# Pilgrims Pride Corp: Form 10-Q for the period ended Sep 30, 2018

- Company: [Pilgrims Pride Corp](/companies/ppc.md) (CIK 802481)
- Form: 10-Q
- Filed: 2018-11-01
- Accepted by EDGAR: Oct 31, 2018, 20:23 ET
- Period: 2018-09-30
- Accession: 0000802481-18-000071
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/802481/000080248118000071/ppc-09302018x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/802481/000080248118000071/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-02 to 2018-09-30 | $2.70bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $8.28bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2018-07-02 to 2018-09-30 | $2.53bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2018-01-01 to 2018-09-30 | $7.55bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2018-07-02 to 2018-09-30 | $169.7m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-01-01 to 2018-09-30 | $731.6m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2018-07-02 to 2018-09-30 | $84.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2018-01-01 to 2018-09-30 | $257.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-07-02 to 2018-09-30 | $85.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $472.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-07-02 to 2018-09-30 | $35.3m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2018-01-01 to 2018-09-30 | $125.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-07-02 to 2018-09-30 | $30.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $106.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-02 to 2018-09-30 | $29.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $255.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-02 to 2018-09-30 | $0.12 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $1.03 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-02 to 2018-09-30 | $0.12 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $1.03 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-02 to 2018-09-30 | 249,179,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 249,076,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $425.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $231.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2018-09-30 | $401.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $2.28bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $5.98bn | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $1.32bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-09-30 | $3.91bn | us-gaap:Liabilities |
| Long-term debt | at 2018-09-30 | $2.33bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-09-30 | $24.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-09-30 | $2.06bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 70,763 characters.

### Description of the Company

We are one of the largest chicken producers in the world, with operations in the United States (“U.S.”), United Kingdom (“U.K.”), Mexico, France, Puerto Rico and the Netherlands. As of September 30, 2018, we had approximately 51,300 employees and the capacity to process approximately 45.3 million birds per work week for a total of approximately 13.1 billion pounds of live chicken annually. Approximately 5,200 contract growers supply poultry for our operations. As of September 30, 2018, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owned 78.5% of our outstanding common stock. See “Note 1. Description of Business and Basis of Presentation” of our Condensed Consolidated and Combined Financial Statements included in this quarterly report for additional information.

We operate 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, 2018) in this quarterly report applies to our fiscal year and not the calendar year.

### Executive Summary

We reported net income attributable to Pilgrim’s Pride Corporation of $29.3 million, or $0.12 per diluted common share, for the thirteen weeks ended September 30, 2018. These operating results included gross profit of $169.7 million. During the thirteen weeks ended September 30, 2018, we generated $121.3 million of cash from operations.

We reported net income attributable to Pilgrim’s Pride Corporation of $255.3 million, or $1.03 per diluted common share, for the thirty-nine weeks ended September 30, 2018. These operating results included gross profit of $731.6 million. During the thirty-nine weeks ended September 30, 2018, we generated $425.3 million of cash from operations.

Our U.S. and Mexico segments use corn and soybean meal as the main ingredients for feed production, while our U.K. and Europe segment uses wheat as the main ingredient for feed production. The following table compares the highest and lowest prices reached on nearby futures for one bushel of corn, one ton of soybean meal and one metric ton of wheat during the current and previous years:

| 2018: | Corn(a) Highest Price | Lowest Price | Soybean Meal(a) Highest Price | Lowest Price | Wheat(a) Highest Price | Lowest Price |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Third Quarter | $3.87 | $3.43 | $341.40 | $303.30 | £194.65 | £165.75 |
| Second Quarter | 4.27 | 3.66 | 391.70 | 329.90 | 156.75 | 142.40 |
| First Quarter | 4.01 | 3.63 | 394.10 | 319.60 | 139.20 | 134.70 |
| 2017: |  |  |  |  |  |  |
| Fourth Quarter | 3.68 | 3.47 | 346.30 | 315.50 | 143.65 | 136.25 |
| Third Quarter | 4.15 | 3.46 | 346.20 | 296.50 | 154.00 | 137.25 |
| Second Quarter | 3.96 | 3.66 | 321.00 | 297.20 | 150.00 | 140.00 |
| First Quarter | 3.86 | 3.55 | 352.70 | 314.10 | 149.15 | 139.35 |

(a) We obtain corn and soybean meal prices from the Chicago Board of Trade, and we obtain wheat prices from the London International Financial Futures and Options Exchange.

