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EX-32.1 - EXHIBIT 32.1 - PILGRIMS PRIDE CORPppc-20160327xxexhibit321.htm
EX-12 - EXHIBIT 12 - PILGRIMS PRIDE CORPppc-20160327xexhibit12.htm
EX-31.1 - EXHIBIT 31.1 - PILGRIMS PRIDE CORPppc-20160327xexhibit311.htm
EX-32.2 - EXHIBIT 32.2 - PILGRIMS PRIDE CORPppc-20160327xxexhibit322.htm
EX-31.2 - EXHIBIT 31.2 - PILGRIMS PRIDE CORPppc-20160327xxexhibit312.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 (Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 27, 2016
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
 
PILGRIM’S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
75-1285071
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
1770 Promontory Circle,
Greeley, CO
 
80634-9038
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code: (970) 506-8000 
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
ý
  
Accelerated Filer
 
¨
 
 
 
 
Non-accelerated Filer
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
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 27, 2016, was 254,537,287.




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

1



PART I.
FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
March 27, 2016
 
December 27, 2015
 
 
(Unaudited)
 
 
 
 
(In thousands)
Cash and cash equivalents
 
$
574,888

 
$
439,638

Trade accounts and other receivables, less allowance for doubtful accounts
 
347,401

 
348,994

Account receivable from related parties
 
6,155

 
2,668

Inventories
 
778,528

 
801,357

Income taxes receivable
 
24,105

 
71,410

Prepaid expenses and other current assets
 
76,210

 
75,602

Assets held for sale
 
6,555

 
6,555

Total current assets
 
1,813,842

 
1,746,224

Other long-lived assets
 
15,982

 
15,672

Identified intangible assets, net
 
44,458

 
47,453

Goodwill
 
161,578

 
156,565

Property, plant and equipment, net
 
1,350,890

 
1,352,529

Total assets
 
$
3,386,750

 
$
3,318,443

 
 
 
 
 
Notes payable to banks
 
$
21,577

 
$
28,726

Accounts payable
 
471,952

 
482,954

Account payable to related parties
 
1,654

 
7,000

Accrued expenses and other current liabilities
 
279,249

 
314,966

Income taxes payable
 
20,810

 
13,228

Current deferred tax liabilities
 

 

Current maturities of long-term debt
 
88

 
86

Total current liabilities
 
795,330

 
846,960

Long-term debt, less current maturities
 
986,400

 
985,509

Deferred tax liabilities
 
132,755

 
131,882

Other long-term liabilities
 
101,076

 
92,282

Total liabilities
 
2,015,561

 
2,056,633

Common stock
 
2,597

 
2,597

Treasury stock
 
(101,890
)
 
(99,233
)
Additional paid-in capital
 
1,676,554

 
1,675,674

Retained earnings (accumulated deficit)
 
(142,881
)
 
(261,252
)
Accumulated other comprehensive loss
 
(65,785
)
 
(58,930
)
Total Pilgrim’s Pride Corporation stockholders’ equity
 
1,368,595

 
1,258,856

Noncontrolling interest
 
2,594

 
2,954

Total stockholders’ equity
 
1,371,189

 
1,261,810

Total liabilities and stockholders’ equity
 
$
3,386,750

 
$
3,318,443

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

2



PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
 
Thirteen Weeks Ended
 
 
March 27, 2016
 
March 29, 2015
 
 
(In thousands, except per share data)
Net sales
 
$
1,962,937

 
$
2,052,919

Cost of sales
 
1,725,375

 
1,675,799

Gross profit
 
237,562

 
377,120

Selling, general and administrative expense
 
48,788

 
49,507

Operating income
 
188,774

 
327,613

Interest expense, net of capitalized interest
 
12,033

 
4,855

Interest income
 
(693
)
 
(1,490
)
Foreign currency transaction loss (gain)
 
(235
)
 
8,974

Miscellaneous, net
 
(2,946
)
 
(413
)
Income before income taxes
 
180,615

 
315,687

Income tax expense
 
62,604

 
111,494

Net income
 
118,011

 
204,193

Less: Net loss attributable to noncontrolling interests
 
(360
)
 
(22
)
Net income attributable to Pilgrim’s Pride Corporation
 
$
118,371

 
$
204,215

 
 
 
 
 
Weighted average shares of common stock outstanding:
 
 
 
 
Basic
 
254,807

 
259,653

Effect of dilutive common stock equivalents
 
340

 
276

Diluted
 
255,147

 
259,929

 
 
 
 
 
Net income attributable to Pilgrim’s Pride Corporation per
     share of common stock outstanding:
 
 
 
 
Basic
 
$
0.46

 
$
0.79

Diluted
 
$
0.46

 
$
0.79

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


3



PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Thirteen Weeks Ended
 
 
March 27, 2016
 
March 29, 2015
 
 
(In thousands)
Net income
 
$
118,011

 
$
204,193

Other comprehensive income (loss):
 
 
 
 
Gain (loss) associated with available-for-sale securities,
net of tax benefit (expense) of $(18) and $12, respectively
 
30

 
(19
)
Loss associated with pension and other postretirement
     benefits, net of tax benefit of $4,176 and $1,255, respectively
 
(6,885
)
 
(2,069
)
Total other comprehensive loss, net of tax
 
(6,855
)
 
(2,088
)
Comprehensive income
 
111,156

 
202,105

Less: Comprehensive income (loss) attributable to
       noncontrolling interests
 
(360
)
 
(22
)
Comprehensive income attributable to Pilgrim’s Pride
       Corporation
 
$
111,516

 
$
202,127

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



4



PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
 
Pilgrim’s Pride Corporation Stockholders
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in
Capital
 
Retained Earnings (Accumulated
Deficit)
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
(In thousands)
Balance at December 27, 2015
 
259,685

 
$
2,597

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

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

 
$
1,261,810

Net income (loss)
 

 

 

 

 

 
118,371

 

 
(360
)
 
118,011

Other comprehensive loss, net of tax
 

 

 

 

 

 

 
(6,855
)
 

 
(6,855
)
Share-based compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Requisite service period recognition
 

 

 

 

 
880

 

 

 

 
880

Common stock purchased under share repurchase
   program
 

 

 
(113
)
 
(2,657
)
 

 

 

 

 
(2,657
)
Balance at March 27, 2016
 
259,685

 
$
2,597

 
(4,975
)
 
$
(101,890
)
 
$
1,676,554

 
$
(142,881
)
 
$
(65,785
)
 
$
2,594

 
$
1,371,189

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 28, 2014
 
259,029

 
$
2,590

 

