SEC Filing | Pilgrim's Pride Corporation

View:

Download DOC

Download PDF

Download XLS

Download XBRL

ppc-20230326

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 26, 2023


☐			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/249336feccab58e21de32c045e68eafd-pilgrimslogoa04a01a01a01a03.jpg

PILGRIM’S PRIDE CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		75-1285071
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1770 Promontory Circle		80634-9038
Greeley	CO
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (970) 506-8000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of Exchange on which Registered

Common Stock, Par Value $0.01

PPC

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of April 26, 2023, was 236,733,263.

INDEX

PILGRIM’S PRIDE CORPORATION


PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements	2
	Condensed Consolidated Balance Sheets March 26, 2023 and December 25, 2022	2
	Condensed Consolidated Statements of Income Three Months Ended March 26, 2023 and March 27, 2022	3
	Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 26, 2023 and March 27, 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended March 26, 2023 and March 27, 2022	5
	Condensed Consolidated Statements of Cash Flows Three Months Ended March 26, 2023 and March 27, 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	46
PART II. OTHER INFORMATION		47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47


Item 6.	Exhibits	48
SIGNATURES		49

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 26, 2023		December 25, 2022
	(In thousands)
Cash and cash equivalents	$	150,687	$	400,988
Restricted cash and restricted cash equivalents	33,879		33,771

Trade accounts and other receivables, less allowance for credit losses	1,237,366		1,097,212
Accounts receivable from related parties	2,125		2,512
Inventories	2,022,110		1,990,184
Income taxes receivable	143,974		155,859
Prepaid expenses and other current assets	232,453		211,092
Total current assets	3,822,594		3,891,618
Deferred tax assets	7,955		1,969
Other long-lived assets	16,978		41,574
Operating lease assets, net	290,175		305,798
Intangible assets, net	848,895		846,020
Goodwill	1,243,613		1,227,944
Property, plant and equipment, net	2,997,295		2,940,846
Total assets	$	9,227,505	$	9,255,769


Accounts payable	$	1,517,470	$	1,587,939
Accounts payable to related parties	20,481		12,155
Revenue contract liabilities	47,766		34,486
Accrued expenses and other current liabilities	862,753		850,899
Income taxes payable	18,951		58,411
Current maturities of long-term debt	26,326		26,279
Total current liabilities	2,493,747		2,570,169
Noncurrent operating lease liabilities, less current maturities	219,350		230,701
Long-term debt, less current maturities	3,196,615		3,166,432

Deferred tax liabilities	347,166		364,184
Other long-term liabilities	64,107		71,007
Total liabilities	6,320,985		6,402,493
Common stock	2,619		2,617
Treasury stock	(544,687)		(544,687)
Additional paid-in capital	1,971,038		1,969,833
Retained earnings	1,754,686		1,749,499
Accumulated other comprehensive loss	(290,042)		(336,448)
Total Pilgrim’s Pride Corporation stockholders’ equity	2,893,614		2,840,814
Noncontrolling interest	12,906		12,462
Total stockholders’ equity	2,906,520		2,853,276
Total liabilities and stockholders’ equity	$	9,227,505	$	9,255,769

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


PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	Three Months Ended
	March 26, 2023		March 27, 2022
	(in thousands, except per share data)
Net sales	$	4,165,628	$	4,240,395
Cost of sales	3,992,581		3,698,415
Gross profit	173,047		541,980
Selling, general and administrative expense	133,678		139,967
Restructuring activities	8,026		—
Operating income	31,343		402,013
Interest expense, net of capitalized interest	42,662		36,296
Interest income	(3,600)		(1,274)
Foreign currency transaction losses	18,143		11,536
Miscellaneous, net	(22,653)		(324)

Income (loss) before income taxes	(3,209)		355,779
Income tax expense (benefit)	(8,840)		75,219
Net income	5,631		280,560
Less: Net income attributable to noncontrolling interests	444		122
Net income attributable to Pilgrim’s Pride Corporation	$	5,187	$	280,438

