes available, free of charge, through its website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, directors and officers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC. The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at http://ir.pilgrims.com. Information contained on the Company’s website is not included as part of, or incorporated by reference into, this annual report.
Information about our Executive Officers
NameAgeBackground and ExperienceDates
Fabio Sandri49President and Chief Executive OfficerSeptember 2020 to Present
Chief Financial OfficerJune 2011 to Present
Fabio Sandri was named the Chief Executive Officer in September 2020 and has served as our Chief Financial Officer since June 2011. From April 2010 to June 2011, Mr. Sandri served as the Chief Financial Officer of Estacio Participações, the private post-secondary educational institution in Brazil. From November 2008 until April 2010, he was the Chief Financial Officer of Imbra SA, a provider of dental services based in Sao Paolo, Brazil. Commencing in 2005 through October 2008, he was employed by Braskem S.A., a New York Stock Exchange-listed petrochemical company headquartered in Camaçari, Brazil, first from 2005 to 2007 as its strategy director, then from 2007 until his departure as its corporate controller. He earned his Masters in Business Administration in 2001 from the Wharton School at the University of Pennsylvania and a degree in electrical engineering in 1993 from Escola Politécnica da Universidade de São Paulo.
Item 1A. Risk Factors
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this annual report on Form 10-K. Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance. While we believe we have identified and discussed below all risk factors affecting our business that we believe are material, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future.
Business and Operational Risk Factors
The COVID-19 pandemic and its impact on business and economic conditions have negatively affected, and could continue to negatively affect our business, results of operations, financial condition and the trading value of our securities.
The outbreak of COVID-19, which surfaced in Wuhan, China in December 2019, has since been declared a global pandemic. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other
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jurisdictions have imposed a number of measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations and extended closures of businesses. On April 28, 2020, an executive order designated meat and poultry processing plants as critical infrastructure.
The COVID-19 outbreak has had, and a continuing outbreak or future outbreaks are likely to have, numerous adverse effects on our business and operations. As of February 10, 2021, all of our 60 production facilities are operating, although some facilities have reduced production levels and outputs due to increased health and safety measures and the decline in demand by restaurants and other foodservice businesses. There can be no assurance that the health and safety measures we have taken (which include adding temperature and symptom screening stations for employees prior to entering our facilities and increasing physical distancing of our employees) will eradicate the risks associated with working in a critical infrastructure industry, including but not limited to, infection of our employees or the temporary closure of a facility, which could, in turn, have a material adverse impact on our reputation, business, results of operations and financial condition.
We have and may continue to experience decreased production and sales due to the changing demand for food products. COVID-19 and the implementation of restricted living have led to a shift in demand from restaurants to retail grocery stores, with consumers eating more at home due to stay-at-home orders. In our U.S. and Mexico businesses, demand for parts and whole-birds (typically bound for restaurants) and prepared foods (distributed, in part, to schools) has declined, while our U.K. and European business, which is more retail focused, has generally seen less of an impact. Although we have taken and continue to take steps to shift our production and meet this changing demand, we may be unable to effectively implement our plans to adjust our supply of products, which could materially adversely impact our business and results of operations.
Our brand or reputation could be negatively impacted. The meat production industry has recently been the focus of negative press reports in light of the spread of COVID-19 at certain companies’ facilities. Although we have not been the focus of such reports, our brand or reputation could be negatively impacted by such reports.
In addition to the risks described above, the COVID-19 pandemic could have additional adverse effects on our business and financial condition, including, but not limited to, the following:
a significant increase in the cost or the difficulty to obtain debt or equity financing, or to refinance our debt in the future, or the risk that we may be unable to meet the requirements of the covenants in our existing credit facilities, which could negatively affect our liquidity position and our ability to fund operations or future investment opportunities;
an impairment in the carrying value of goodwill or intangible assets or a change in the useful life of definite-lived intangible assets;
significant volatility or decline in the trading price of our securities; and
our inability to execute strategic business activities including acquisitions and divestiture.
The situation surrounding COVID-19 remains fluid and the full extent to which the COVID-19 pandemic will negatively affect our results of operations, financial condition and cash flows will depend on future development in the countries where we operate, including the U.S., the U.K. and Mexico. Therefore, it is difficult to predict with certainty the full potential impact of the virus on the Company’s business, operations and financial condition.
Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients, chicken and pork.
Profitability in the chicken and pork industries is materially affected by the commodity prices of feed ingredients and the market prices of chicken and pork, which are determined by supply and demand factors. As a result, the chicken and pork industries are subject to cyclical earnings fluctuations.
The price of feed ingredients is positively or negatively affected primarily by the global level of supply inventories and demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. In particular, weather patterns often change agricultural conditions in an unpredictable manner. A significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens and pigs or deliver products. We have recently benefited from low market prices for feed ingredients, but market prices for feed ingredients remain volatile. Consequently, there can be no assurance that the price of grains will not rise as a result of, among other things, increasing demand for these products around the world and alternative uses of these products, such as ethanol and biodiesel production.
Volatility in feed ingredient prices has had, and may continue to have, a materially adverse effect on our operating results, which has resulted in, and may continue to result in, additional noncash expenses due to impairment of the carrying amounts of certain of our assets. We periodically seek, to the extent available, to enter into advance purchase commitments or
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financial derivative contracts for the purchase of feed ingredients in an effort to manage our feed ingredient costs. The use of these instruments may not be successful. In addition, we have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase exposures as cash flow hedges. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Unexpected changes in the fair value of these instruments could adversely affect the results of our operations. Although we attempt to mitigate the impact of feed price volatility on our profitability by decreasing the amount of our products that are sold under longer term fixed-price contracts, these changes will not eliminate the impact of changes in feed ingredient prices on our profitability and would prevent us from profiting on such contracts during times of declining market prices for chicken and/or pork.
Outbreaks of livestock diseases in general and poultry and pig diseases in particular, including avian influenza and African swine fever, can significantly and adversely affect our ability to conduct our operations and the demand for our products.
We take precautions designed to ensure that our flocks and herds are healthy and that our processing plants and other facilities operate in a sanitary and environmentally-sound manner. However, events beyond our control, such as the outbreaks of disease, either in our own flocks and herds or elsewhere, could significantly affect the demand for our products or our ability to conduct our operations. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our fresh chicken, fresh pork or other products to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks or herds. This could also result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation and prospects.
There have been recent outbreaks of both high- and low-pathogenic strains of avian influenza in the U.S., and in Mexico outbreaks of both high and low-pathogenic strains of avian influenza are a fairly common occurrence. Historically, the outbreaks of low pathogenic strains of avian influenza have not generated the same level of concern, or received the same level of publicity or been accompanied by the same reduction in demand for poultry products in certain countries as that associated with highly pathogenic strains such as HPAI H5 and H7N3 or highly infectious strains such as H7N9. Even if no further highly pathogenic or highly contagious strains of avian influenza are confirmed in the U.S., the U.K. or Mexico, there can be no assurance that outbreaks of these strains in other countries will not materially adversely affect international demand for poultry produced in our operating countries, and, if any of these strains were to spread to the U.S., the U.K. or Mexico, there can be no assurance that it would not significantly affect our ability to conduct our operations and/or demand for our products, in each case in a manner having a material adverse effect on our business, reputation and/or prospects.
The outbreak of African swine fever in China and its spread across the world has had a significant effect on both the global supply of pork and on pork prices. Given its island status, the U.K. has an element of built-in biosecurity, but there are risks, mainly as a result of human movement of infected meat from the European Union. The National Pig Association and the British Meat Processors Association are pressing the U.K. government to increase the level of communication to travelers of the risks. The Company’s own pig production is geographically dispersed. In the event of an outbreak of African Swine Fever in the U.K., we believe the Company’s risks are limited to infection. However, there can be no assurance that it would not significantly affect our ability to conduct our operations and/or demand for our products, in each case in a manner having a material adverse effect on our business, reputation and/or prospects.
If our products become contaminated, we may be subject to product liability claims and product recalls. Such product liability claims or product recalls can adversely affect our business reputation, expose us to increased scrutiny by federal and state regulators and may not be fully covered by insurance.