 
$

 
$
1,662,354

 
$
591,492

 
$
(62,541
)
 
$
2,906

 
$
2,196,801

Net income (loss)
 

 

 

 

 

 
204,215

 

 
(22
)
 
204,193

Other comprehensive loss, net of tax
 

 

 

 

 

 

 
(2,088
)
 

 
(2,088
)
Share-based compensation plans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issued under compensation plans
 
671

 
7

 
 
 
 
 
(7
)
 

 

 

 

Requisite service period recognition
 

 

 

 

 
797

 

 

 

 
797

Tax benefit related to share-based compensation
 

 

 

 

 
7,834

 

 

 

 
7,834

Special cash dividend
 

 

 

 

 

 
(1,498,470
)
 

 

 
(1,498,470
)
Balance at March 29, 2015
 
259,700

 
$
2,597

 

 
$

 
$
1,670,978

 
$
(702,763
)
 
$
(64,629
)
 
$
2,884

 
$
909,067

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

5



PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
Thirteen Weeks Ended
 
 
March 27, 2016
 
March 29, 2015
 
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
118,011

 
$
204,193

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
42,391

 
36,152

Foreign currency transaction loss
 

 
12,074

Gain on property disposals
 
(129
)
 
(881
)
Share-based compensation
 
880

 
797

Deferred income tax benefit
 
(215
)
 
(2,408
)
Changes in operating assets and liabilities:
 
 
 
 
Trade accounts and other receivables
 
(1,894
)
 
13,289

Inventories
 
22,829

 
(2,313
)
Prepaid expenses and other current assets
 
(608
)
 
9,294

Accounts payable, accrued expenses and other current liabilities
 
(55,990
)
 
(28,702
)
Income taxes
 
55,261

 
50,639

Long-term pension and other postretirement obligations
 
(2,311
)
 
1,617

Other operating assets and liabilities
 
(362
)
 
2,335

Cash provided by operating activities
 
177,863

 
296,086

Cash flows from investing activities:
 
 
 
 
Acquisitions of property, plant and equipment
 
(37,074
)
 
(32,591
)
Proceeds from property disposals
 
610

 
867

Cash used in investing activities
 
(36,464
)
 
(31,724
)
Cash flows from financing activities:
 
 
 
 
Proceeds from note payable to bank
 
8,885

 

Payments on note payable to bank
 
(16,034
)
 

Proceeds from revolving line of credit and long-term borrowings
 

 
1,680,000

Payments on revolving line of credit, long-term borrowings and capital lease
obligations
 
(21
)
 
(533,669
)
Proceeds from equity contribution under Tax Sharing Agreement between
    JBS USA Food Company Holdings and Pilgrim’s Pride Corporation
 
3,691

 

Tax benefit related to share-based compensation
 

 
7,834

Payment of capitalized loan costs
 
(13
)
 
(8,862
)
Purchase of common stock under share repurchase program
 
(2,657
)
 

Payment of special cash dividends
 

 
(1,498,470
)
Cash used in financing activities
 
(6,149
)
 
(353,167
)
Effect of exchange rate changes on cash and cash equivalents
 

 
(9,301
)
Increase (decrease) in cash and cash equivalents
 
135,250

 
(98,106
)
Cash and cash equivalents, beginning of period
 
439,638

 
576,143

Cash and cash equivalents, end of period
 
$
574,888

 
$
478,037

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

6



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Business
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), Mexico and Puerto Rico. 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 United States and Puerto Rico and in the northern and central regions of Mexico. Additionally, the Company exports chicken products to approximately 90 countries. Pilgrim’s fresh chicken products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company’s prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 12 U.S. states, Puerto Rico and Mexico. As of March 27, 2016, Pilgrim’s had approximately 37,900 employees and the capacity to process approximately 37 million birds per five-day work week for a total of approximately 11 billion pounds of live chicken annually. Approximately 4,035 contract growers supply poultry for the Company’s operations. As of March 27, 2016, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owned 76.7% of the Company’s outstanding common stock.
Consolidated Financial Statements
The accompanying unaudited 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 thirteen weeks ended March 27, 2016 are not necessarily indicative of the results that may be expected for the year ending December 25, 2016. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 27, 2015.
Pilgrim’s operates on a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. The reader should assume any reference we make to a particular year (for example, 2016) in the notes to these Condensed Consolidated Financial Statements applies to our fiscal year and not the calendar year.
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 Company measures the financial statements of its Mexico subsidiaries as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than non-monetary assets, of the Mexico subsidiaries at current exchange rates. We remeasure non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. We remeasure income and expenses at average exchange rates in effect during the period. Currency exchange gains or losses are included in the line item Foreign currency transaction loss in the Condensed Consolidated Statements of Income.
Reportable Segment
We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale.
Revenue Recognition
We recognize revenue when all of the following circumstances are satisfied: (i) persuasive evidence of an arrangement exists, (ii) price is fixed or determinable, (iii) collectability is reasonably assured and (iv) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. Revenue is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give rise to the revision become known.

7



Book Overdraft
The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Condensed Consolidated Statements of Cash Flows.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. In June 2015, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide entities the option to adopt the new guidance as of the original effective date. The provisions of the new guidance will be effective as of the beginning of our 2018 fiscal year, but we have the option to adopt the guidance as early as the beginning of our 2017 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected either a transition approach to implement the standard or an adoption date.
In July 2015, the FASB issued new accounting guidance on the subsequent measurement of inventory, which, in an effort to simplify unnecessarily complicated accounting guidance that can result in several potential outcomes, requires an entity to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current accounting guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The provisions of the new guidance will be effective as of the beginning of our 2017 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.
In February 2016, the FASB issued new accounting guidance on lease arrangements, which, in an effort to increase transparency and comparability among organizations utilizing leasing, requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases. In transition, the entity is required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The provisions of the new guidance will be effective as of the beginning of our 2019 fiscal year. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
In March 2016, the FASB issued new accounting guidance on employee share-based payments, which, in an effort to simplify unnecessarily complicated aspects of accounting and reporting for share-based payment transactions, requires an entity to amend accounting and reporting methodology for areas such as the income tax consequences of share-based payments, classification of share-based awards as either equity or liabilities, and classification of share-based payment transactions in the statement of cash flows. The transition approach will vary depending on the area of accounting and reporting methodology to be amended. The provisions of the new guidance will be effective as of the beginning of our 2017 fiscal year. Early adoption is permitted. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.
2.
BUSINESS ACQUISITION
On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries, 100% of the equity of Provemex Holding LLC and its subsidiaries (together, “Tyson Mexico”) from Tyson Foods, Inc. and certain of its subsidiaries for cash. Tyson Mexico is a vertically integrated poultry business based in Gomez Palacio, Durango, Mexico. The acquired business has a production capacity of 2.5 million birds per five-day work week in its three plants and employs more than 4,500 people in its plants, offices and seven distribution centers. The acquisition further strengthens the Company's strategic position in the Mexico chicken market. The Company plans to keep all current labor contracts in place.
The following table summarizes the consideration paid for Tyson Mexico (in thousands):
Negotiated sales price
$
400,000