Weighted average shares of Pilgrim’s Pride Corporation common stock outstanding:
Basic	236,585		243,670
Effect of dilutive common stock equivalents	579		630
Diluted	237,164		244,300

Net income attributable to Pilgrim’s Pride Corporation per share of common stock outstanding:
Basic	$	0.02	$	1.15
Diluted	$	0.02	$	1.15

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


PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

	Three Months Ended
	March 26, 2023		March 27, 2022
	(In thousands)
Net income	$	5,631	$	280,560
Other comprehensive income (loss):
Foreign currency translation adjustment:
Gains (losses) arising during the period	42,644		(58,202)

Derivative financial instruments designated as cash flow hedges:
Gains arising during the period	18		528
Income tax effect	—		—
Reclassification to net earnings for losses (gains) realized	(64)		157
Income tax effect	—		(42)
Available-for-sale securities:
Gains arising during the period	40		—
Income tax effect	(10)		—
Reclassification to net earnings for gains realized	(18)		—
Income tax effect	5		—
Defined benefit plans:
Gains arising during the period	4,233		8,651
Income tax effect	(581)		(2,172)
Reclassification to net earnings of losses realized	182		232
Income tax effect	(43)		(57)
Total other comprehensive income (loss), net of tax	46,406		(50,905)
Comprehensive income	52,037		229,655
Less: Comprehensive income attributable to noncontrolling interests	444		122
Comprehensive income attributable to Pilgrim’s Pride Corporation	$	51,593	$	229,533

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


PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

Three Months Ended March 26, 2023	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount		Shares	Amount
	(In thousands)
Balance at December 25, 2022	261,611	$	2,617	(25,142)	$	(544,687)	$	1,969,833	$	1,749,499	$	(336,448)	$	12,462	$	2,853,276
Net income	—	—		—	—		—		5,187		—		444		5,631
Other comprehensive income, net of tax	—	—		—	—		—		—		46,406		—		46,406
Stock-based compensation plans:
Common stock issued under compensation plans	264	2		—	—		(2)		—		—		—		—
Requisite service period recognition	—	—		—	—		1,207		—		—		—		1,207

Balance at March 26, 2023	261,875	$	2,619	(25,142)	$	(544,687)	$	1,971,038	$	1,754,686	$	(290,042)	$	12,906	$	2,906,520


Three Months Ended March 27, 2022	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total
	Shares	Amount		Shares	Amount
	(In thousands)
Balance at December 26, 2021	261,347	$	2,614	(17,673)	$	(345,134)	$	1,964,028	$	1,003,569	$	(47,997)	$	11,854	$	2,588,934
Net income	—	—		—	—		—		280,438		—		122		280,560
Other comprehensive loss, net of tax	—	—		—	—		—		—		(50,905)		—		(50,905)
Stock-based compensation plans:
Common stock issued under compensation plans	221	2		—	—		(2)		—		—		—		—
Requisite service period recognition	—	—		—	—		2,040		—		—		—		2,040
Common stock purchased under share repurchase program	—	—		(1,158)	(27,023)		—		—		—		—		(27,023)
Balance at March 27, 2022	261,568	$	2,616	(18,831)	$	(372,157)	$	1,966,066	$	1,284,007	$	(98,902)	$	11,976	$	2,793,606

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


PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	March 26, 2023		March 27, 2022
	(In thousands)
Cash flows from operating activities:
Net income	$	5,631	$	280,560
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	98,257		102,142
Deferred income tax benefit	(26,309)		(21,917)
Loss (gain) on property disposals	(9,333)		1,855
Loan cost amortization	1,333		1,280
Stock-based compensation	1,200		1,963
Accretion of discount related to Senior Notes	429		429
Adjustment to previously recognized asset impairment	(130)		—
Loss (gain) on equity-method investments	(4)		8