Poultry and pork products may be subject to contamination by disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella, generic E.coli, Yersinia enterocolitica and Staphylococcus aureus. These pathogens are generally found in the environment and there is a risk that, as a result of food processing, they could be present in our processed poultry products. These pathogens can also be introduced as a result of improper handling at the further processing, foodservice or consumer level. These risks may be controlled, although not eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling once the product has been shipped. Illness and death may result if the pathogens are not eliminated at the further processing, foodservice or consumer level. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation and prospects. The packaging, marketing and distribution of food products entail an inherent risk of product liability and product recall and the resultant adverse publicity. We may be subject to significant liability if the consumption of any of our products causes injury, illness or death.
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We could be required to recall certain products in the event of contamination or damage to the products. In addition to the risks of product liability or product recall due to deficiencies caused by our production or processing operations, we may encounter the same risks if any third party tampers with our products. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future. Any claims that may be made may create adverse publicity that would have a material adverse effect on our ability to market our products successfully or on our business, reputation, prospects, financial condition and results of operations. If our products become contaminated, spoiled, are tampered with or are mislabeled, we may be subject to product liability claims and product recalls. A widespread product recall could result in significant losses due to the cost of a recall, the destruction of product inventory and lost sales due to the unavailability of product for a period of time. Such a product recall also could result in adverse publicity, damage to our reputation and a loss of consumer confidence in our products, which could have a material adverse effect on our business results.
We currently maintain insurance with respect to certain of these risks, including product liability insurance, business interruption insurance and general liability insurance, but in many cases such insurance is expensive, difficult to obtain and no assurance can be given that such insurance can be maintained in the future on acceptable terms, or in sufficient amounts to protect us against losses due to any such events, or at all. Moreover, even though our insurance coverage may be designed to protect us from losses attributable to certain events, it may not adequately protect us from liability and expenses we incur in connection with such events.
Our foreign operations and commerce in international markets pose special risks to our business and operations.
We have significant operations and assets located in Mexico, the U.K. and continental Europe and may participate in or acquire operations and assets in other foreign countries in the future. Foreign operations are subject to a number of special risks such as currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and changes in laws and policies, including tax laws and laws governing foreign-owned operations. Currency exchange rate fluctuations have adversely affected us in the past. Exchange rate fluctuations or one or more other risks may have a material adverse effect on our business or operations in the future. Our operations in Mexico, the U.K. and continental Europe are conducted through subsidiaries organized under non-U.S. laws. Claims of creditors of our subsidiaries, including trade creditors, will generally have priority as to the assets of our subsidiaries over our claims. Additionally, the ability of these subsidiaries to make payments and distributions to us can be limited by terms of subsidiary financing arrangements and will be subject to, among other things, the laws applicable to these subsidiaries. In the past, these laws have not had a material adverse effect on the ability of these subsidiaries to make these payments and distributions. However, laws such as these may have a material adverse effect on the ability of these subsidiaries to make these payments and distributions in the future.
To conduct our operations, we regularly move data across national borders (including data related to business, financial, marketing and regulatory matters) and must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. For example, in 2018, the European Union (the “EU”) recently commenced enforcement of the General Data Protection Regulation (the “GDPR”). The GDPR imposes significant additional compliance obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. The GDPR grants enforcement powers to certain EU regulators including extra-territorial powers in some cases. These enforcement powers enable regulators to conduct investigations and dawn raids, to issue penalties up to the greater of €20 million or 4% of worldwide turnover for the most serious violations, and to require changes to the way that organizations (including the Company) use personal data. Due to the geographic scope of our operations, the GDPR may increase our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional mechanisms to minimize the risk of non-compliance with applicable privacy laws and regulations. Compliance with existing, proposed and recently enacted laws and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks including proceedings against the Company by governmental entities or others, fines and penalties, damage to our reputation and credibility and could have a negative impact on our business and results of operations.
Historically, we have targeted international markets to generate additional demand for our products. In particular, given the general preference for white chicken meat by U.S. and U.K. consumers, we have targeted international markets for the sale of dark chicken meat and parts, such as chicken paws, which are generally not consumed in the U.S. or U.K. We have also targeted international markets for excess primary pork cuts and parts, such as hog heads and trotters, which are generally not consumed in the U.K. As part of this initiative, we have created a significant international distribution network into several markets in Mexico, the Middle East and Asia. Our success in these markets may be, and our success in recent periods has been, adversely affected by disruptions in export markets. A significant risk is disruption due to import restrictions and tariffs, other trade protection measures, and import or export licensing requirements regarding food products imposed by foreign countries. Significant political or regulatory developments in the jurisdictions in which we sell our products, such as those stemming from the presidential administration in the United States, are difficult to predict and may have a material adverse effect on us. For
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example, the implementation of new tariff schemes by various governments, such as those implemented by the United States and China in recent years, could increase the costs of our operations and ultimately increase the cost of products sold from one country into another country. In addition, disruptions may be caused by outbreaks of diseases, either in our flocks and herds or elsewhere in the world, and resulting changes in consumer preferences. One or more of these or other disruptions in the international markets and distribution channels could adversely affect our business.
Competition in the chicken and pork industries with other vertically integrated chicken or pork companies may make us unable to compete successfully in this industry, which could adversely affect our business.
Both the chicken and pork industries are highly competitive. In the U.S., Mexico, the U.K. and continental Europe, we primarily compete with other vertically integrated chicken and pork companies. In general, the competitive factors in these industries include price, product quality, product development, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the foodservice market, competition is based on consistent quality, product development, service and price. In the U.S. retail market, competition is based on product quality, brand awareness, customer service and price. Further, there is some competition with non-vertically integrated further processors in the prepared chicken business. In the Mexico retail and foodservice markets, where product differentiation has traditionally been limited, product quality and price have been the most critical competitive factors. In the U.K. and continental Europe retail and food service markets, key competitive factors include price, delivering consistent levels of the highest quality, service level and delivering strong innovation. The fresh U.K. and continental Europe market is almost exclusively retailer private label. The U.K. fresh market is almost exclusively sourced from within the U.K., making vertical integration a prerequisite for operating in that market. The U.K. prepared foods market is less exclusively sourced from within the U.K. so vertical integration is less of a consideration and competition is opened up to other processors, some of whom produce or source from abroad. Our success depends in part on our ability to manage costs and be efficient in the highly competitive poultry and pork industries, and our failure to manage costs and be efficient could materially and adversely affect our business, financial condition and results of operations.
Media campaigns related to food production and regulatory and customer focus on environmental, social and governance responsibility could expose us to additional costs or risks.
Individuals or organizations can use social media platforms to publicize inappropriate or inaccurate stories or perceptions about the food production industry or our company. Such practices could cause damage to the reputations of our company and/or the food production industry in general. This damage could adversely affect our financial results. In addition, regulators, stockholders, customers and other interested parties have focused increasingly on the environmental, social and governance practices of companies. This has led to an increase in regulations and may continue to cause us to be subject to additional regulations in the future. Our customers or other interested parties may also require us to implement certain environmental, social or governance procedures or standards before doing or continuing to do business with us. This increased attention on environmental, social and governance practices could cause us to incur additional compliance costs, divert management attention from operating our business, impair our access to capital among certain investors and subject us to litigation risk for disclosures we make and practices we adopt regarding these issues. This in turn could have a material adverse effect on our business, financial condition and results of operations.
We are increasingly dependent on information technology, and our business and reputation could suffer if we are unable to protect our information technology systems against, or effectively respond to, cyber-attacks, other cyber incidents or security breaches or if our information technology systems are otherwise disrupted.