Working capital adjustment
(20,933
)
Final purchase price
$
379,067


8



Transaction costs incurred in conjunction with the purchase were approximately $2.2 million. These costs were expensed as incurred.
The results of operations of the acquired business since June 29, 2015 are included in the Company’s Condensed Consolidated Statements of Operations. Net sales generated by the acquired business during the thirteen weeks ended March 27, 2016 totaled $102.9 million. The acquired business incurred a net loss during the thirteen weeks ended March 27, 2016 totaling $0.2 million.
The assets acquired and liabilities assumed in the Tyson Mexico acquisition have been measured at their fair values at June 29, 2015 as set forth below. The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce. These benefits include complementary product offerings, an enhanced footprint in Mexico and attractive synergy opportunities and value creation.  The Company does not have tax basis in the goodwill, and therefore, the goodwill is not deductible for tax purposes. The preliminary fair values recorded were determined based upon a preliminary valuation and the estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). The primary areas of acquisition accounting that are not yet finalized relate to the preliminary valuation of property, plant and equipment and identifiable intangible assets, amounts for income taxes including deferred tax accounts, uncertain tax positions and net operating loss carryforwards inclusive of associated limitations and valuation allowances, certain legal matters and residual goodwill.
The preliminary fair values recorded for the assets acquired and liabilities assumed for Tyson Mexico are as follows (in thousands):
Cash and cash equivalents
$
5,535

Trade accounts and other receivables
24,173

Inventories
68,130

Prepaid expenses and other current assets
7,661

Property, plant and equipment
157,752

Identifiable intangible assets
26,411

Other long-lived assets
199

Total assets acquired
289,861

Accounts payable
21,550

Other current liabilities
8,707

Long-term deferred tax liabilities
36,960

Other long-term liabilities
5,155

Total liabilities assumed
72,372

Total identifiable net assets
217,489

Goodwill
161,578

Total net assets
$
379,067

The Company evaluated and continues to evaluate pre-acquisition contingencies relating to Tyson Mexico that existed as of the acquisition date. Based on the evaluation to date, the Company has preliminarily determined that certain pre-acquisition contingencies are probable in nature and estimable as of the acquisition date. Accordingly, the Company preliminarily recorded its best estimates for these contingencies as part of the preliminary valuation of the assets and liabilities acquired for Tyson Mexico. The Company continues to gather information relating to all pre-acquisition contingencies that it has assumed from Tyson Mexico. Any changes to the pre-acquisition contingency amounts recorded during the measurement period will be included in the final valuation and related amounts recognized. Subsequent to the end of the measurement period any adjustments to pre-acquisition contingency amounts will be reflected in the Company's results of operations.
The Company performed a preliminary valuation of the assets and liabilities of Tyson Mexico at June 29, 2015. Significant assumptions used in the preliminary valuation and the bases for their determination are summarized as follows:
Property, plant and equipment, net. Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company's real property improvements and the majority of its personal property

9



was based on the cost approach. The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
Indefinite-lived trade names. The Company valued two indefinite-lived trade names using the income approach, specifically the relief from royalty method. Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned. Royalty rates were selected based on consideration of several factors, including (i) prior transactions involving Tyson Mexico trade names, (ii) incomes derived from license agreements on comparable trade names within the food and non-alcoholic beverages industry and (iii) the relative profitability and perceived contribution of each trade name. Royalty rates used in the determination of the fair values of the two trade names ranged from 4.0% to 5.0% of expected net sales related to the respective trade names and trade name maintenance costs were estimated as 1.4% of the royalty saved. The Company anticipates using both trade names for an indefinite period as demonstrated by the sustained use of each subject trade name. In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of 3.5% to 4.0% annually with a terminal year growth rate of 3.8%. Income taxes were estimated at 30.0% of pre-tax income, a tax amortization benefit was estimated considering a rate of 15.0% and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of 12.0%. Trade names were valued at $9.7 million under this approach.
Customer relationships. The Company valued Tyson Mexico’s customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset is determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the fair value of the customer relationships, net sales related to our existing customers were estimated to grow at a rate of 4.0% annually, but we also anticipate losing existing customers at an attrition rate of 15.0%. Income taxes were estimated at 30.0% of pre-tax income, a tax amortization benefit was estimated considering a rate of 15.8% and net cash flows attributable to our existing customers were discounted using a rate of 13.1%. Customer relationships were valued at $16.7 million under this approach.
The Company recognized the following change in goodwill related to this acquisition during the thirteen weeks ended March 27, 2016 (in thousands):
Goodwill, beginning of period
$
156,565

Deferred tax impact related to customer relationship intangible assets
5,013

Goodwill, end of period
$
161,578

The following unaudited pro forma information presents the combined financial results for the Company and Tyson Mexico as if the acquisition had been completed at the beginning of the Company’s prior year, December 29, 2014.
 
Thirteen Weeks
Ended
March 29, 2015
 
(In thousands, except per share amount)
Net sales
$
2,208,219

Net income attributable to Pilgrim's Pride Corporation
211,510

Net income attributable to Pilgrim's Pride Corporation
per common share - diluted
0.81

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

10



Level 1
  
Unadjusted quoted prices in active markets for identical assets or liabilities;
 
 
Level 2
  
Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or
 
 
Level 3
  
Unobservable inputs, such as discounted cash flow models or valuations.
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.
As of March 27, 2016 and December 27, 2015, the Company held derivative assets and liabilities that were required to be measured at fair value on a recurring basis. Derivative assets and liabilities consist of long and short positions on exchange-traded commodity futures instruments.
The following items were measured at fair value on a recurring basis:
 
 
March 27, 2016
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In thousands)
Fair value assets:
 
 
 
 
 
 
 
 
     Commodity futures instruments
 
$
1,956

 
$

 
$

 
$
1,956

Fair value liabilities:
 
 
 
 
 
 
 
 
     Commodity futures instruments
 
(4,809
)
 

 

 
(4,809
)
     Commodity options instruments
 
(57
)
 

 

 
(57
)
 
 
December 27, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(In thousands)
Fair value assets:
 
 
 
 
 
 
 
 
     Commodity futures instruments
 
$
59

 
$

 
$

 
$
59

     Commodity options instruments
 
1,618

 

 

 
1,618

Fair value liabilities:
 
 
 
 
 
 
 
 
     Commodity futures instruments
 
(5,436
)
 

 

 
(5,436
)
See “Note 7. Derivative Financial Instruments” for additional information.
Fair value and carrying value for our fixed-rate debt obligation is as follows:
 
 
March 27, 2016
 
December 27, 2015
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed-rate senior notes payable at 5.75%, at Level 1 inputs
 
(500,000
)
 
(510,000
)
 
(500,000
)
 
(488,750
)
See “Note 10. Long-Term Debt and Other Borrowing Arrangements” for additional information.
The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations.
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require periodic disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.