Changes in operating assets and liabilities:
Trade accounts and other receivables	(132,791)		(66,669)
Inventories	(30,267)		(146,035)
Prepaid expenses and other current assets	(20,268)		(5,889)
Accounts payable, accrued expenses and other current liabilities	(43,662)		(2,454)
Income taxes	3,149		84,780

Long-term pension and other postretirement obligations	949		(1,101)
Other operating assets and liabilities	(9,888)		(1,956)
Cash provided by (used in) operating activities	(161,704)		226,996
Cash flows from investing activities:
Acquisitions of property, plant and equipment	(131,701)		(81,578)
Proceeds from property disposals	12,631		849
Proceeds from insurance recoveries	1,599		—
Purchase of acquired business, net of cash acquired	—		(4,847)

Cash used in investing activities	(117,471)		(85,576)
Cash flows from financing activities:
Proceeds from revolving line of credit and long-term borrowings	35,000		228,505
Payments on revolving line of credit, long-term borrowings and finance lease obligations	(6,527)		(32,093)

Payment of equity distribution under Tax Sharing Agreement between JBS USA Holdings and Pilgrim’s Pride Corporation	(1,592)		(1,961)
Purchase of common stock under share repurchase program	—		(27,023)
Payments of capitalized loan costs	—		(1,098)
Cash provided by financing activities	26,881		166,330
Effect of exchange rate changes on cash and cash equivalents	2,101		(2,073)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	(250,193)		305,677
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	434,759		450,121
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	184,566	$	755,798

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico, the Netherlands and the Republic of Ireland. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company’s primary distribution is through retailers, foodservice distributors and restaurants throughout the countries listed above. Additionally, the Company exports chicken and pork products to approximately 109 countries. Our fresh products consist of refrigerated (nonfrozen) whole or cut-up chicken, selected chicken parts that are either marinated or non-marinated, primary pork cuts, added value pork and pork ribs. The Company’s prepared products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, processed sausages, bacon, smoked meat, gammon joints, pre-packed meats, sandwich and deli counter meats and meat balls. The Company’s other products include plant-based protein offerings, ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts. The Company also provides direct-to-consumer meals and hot food-to-go solutions in the U.K. and the Republic of Ireland. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Mexico, France, Puerto Rico, the Netherlands and the Republic of Ireland. As of March 26, 2023, Pilgrim’s had approximately 62,000 employees and had the capacity to process approximately 42.1 million birds per 5-day work week. Approximately 5,650 contract growers supply chicken for the Company’s operations. As of March 26, 2023, PPC had the capacity to process approximately 51,000 pigs per 5-day work week and approximately 230 contract growers supply pigs for the Company’s operations. As of March 26, 2023, JBS S.A., through its indirect wholly-owned subsidiaries (collectively, “JBS”), beneficially owned 82.6% of the Company’s outstanding common stock.

Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments unless otherwise disclosed) considered necessary for a fair presentation have been included. Operating results for the three months ended March 26, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 25, 2022.

The Company operates on the basis of a 52/53 week fiscal year ending on the Sunday falling on or before December 31. Any reference we make to a particular year (for example, 2023) in the notes to these Condensed Consolidated Financial Statements applies to our fiscal year and not the calendar year. The three months ended March 26, 2023 represents the period from December 26, 2022 through March 26, 2023. The three months ended March 27, 2022 represents the period from December 27, 2021 through March 27, 2022.

The Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation.

The Condensed Consolidated Financial Statements have been prepared in conformity with U.S. GAAP using management’s best estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. Significant estimates made by the Company include the allowance for credit losses, reserves related to inventory obsolescence or valuation, useful lives of long-lived assets, goodwill, valuation of deferred tax assets, insurance accruals, valuation of pension and other postretirement benefits obligations, income tax accruals, certain derivative positions, certain litigation reserves and valuations of acquired businesses.