We purchase derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs such as corn, soybean meal, wheat, soybean oil and natural gas. We will sometimes purchase a derivative instrument to minimize the impact of a commodity’s price volatility on our operating results. We will also purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of our Mexico segment that are denominated in Mexican pesos and our U.K. and Europe segment that are denominated in British pounds and euros.

For our Mexico segment, we do not designate derivative financial instruments that we purchase to mitigate commodity purchase or currency exchange rate exposures as cash flow hedges; therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings.

For our U.K. and Europe segment, we designate certain derivative financial instruments that we have purchased to mitigate foreign currency transaction exposures as cash flow hedges; therefore, before the settlement date of the financial derivative instruments, we recognize changes in the fair value of the effective portion of the cash flow hedge in accumulated other comprehensive income (loss) while we recognize changes in the fair value of the ineffective portion immediately in earnings. When the derivative financial instruments associated with the effective portion are settled, the amount in accumulated other comprehensive income (loss) is then reclassified to earnings. Gains or losses related to these derivative financial instruments are included in the line item *Cost of sales* in the Condensed Consolidated and Combined Statements of Income.

During the thirteen weeks ended September 30, 2018 and September 24, 2017, we recognized net losses totaling $7.4 million and net gains totaling $6.9 million, respectively, related to changes in the fair value of our derivative financial instruments. During the thirty-nine weeks ended September 30, 2018 and September 24, 2017, we recognized net losses totaling $25.0 million and net gains totaling $7.3 million, respectively, related to changes in the fair value of our derivative financial instruments.

Although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients, these changes do not immediately impact cost of sales. The cost of feed ingredients is recognized in cost of sales, on a first-in-first-out basis, at the same time that the sales of the chickens that consume the feed grains are recognized. Thus, there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold. For example, corn delivered to a feed mill and paid for one week might be used to manufacture feed the following week. However, the chickens that eat that feed might not be processed and sold for another 42 to 63 days, and only at that time will the costs of the feed consumed by the chicken become included in cost of goods sold.

Commodities such as corn, soybean meal and soybean oil are actively traded through various exchanges with future market prices quoted on a daily basis. These quoted market prices, although a good indicator of the commodity's base price, do not represent the final price for which we can purchase these commodities. There are several components in addition to the quoted market price, such as freight, storage and seller premiums, that are included in the final price that we pay for grain. Although changes in quoted market prices may be a good indicator of the commodity’s base price, the components mentioned above may have a significant impact on the total change in grain costs recognized from period to period.

Market prices for chicken products are currently at levels sufficient to offset the costs of feed ingredients. However, there can be no assurance that chicken prices will not decrease due to such factors as competition from other proteins and substitutions by consumers of non-protein foods because of uncertainty surrounding the general economy and unemployment.

### Moy Park Acquisition

On September 8, 2017, we acquired 100% of the issued and outstanding shares of Moy Park from JBS for cash of $301.3 million and a note payable to the seller in the amount of £562.5 million. Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 6 hatcheries and 1 rendering facility currently operating in Northern Ireland, England, France and the Netherlands, Moy Park possesses the capacity to process approximately 6.1 million birds per seven-day work week, in addition to the capacity to produce approximately 460.0 million pounds of prepared foods per year. Its product portfolio comprises fresh and added-value poultry, ready-to-eat meals, breaded and multi-protein frozen foods, vegetarian foods and desserts, supplied to major food retailers and restaurant chains in Europe (including the U.K.). Moy Park has approximately 10,400 employees as of September 30, 2018. The Moy Park operations comprise our U.K. and Europe segment. See “Note 2. Business Acquisition” of our Condensed Consolidated and Combined Financial Statements included in this report for additional information relating to this acquisition.

The acquisition was treated as a common-control transaction under accounting principles generally accepted in the U.S. (“U.S. GAAP”). A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. The accounting and reporting for a transaction between entities under common control is not to be considered a business combination under U.S. GAAP. Since there is no change in control over the net assets from the parent’s perspective, there is no change in basis in the assets or liabilities. Therefore, Pilgrim's, as the receiving entity, recognized the assets and liabilities received at their historical carrying amounts, as reflected in the parent’s financial statements. The difference between the proceeds transferred and the carrying amounts of the net assets on the date of the acquisition is recognized in equity.