11



Derivative assets were recorded at fair value based on quoted market prices and are included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheets. The fair value of the Company’s fixed-rate debt obligation was based on the quoted market price at March 27, 2016 or December 27, 2015, as applicable.
 In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
4.
TRADE ACCOUNTS AND OTHER RECEIVABLES
Trade accounts and other receivables, less allowance for doubtful accounts, consisted of the following:
 
 
March 27, 2016
 
December 27, 2015
 
 
(In thousands)
Trade accounts receivable
 
$
333,925

 
$
342,466

Notes receivable - current
 
788

 
850

Other receivables
 
17,979

 
10,578

Receivables, gross
 
352,692

 
353,894

Allowance for doubtful accounts
 
(5,291
)
 
(4,900
)
Receivables, net
 
$
347,401

 
$
348,994

 
 
 
 
 
Account receivable from related parties(a)
 
$
6,155

 
$
2,668

(a)    Additional information regarding accounts receivable from related parties is included in “Note 15. Related Party Transactions.”
5.
INVENTORIES
Inventories consisted of the following:
 
March 27, 2016
 
December 27, 2015
 
(In thousands)
Live chicken and hens
$
370,161

 
$
365,062

Feed, eggs and other
217,571

 
215,859

Finished chicken products
181,983

 
191,988

Total chicken inventories
769,715

 
772,909

Commercial feed and other
8,813

 
28,448

Total inventories
$
778,528

 
$
801,357

6.
INVESTMENTS IN SECURITIES
We recognize investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security's length to maturity. Additionally, those securities identified by management at the time of purchase for funding operations in less than one year are classified as current.

12



The following table summarizes our investments in available-for-sale securities:
 
 
March 27, 2016
 
December 27, 2015
 
 
Amortized Cost
 
Fair
Value
 
Amortized Cost
 
Fair
Value
 
 
(In thousands)
Cash equivalents:
 
 
 
 
 
 
 
 
Fixed income securities
 
$
438,246

 
$
438,246

 
$
290,795

 
$
290,795

Other
 
58

 
58

 
54,831

 
54,831

All of the securities classified as cash and cash equivalents above mature within 90 days. The specific identification method is used to determine the cost of each security sold and each amount reclassified out of accumulated other comprehensive loss to earnings. Gross realized gains generated during the thirteen weeks ended March 27, 2016 and March 29, 2015 related to the Company’s available-for-sale securities totaled approximately $0.4 million and $0.1 million, respectively. Gross realized losses incurred during the thirteen weeks ended March 27, 2016 and March 29, 2015 related to the Company’s available-for-sale securities totaled approximately $16,700 and $8,300, respectively. Proceeds received from the sale or maturity of available-for-sale securities are historically disclosed in the Condensed Consolidated Statements of Cash Flows. No proceeds were received from the sale or maturity of available-for-sale securities during the thirteen weeks ended March 27, 2016 and March 29, 2015. Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during the thirteen weeks ended March 27, 2016 and March 29, 2015 that have been included in accumulated other comprehensive loss and the net amount of gains and losses reclassified out of accumulated other comprehensive loss to earnings during the thirteen weeks ended March 27, 2016 and March 29, 2015 are disclosed in “Note 13. Stockholders’ Equity.”
7.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.
The Company has operations in Mexico and, therefore, has exposure to translational foreign exchange risk when the financial results of those operations are translated to U.S. dollars.
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. Our counterparties require that we post cash collateral for changes in the net fair value of the derivative contracts.
We have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase transaction exposures as cash flow hedges. Therefore, we recognized changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to these derivative financial instruments are included in the line item Cost of sales in the Condensed Consolidated Statements of Income. The Company recognized net gains of $4.1 million and net gains of $23.4 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended March 27, 2016 and March 29, 2015, respectively. Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:

13



 
March 27, 2016
 
December 27, 2015
 
(Fair values in thousands)
Fair values:
 
 
 
Commodity derivative assets
$
1,956

 
$
1,677

Commodity derivative liabilities
(4,866
)
 
(5,436
)
Cash collateral posted with brokers
7,631

 
9,381

Derivatives coverage(a):
 
 
 
Corn
3.5
 %
 
7.0
%
Soybean meal
(15.4
)%
 
4.1
%
Period through which stated percent of needs are covered:
 
 
 
Corn
March 2017

 
March 2017

Soybean meal
September 2016

 
July 2016

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

14



8.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (“PP&E”), net consisted of the following:
 
March 27, 2016
 
December 27, 2015
 
(In thousands)
Land
$
105,961

 
$
105,165

Buildings
1,155,520

 
1,131,379

Machinery and equipment
1,707,421

 
1,657,573

Autos and trucks
53,206

 
53,408

Construction-in-progress
111,236

 
152,619

PP&E, gross
3,133,344

 
3,100,144

Accumulated depreciation
(1,782,454
)
 