The proper functioning of our information systems is critical to the successful operation of our business. We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information, to manage a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements. We also depend on our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers, and suppliers. Although our information systems are protected with robust backup systems, including physical and software safeguards and remote processing capabilities, information systems are still vulnerable to cyber-attacks, natural disasters, power losses, unauthorized access, telecommunication failures, and other problems. In addition, certain software used by us is licensed from, and certain services related to our information systems are provided by, third parties who could choose to discontinue their relationship with us. If critical information systems fail or these systems or related software or services are otherwise unavailable, our ability to process orders, maintain proper levels of inventories, collect accounts receivable, pay expenses, and maintain the security of Company and customer data could be adversely affected. Cyber-attacks and other cyber incidents are occurring more frequently and are constantly evolving in nature and sophistication. We have experienced and expect to continue to experience actual or attempted cyber-attacks of our information technology systems or networks. However, none of these actual or attempted cyber-attacks has had a material effect on our operations or financial condition. Our failure to maintain our cyber-security measures and keep abreast of new and
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evolving threats may make our systems vulnerable. The potential consequences of a material cyber-security incident include reputational damage, litigation with third parties, regulatory actions, disruption of plant operations, and increased cyber-security protection and remediation costs. There can be no assurance that we will be able to prevent all of the rapidly evolving forms of increasingly sophisticated and frequent cyber-attacks. Moreover, our efforts to address network security vulnerabilities may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which would cause harm to our business operations. The vulnerability of our systems and our failure to identify or respond timely to cyber incidents could have an adverse effect on our operations and reputation and expose us to liability or regulatory enforcement actions.
Our operations are subject to general risks of litigation.
We are involved on an ongoing basis in litigation relating to alleged antitrust violations or arising in the ordinary course of business or otherwise. Trends in litigation may include class actions involving consumers, shareholders, employees or injured persons, and claims relating to commercial, labor, employment, antitrust, securities or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with certainty, and adverse litigation trends and outcomes could result in material damages, which could adversely affect our financial condition and results of operations.
For example, between September 2, 2016 and October 13, 2016, a series of purported class action lawsuits were brought against PPC and 19 other defendants by and on behalf of direct and indirect purchasers of broiler chickens alleging violations of federal and state antitrust and unfair competition laws. The complaints seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the period of January 2008 to the present. The class plaintiffs have filed three consolidated amended complaints: one on behalf of direct purchasers (“the Direct Purchaser Plaintiff Class”) and two on behalf of distinct groups of indirect purchasers. On January 11, 2021, PPC announced that it had entered into an agreement to settle all claims made by the putative Direct Purchaser Plaintiff Class, which is subject to court approval. Pursuant to this agreement, PPC agreed to pay the Direct Purchaser Plaintiff Class $75.0 million, which PPC recognized as an expense during the fourth quarter of fiscal 2020. In addition, on October 13, 2020, the Company announced that it had entered into a plea agreement with the U.S. Department of Justice (the “DOJ”) pursuant to which the Company agreed to (1) plead guilty to one count of conspiracy in restraint of competition involving sales of broiler chicken products in the U.S. in violation of the Sherman Antitrust Act, 15 U.S.C. § 1, and (2) pay a fine of $110,524,140. For additional information, see Part II, Item 8, Notes to Consolidated Financial Statements, “Note 20. Commitments and Contingencies” in this annual report. The consequences of the litigation matters PPC faces are inherently uncertain, and adverse actions, judgments or settlements in some or all of these matters has resulted and may in the future result in materially adverse monetary damages, fines, penalties, or injunctive relief against PPC. Any claims or litigation, even if fully indemnified or insured, could damage PPC’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future.
We may not be able to successfully integrate the operations of companies we acquire or benefit from growth opportunities.
We continue to pursue selective acquisitions of complementary businesses, such as PPL, which we acquired in 2019. Inherent in any future acquisitions are certain risks such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our operating results, particularly during the period immediately following such acquisitions. Additional debt or equity capital may be required to complete future acquisitions, and there can be no assurance that we will be able to raise the required capital. These opportunities may expose us to successor liability relating to actions involving any acquired entities, their respective management or contingent liabilities incurred prior to our involvement and will expose us to liabilities associated with ongoing operations, in particular to the extent we are unable to adequately and safely manage such acquired operations. A material liability associated with these types of opportunities, or our failure to successfully integrate any acquired entities into our business, could adversely affect our reputation and have a material adverse effect on us.
We may not be able to successfully integrate any growth opportunities we may undertake in the future or successfully implement appropriate operational, financial and administrative systems and controls to achieve the benefits that we expect to result therefrom. These risks include: (1) failure of the acquired entities to achieve expected results; (2) possible inability to retain or hire key personnel of the acquired entities; and (3) possible inability to achieve expected synergies and/or economies of scale. In addition, the process of integrating businesses could cause interruption of, or loss of momentum in, the activities of our existing business. The diversion of our management’s attention, the lack of experience in operating in the geographical market of the acquired business and any delays or difficulties encountered in connection with the integration of these businesses could adversely affect our business, results of operations and prospects.
The consolidation of customers and/or the loss of one or more of our largest customers could adversely affect our business.
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Our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated in recent years, and consolidation is expected to continue throughout the U.S. and in other major markets. These consolidations have produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price increases, and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also may use shelf space currently used for our products for their own private label products. Because of these trends, our volume growth could slow or we may need to lower prices or increase promotional spending for our products, any of which could adversely affect our financial results.
Our two largest customers accounted for approximately 13.1% of our net sales in 2020. Our business could suffer significant setbacks in revenues and operating income if we lost one or more of our largest customers, or if our customers’ plans and/or markets should change significantly.
We depend on contract growers and independent producers to supply us with livestock.
We contract primarily with independent contract growers to raise the live chickens and pigs processed in our operations. If we do not attract and maintain contracts with growers or maintain marketing and purchasing relationships with independent producers, our production operations could be negatively affected.
Changes in consumer preference could negatively impact our business.
The food industry in general is subject to changing consumer trends, demands and preferences. Trends within the food industry change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have an adverse effect on our financial results. For example, consumer concerns related to human health, climate change, resource conservation and animal welfare of animal-based protein sources have driven consumer interest in plant-based protein sources. Because we primarily produce chicken and pork products, we may be limited in our ability to respond to changes in consumer preferences towards other animal-based proteins or away from animal-based proteins entirely.
Legal and Regulatory Risk Factors
Regulation, present and future, is a constant factor affecting our business.
Our operations will continue to be subject to or otherwise affected by federal, state and local governmental legislation and regulation, including in the health, safety and environmental areas. Changes in laws or regulations or the application thereof regarding areas such as wage and hour and environmental compliance may lead to government enforcement actions and resulting litigation by private litigants. In addition, unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may also materially affect our business or operations in the future.
Immigration
Immigration reform continues to attract significant attention in the public arena and the U.S. Congress. Despite our past and continuing efforts to hire only U.S. citizens and/or persons legally authorized to work in the U.S., we may be unable to ensure that all of our employees are U.S. citizens and/or persons legally authorized to work in the U.S. No assurances can be given that enforcement efforts by governmental authorities will not disrupt a portion of our workforce or operations at one or more facilities, thereby negatively impacting our business. Also, no assurance can be given that further enforcement efforts by governmental authorities will not result in the assessment of fines that could adversely affect our financial position, operating results or cash flows.
Environmental, Health and Safety
Our operations are subject to extensive and increasingly stringent federal, state, local and foreign laws and regulations pertaining to the protection of the environment, including those relating to the discharge of materials into the environment, the handling, treatment and disposal of wastes and remediation of soil and groundwater contamination. Failure to comply with these requirements could have serious consequences for us, including criminal as well as civil and administrative penalties, claims for property damage, personal injury and damage to natural resources and negative publicity. Compliance with existing or changing environmental requirements, including more stringent limitations imposed or expected to be imposed in recently-renewed or soon-to be renewed environmental permits, will require capital expenditures for installation of new or upgraded pollution control equipment at some of our facilities.
Operations at many of our facilities require the treatment and disposal of wastewater, stormwater and agricultural and food processing wastes, the use and maintenance of refrigeration systems, including ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment, and other operations that potentially could affect the
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environment, health and safety. Some of our facilities have been operating for many years, and were built before current environmental standards were imposed, and/or in areas that recently have become subject to residential and commercial development pressures. Failure to comply with current and future environmental, health and safety standards could result in the imposition of fines and penalties, and we have been subject to such sanctions from time to time. We are upgrading wastewater treatment facilities at a number of these locations, either pursuant to consent agreements with regulatory authorities or on a voluntary basis in anticipation of future permit requirements.