### 2017 Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation (the “Tax Act”), which significantly revises the ongoing U.S. corporate income tax law by lowering the U.S. federal corporate income tax rate from 35.0% to 21.0%, implementing a territorial tax system, imposing one-time tax on foreign unremitted earnings and setting limitations on deductibility of certain costs (e.g., interest expense), among other things.

We are applying the guidance in Staff Accounting Bulletin (“SAB”) 118 when accounting for the enactment-date effects of the Tax Act. As of September 30, 2018, we have not completed our accounting for all of the tax effects of the Tax Act. In certain cases, as described below, we have made a reasonable estimate of certain effects of the Tax Act. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on existing accounting under Accounting Standards Codification (“ASC”) Topic 740, *Income Taxes*, and the provisions of the tax laws that were in effect immediately prior to enactment. For example, we have yet to make a reasonable estimate for the effect of the various federal income tax elements of the Tax Act on our state tax rate. In all cases, we will continue to make and refine our calculations as additional analysis is completed. Estimates may also be affected as we gain a more thorough understanding of the Tax Act. These changes could be material to income tax expense.

As of December 31, 2017, we estimated no tax liability on foreign unremitted earnings due to a net earnings and profits (“E&P”) deficit on accumulated post-1986 deferred foreign income. Therefore, we did not accrue any amount of tax expense for the Tax Act’s one-time transition tax on the foreign subsidiaries’ accumulated, unremitted earnings going back to 1986 for the year ended December 31, 2017. Upon further analysis of certain aspects of the Tax Act and a refinement of the historical calculation of E&P on accumulated post-1986 deferred foreign income, we made sufficient progress during the thirty-nine weeks ended September 30, 2018 in the E&P analysis of its foreign subsidiaries and recalculated significant overall positive E&P. Therefore, due to this recalculation, we estimate a $26.4 million tax liability for the one-time transition tax as of September 30, 2018. This one-time transition adjustment increased the effective tax rate for the thirty-nine weeks ended September 30, 2018 by approximately 7.0%. Additionally, this amount will be reported on our federal income tax return for the tax period ended December 31, 2017. As we gain a more thorough understanding of the tax law and further Tax Act guidance is released, we will continue to refine our E&P analysis and adjust our calculations of the one-time transition tax accordingly. Any adjustment may materially and adversely affect the measurement of this liability. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the one-time transition tax or any additional outside basis difference inherent in these foreign subsidiaries, as these amounts continue to be permanently reinvested in foreign operations.

The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Financial Accounting Standards Board (“FASB”) Staff Q&A, Topic 740, No. 5, *Accounting for GILTI*, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined the accounting policy that we will elect. As of September 30, 2018, we are estimating a $5.9 million federal GILTI tax liability, which is reflected in our estimated annual effective tax rate.

The Tax Act provides for a foreign-derived intangible income (“FDII”) deduction, which is available to domestic C corporations that derive income from the export of property and services. As of September 30, 2018, we estimated a federal FDII benefit of $0.2 million, which is reflected in our estimated annual effective tax rate. We will continue to refine our FDII calculations, which may result in changes to this estimated benefit.

### Segment and Geographic Reporting

We operate in three reportable segments: U.S., U.K. and Europe, and Mexico. We measure segment profit as operating income. Corporate expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. For geographic reporting purposes, we include Puerto Rico within our U.S. segment and combine the U.K., France and the Netherlands operations into our U.K. and Europe segment. See “Note 21. Segment Reporting” of our Condensed Consolidated and Combined Financial Statements included in this quarterly report for additional information.

### Results of Operations

#### Thirteen Weeks Ended September 30, 2018 Compared to Thirteen Weeks Ended September 24, 2017

*Net sales.* Net sales generated in the thirteen weeks ended September 30, 2018 decreased $96.3 million, or 3.4%, from net sales generated in the thirteen weeks ended September 24, 2017. The following table provides net sales information:

*(In thousands, except percent data)*

| Sources of net sales Amount | Thirteen Weeks Ended September 30, 2018 Percent | Change from Thirteen Weeks Ended September 24, 2017 |  |
| --- | ---: | ---: | ---: |
| U.S.(a) | $1,864,169 | $(74,373) | (3.8)% |
| U.K. and Europe(b) | 526,722 | 12,397 | 2.4% |
| Mexico(c) | 306,713 | (34,305) | (10.1)% |
| Total net sales | $2,697,604 | $(96,281) | (3.4)% |