(1,747,615
)
PP&E, net
$
1,350,890

 
$
1,352,529

The Company recognized depreciation expense of $38.5 million and $34.0 million during the thirteen weeks ended March 27, 2016 and March 29, 2015, respectively.
During the thirteen weeks ended March 27, 2016, we spent $37.1 million on capital projects and transferred $77.3 million of completed projects from construction-in-progress to depreciable assets. During the thirteen weeks ended March 29, 2015, we spent $32.6 million on capital projects and transferred $45.2 million of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during the thirteen weeks ended March 27, 2016 to improve efficiencies and reduce costs.
During the thirteen weeks ended March 27, 2016, the Company sold certain PP&E for cash of $0.6 million and recognized net gains on these sales of $0.1 million. PP&E sold in the period included an office building in Texas and miscellaneous equipment. During the thirteen weeks ended March 29, 2015, the Company sold miscellaneous equipment for cash of $0.9 million and recognized a net gain of $0.9 million.
 Management has committed to the sale of certain properties and related assets, including, but not limited to, a processing complex in Texas, a processing plant in Louisiana and other miscellaneous assets, which no longer fit into the operating plans of the Company. The Company is actively marketing these properties and related assets for immediate sale and believes a sale of each property can be consummated within the next 12 months. At both March 27, 2016 and December 27, 2015, the Company reported properties and related assets totaling $6.6 million and $6.6 million, respectively, in the line item Assets held for sale on its Condensed Consolidated Balance Sheets. The Company tested the recoverability of its assets held for sale and determined that the aggregate carrying amounts of the Texas processing complex asset group and the Louisiana processing plant asset group were recoverable over the remaining life of the respective primary asset in each asset group.
The Company has closed or idled various processing complexes, processing plants, hatcheries, broiler farms, and feed mills throughout the U.S. Neither the Board of Directors nor JBS has determined if it would be in the best interest of the Company to divest any of these idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. At March 27, 2016, the carrying amount of these idled assets was $68.2 million based on depreciable value of $198.0 million and accumulated depreciation of $129.8 million.
The Company last tested the recoverability of its long-lived assets held and used in December 2015. At that time, the Company determined that the carrying amount of its long-lived assets held and used was recoverable over the remaining life of the primary asset in the group and that long-lived assets held and used passed the Step 1 recoverability test under ASC 360-10-35, Impairment or Disposal of Long-Lived Assets. There were no indicators present during the thirteen weeks ended March 27, 2016 that required the Company to test its long-lived assets held and used for recoverability.

15



9.
CURRENT LIABILITIES
Current liabilities, other than current notes payable to banks, income taxes and current maturities of long-term debt, consisted of the following components:
 
March 27, 2016
 
December 27, 2015
 
(In thousands)
Accounts payable:
 
 
 
Trade accounts
$
409,550

 
$
436,188

Book overdrafts
58,644

 
44,145

Other payables
3,758

 
2,621

Total accounts payable
471,952

 
482,954

Accounts payable to related parties(a)
1,654

 
7,000

Accrued expenses and other current liabilities:
 
 
 
Compensation and benefits
79,411

 
112,583

Interest and debt-related fees
1,741

 
8,928

Insurance and self-insured claims
100,072

 
93,336

Derivative liabilities:
 
 
 
Futures
4,809

 
5,436

Options
57

 

Other accrued expenses
93,159

 
94,683

Total accrued expenses and other current liabilities
279,249

 
314,966

 
$
752,855

 
$
804,920

(a)    Additional information regarding accounts payable from related parties is included in “Note 15. Related Party Transactions.”
10.
LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS
Long-term debt and other borrowing arrangements, including current notes payable to banks, consisted of the following components: 
 
Maturity
 
March 27, 2016
 
December 27, 2015
 
 
 
(In thousands)
Long-term debt and other long-term borrowing arrangements:
 
 
 
 
 
Senior notes payable at 5.75%
2025
 
$
500,000

 
$
500,000

U.S. Credit Facility (defined below):
 
 
 
 
 
Term note payable at 1.69%
2020
 
500,000

 
500,000

Revolving note payable
2020
 

 

Capital lease obligations
Various
 
441

 
462

Long-term debt
 
 
1,000,441

 
1,000,462

Less: Current maturities of long-term debt
 
 
(88
)
 
(86
)
Long-term debt, less current maturities
 
 
1,000,353

 
1,000,376

Less: Capitalized financing costs
 
 
(13,953
)
 
(14,867
)
Long-term debt, less current maturities, net of capitalized financing costs:
 
 
$
986,400

 
$
985,509

 
 
 
 
 
 
Current notes payable to banks
 
 
 
 
 
Mexico Credit Facility (defined below) with notes payable at
     TIIE Rate plus 0.90%
2016
 
$
21,577

 
$
28,726




16



Senior Notes
On March 11, 2015, the Company completed a sale of $500.0 million aggregate principal amount of its 5.75% senior notes due 2025 (the “Senior Notes”). The Company used the net proceeds from the sale of the Senior Notes to repay $350.0 million and $150.0 million of the term loan indebtedness under the U.S. Credit Facility (defined below) on March 12, 2015 and April 22, 2015, respectively. The Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “Indenture”). The Indenture provides, among other things, that the Senior Notes bear interest at a rate of 5.75% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015. The Senior Notes are guaranteed on a senior unsecured basis by the Company’s guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes. The Senior Notes and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes and the Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes when due, among others.
U.S. Credit Facility
On February 11, 2015, the Company and its subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., entered into a Second Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch (“Rabobank”), as administrative agent, and the other lenders party thereto. The U.S. Credit Facility provides for a revolving loan commitment of up to $700.0 million and a term loan commitment of up to $1.0 billion (the “Term Loans”). The U.S. Credit Facility also includes an accordion feature that allows the Company, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $1.0 billion, subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase.
The revolving loan commitment under the U.S. Credit Facility matures on February 10, 2020. All principal on the Term Loans is due at maturity on February 10, 2020. No installments of principal are required to be made prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. The Company had Term Loans outstanding totaling $500.0 million as of March 27, 2016.
The U.S. Credit Facility includes a $75.0 million sub-limit for swingline loans and a $125.0 million sub-limit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equal to (i) in the case of LIBOR loans, LIBOR plus 1.50% through March 27, 2016 and, based on the Company’s net senior secured leverage ratio, between LIBOR plus 1.25% and LIBOR plus 2.75% and (ii) in the case of alternate base rate loans, the base rate plus 0.50% through March 27, 2016 and, based on the Company’s net senior secured leverage ratio, between the base rate plus 0.25% and base rate plus 1.75% thereafter.
Actual borrowings by the Company under the revolving loan commitment of the U.S. Credit Facility are subject to a borrowing base, which is a formula based on certain eligible inventory, eligible receivables and restricted cash under the control of Rabobank, in its capacity as administrative agent. The borrowing base formula will be reduced by the sum of (i) inventory reserves, (ii) rent and collateral access reserves, and (iii) any amount more than 15 days past due that is owed by the Company or its subsidiaries to any person on account of the purchase price of agricultural products or services (including poultry and livestock) if that person is entitled to any grower’s or producer’s lien or other security arrangement. As of March 27, 2016, the applicable borrowing base was $693.7 million and the amount available for borrowing under the revolving loan commitment was $676.0 million. The Company had letters of credit of $17.7 million and no outstanding borrowings under the revolving loan commitment as of March 27, 2016.
The U.S. Credit Facility contains financial covenants and various other covenants that may adversely affect the Company’s ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS and the Company’s other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The U.S. Credit Facility also provides that we may not incur capital expenditures in excess of $500.0 million in any fiscal year. The Company is currently in compliance with the covenants under the U.S. Credit Facility.