The functional currency of the Company’s U.S. and Mexico operations and certain holding-company subsidiaries in Luxembourg, the U.K., Malta and the Republic of Ireland is the U.S. dollar. The functional currency of its U.K. operations is the British pound. The functional currency of the Company’s operations in France, the Netherlands and the Republic of Ireland is the euro. For foreign currency-denominated entities other than the Company’s Mexico operations, translation from local

Table of Contents

currencies into U.S. dollars is performed for most assets and liabilities using the exchange rates in effect as of the balance sheet date. Income and expense accounts are remeasured using average exchange rates for the period. Adjustments resulting from translation of these financial records are reflected as a separate component of Accumulated other comprehensive loss in the Condensed Consolidated Balance Sheets. For the Company’s Mexico operations, remeasurement from the Mexican peso to U.S. dollars is performed for monetary assets and liabilities using the exchange rate in effect as of the balance sheet date. Remeasurement is performed for non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Income and expense accounts are remeasured using average exchange rates for the period. Net adjustments resulting from remeasurement of these financial records, as well as foreign currency transaction gains and losses, are reflected in Foreign currency transaction losses in the Condensed Consolidated Statements of Income.

Restricted Cash and Restricted Cash Equivalents

The Company is required to maintain cash balances with a broker as collateral for exchange-traded futures contracts. These balances are classified as restricted cash as they are not available for use by the Company to fund daily operations. The balance of restricted cash and restricted cash equivalents may also include investments in U.S. Treasury Bills that qualify as restricted cash equivalents, as required by the broker, to offset the obligation to return cash collateral.

The following table reconciles cash, cash equivalents, restricted cash and restricted cash equivalents as reported in the Condensed Consolidated Balance Sheets to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows:


	March 26, 2023		December 25, 2022
	(In thousands)
Cash and cash equivalents	$	150,687	$	400,988
Restricted cash and restricted cash equivalents	33,879		33,771
Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the Condensed Consolidated Statements of Cash Flows	$	184,566	$	434,759

Accounting Pronouncements Adopted in 2023

In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires disclosure of the existence of supplier financing programs. The guidance requires disclosure about the nature of the supplier financing agreements, including key terms and payment timing and determination of amounts, the accounting treatment for the transactions and the effect of the transactions on the financial statements, as well as any assets pledged or guarantees provided to the providers of the financing programs. The provisions of the new guidance were effective for years beginning after December 15, 2022 with the requirement to add rollforward disclosures for years beginning after December 15, 2023. The Company adopted this guidance effective December 26, 2022. The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements. Additional information regarding supplier finance programs is included in “Note 10. Supplier Finance Programs.”

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to the application of current GAAP to existing contracts, hedging relationships and other transactions affected by reference rate reform. The new guidance will ease the transition to new reference rates by allowing entities to update contracts and hedging relationships without applying many of the contract modification requirements specific to those contracts. The provisions of the new guidance are effective beginning March 12, 2020, extending through December 31, 2022 with the option to apply the guidance at any point during that time period. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides further clarification on the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. Once an entity elects an expedient or exception it must be applied to all eligible contracts or transactions. We currently have hedging transactions and debt agreements that reference LIBOR and will apply the new guidance as these contracts are modified to reference other rates. The Company adopted this guidance effective December 26, 2022. The adoption did not have a material impact on our Condensed Consolidated Financial Statements.

2. REVENUE RECOGNITION

The vast majority of the Company’s revenue is derived from contracts which are based upon a customer ordering our products. While there may be master agreements, the contract is only established when the customer’s order is accepted by the Company. The Company accounts for a contract, which may be verbal or written, when it is approved and committed by both parties, the rights of the parties are identified along with payment terms, the contract has commercial substance and collectability is probable.

Table of Contents

The Company evaluates the transaction for distinct performance obligations, which are the sale of its products to customers. Since its products are commodity market-priced, the sales price is representative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or port of destination), which faithfully depicts the transfer of control and recognition of revenue. There are instances of customer pick-up at the Company’s facility, in which case control transfers to the customer at that point and the Company recognizes revenue. The Company’s performance obligations are typically fulfilled within days to weeks of the acceptance of the order.