(a) U.S. net sales generated in the thirteen weeks ended September 30, 2018 decreased $74.4 million, or 3.8%, from U.S. net sales generated in the thirteen weeks ended September 24, 2017 primarily because of a decrease in net sales per pound, partially offset by an increase in sales volume. The decrease in net sales per pound experienced by our U.S. segment contributed $177.3 million, or 9.1 percentage points, to the decrease in net sales. The decrease in net sales per pound was partially offset by an increase in sales volume experienced by our U.S. segment of $103.0 million, or 5.3 percentage points. Included in U.S. net sales generated during the thirteen weeks ended September 30, 2018 and September 24, 2017 were net sales to JBS USA Food Company totaling $4.0 million and $4.2 million, respectively.

(b) U.K. and Europe net sales generated in the thirteen weeks ended September 30, 2018 increased $12.4 million, or 2.4%, from U.K. and Europe net sales generated in the thirteen weeks ended September 24, 2017 primarily because of an increase in net sales per pound, partially offset by a decrease in sales volume and the unfavorable impact of foreign currency translation. The increase in net sales per pound contributed $23.5 million, or 4.6 percentage points, to the increase in net sales. This increase in net sales per pound was partially offset by a decrease in sales volume of $9.4 million, or 1.8 percentage points, and the unfavorable impact of foreign currency translation of $1.7 million, or 0.3 percentage points.

(c) Mexico net sales generated in the thirteen weeks ended September 30, 2018 decreased $34.3 million, or 10.1%, from Mexico net sales generated in the thirteen weeks ended September 24, 2017 primarily because of a decrease in net sales per pound and the negative impact of foreign currency remeasurement, partially offset by an increase in sales volume. The decrease in net sales per pound and the unfavorable impact of foreign currency remeasurement contributed $29.0 million, or 8.5 percentage points, and $19.7 million, or 5.8 percentage points, respectively, to the decrease in net sales. These decreases were partially offset by an increase in sales volume of $14.3 million, or 4.2 percentage points.

*Gross profit.* Gross profit decreased by $308.8 million, or 64.5%, from $478.6 million generated in the thirteen weeks ended September 24, 2017 to $169.7 million generated in the thirteen weeks ended September 30, 2018. The following tables provide information regarding gross profit and cost of sales information:

*In thousands, except percent data*

| Components of gross profit | Thirteen Weeks Ended September 30, 2018 Thirteen Weeks Ended Amount | Change from Thirteen Weeks Ended September 24, 2017 Percent September 30, 2018 | September 24, 2017 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $2,697,604 | $(96,281) | (3.4)% | 100.0% | 100.0% |
| Cost of sales(a)(b)(c) | 2,527,863 | 212,562 | 9.2% | 93.7% | 82.9% |
| Gross profit | $169,741 | $(308,843) | (64.5)% | 6.3% | 17.1% |

*(In thousands, except percent data)*

| Sources of gross profit Amount | Thirteen Weeks Ended September 30, 2018 Percent | Change from Thirteen Weeks Ended September 24, 2017 |  |
| --- | ---: | ---: | ---: |
| U.S.(a) | $131,366 | $(245,843) | (65.2)% |
| U.K. and Europe(b) | 41,288 | (5,663) | (12.1)% |
| Mexico(c) | (2,938) | (57,339) | (105.4)% |
| Elimination | 25 | 2 | 8.7% |
| Total gross profit | $169,741 | $(308,843) | (64.5)% |

44

*(In thousands, except percent data)*

| Sources of cost of sales Amount | Thirteen Weeks Ended September 30, 2018 Percent | Change from Thirteen Weeks Ended September 24, 2017 |  |
| --- | ---: | ---: | ---: |
| U.S.(a) | $1,732,803 | $171,470 | 11.0% |
| U.K. and Europe(b) | 485,435 | 18,061 | 3.9% |
| Mexico(c) | 309,650 | 23,033 | 8.0% |
| Elimination | (25) | (2) | 8.7% |
| Total cost of sales | $2,527,863 | $212,562 | 9.2% |

(a) Cost of sales incurred by our U.S. segment during the thirteen weeks ended September 30, 2018 increased $171.5 million, or 11.0%, from cost of sales incurred by our U.S. segment during the thirteen weeks ended September 24, 2017. Cost of sales increased primarily because of increased production volume, a $48.4 million increase in feed costs resulting from increased grain prices and live pounds produced, a $25.3 million increase in freight and storage costs resulting from driver shortages, a $14.3 million increase in derivative costs, a $12.6 million increase in grower costs resulting from increased pay rates and utility payments and a $12.4 million increase in payroll costs due to annual wage increases. Other factors affecting cost of sales were individually immaterial.