In the past, we have acquired businesses with operations such as pesticide and fertilizer production that involved greater use of hazardous materials and generation of more hazardous wastes than our current operations. While many of those operations have been sold or closed, some environmental laws impose strict and, in certain circumstances, joint and several liability for costs of investigation and remediation of contaminated sites on current and former owners and operators of the sites, and on persons who arranged for disposal of wastes at such sites. In addition, current owners or operators of such contaminated sites may seek to recover cleanup costs from us based on past operations or contractual indemnifications.
Additionally, we have from time to time had incidents at our plants involving worker health and safety. These have included ammonia releases due to mechanical failures in chiller systems and worker injuries and fatalities involving processing equipment and vehicle accidents. We have taken preventive measures in response; however, we can make no assurance that similar incidents will not arise in the future. New environmental, health and safety requirements, stricter interpretations of existing requirements, or obligations related to the investigation or clean-up of contaminated sites, may materially affect our business or operations in the future.
Anti-Corruption
We are subject to a number of anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act. The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or improperly providing anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or keeping business and/or other benefits. Some of these laws have legal effect outside the jurisdictions in which they are adopted under certain circumstances. The FCPA also requires maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Under the FCPA, companies operating in the United States may be held liable for actions taken by their strategic or local partners or representatives. The UK Bribery Act is broader in scope than the FCPA in that it directly prohibits commercial bribery (i.e. bribing others than government officials) in addition to bribery of government officials and it does not recognize certain exceptions, notably for facilitation payments, that are permitted by the FCPA. The UK Bribery Act also has wide jurisdiction. It covers any offense committed in the United Kingdom, but proceedings can also be brought if a person who has a close connection with the United Kingdom commits the relevant acts or omissions outside the United Kingdom. The UK Bribery Act defines a person with a close connection to include British citizens, individuals ordinarily resident in the United Kingdom and bodies incorporated in the United Kingdom. The UK Bribery Act also provides that any organization that conducts part of its business in the United Kingdom, even if it is not incorporated in the United Kingdom, can be prosecuted for the corporate offense of failing to prevent bribery by an associated person, even if the bribery took place entirely outside the United Kingdom and the associated person had no connection with the United Kingdom. Other jurisdictions in which we operate have adopted similar anti-corruption, anti-bribery and anti-kickback laws to which we are subject. Civil and criminal penalties may be imposed for violations of these laws.
Despite our ongoing efforts to ensure compliance with the FCPA, the UK Bribery Act and similar laws, there can be no assurance that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations, have previously complied or will comply with those laws and our anti-corruption policies or that our compliance program will be sufficient to prevent or detect bribery, and we may be ultimately held responsible for any such non-compliance. If we or our directors or officers violate anti-corruption laws or other laws governing the conduct of business with government entities (including local laws), we or our directors or officers may be subject to criminal and civil penalties or other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects. Any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, results of operations and prospects.
Our operations may be adversely impacted by the U.K.’s recent exit from the European Union.
On January 31, 2020, the U.K. withdrew from the European Union, which is commonly referred to as Brexit. A transition period ended on December 31, 2020, during which the U.K. and European Union negotiated the terms of the U.K.’s relationship with the European Union going forward. Despite the implementation of the EU-U.K. Trade and Cooperation Agreement beginning on January 1, 2021, it is still unclear how Brexit will ultimately impact relationships within the U.K. and between the U.K. and other countries on many aspects of fiscal policy, cross-border trade and international relations. The effects of and the perceptions as to the impact from the withdrawal of the U.K. from the European Union has and may continue to adversely affect business activity and economic and market conditions in the U.K., Europe and globally, and could contribute
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to instability in global financial and foreign exchange markets, including volatility in the value of the pound sterling and the euro. In addition, Brexit could lead to additional political, legal and economic instability in the European Union. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business in the U.K., as well as our financial condition, results of operations and cash flows. It is also unclear what long-term economic, financial, trade and legal implications the withdrawal of the U.K. from the EU will have and how such withdrawal will affect our customers and our operations in the U.K. and Europe. If the U.K. were to significantly alter its regulations affecting the food industry, we could face significant new costs. Any of the effects of Brexit could adversely affect our business, business opportunities, results of operations, financial condition and cash flows. In addition, the U.K.’s withdrawal from the European Union will result in changes to the interactions that the Company has with regulators, as the U.K.’s domestic regulators will no longer participate in the EU’s regulatory enforcement structure. This may affect relationships that the Company has developed with its regulators to date.
Labor and Employment Risk Factors
Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.
As of December 27, 2020, we employed approximately 30,900 persons in the U.S., approximately 10,500 persons in Mexico and approximately 15,000 persons in the U.K. and Europe. Approximately 35.2% of our workforce are covered by a collective bargaining agreement. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2021 or later. We have not experienced any labor-related work stoppage at any location in over ten years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of an agreement, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results.
Loss of essential employees or material increase in employee turnover could have a significant negative impact on our business.
Our success is largely dependent on the skills, experience, and efforts of our management and other employees. The loss of the services of one or more members of our senior management or of numerous employees with essential skills could have a negative effect on our business, financial condition and results of operations. If we are not able to retain or attract talented, committed individuals to fill vacant positions when needs arise, it may adversely affect our ability to achieve our business objectives.
We also rely on an adequate supply of skilled employees at our processing and food facilities. Trained and experienced personnel in our industry are in high demand, and we have experienced high turnover and difficulty retaining employees with appropriate training and skills. We cannot predict whether we will be able to attract, motivate and maintain an adequate skilled workforce necessary to operate our existing and future facilities efficiently, or that labor expenses will not increase as a result of a shortage in the supply of skilled personnel, thereby adversely impacting our financial performance. While our industry generally operates with high employee turnover, any material increases in employee turnover rates or any widespread employee dissatisfaction could also have a material adverse effect on our business, financial condition and results of operations.
Stock Ownership and Financial Risk Factors
JBS USA beneficially owns a majority of our common stock and has the ability to control the vote on most matters brought before the holders of our common stock.
JBS USA beneficially owns a majority of the shares and voting power of our common stock and is entitled to appoint a majority of the members of our Board of Directors. As a result, subject to restrictions on its voting power and actions in a stockholders agreement between JBS USA and us and our organization documents, JBS USA has and will have the ability to control our management, policies and financing decisions, elect a majority of the members of our Board of Directors at the annual meeting and control the vote on most matters coming before the holders of our common stock. Under the stockholders agreement between JBS USA and us, JBS USA has the ability to elect up to seven members of our Board of Directors and the other holders of our common stock have the ability to elect up to two members of our Board of Directors.
JBS USA may have interests that are different from other shareholders and may vote in a way that may be adverse to our other shareholders’ interests. JBS USA’s concentration of ownership could also have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our common stock to decline or prevent our shareholders from realizing a premium over the market price for their common stock.
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Our future financial and operating flexibility may be adversely affected by significant leverage.
On a consolidated basis, as of December 27, 2020, we had approximately $451.7 million in secured indebtedness, $1.8 billion of unsecured indebtedness and had the ability to borrow approximately $933.6 million under our credit agreements. Significant amounts of cash flow will be necessary to make payments of interest and repay the principal amount of such indebtedness. The degree to which we are leveraged could have important consequences because (1) it could affect our ability to satisfy our obligations under our credit agreements, (2) a substantial portion of our cash flow from operations is required to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes, (3) our ability to obtain additional financing and to fund working capital, capital expenditures and other general corporate requirements in the future may be impaired; (4) we may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage, (5) our flexibility in planning for, or reacting to, changes in our business may be limited, (6) it may limit our ability to pursue acquisitions and sell assets and (7) it may make us more vulnerable in the event of a continued or new downturn in our business or the economy in general.
Our ability to make payments on and to refinance our debt, including our credit facilities, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to various business factors (including, among others, the commodity prices of feed ingredients, chicken and pork) and general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
There can be no assurance that we will be able to generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities in an amount sufficient to enable us to pay our debt obligations, including obligations under our credit facilities, or to fund our other liquidity needs. We may need to refinance all or a portion of their debt on or before maturity. There can be no assurance that we will be able to refinance any of their debt on commercially reasonable terms or at all.