17



All obligations under the U.S. Credit Facility will continue to be unconditionally guaranteed by certain of the Company’s subsidiaries and will continue to be secured by a first priority lien on (i) the accounts receivable and inventory of our company and its non-Mexico subsidiaries, (ii) 100% of the equity interests in our domestic subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., and 65% of the equity interests in our direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility.
Mexico Credit Facility
On July 23, 2014, certain of our Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility is $1.5 billion Mexican pesos. Outstanding borrowings under the Mexico Credit Facility will accrue interest at a rate equal to the Interbank Equilibrium Interest Rate plus 0.90%. The Mexico Credit Facility will mature on July 23, 2017. As of March 27, 2016, the U.S. dollar-equivalent loan commitment under the Mexico Credit Facility was $85.5 million, and there were $21.6 million outstanding borrowings under the Mexico Credit Facility that bear interest at a per annum rate of 4.99%. As of March 27, 2016, the U.S. dollar-equivalent borrowing availability was $63.9 million.
11.
INCOME TAXES
The Company recorded income tax expense of $62.6 million, a 34.7% effective tax rate, for the thirteen weeks ended March 27, 2016 compared to income tax expense of $111.5 million, a 35.3% effective tax rate, for the thirteen weeks ended March 29, 2015. The decrease in income tax expense in 2016 resulted primarily from a decrease in pre-tax income.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment. As of March 27, 2016, the Company did not believe it had sufficient positive evidence to conclude that realization of its federal capital loss carry forwards and a portion of its foreign net deferred tax assets are more likely than not to be realized.
For the thirteen weeks ended March 27, 2016 and March 29, 2015, there is tax effect of $4.2 million and $1.3 million, respectively, reflected in other comprehensive income.
For the thirteen weeks ended March 27, 2016, there is no tax effect reflected in additional paid-in-capital due to excess tax benefits related to compensation. For the thirteen weeks ended March 29, 2015, there is a tax effect of $7.8 million reflected in additional paid-in-capital due to excess tax benefits related to compensation on dividend equivalent rights and vested stock awards.
With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by taxing authorities for years prior to 2010 and is no longer subject to Mexico income tax examinations by taxing authorities for years prior to 2009.
The United States Fifth Circuit Court of Appeals (the “Fifth Circuit”) rendered judgment in favor of the Company regarding the IRS’ amended proof of claim relating to the tax year ended June 26, 2004 for Gold Kist Inc. (“Gold Kist”). See “Note 16. Commitments and Contingencies” for additional information.
12.
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plans. Expenses recognized under all of these retirement plans totaled $1.6 million and $4.5 million in the thirteen weeks ended March 27, 2016 and March 29, 2015, respectively.
Defined Benefit Plans Obligations and Assets
The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Condensed Consolidated Balance Sheets for these defined benefit plans were as follows:

18



 
Thirteen Weeks Ended 
 March 27, 2016
 
Thirteen Weeks Ended 
 March 29, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Change in projected benefit obligation:
(In thousands)
Projected benefit obligation, beginning of period
$
165,952

 
$
1,672

 
$
190,401

 
$
1,657

Interest cost
1,396

 
12

 
1,938

 
17

Actuarial losses
4,417

 
51

 
6,915

 
38

Benefits paid
(2,365
)
 
(35
)
 
(1,479
)
 
(32
)
Curtailments and settlements

 

 
(11,945
)
 

Projected benefit obligation, end of period
$
169,400

 
$
1,700

 
$
185,830

 
$
1,680

 
Thirteen Weeks Ended 
 March 27, 2016
 
Thirteen Weeks Ended 
 March 29, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Change in plan assets:
(In thousands)
Fair value of plan assets, beginning of period
$
96,947

 
$

 
$
113,552

 
$

Actual return on plan assets
(5,446
)
 

 
2,061

 

Contributions by employer
2,541

 
35

 
1,881

 
32

Benefits paid
(2,365
)
 
(35
)
 
(1,479
)
 
(32
)
Curtailments and settlements

 

 
(11,945
)
 

Fair value of plan assets, end of period
$
91,677

 
$

 
$
104,070

 
$

 
March 27, 2016
 
December 27, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Funded status:
(In thousands)
Unfunded benefit obligation, end of period
$
(77,723
)
 
$
(1,700
)
 
$
(69,005
)
 
$
(1,672
)
 
March 27, 2016
 
December 27, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Amounts recognized in the Condensed Consolidated Balance Sheets at end of period:
(In thousands)
Current liability
$
(10,774
)
 
$
(139
)
 
$
(10,779
)
 
$
(138
)
Long-term liability
(66,949
)
 
(1,561
)
 
(58,226
)
 
(1,534
)
Recognized liability
$
(77,723
)
 
$
(1,700
)
 
$
(69,005
)
 
$
(1,672
)
 
March 27, 2016
 
December 27, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Amounts recognized in accumulated other comprehensive loss at end of period:
(In thousands)
Net actuarial loss (gain)
$
49,126

 
$
(28
)
 
$
38,115

 
$
(79
)
The accumulated benefit obligation for our defined benefit pension plans was $169.4 million and $166.0 million at March 27, 2016 and December 27, 2015, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at March 27, 2016 and December 27, 2015, respectively.

19



Net Periodic Benefit Costs
Net defined benefit pension and other postretirement costs included the following components:
 
Thirteen Weeks Ended
March 27, 2016
 
Thirteen Weeks Ended
March 29, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
 
(In thousands)
Interest cost
$
1,396

 
$
12

 
$
1,938

 
$
17

Estimated return on plan assets
(1,314
)
 

 
(1,671
)
 

Settlement loss

 

 
3,062

 

Amortization of net loss
165

 

 
179

 

Net costs
$
247

 
$
12

 
$
3,508

 
$
17

Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
 
March 27, 2016
 
December 27, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Assumptions used to measure benefit obligation at end of period:
 
 
 
 
 
 
 
Discount rate
4.18
%
 
3.55
%
 
4.47
%
 
4.47
%
 
Thirteen Weeks Ended 
 March 27, 2016
 
Thirteen Weeks Ended 
 March 29, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
Assumptions used to measure net pension and other postretirement cost:
 
 
 
 
 
 
 
Discount rate
4.47
%
 
4.47
%
 
4.22
%
 
4.22
%
Expected return on plan assets
5.50
%
 
NA

 
6.00
%
 
NA

Discount rates were determined based on current investment yields on high-quality corporate long-term bonds. The expected rate of return on plan assets was determined based on the current interest rate environment and historical market premiums relative to the fixed income rates of equities and other asset classes. We also take into consideration anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
 
March 27, 2016
 
December 27, 2015
Cash and cash equivalents
%
 
%
Pooled separate accounts(a):
 
 
 
Equity securities
7
%
 
7
%
Fixed income securities
7
%
 
7
%
Common collective trust funds(a):
 
 
 
Equity securities
57
%
 
57
%
Fixed income securities
29
%
 
29
%
Total assets
100
%
 
100
%
(a)
Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the SEC. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments.