(b) Cost of sales incurred by our U.K. and Europe segment during the thirteen weeks ended September 30, 2018 increased $18.1 million, or 3.9%, from cost of sales incurred by our U.K. and Europe segment during the thirteen weeks ended September 24, 2017. U.K. and Europe cost of sales increased primarily because of increased production volume, a $6.1 million increase in payroll costs, a $5.8 million increase in freight costs, a $1.8 million increase in storage costs, a $1.5 million increase in live costs and a $1.3 million increase in packaging costs. Other factors affecting cost of sales were individually immaterial.

(c) Cost of sales incurred by our Mexico segment during the thirteen weeks ended September 30, 2018 increased $23.0 million, or 8.0%, from cost of sales incurred by our Mexico segment during the thirteen weeks ended September 24, 2017. Mexico cost of sales increased primarily because of a $22.9 million increase in grain costs, a $13.0 million increase in processing cost due to increased production volume and a $4.4 increase in processing cost due to packaging and electricity rate increases. These increased costs were partially offset by the $18.4 million favorable impact of foreign currency remeasurement. Other factors affecting cost of sales were individually immaterial.

*Operating income.* Operating income decreased by $286.9 million, or 77.1%, from $372.2 million generated in the thirteen weeks ended September 24, 2017 to $85.3 million generated in the thirteen weeks ended September 30, 2018. The following tables provide information regarding operating income and SG&A expense:

*(In thousands, except percent data)*

| Components of operating income Thirteen Weeks Ended Amount | Thirteen Weeks Ended September 30, 2018 Percent | Change from Thirteen Weeks Ended September 24, 2017 September 30, 2018 | September 24, 2017 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $169,741 | $(308,843) | (64.5)% | 6.3% | 17.1% |
| SG&A expense(a)(b)(c) | 84,138 | (18,053) | (17.7)% | 3.1% | 3.7% |
| Administrative restructuring charges(d)(e) | 257 | (3,890) | (93.8)% | —% | 0.1% |
| Operating income | $85,346 | $(286,900) | (77.1)% | 3.2% | 13.3% |

45

*(In thousands, except percent data)*

| Sources of operating income Thirteen Weeks Ended September 30, 2018 Amount Percent | Change from Thirteen Weeks Ended September 24, 2017 |
| --- | ---: |
| U.S. $74,206 | $(233,756) (75.9)% |
| U.K. and Europe 23,470 | 4,901 26.4% |
| Mexico (12,355) | (58,047) (127.0)% |
| Elimination 25 | 2 8.7% |
| Total operating income $85,346 | $(286,900) (77.1)% |
| **Sources of SG&A expense** **Thirteen Weeks Ended September 30, 2018** | **Change from Thirteen Weeks Ended September 24, 2017** |
| **Amount** **Percent** |  |
| **(In thousands, except percent data)** |  |
| U.S.(a) $56,903 | $(9,890) (14.8)% |
| U.K. and Europe(b) 17,818 | (8,871) (33.2)% |
| Mexico(c) 9,417 | 708 8.1% |
| Total SG&A expense $84,138 | $(18,053) (17.7)% |
| **Sources of administrative restructuring charges** **Thirteen Weeks Ended September 30, 2018** | **Change from Thirteen Weeks Ended September 24, 2017** |
| **Amount** **Percent** |  |
| **(In thousands, except percent data)** |  |
| U.S.(d) $257 | $(2,197) (89.5)% |
| U.K. and Europe — | (1,693) (100.0)% |
| Mexico — | — —% |
| Total administrative restructuring charges $257 | $(3,890) (93.8)% |

(a) SG&A expense incurred by our U.S. segment during the thirteen weeks ended September 30, 2018 decreased $9.9 million, or 14.8%, from SG&A expense incurred by our U.S. segment during the thirteen weeks ended September 24, 2017, primarily because of a $14.0 million decrease in expenses related to the acquisition of Moy Park, partially offset by a $2.3 million increase in legal expenses related to pending litigation. Other factors affecting SG&A expense were individually immaterial.