The Company makes judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is constrained. Due to the nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and updated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.

Disaggregated Revenue

Revenue has been disaggregated into the categories below to show how economic factors affect the nature, amount, timing and uncertainty of revenue and cash flows:


	Three Months Ended March 26, 2023
	(In thousands)
	Fresh		Prepared		Export		Other		Total
U.S.	$	1,943,786	$	244,801	$	128,275	$	115,706	$	2,432,568
U.K. and Europe	264,663		831,729		117,621		25,251		1,239,264
Mexico	411,919		46,356		—		35,521		493,796
Total net sales	$	2,620,368	$	1,122,886	$	245,896	$	176,478	$	4,165,628


	Three Months Ended March 27, 2022
	(In thousands)
	Fresh		Prepared		Export		Other		Total
U.S.	$	2,087,621	$	255,087	$	133,797	$	104,703	$	2,581,208
U.K. and Europe	237,309		746,636		173,411		34,626		1,191,982
Mexico	410,420		36,141		—		20,644		467,205
Total net sales	$	2,735,350	$	1,037,864	$	307,208	$	159,973	$	4,240,395

Contract Costs

The Company can incur incremental costs to obtain or fulfill a contract such as broker expenses that are not expected to be recovered. The amortization period for such expenses is less than one year; therefore, the costs are expensed as incurred.

Taxes

The Company excludes all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer (for example, sales, use, value added and some excise taxes) from the transaction price.

Contract Balances

The Company receives payment from customers based on terms established with the customer. Payments are typically due within 14 to 30 days of delivery. Revenue contract liabilities relate to payments received in advance of satisfying the performance under the customer contract. The revenue contract liabilities relate to customer prepayments and the advanced consideration, such as cash, received from governmental agency contracts for which performance obligations to the end customer have not been satisfied.

Changes in the revenue contract liabilities balance are as follows (in thousands):

Table of Contents


Balance as of December 25, 2022	$	34,486
Revenue recognized	(20,183)
Cash received, excluding amounts recognized as revenue during the period	33,463
Balance as of March 26, 2023	$	47,766

Accounts Receivable

The Company records accounts receivable when revenue is recognized. We record an allowance for credit losses, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for credit losses are based on historical collection experience, current trends, aging of accounts receivable and periodic credit evaluations of our customers’ financial condition. We write off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable.

3. DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next twelve months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.

The Company has operations in Mexico, the U.K., France, the Netherlands and the Republic of Ireland. Therefore, it has exposure to translational foreign exchange risk when the financial results of those operations are remeasured in U.S. dollars. The Company has purchased foreign currency forward contracts to manage this foreign exchange risk.

The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements. The Company’s counterparties require that it post collateral for changes in the net fair value of the derivative contracts. This cash collateral is reported in the line item Restricted cash and restricted cash equivalents on the Condensed Consolidated Balance Sheets.

Undesignated contracts may include contracts not designated as hedges or contracts that do not qualify for hedge accounting. The fair value of each of these derivatives is recognized in the Condensed Consolidated Balance Sheets within Prepaid expenses and other current assets or Accrued expenses and other current liabilities. Changes in fair value of each derivative are recognized immediately in the Condensed Consolidated Statements of Income within Net sales, Cost of sales, Selling, general and administrative expense, or Foreign currency transaction losses depending on the risk the derivative is intended to mitigate. While management believes these instruments help mitigate various market risks, they are not designated and accounted for as hedges as a result of the extensive record keeping requirements.