The interest rates of our credit facilities are priced using a spread over LIBOR. 
The London Interbank Offered Rate (“LIBOR”), is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on loans globally. We typically use LIBOR as a reference rate in our term loans such that the interest due to our creditors pursuant to a term loan extended to us is calculated using LIBOR. Some of our term loan agreements and revolving credit facilities contain a stated minimum value for LIBOR, and as of December 27, 2020, the Company had $450.0 million in outstanding indebtedness tied to LIBOR.
In 2017, the U.K.’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time whether or not LIBOR will cease to exist, or if new methods of calculating LIBOR will be established such that it continues to exist after 2021 or if replacement conventions will be developed. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities (“SOFR”). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question. As such, the future of LIBOR at this time is uncertain. At this time, due to a lack of consensus existing as to what rate or rates may become accepted alternatives to LIBOR, it is impossible to predict the effect of any such alternatives on our liquidity. However, if LIBOR ceases to exist, we may need to renegotiate our credit agreements that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established. Additionally, these changes may have an adverse impact on the value of or interest earned on any LIBOR-based marketable securities, loans and derivatives that are included in our financial assets and liabilities.
Impairment in the carrying value of goodwill could negatively affect our operating results.
We have a significant amount of goodwill on our Consolidated Balance Sheets. Under the accounting principles generally accepted in the U.S. (“U.S. GAAP”), goodwill must be evaluated for impairment annually or more frequently if events indicate it is warranted. If the carrying value of our reporting units exceeds their current fair value as determined based on the discounted future cash flows of the related business, the goodwill is considered impaired and is reduced to fair value by a non-cash charge to earnings. Events and conditions that could result in impairment in the value of our goodwill include changes in the industry in which we operate, particularly the impact of a downturn in the global economy or the economies of geographic regions or countries in which we operate, as well as competition, adverse changes in the regulatory environment, or other factors leading to reduction in expected long-term sales or profitability.
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General Risk Factors
Extreme weather, natural disasters or other events beyond our control could negatively impact our business.
Bioterrorism, fire, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of our flocks, production or availability of feed ingredients, or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have an adverse effect on our financial results. Moreover, climate change, including the impact of global warming, has resulted in risks that include changes in weather conditions, extreme weather events and adverse impacts on agricultural production, as well as potential regulatory compliance risks, all of which could have a material adverse effect on our results of operations, financial condition and liquidity.
Item 1B. Unresolved Staff Comments
    None.
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Item 2. Properties
Operating Facilities
    Our main operating facilities are as follows:
Number of Facilities(a)
OwnedLeasedTotal
Capacity(b)
Unit of MeasureAverage Capacity Utilization
Chicken Operations:
Fresh processing facilities 35136 8.6 millionBirds per day83.9 %
Prepared foods facilities 13 15 32.5 million Tons per year68.1 %
Hatcheries 47 48 3.2 billion Eggs per year76.2 %
Other operation facilities(c)
51 54 17.1 million Tons per year64.4 %
Grain elevator — 8.6 million Bushels per year23.6 %
Pork Operations:
Fresh processing facilities — 9,900 Pigs per day82.9 %
Prepared foods facilities 12 — 12 246,144Tons per year70.4 %
Distribution centers and other facilities10 16 26 N/AN/A
(a)Substantially all of our U.S. property, plant and equipment is used as collateral for our secured U.S. credit facility. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 13. Debt.”
(b)Capacity and utilization numbers do not include idled facilities.
(c)Other operation facilities includes feed mills, protein conversion and rendering facilities, pet food facilities and one freezer in the U.S.

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Item 3. Legal Proceedings
The information required with respect to this item can be found in Part II, Item 8, Notes to Consolidated Financial Statements, “Note 20. Commitments and Contingencies” in this annual report and is incorporated by reference into this Item 3.
Item 4. Mine Safety Disclosures
None.
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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “PPC.”
Holders
The Company estimates that there were approximately 52,600 holders (including individual participants in security position listings) of the Company’s common stock as of February 10, 2021.
Dividends
The Company has no current intention to pay any dividends to its stockholders. Any change in dividend policy will depend upon future conditions, including earnings and financial condition, general business conditions, any applicable contractual limitations and other factors deemed relevant by our Board of Directors in its discretion.
Both the U.S. Credit Facility and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends. In addition, the terms of the Moy Park Multicurrency Revolving Facility Agreement restrict Moy Park’s ability and the ability of certain of Moy Park’s subsidiaries to, among other things, make payments and distributions to us, which could in turn impair our ability to pay dividends to our stockholders. See "Note 13. Debt” of our Consolidated Financial Statements included in this annual report for additional information.
Issuer Purchases of Equity Securities
On October 31, 2018, the Company’s Board of Directors approved a $200.0 million share repurchase authorization. The Company plans to repurchase shares through various means, which may include but are not limited to open market purchases, privately negotiated transactions, the use of derivative instruments and/or accelerated share repurchase programs. The extent to which the Company repurchases its share and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by the Company’s management team. The Company reserves the right to limit or terminate the repurchase program at any time without notice. As of December 27, 2020, the Company had repurchased 6,257,135 shares under this program for an aggregate cost of $113.4 million and an average price of $18.1195 per share. Set forth below is information regarding our stock repurchases for the three months ended December 27, 2020.
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price
Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Plans or Programs (a)
September 28, 2020 through October 25, 202049,700 $15.62 6,155,144 $88,283,745 
October 26, 2020 through November 29, 2020101,991 16.27 6,257,135 86,624,088 
November 30, 2020 through December 27, 2020— — 6,257,135 86,624,088 
Total151,691 $16.06 6,257,135 $86,624,088 
(a)Reflects the remaining dollar value of shares that may yet be repurchased under our share repurchase authorization, the parameters of which are described above. The plan was announced on October 31, 2018.
Performance Graph
The graph below shows a comparison from December 27, 2015 through December 27, 2020 of the cumulative 5-year total stockholder return of holders of the Company’s common stock with the cumulative total returns of the Russell 2000 index and a customized peer group of three companies: Hormel Foods Corp, Sanderson Farms Inc. and Tyson Foods Inc. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on December 27, 2015 and tracks it through December 27, 2020.
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The graph covers the period from December 27, 2015 to December 27, 2020, and reflects the performance of the Company’s single class of common stock. The stock price performance represented by this graph is not necessarily indicative of future stock performance.