(b) SG&A expense incurred by our U.K. and Europe segment during the thirteen weeks ended September 30, 2018 decreased $8.9 million, or 33.2%, from SG&A expense incurred by our U.K. and Europe segment during the thirteen weeks ended September 24, 2017. SG&A expense incurred by our U.K. and Europe segment decreased primarily because of a $4.5 million decrease in freight expenses and a $3.9 million decrease in payroll expenses. Other factors affecting SG&A expense were individually immaterial.

(c) SG&A expense incurred by our Mexico segment during the thirteen weeks ended September 30, 2018 increased $0.7 million, or 8.1%, from SG&A expense incurred by our Mexico segment during the thirteen weeks ended September 24, 2017. SG&A expense incurred by our Mexico segment increased primarily because of a $0.6 million increase in depreciation and amortization expenses. Other factors affecting SG&A expense were individually immaterial.

(d) Administrative restructuring charges incurred by our U.S. segment during the thirteen weeks ended September 30, 2018 included impairment costs of $0.3 million related to the closure of our Luverne, Minnesota processing plant.

*Net interest expense.* Net interest expense increased 38.1% to $31.1 million recognized in the thirteen weeks ended September 30, 2018 from $22.5 million recognized in the thirteen weeks ended September 24, 2017. Average borrowings increased from $1.9 billion in the thirteen weeks ended September 24, 2017 to $2.4 billion in the thirteen weeks ended September 30, 2018. The weighted average interest rate increased from 4.5% in the thirteen weeks ended September 24, 2017 to 5.3% in the thirteen weeks ended September 30, 2018.

*Income taxes.* Income tax expense decreased to $30.8 million, a 51.1% effective tax rate, for the thirteen weeks ended September 30, 2018 compared to income tax expense of $113.4 million, a 32.2% effective tax rate, for the thirteen weeks ended September 24, 2017. The decrease in income tax expense in 2018 resulted primarily from a reduction in pre-tax income as well as a reduction in the U.S. corporate income tax rate because of the recently enacted Tax Act, partially offset by the recognition of the one-time transition tax of $26.4 million.

#### Thirty-Nine Weeks Ended September 30, 2018 Compared to Thirty-Nine Weeks Ended September 24, 2017

*Net sales.* Net sales generated in the thirty-nine weeks ended September 30, 2018 increased $255.5 million, or 3.2%, from net sales generated in the thirty-nine weeks ended September 24, 2017. The following table provides net sales information:

*(In thousands, except percent data)*

| Sources of net sales Amount | Thirty-Nine Weeks Ended September 30, 2018 Percent | Change from Thirty-Nine Weeks Ended September 24, 2017 |  |
| --- | ---: | ---: | ---: |
| U.S.(a) | $5,604,709 | $47,620 | 0.9% |
| U.K. and Europe(b) | 1,634,125 | 160,271 | 10.9% |
| Mexico(c) | 1,042,161 | 47,593 | 4.8% |
| Total net sales | $8,280,995 | $255,484 | 3.2% |

(a) U.S. net sales generated in the thirty-nine weeks ended September 30, 2018 increased $47.6 million, or 0.9%, from U.S. net sales generated in the thirty-nine weeks ended September 24, 2017 primarily because of an increase in sales volume, offset by a decrease in net sales per pound. The increase in sales volume by our U.S. segment contributed $290.6 million, or 5.2 percentage points. This increase was partially offset by a decrease in net sales per pound contributing $243.0 million, or 4.4 percentage points. Included in U.S. net sales generated during the thirty-nine weeks ended September 30, 2018 and September 24, 2017 were net sales to JBS USA Food Company totaling $10.0 million and $13.6 million, respectively.

(b) U.K. and Europe net sales generated in the thirty-nine weeks ended September 30, 2018 increased $160.3 million, or 10.9%, from U.K. and Europe net sales generated in the thirty-nine weeks ended September 24, 2017 primarily because of the favorable impact of foreign currency translation, an increase in sales volume and an increase in net sales per pound. The favorable impact of foreign currency translation contributed $92.0 million, or 6.2 percentage points. The increase in sales volume contributed $28.9 million, or 2.0 percentage points and the increase in net sales per pound contributed $39.4 million, or 2.7 percentage points.