The Company does not apply hedge accounting treatment to certain derivative financial instruments that it has purchased to mitigate commodity purchase exposures in the U.S. and Mexico or foreign currency transaction exposures on our Mexico operations. Therefore, the Company recognized changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to the commodity derivative financial instruments are included in the line item Cost of sales in the Condensed Consolidated Statements of Income. Gains or losses related to the foreign currency derivative financial instruments are included in the line item Foreign currency transaction losses and Cost of sales in the Condensed Consolidated Statements of Income.

The Company does apply hedge accounting treatment to certain derivative financial instruments related to its U.K. and Europe reportable segment that it has purchased to mitigate foreign currency transaction exposures. Before the settlement date of the financial derivative instruments, the Company recognizes changes in the fair value of the cash flow hedge into accumulated other comprehensive income (“AOCI”). When the derivative financial instruments are settled, the amount in AOCI is then reclassified to earnings. Gains or losses related to these derivative financial instruments are included in the line item Net sales and Cost of sales in the Condensed Consolidated Statements of Income.

Table of Contents

Information regarding the Company’s outstanding derivative instruments and cash collateral posted with brokers is included in the following table:


	March 26, 2023			December 25, 2022
	(In thousands)
Fair values:
Commodity derivative assets	$	8,333		$	17,922
Commodity derivative liabilities	(26,437)			(9,042)
Foreign currency derivative assets	5,600			555
Foreign currency derivative liabilities	(405)			(6,170)

Sales contract derivative assets	459			—
Sales contract derivative liabilities	—			(3,705)
Cash collateral posted with brokers(a)	33,879			33,771
Derivatives coverage(b):
Corn	12.1		%	14.4		%
Soybean meal	10.0		%	10.1		%
Period through which stated percent of needs are covered:
Corn	March 2024			December 2023
Soybean meal	July 2024			December 2023

(a)Collateral posted with brokers consists primarily of cash, short-term treasury bills or other cash equivalents.

(b)Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date.

The following table presents the gains and losses of each derivative instrument held by the Company not designated or qualifying as hedging instruments:


	Three Months Ended
Gains (Losses) by Type of Contract (a)	March 26, 2023		March 27, 2022		Affected Line Item in the Condensed Consolidated Statements of Income
	(In thousands)
Foreign currency derivatives	$	(19,104)	$	(13,300)	Foreign currency transaction losses
Commodity derivatives	(16,534)		31,540		Cost of sales
Sales contract derivative liabilities	4,164		(8,666)		Net sales
Total	$	(31,474)	$	9,574

(a)Amounts represent income (expenses) related to results of operations.

The following tables present the components of the gain or loss on derivatives that qualify as cash flow hedges:


	Gains Recognized in Other Comprehensive Income
	Three Months Ended
	March 26, 2023		March 27, 2022
	(In thousands)
Foreign currency derivatives	$	16	$	523


	Gains (Losses) Reclassified from AOCI into Income
	Three Months Ended March 26, 2023						Three Months Ended March 27, 2022
	Net sales(a)		Cost of sales(b)		Interest expense, net of capitalized interest(b)		Net sales(a)		Cost of sales(b)		Interest expense, net of capitalized interest(b)
	(In thousands)
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Income in which the effects of cash flow hedges are recorded	$	4,165,628	$	3,992,581	$	42,662	$	4,240,395	$	3,698,415	$	36,296
Impact from cash flow hedging instruments:
Foreign currency derivatives	120		56		—		32		91		—
Interest rates swap derivatives	—		—		—		—		—		98

Table of Contents

(a) Amounts represent income (expenses) related to net sales.

(b) Amounts represent expenses (income) related to cost of sales and interest expense.

At March 26, 2023, there were immaterial pre-tax deferred net gains on foreign currency derivatives recorded in AOCI that are expected to be reclassified to the Condensed Consolidated Statements of Income during the next twelve months. This expectation is based on the anticipated settlements on the hedged investments in foreign currencies that will occur over the next twelve months, at which time the Company will recognize the deferred gains to earnings.