https://cdn.kscope.io/a649d52efbcacf813a8ffd233c1ebf2f-ppc-20201227_g3.jpg
12/27/1506/30/1612/25/1606/30/1712/31/1706/30/1812/30/1806/30/1912/29/1906/01/2012/27/20
PPC$100.00 $125.88 $93.96 $108.29 $153.44 $99.45 $77.02 $125.43 $162.88 $83.44 $95.59 
Russell 2000100.00 102.22 121.31 127.36 139.08 149.73 123.76 144.78 155.35 135.19 186.36 
Peer Group100.00 106.20 102.35 102.92 122.77 113.35 108.34 131.79 150.91 127.43 132.33 
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Item 6. Selected Financial Data
2020
2019(c)
2018(c)
2017(c)
2016
Operating Results Data:(In thousands, except ratios and per share data)
Net sales$12,091,901 $11,409,219 $10,937,784 $10,767,863 $9,878,564 
Gross profit
838,196 1,070,394 843,476 1,471,614 1,103,983 
Operating income
245,463 690,568 495,686 1,072,322 792,082 
Interest expense, net(a)
118,813 118,353 149,001 99,453 73,335 
Gain on bargain purchase3,746 (56,880)— — — 
Loss on early extinguishment of debt— — 16,758 166 — 
Income before income taxes161,825 617,545 332,227 982,066 724,036 
Income tax expense
66,755 161,009 85,423 263,899 243,919 
Net income
95,070 456,536 246,804 718,167 480,117 
Net income (loss) attributable to noncontrolling interest313 612 (1,141)102 (803)
Net income attributable to Pilgrim’s Pride Corporation94,757 455,924 247,945 694,579 440,532 
Per Common Diluted Share Data:
Net income attributable to Pilgrim’s Pride Corporation$0.39 $1.83 $1.00 $2.79 $1.73 
Adjusted net income attributable to Pilgrim’s Pride Corporation(b)
1.02 1.62 1.28 2.89 1.75 
Book value10.52 10.11 8.06 7.45 8.21 
Balance Sheet Summary:
Working capital
$965,131 $950,081 $938,434 $1,063,765 $624,728 
Total assets7,474,497 7,102,364 5,931,202 6,248,652 5,021,942 
Notes payable and current maturities of long-term debt25,455 26,392 30,405 47,775 15,712 
Long-term debt, less current maturities
2,255,546 2,276,029 2,295,190 2,635,617 1,396,124 
Total stockholders’ equity2,575,347 2,536,060 2,019,585 1,855.661 2,086,132 
Cash Flow Summary:
Cash flows from operating activities$724,247 $666,521 $491,650 $801,321 $795,362 
Depreciation and amortization
337,104 287,230 274,088 271,824 226,384 
Impairment of property, plant and equipment— — 3,504 5,156 790 
Acquisitions of property, plant and equipment(354,762)(348,120)(348,666)(339,872)(340,960)
Purchase of acquired business, net of cash acquired
(4,216)(384,694)— (658,520)— 
Payment of cash dividends
— — — — (714,785)
Cash flows from financing activities(136,708)(34,526)(384,246)466,395 (828,219)
Other Data:
EBITDA(d)
$617,742 $1,023,128 $755,316 $1,353,343 $1,023,755 
Adjusted EBITDA(d)
788,073 973,771 798,187 1,388,029 1,029,682 
Key Indicators (as a percent of net sales):
Gross profit
6.9 %9.4 %7.7 %13.7 %11.2 %
Selling, general and administrative expenses4.9 %3.3 %3.1 %3.6 %3.1 %
Operating income
2.0 %6.1 %4.5 %10.0 %8.0 %
Interest expense, net1.0 %1.0 %1.4 %0.9 %0.7 %
Net income
0.8 %4.0 %2.3 %6.5 %4.5 %
(a)Interest expense, net, consists of interest expense less interest income.
(b)Adjusted net income attributable to Pilgrim’s Pride Corporation is calculated by adding to net income attributable to Pilgrim’s certain items of expense and deducting from net income attributable to Pilgrim’s certain items of income, as shown in the reconciliation table below. Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is presented because it is used by us, and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We also believe that this non-U.S. GAAP financial measure, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of such charges on net income attributable to Pilgrim’s Pride Corporation per common diluted share. Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is not a measurement of financial performance under U.S. GAAP, has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under U.S. GAAP. Management believes that presentation of adjusted net income attributable to Pilgrim’s provides useful supplemental information about our operating performance and enables comparison of our performance between periods because certain costs shown below are not indicative of our current operating performance.
    A reconciliation of net income attributable to Pilgrim’s Pride Corporation per common diluted share to adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is as follows:
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20202019201820172016
(In thousands except per share data)
Net income attributable to Pilgrim’s Pride Corporation$94,757 $455,924 $247,945 $694,579 $440,532 
Adjustments, net of tax:
Loss on early extinguishment of debt— — 16,758 166 — 
Other nonrecurring losses— — 19,486 8,066 — 
Foreign currency transaction losses (gains)
760 6,917 17,160 (2,659)4,055 
Restructuring activities and transaction costs related to acquisitions
257 1,218 5,085 29,381 1,069 
DOJ agreement110,524 — — — — 
Nonrecurring legal settlement75,000 — — — — 
Hometown Strong commitment15,000 — — — — 
Gain on bargain purchase
3,746 (56,880)— — — 
Shareholder litigation settlement(34,643)
Net tax expense of adjustments(14,976)(2,122)(15,039)(9,402)(1,773)
250,425 405,057 291,395 720,131 443,883 
U.S. Tax Cuts & Jobs Act transition tax— — 26,400 — — 
Adjusted net income attributable to Pilgrim’s Pride Corporation250,425 405,057 317,795 720,131 443,883 
Weighted average diluted shares of common stock outstanding246,124 249,709 249,149 248,971 254,126 
Adjusted net income attributable to Pilgrim’s Pride Corporation
per common diluted share
$1.02 $1.62 $1.28 $2.89 $1.75 
(c)Includes the material impact of new business acquisitions as follows:
Fiscal 2019 includes approximately two and one-half months of operating results from the acquisition of PPL, acquired for cash of $391.5 million on October 15, 2019.
Fiscal 2017 includes approximately three and one-half months of operating results from the acquisition of Moy Park, acquired for cash of $301.3 million and a note payable to the seller in the amount of £562.5 million on September 8, 2017. Fiscal 2018 and thereafter includes a full year of operating results.
Fiscal 2017 includes approximately eleven and one-half months of operating results from the acquisition of GNP, acquired for a cash purchase price of $350 million on January 6, 2017. Fiscal 2018 and thereafter includes a full year of operating results.
(d)“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction losses (gains), (2) transaction costs from business acquisitions, (3) DOJ agreement, (4) nonrecurring legal settlement, (5) restructuring activities, (6) Hometown Strong initiative expenses, (7) gain on bargain purchase, (8) shareholder litigation settlement, (9) net income (loss) attributable to noncontrolling interests and (10) other nonrecurring losses. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are:
They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
They do not reflect changes in, or cash requirements for, our working capital needs;
They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;
EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;
They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and
They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.
In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.


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A reconciliation of net income to EBITDA and Adjusted EBITDA is as follows:
20202019201820172016
 (In thousands)
Net income$95,070 $456,536 $246,804 $718,167 $480,117 
Add:
Interest expense, net(a)
118,813 118,353 149,001 99,453 73,335 
Income tax expense66,755 161,009 85,423 263,899 243,919 
Depreciation and amortization337,104 287,230 274,088 271,824 226,384 
EBITDA617,742 1,023,128 755,316 1,353,343 1,023,755 
Add:
Other nonrecurring losses(b)
— — 19,485 8,066 — 
Foreign currency transaction loss (gain)(c)
760 6,917 17,160 (2,659)4,055 
Transaction costs related to acquisitions(d)
134 1,302 320 19,606 — 
DOJ agreement(e)
110,524 — — — — 
Nonrecurring legal settlement(f)
75,000 — — — — 
Restructuring activities loss (gain)(g)
123 (84)4,765 9,775 1,069 
Hometown Strong commitment(h)
15,000 — — — — 
Minus:
Gain on bargain purchase(i)
(3,746)56,880 — — — 
Shareholder litigation settlement(j)
34,643 — — — — 
Net income (loss) attributable to noncontrolling interest313 612 (1,141)102 (803)
Adjusted EBITDA$788,073 $973,771 $798,187 $1,388,029 $1,029,682 
(a)Interest expense, net, consists of interest expense less interest income.
(b)Other nonrecurring losses include expenses incurred for Hurricane Maria in Puerto Rico, Hurricane Michael in Florida and certain Moy Park severance charges.
(c)The Company measures the financial statements of its Mexico reportable segment as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than nonmonetary assets, of the Mexico reportable segment at current exchange rates. We remeasure nonmonetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Currency exchange gains or losses resulting from these remeasurements, as well as, from our U.K. and Europe reportable segment are included in the line item Foreign currency transaction losses (gains) in the Consolidated Statements of Income.
(d)Transaction costs related to acquisitions includes those charges that are incurred in conjunction with business acquisitions. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 2. Business Acquisitions” for more information regarding recent business acquisitions.
(e)On October 13, 2020, Pilgrims announced that we have entered into a plea agreement (the “Plea Agreement”) with the DOJ. As a result of the Plea Agreement, we recognized a fine of $110,524,140.
(f)On January 11, 2021, we announced that we have entered an agreement to settle all claims made by the putative Direct Purchaser Plaintiff Class relating to broiler chicken antitrust litigation. As a result of the settlement, we recognized an expense of $75.0 million.
(g)Restructuring charges includes tangible asset impairment, severance, change-in-control compensation costs and losses incurred on both the sale of unneeded broiler eggs and flock depletion.
(h)The Hometown Strong initiative was developed to help communities in which we operate respond to unexpected challenges. For the year ended December 27, 2020, we recorded $15.0 million in incremental donations expense relating to this initiative.