(c) Mexico net sales generated in the thirty-nine weeks ended September 30, 2018 increased $47.6 million, or 4.8%, from Mexico net sales generated in the thirty-nine weeks ended September 24, 2017 primarily because of an increase in sales volume and net sales per pound, partially offset by the unfavorable impact of foreign currency remeasurement. Increased sales volume resulted in an increase in net sales of $46.6 million, or 4.7 percentage points, and the increase in net sales per pound contributed $5.7 million, or 0.6 percentage points, to the increase in net sales. These increases were partially offset by the unfavorable impact of foreign currency remeasurement of $4.7 million, or 0.5 percentage points.

*Gross profit.* Gross profit decreased by $478.2 million, or 39.5%, from $1.2 billion generated in the thirty-nine weeks ended September 24, 2017 to $731.6 million generated in the thirty-nine weeks ended September 30, 2018. The following tables provide information regarding gross profit and cost of sales information:

*In thousands, except percent data*

| Components of gross profit | Thirty-Nine Weeks Ended September 30, 2018 Thirty-Nine Weeks Ended Amount | Change from Thirty-Nine Weeks Ended September 24, 2017 Percent September 30, 2018 | September 24, 2017 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $8,280,995 | $255,484 | 3.2% | 100.0% | 100.0% |
| Cost of sales(a)(b)(c) | 7,549,367 | 733,666 | 10.8% | 91.2% | 84.9% |
| Gross profit | $731,628 | $(478,182) | (39.5)% | 8.8% | 15.1% |

*(In thousands, except percent data)*

| Sources of gross profit Amount | Thirty-Nine Weeks Ended September 30, 2018 Percent | Change from Thirty-Nine Weeks Ended September 24, 2017 |  |
| --- | ---: | ---: | ---: |
| U.S.(a) | $467,660 | $(432,602) | (48.1)% |
| U.K. and Europe(b) | 133,131 | (4,603) | (3.3)% |
| Mexico(c) | 130,803 | (40,942) | (23.8)% |
| Elimination | 34 | (35) | (50.7)% |
| Total gross profit | $731,628 | $(478,182) | (39.5)% |

47

*(In thousands, except percent data)*

| Sources of cost of sales Amount | Thirty-Nine Weeks Ended September 30, 2018 Percent | Change from Thirty-Nine Weeks Ended September 24, 2017 |  |
| --- | ---: | ---: | ---: |
| U.S.(a) | $5,137,049 | $480,224 | 10.3% |
| U.K. and Europe(b) | 1,500,994 | 164,871 | 12.3% |
| Mexico(c) | 911,358 | 88,536 | 10.8% |
| Elimination | (34) | 35 | (50.7)% |
| Total cost of sales | $7,549,367 | $733,666 | 10.8% |

(a) Cost of sales incurred by our U.S. segment during the thirty-nine weeks ended September 30, 2018 increased $480.2 million, or 10.3%, from cost of sales incurred by our U.S. segment during the thirty-nine weeks ended September 24, 2017. Cost of sales increased primarily because of an increase in production pounds, a $148.0 million increase in feed costs resulting from increased grain prices and live pounds produced, a $76.8 million increase in freight and storage costs resulting from driver shortages and inclement weather, a $52.6 million increase in grower costs resulting from increased pay rates and utilities payments, a $32.3 million increase in derivative costs and a $30.7 million increase in payroll costs due to annual wage increases. Other factors affecting cost of sales were individually immaterial.

(b) Cost of sales incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 30, 2018 increased $164.9 million, or 12.3%, from cost of sales incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 24, 2017. U.K. and Europe cost of sales increased primarily because of increased net sales, an $80.2 million increase in raw material costs resulting from increased sales volume, a $34.0 million increase in payroll costs and a $19.8 million increase in freight costs. Other factors affecting cost of sales were individually immaterial.

(c) Cost of sales incurred by our Mexico segment during the thirty-nine weeks ended September 30, 2018 increased $88.5 million, or 10.8%, from cost of sales incurred by our Mexico segment during the thirty-nine weeks ended September 24, 2017. Mexico cost of sales increased primarily because of a $47.7 million increase in processing cost due to increased production volume, a $17.5 million increase in processing cost due to packaging and electricity rate increases and a $15.7 million increase in grain costs. Other factors affecting cost of sales were individually immaterial.