4. TRADE ACCOUNTS AND OTHER RECEIVABLES

Trade accounts and other receivables, less allowance for credit losses, consisted of the following:


	March 26, 2023		December 25, 2022
	(In thousands)
Trade accounts receivable	$	1,071,202	$	984,332

Notes receivable from third parties	13,599		33,477
Other receivables	161,737		88,962
Receivables, gross	1,246,538		1,106,771
Allowance for credit losses	(9,172)		(9,559)
Receivables, net	$	1,237,366	$	1,097,212

Accounts receivable from related parties(a)	$	2,125	$	2,512

(a) Additional information regarding accounts receivable from related parties is included in “Note 17. Related Party Transactions.”

Activity in the allowance for credit losses was as follows:


	Three Months Ended
	March 26, 2023
	(In thousands)
Balance, beginning of period	$	(9,559)
Provision charged to operating results	(525)
Account write-offs and recoveries	1,149
Effect of exchange rate	(237)
Balance, end of period	$	(9,172)

5. INVENTORIES

Inventories consisted of the following:


	March 26, 2023		December 25, 2022
	(In thousands)
Raw materials and work-in-process	$	1,256,009	$	1,204,092
Finished products	592,772		596,375
Operating supplies	74,347		95,367
Maintenance materials and parts	98,982		94,350
Total inventories	$	2,022,110	$	1,990,184

6. INVESTMENTS IN SECURITIES

The Company recognizes investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security’s length to maturity. The following table summarizes our investments in available-for-sale securities:


	March 26, 2023				December 25, 2022
	Cost		Fair Value		Cost		Fair Value
	(In thousands)
Cash equivalents:
Fixed income securities	$	77,131	$	77,131	$	167,366	$	167,430

Table of Contents

Gross realized gains during the three months ended March 26, 2023 related to the Company’s available-for-sale securities were $1.9 million and gross realized gains during the three months ended March 27, 2022 were immaterial. Proceeds received from the sale or maturity of available-for-sale securities investments are historically disclosed in the Condensed Consolidated Statements of Cash Flows. Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during the three months ended March 26, 2023 and March 27, 2022 that have been included in accumulated other comprehensive income (loss) and the net amount of gains and losses reclassified out of accumulated other comprehensive income (loss) to earnings during the three months ended March 26, 2023 and March 27, 2022 are disclosed in “Note 13. Stockholders’ Equity.”

7. GOODWILL AND INTANGIBLE ASSETS

The activity in goodwill by segment for the three months ended March 26, 2023 was as follows:


	December 25, 2022		Currency Translation		March 26, 2023
	(In thousands)
U.S.	$	41,936	$	—	$	41,936
U.K. and Europe	1,058,204		15,669		1,073,873
Mexico	127,804		—		127,804
Total	$	1,227,944	$	15,669	$	1,243,613

Intangible assets consisted of the following:


	December 25, 2022		Amortization		Currency Translation		March 26, 2023
	(In thousands)
Cost:
Trade names not subject to amortization	$	549,024	$	—	$	8,274	$	557,298
Trade names subject to amortization	112,057		—		447		112,504
Customer relationships	427,662		—		3,882		431,544

Accumulated amortization:
Trade names	(53,708)		(943)		(37)		(54,688)
Customer relationships	(189,015)		(7,350)		(1,398)		(197,763)

Intangible assets, net	$	846,020	$	(8,293)	$	11,168	$	848,895

Intangible assets are amortized over the estimated useful lives of the assets as follows:


Customer relationships			3-18 years
Trade names subject to amortization			15-20 years

At March 26, 2023, the Company assessed if events or changes in circumstances indicated that the asset group-level carrying amounts of its intangible assets subject to amortization might not be recoverable. There were no indicators present that required the Company to test the recoverability of the asset group-level carrying amounts of its intangible assets subject to amortization at that date.

8. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment (“PP&E”), net consisted of the following:

Table of Contents


	March 26, 2023		December 25, 2022
	(In thousands)
Land	$	267,245	$	263,494
Buildings