(i)The gain on bargain purchase was recognized as a result of the PPL acquisition in October 2019. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 2. Business Acquisitions” for more information regarding this acquisition.
(j)Shareholder litigation settlement is income received as a result of a settlement in the first quarter of 2020. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 20. Commitments and Contingencies” for more information regarding this settlement.


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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Overview
We are one of the largest chicken producers in the world, and as a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service. This gives us the opportunity to continue to create growth and development opportunities, further increasing our position as a leading domestic and global protein company. With the acquisition of Pilgrim’s Pride Ltd. (“PPL”) and Moy Park in 2019 and 2017, respectively, we solidified ourselves as a leading European food company while diversifying our product mix with introduction into the pork market. With the acquisition of GNP in 2017, we further solidified ourselves as a leading poultry company within the U.S. See “Note 2. Business Acquisitions” of our Consolidated Financial Statements included in this annual report for additional information relating to these acquisitions.
We reported net income attributable to Pilgrim’s Pride Corporation of $94.8 million, or $0.39 per diluted common share, and profit before tax totaling $161.8 million, for 2020. These operating results included gross profit of $838.2 million and generated $724.2 million of cash from operations. We generated operating margins of 2.0% with operating margins of 0.9%, 3.1% and 5.5% in our U.S., U.K. and Europe, and Mexico reportable segments, respectively. During 2020, we generated EBITDA and Adjusted EBITDA of $617.7 million and $788.1 million, respectively. A reconciliation of net income to EBITDA and Adjusted EBITDA is included in “Item 6. Selected Financial Data” in this annual report.
As discussed in “Note 20. Commitments and Contingencies”, on October 13, 2020, we announced that we have entered into the Plea Agreement with the DOJ. As a result of the Plea Agreement, we recognized a fine of $110,524,140 as expense during the third quarter of fiscal 2020. On January 11, 2021, we announced that we have entered an agreement to settle all claims made by the putative Direct Purchaser Plaintiff Class in the In re Broiler Chicken Antitrust Litigation. As a result of the settlement, we recognized a fine of $75.0 million as expense during the fourth quarter of fiscal 2020. The Plea Agreement and Direct Purchaser Plaintiff Class settlement are included in Selling, general and administrative expense in the Consolidated Statements of Income for the year ended December 27, 2020. In addition, as discussed below under “Hometown Strong Initiative”, we launched an initiative during 2020 to support the communities in which we operate with unexpected challenges, such as the novel coronavirus (“COVID-19”) pandemic, and as a result, we recorded $15.0 million in incremental donation expense related to this initiative during the third quarter of fiscal 2020. Adjusted net income for the year ended December 27, 2020, which excludes the DOJ antitrust fine, the Direct Purchaser Plaintiff Class settlement, increase in donation expense and other items shown in the “Reconciliation of Adjusted Net Income”, was $250.4 million. See “Item 6. Selected Financial Data” section for a reconciliation of Net income attributable to Pilgrim's to Adjusted net income attributable to Pilgrim's.
We operate on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. Any reference we make to a particular year applies to our fiscal year and not the calendar year. Fiscal 2019 and 2018 were 52-week accounting cycles.
Impact of COVID-19
The extensive impact of the pandemic caused by COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other jurisdictions have imposed various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations and extended closures of businesses. On April 28, 2020, an executive order designated meat and poultry processing plants as critical infrastructure.
As the global spread of the virus began to accelerate late in March of 2020, we began to experience adverse impacts to our business and financial results. The impact of the COVID-19 pandemic included disruptions in supply chain, an increase in both broiler and chick costs and an increase in payroll and benefits costs. During the second quarter of 2020, the impact of the COVID-19 pandemic on our financial results generally decreased because of increased demand for our products at retail grocery stores and quick service restaurants and our ability to meet this demand through our transitioned business operations, as further discussed below. We believe that we will continue to experience disruptions and other changes to our business due to the COVID-19 pandemic into 2021.
The impact of COVID-19 and measures to prevent its spread have affected and continue to affect our business in a number of ways.
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Our workforce. Employee health and safety is our priority. As an essential business in a critical infrastructure industry, we continue to produce chicken and pork products, while coordinating with and implementing guidance from the U.S. Centers for Disease Control and Prevention, the National Institute of Occupational Safety and Health, and local and regional Departments of Health in an effort to keep our employees safe and healthy. Measures we have implemented include, but are not limited to: increasing physical distancing of our employees, where possible, by staggering start and shift breaks, placing on-site tents to create more space for employees at break and at meal times, and installing physical barriers to distance employees while working on production lines; adding temperature and symptom screening stations for employees prior to entering our facilities; increasing personal hygiene practices and providing our employees additional personal protective equipment and sanitation stations; and increasing sanitation of our facilities. In the U.S., we provided appreciation bonuses to eligible employees in April and May of 2020 and expanded certain sick leave policies to provide more flexibility. In addition, we implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely.
Our operations. All of our 60 production facilities are operating, although some facilities have reduced production levels and outputs due to increased health and safety measures, employee absenteeism and as a consequence of the decline in demand by restaurants and other foodservice businesses. To date, we have not experienced a material impact from a plant closure and our facilities have largely been exempt from government closure orders.
Demand for our products. COVID-19 and the implementation of restricted living have led to a shift in demand from restaurants to retail grocery stores, with consumers eating more at home due to stay-at-home orders. In our U.S. and Mexico businesses, demand for parts and whole-birds (typically bound for restaurants) and prepared foods (distributed, in part, to schools) has declined, while our U.K. and Europe business, which is more retail focused, has generally seen less of an impact. In an effort to counter the adverse effects of COVID-19, we have transitioned, where commercially reasonable and possible to do so, our business operations to be in the best position to supply COVID-19 market demands. These efforts have included transferring live supply to case ready, shifting production form and mix from foodservice to retail, increasing capacity utilization of retail packaging equipment, and analyzing export positions.
Liquidity. Our liquidity position is strong and we have taken additional measures to increase liquidity to prepare for the challenging environment ahead. On March 20, 2020 and March 25, 2020, we elected to borrow $200.0 million and $150.0 million, respectively, under the U.S. Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak. The draw-down proceeds borrowed on March 20, 2020 and March 25, 2020 were repaid during the fourth quarter of 2020.
Foreign currency exchange rates and commodity prices. During the year ended December 27, 2020, we experienced increased volatility in foreign currency exchange rates and commodity prices, in part related to the uncertainty from COVID-19, as well as actions taken by governments and central banks in response to COVID-19.
CARES Act. On March 27, 2020, the U.S. government enacted the CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. We estimate the payment of approximately $51 million of employer payroll taxes otherwise due in 2020 will be delayed with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.
Raw Materials
Our profitability is materially affected by the commodity prices of feed ingredients and chicken. Our U.S. and Mexico reportable segments use corn and soybean meal as the main ingredients for feed production, while our U.K. and Europe reportable segment uses wheat, soybean meal and barley as the main ingredients for feed production.
During fiscal 2020, chicken prices in the market were volatile, beginning the fiscal year on the low end and then subsequently stabilizing and improving by the end of the fiscal year. In particular, during the first quarter of 2020, market prices for chicken trended near the bottom of the historical range while sustaining prices sufficiently higher than the cost of feed and ingredients to provide positive margins. During this time, the industry experienced increased production compared to the first quarter of 2019. The spread of COVID-19 and subsequent market reactions late into the first quarter of 2020 resulted in an unexpected shift in demand from foodservice to retail markets, triggering a shift in supply and demand, causing volatility in market prices. The industry adjusted through reductions of egg sets and chick placements, which continued to trend throughout the year ended December 27, 2020, resulting in reduced broiler production in the last half of 2020. Reduced broiler production coincided with robust retail demand, quickly recovering foodservice throughout the second half of 2020, which had
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significantly improved over the low point during the second quarter of 2020. As a result, chicken market prices stabilized moving into the third quarter, and even improved in the fourth quarter compared to the previous year.
While chicken prices have improved in the second half of 2020, prices in 2021 will depend on the recovery of the foodservice industry, influenced by factors such as the COVID-19 pandemic, government regulation, uncertainty surrounding the general economy and protein supply.