20



Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the pooled separate accounts is 50% in each of fixed income securities and equity securities and the target asset allocation for the investment of pension assets in the common collective trust funds is 30% in fixed income securities and 70% in equity securities. The plans only invest in fixed income and equity instruments for which there is a readily available public market. We develop our expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which our plans invest.
The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of March 27, 2016 and December 27, 2015:
 
March 27, 2016
 
December 27, 2015
 
Level 1(a)
 
Level 2(b)
 
Level 3(c)
 
Total
 
Level 1(a)
 
Level 2(b)
 
Level 3(c)
 
Total
 
(In thousands)
Cash and cash equivalents
$
126

 
$

 
$

 
$
126

 
$
147

 
$

 
$

 
$
147

Pooled separate accounts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Large U.S. equity funds(d)

 
3,692

 

 
3,692

 

 
3,816

 

 
3,816

Small/Mid U.S. equity funds(e)

 
937

 

 
937

 

 
969

 

 
969

International equity funds(f)

 
1,498

 

 
1,498

 

 
1,606

 

 
1,606

Fixed income funds(g)

 
6,149

 

 
6,149

 

 
6,337

 

 
6,337

Common collective trusts funds:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Large U.S. equity funds(d)

 
21,657

 

 
21,657

 

 
22,069

 

 
22,069

Small U.S. equity funds(e)

 
15,392

 

 
15,392

 

 
16,843

 

 
16,843

International equity funds(f)

 
15,415

 

 
15,415

 

 
16,629

 

 
16,629

Fixed income funds(g)

 
26,811

 

 
26,811

 

 
28,531

 

 
28,531

Total assets
$
126

 
$
91,551

 
$

 
$
91,677

 
$
147

 
$
96,800

 
$

 
$
96,947

(a)
Unadjusted quoted prices in active markets for identical assets are used to determine fair value.
(b)
Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value.
(c)
Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.
(d)
This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.
(e)
This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.
(f)
This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S.
(g)
This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). It may also include real estate investment options that directly own property. These investment options typically carry more risk than short-term fixed income investment options (including, for real estate investment options, liquidity risk), but less overall risk than equities.
The valuation of plan assets in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include equity and fixed income securities funds.

21



Benefit Payments
The following table reflects the benefits as of March 27, 2016 expected to be paid through 2025 from our pension and other postretirement plans. Because our pension plans are primarily funded plans, the anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. Because our other postretirement plans are unfunded, the anticipated benefits with respect to these plans will come from our own assets.
 
Pension Benefits
 
Other Benefits
 
(In thousands)
2016 (remaining)
$
10,653

 
$
104

2017
11,660

 
139

2018
11,406

 
140

2019
11,063

 
139

2020
11,075

 
138

2021-2025
49,795

 
643

Total
$
105,652

 
$
1,303

We anticipate contributing $9.4 million and $0.1 million, as required by funding regulations or laws, to our pension plans and other postretirement plans, respectively, during the remainder of 2016.
Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss
The amounts in accumulated other comprehensive loss that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:
 
Thirteen Weeks Ended 
 March 27, 2016
 
Thirteen Weeks Ended 
 March 29, 2015
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
 
(In thousands)
Net actuarial loss (gain), beginning of period
$
38,115

 
$
(79
)
 
$
43,907

 
$
(127
)
Amortization
(165
)
 

 
(179
)
 

Curtailment and settlement adjustments

 

 
(3,062
)
 

Actuarial loss
4,417

 
51

 
6,914

 
39

Asset loss (gain)
6,759

 

 
(389
)
 

Net actuarial loss (gain), end of period
$
49,126

 
$
(28
)
 
$
47,191

 
$
(88
)
The Company expects to recognize in net pension cost throughout the remainder of 2016 an actuarial loss of $0.5 million that was recorded in accumulated other comprehensive loss at March 27, 2016.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.

22



13.
STOCKHOLDERS' EQUITY
Accumulated Other Comprehensive Loss
The following tables provide information regarding the changes in accumulated other comprehensive loss:
 
Thirteen Weeks Ended
March 27, 2016(a)
 
Thirteen Weeks Ended
March 29, 2015(a)
 
Losses Related to Pension and Other Postretirement Benefits
 
Unrealized Holding Gains on Available-for-Sale Securities
 
Total
 
Losses Related to Pension and Other Postretirement Benefits
 
Unrealized Holding Gains on Available-for-Sale Securities
 
Total
 
(In thousands)
Balance, beginning of period
$
(58,997
)
 
$
67

 
$
(58,930
)
 
$
(62,572
)
 
$
31

 
$
(62,541
)
Other comprehensive income (loss)
     before reclassifications
(6,988
)
 
171

 
(6,817
)
 
(2,180
)
 
32

 
(2,148
)
Amounts reclassified from accumulated
     other comprehensive loss to net
     income
103

 
(141
)
 
(38
)
 
111

 
(51
)
 
60

Net current period other comprehensive
     income (loss)
(6,885
)
 
30

 
(6,855
)
 
(2,069
)
 
(19
)
 
(2,088
)
Balance, end of period
$
(65,882
)
 
$
97

 
$
(65,785
)
 
$
(64,641
)
 
$
12

 
$
(64,629
)
(a)
All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss.
 