Hometown Strong Initiative
The Hometown Strong initiative was developed in order to help the communities in which we operate respond to the unexpected challenges on society, such as the COVID-19 pandemic. We believe the Hometown Strong initiative will provide consequential investment projects for a lasting impact on these communities and help them prepare for unanticipated challenges and build for the future. For 2020, we committed to Hometown Strong donations of $20.0 million and during the year ended December 27, 2020, we recorded $15.0 million in incremental donations expense relating to this initiative.
Potential Impact of Tariffs
We continue to monitor recent trade and tariff activity and its potential impact to exports and inputs costs across our reportable segments. Currently, we are experiencing impacts to domestic and export prices of chicken resulting from uncertainty in trade policies and increased tariffs. With the implementation of the EU-U.K Trade and Cooperation Agreement, there is uncertainty regarding the processing of imports and administration costs that will follow. This could lead to potential new tariffs and regulations from both the European Union and the U.K. We are unable to give any assurance as to the scope, duration, or impact of any changes in trade policies or tariffs, how successful any mitigation efforts will be, or the extent to which mitigation will be necessary, and accordingly, changes in trade policies and increased tariffs could have a material adverse effect on our business and results of operations.
Reportable Segments
We operate in three reportable segments: the U.S., the U.K. and Europe, and Mexico. We measure segment profit as operating income. Corporate expenses are allocated to Mexico and U.K. and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. For additional information, see “Note 19. Reportable Segments” of our Consolidated Financial Statements included in this annual report.
Results of Operations
2020 Compared to 2019
Net sales. Net sales for 2020 increased $682.7 million, or 6.0%, from $11.4 billion generated in 2019 to $12.1 billion generated in 2020. The following table provides additional information regarding net sales:
   Change from 2019
Sources of net sales2020AmountPercent
 (In thousands, except percent data)
U.S.$7,496,017 $(140,699)(1.8)%
U.K. and Europe3,274,292 890,499 37.4 %
Mexico1,321,592 (67,118)(4.8)%
Total net sales$12,091,901 $682,682 6.0 %
U.S. Reportable Segment. U.S. net sales generated in 2020 decreased $140.7 million, or 1.8%, from U.S. net sales generated in 2019 primarily because of a decrease in net sales per pound, contributing $188.2 million, or 2.4 percentage points, to the decrease in net sales. This decrease in net sales per pound was partially offset by $47.5 million, or 0.6 percentage points, due to an increase in sales volume.
U.K. and Europe Reportable Segment. U.K. and Europe sales generated in 2020 increased $890.5 million, or 37.4%, from U.K. and Europe sales generated in 2019, primarily because of the recently acquired PPL operations, partially offset by a decrease in net sales by our existing U.K. and Europe operations. The impact of the acquired business contributed $1.1 billion, or 44.3 percentage points, to the increase in net sales. The decrease in our existing U.K. and Europe operations was driven by a decrease in sales volume and a decrease in net sales per pound, contributing $159.6 million, or 6.7 percentage points, and $14.5 million, or 0.6 percentage points, respectively, to the decrease in net sales. These decreases in sales volume and net sales
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per pound were partially offset by $8.0 million, or 0.4 percentage points, due to the favorable impact of foreign currency translation.
Mexico Reportable Segment. Mexico sales generated in 2020 decreased $67.1 million, or 4.8%, from Mexico sales generated in 2019 primarily because of the unfavorable impact of foreign currency remeasurement and a decrease in sales volume, partially offset by an increase in net sales per pound. The impact of the unfavorable impact of foreign currency remeasurement and decreased sales volume contributed $154.9 million, or 11.1 percentage points, and $22.1 million, or 1.6 percentage points, to the decrease in net sales. Partially offsetting these decreases in net sales by $109.9 million, or 7.9 percentage points, was an increase in net sales per pound.
Gross profit. Gross profit decreased by $232.2 million, or 21.7%, from $1.1 billion generated in 2019 to $838.2 million generated in 2020. The following tables provide gross profit information:
   Change from 2019Percent of Net Sales
Components of gross profit2020AmountPercent20202019
 (In thousands, except percent data)
Net sales$12,091,901 $682,682 6.0 %100.0 %100.0 %
Cost of sales11,253,705 914,880 8.8 %93.1 %90.6 %
Gross profit$838,196 $(232,198)(21.7)%6.9 %9.4 %
Sources of gross profit2020Change from 2019
AmountPercent
 (In thousands, except percent data)
U.S.$500,465 $(233,014)(31.8)%
U.K. and Europe218,327 46,576 27.1 %
Mexico118,931 (46,137)(28.0)%
Elimination473 377 392.7 %
Total gross profit$838,196 $(232,198)(21.7)%
Sources of cost of sales2020Change from 2019
AmountPercent
 (In thousands, except percent data)
U.S.$6,995,552 $92,315 1.3 %
U.K. and Europe3,055,965 843,923 38.2 %
Mexico1,202,661 (20,981)(1.7)%
Elimination(a)
(473)(377)392.7 %
Total cost of sales$11,253,705 $914,880 8.8 %
(a)Our Consolidated Financial Statements include the accounts of our company and our majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation.
U.S. Reportable Segment. Cost of sales incurred by our U.S. operations in 2020 increased $92.3 million, or 1.3%, from cost of sales incurred by our U.S. operations in 2019. Cost of sales increased primarily because of increased cost per pound sold and increased poultry sales volume of $49.3 million, or 0.7 percentage points, and $43.0 million, or 0.6 percentage points, respectively. Included in the increase in cost per pound sold and increased sales volume was a $43.4 million increase in live input costs, a $34.6 million increase in benefits costs mainly due to the COVID-19 pandemic, an $18.0 million increase in depreciation costs, a $16.9 million increase in payroll costs due to higher pay rates, a $15.8 million increase in outside service costs from increased outside processing labor and a $15.6 million increase in insurance costs, mainly from higher workers’ compensation costs. Partially offsetting these increases in cost per pound sold and increased sales volume was a decrease in derivative expense of $59.9 million resulting from higher realized losses on commodity derivatives in 2019. Other factors affecting U.S. cost of sales were individually immaterial.
U.K. and Europe Reportable Segment. Cost of sales incurred by the U.K. and Europe operations during 2020 increased $843.9 million, or 38.2%, from cost of sales incurred by the U.K. and Europe operations during 2019 primarily because of costs incurred by the acquired PPL operations, partially offset by decreases in cost of sales incurred by our existing U.K. and Europe operations. Cost of sales incurred by the acquired PPL operations contributed $1.0 billion, or 45.9 percentage points, to the increase in cost of sales. Cost of sales related to the existing U.K. and Europe operations decreased $169.7 million, or 7.7 percentage points, due to a decrease in poultry sales volume and a decrease in cost per pound sold of $147.1 million and
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$29.9 million, respectively. These decreases in cost of sales were partially offset by the $7.3 million unfavorable impact of foreign currency translation. The decrease in cost per pound sold is due to the adjusted product mix from foodservice to retail due to the COVID-19 pandemic. Other factors affecting cost of sales were individually immaterial.
Mexico Reportable Segment. Cost of sales incurred by the Mexico operations during 2020 decreased $21.0 million, or 1.7%, from cost of sales incurred by the Mexico operations during 2019 primarily because of the favorable impact of foreign currency remeasurement and decreased poultry sales volume of $141.0 million, or 11.5 percentage points, and $19.4 million, or 1.6 percentage points, respectively. Partially offsetting these decreases in cost of sales was an increase of $139.4 million, or 11.4 percentage points in cost per pound sold. Included in the decreased poultry sales volume and increased cost per pound sold was a $73.7 million increase in poultry input costs due to increased grain and ingredient costs. Other factors affecting cost of sales were individually immaterial.
Operating income. Operating income decreased $445.1 million, or 64.5%, from $690.6 million generated for 2019 to $245.5 million generated for 2020. The following tables provide operating income information:
  Change from 2019Percent of Net Sales
Components of operating income2020AmountPercent20202019
 (In thousands, except percent data)
Gross profit$838,196 $(232,198)(21.7)%6.9 %9.4 %