 
Amount Reclassified from Accumulated Other Comprehensive Loss(a)
 
 
Details about Accumulated Other Comprehensive Loss Components
 
Thirteen Weeks Ended
March 27, 2016
 
Thirteen Weeks Ended
March 29, 2015
 
Affected Line Item in the Condensed Consolidated Statements of Operations
 
 
(In thousands)
 
 
Realized gain on sale of securities
 
$
226

 
$
82

 
Interest income
Amortization of defined benefit pension
     and other postretirement plan actuarial
     losses:
 
 
 
 
 
 
Union employees pension plan(b)(d)
 
(5
)
 
(6
)
 
Cost of sales
Legacy Gold Kist plans(c)(d)
 
(50
)
 

 
Cost of sales
Legacy Gold Kist plans(c)(d)
 
(110
)
 
(173
)
 
Selling, general and administrative expense
Total before tax
 
61

 
(97
)
 
 
Tax benefit (expense)
 
(23
)
 
37

 
 
Total reclassification for the period
 
$
38

 
$
(60
)
 
 
(a)
Amounts in parentheses represent debits to results of operations.
(b)
The Company sponsors the Pilgrim’s Pride Retirement Plan for Union Employees, a qualified defined benefit pension plan covering certain locations or work groups with collective bargaining agreements.
(c)
The Company sponsors the Pilgrim’s Pride Plan for Legacy Gold Kist Employees, a qualified defined benefit pension plan covering certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007, the Former Gold Kist Inc. Supplemental Executive Retirement Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist executives, the Former Gold Kist Inc. Directors’ Emeriti Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist directors, and the Gold Kist Inc. Retiree Life Insurance Plan, a defined benefit postretirement life insurance plan covering certain retired Gold Kist employees.
(d)
These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See “Note 12. Pension and Other Postretirement Benefits” to the Condensed Consolidated Financial Statements.
Share Repurchase Program and Treasury Stock
On July 28, 2015, the Company’s Board of Directors approved a $150.0 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 share repurchase program was originally scheduled to expire on July 27, 2016. On February 10, 2016, the Company’s Board of Directors approved an increase of the share repurchase authorization to $300.0 million and an extension of the expiration to February 9, 2017. The extent to which the Company repurchases its shares and the timing of such repurchases will vary and depend upon

23



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 March 27, 2016, the Company had repurchased approximately 5.0 million shares under this program with a market value of approximately $101.9 million. The Company accounted for the shares repurchased using the cost method.
Special Cash Dividends
On April 27, 2016, the Company announced that its Board of Directors had approved the declaration of a special cash dividend of $2.75 per share. The total amount of the special cash dividend payment will be approximately $700.0 million based on the current number of shares outstanding. The special cash dividend is payable on May 18, 2016, to stockholders of record on May 10, 2016. The Company intends to use proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.

    The following unaudited pro forma information presents the Company’s financial position giving effect to the special cash dividend and the borrowing necessary to fund the special cash dividend as if they occurred on March 27, 2016.
 
 
March 27, 2016
 
Special Cash Dividend
 
March 27, 2016
 
 
 
 
(In thousands)
 
 
Cash and cash equivalents
 
$
574,888

 
$
145,112

(a)
$
20,000

 
 
 
 
(700,000
)
(b)
 
Other current assets
 
1,238,954

 

 
1,238,954

Total current assets
 
1,813,842

 
(554,888
)
 
1,258,954

Other assets
 
1,572,908

 

 
1,572,908

Total assets
 
$
3,386,750

 
$
(554,888
)
 
$
2,831,862

 
 
 
 
 
 
 
Long-term debt, less current maturities
 
$
986,400

 
$
145,112

 
$
1,131,512

Other liabilities
 
1,029,161

 

 
1,029,161

Total stockholders' equity
 
1,371,189

 
(700,000
)
 
671,189

Total liabilities and stockholders' equity
 
$
3,386,750

 
$
(554,888
)
 
$
2,831,862

(a)    To reflect cash from borrowing of long-term debt used to pay the special cash dividend to stockholders.
(b)    To reflect the payment of the special cash divided to stockholders.
The above unaudited pro forma information is based on available information and various estimates and assumptions. Management of the Company believes that these estimates and assumptions provide a reasonable basis for presenting the unaudited pro forma information. The unaudited pro forma information is presented for informational purposes only and does not purport to be indicative of the financial position that would actually have resulted if the special cash dividend had been completed as of such date or that may result in the future.
On February 17, 2015, the Company paid a special cash dividend from retained earnings of approximately $1.5 billion, or $5.77 per share, to stockholders of record as of January 30, 2015. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.
Restrictions on Dividends
Both the U.S. Credit Facility and the Indenture governing the Senior Notes restrict, but do not prohibit, the Company from declaring dividends.
14.
INCENTIVE COMPENSATION
The Company sponsors a short-term incentive plan that provides the grant of either cash or share-based bonus awards payable upon achievement of specified performance goals (the “STIP”). Full-time, salaried exempt employees of the Company and its affiliates who are selected by the administering committee are eligible to participate in the STIP. The Company has accrued $2.8 million in costs related to the STIP at March 27, 2016 related to cash bonus awards that could potentially be awarded during the remainder of 2016 and 2017.
The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and cash-based awards to the Company’s officers and other employees, members of the Board

24



of Directors and any consultants (the “LTIP”). The equity-based awards that may be granted under the LTIP include “incentive stock options,” within the meaning of the Internal Revenue Code, nonqualified stock options, stock appreciation rights, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). At March 27, 2016, we have reserved approximately 5.3 million shares of common stock for future issuance under the LTIP.
The following awards were outstanding during the thirteen weeks ended March 27, 2016:
Award Type
 
Benefit
Plan
 
Awards Granted
 
Grant
Date
 
Grant Date Fair Value per Award(a)
 
Vesting Condition
 
Vesting Date
 
Estimated Forfeiture Rate
 
Awards Forfeited to Date
 
Settlement Method
RSU
 
LTIP
 
462,518

 
02/19/2014
 
16.70

 
Service
 
12/31/2016
 
13.49
%
 
73,761

 
Stock
RSU
 
LTIP
 
269,662

 
03/03/2014
 
17.18

 
Performance / Service
 
12/31/2017
 
12.34
%
 
32,898

 
Stock
RSU
 
LTIP
 
158,226

 
02/26/2015
 
27.51

 
Performance / Service
 
12/31/2018
 
(b)

 
158,226

 
Stock
(a)
The fair value of each RSA and RSU granted or vested represents the closing price of the Company's common stock on the respective grant date or vesting date.
(b)
Performance conditions associated with these awards were not satisfied. Therefore, 100% of the awards were forfeited.
Compensation costs and the income tax benefit recognized for our share-based compensation arrangements are included below:
 
Thirteen Weeks Ended
 
March 27, 2016
 
March 29, 2015
 
(In thousands)
Share-based compensation cost:
 
 
 
Cost of sales
$
99

 
$
113

Selling, general and administrative expense
781

 
684

Total
$
880

 
$
797

 
 
 
 
Income tax benefit
$