*Operating income.* Operating income decreased by $445.3 million, or 48.5%, from $917.3 million generated in the thirty-nine weeks ended September 24, 2017 to $472.1 million generated in the thirty-nine weeks ended September 30, 2018. The following tables provide information regarding operating income and SG&A expense:

*(In thousands, except percent data)*

| Components of operating income Thirty-Nine Weeks Ended Amount | Thirty-Nine Weeks Ended September 30, 2018 Percent | Change from Thirty-Nine Weeks Ended September 27, 2017 September 30, 2018 | September 24, 2017 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $731,628 | $(478,182) | (39.5)% | 8.8% | 15.1% |
| SG&A expense(a)(b)(c) | 257,396 | (26,613) | (9.4)% | 3.1% | 3.5% |
| Administrative restructuring charges(d)(e) | 2,181 | (6,315) | (74.3)% | —% | 0.1% |
| Operating income | $472,051 | $(445,254) | (48.5)% | 5.7% | 11.5% |

48

*(In thousands, except percent data)*

| Sources of operating income Thirty-Nine Weeks Ended September 30, 2018 Amount Percent | Change from Thirty-Nine Weeks Ended September 24, 2017 |
| --- | ---: |
| U.S. $300,960 | $(418,161) (58.1)% |
| U.K. and Europe 68,545 | 16,671 32.1% |
| Mexico 102,512 | (43,729) (29.9)% |
| Elimination 34 | (35) (50.7)% |
| Total operating income $472,051 | $(445,254) (48.5)% |
| **Sources of SG&A expense** **Thirty-Nine Weeks Ended September 30, 2018** | **Change from Thirty-Nine Weeks Ended September 24, 2017** |
| **Amount** **Percent** |  |
| **(In thousands, except percent data)** |  |
| U.S.(a) $164,519 | $(9,821) (5.6)% |
| U.K. and Europe(b) 64,586 | (19,579) (23.3)% |
| Mexico(c) 28,291 | 2,787 10.9% |
| Total SG&A expense $257,396 | $(26,613) (9.4)% |
| **Sources of administrative restructuring charges** **Thirty-Nine Weeks Ended September 30, 2018** | **Change from Thirty-Nine Weeks Ended September 24, 2017** |
| **Amount** **Percent** |  |
| **(In thousands, except percent data)** |  |
| U.S.(d) $2,181 | $(4,622) (67.9)% |
| U.K. and Europe — | (1,693) (100.0)% |
| Mexico — | — —% |
| Total administrative restructuring charges $2,181 | $(6,315) (74.3)% |

(a) SG&A expense incurred by our U.S. segment during the thirty-nine weeks ended September 30, 2018 decreased $9.8 million, or 5.6%, from SG&A expense incurred by our U.S. segment during the thirty-nine weeks ended September 24, 2017, primarily because of a $13.7 million decrease in expenses related to the Moy Park acquisition and a $4.0 million decrease in benefits expenses, partially offset by an $8.0 million increase in consulting fees and legal expenses related to pending litigation. Other factors affecting SG&A expense were individually immaterial.

(b) SG&A expense incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 30, 2018 decreased $19.6 million, or 23.3%, from SG&A expense incurred by our U.K. and Europe segment during the thirty-nine weeks ended September 24, 2017. SG&A expense incurred by our U.K. and Europe segment decreased primarily because of a $12.1 million decrease in freight expenses and a $7.6 million decrease in payroll expenses. Other factors affecting SG&A expense were individually immaterial.

(c) SG&A expense incurred by our Mexico segment during the thirty-nine weeks ended September 30, 2018 increased $2.8 million, or 10.9%, from SG&A expense incurred by our Mexico segment during the thirty-nine weeks ended September 24, 2017. SG&A expense incurred by our Mexico segment increased primarily because of $1.3 million increase in employee relations expenses and a $1.0 million increase in depreciation and amortization expenses. Other factors affecting SG&A expense were individually immaterial.

(d) Administrative restructuring charges incurred by our U.S. segment during the thirty-nine weeks ended September 30, 2018 included $1.0 million in severance costs related to the GNP acquisition, $0.7 million in severance, asset impairment and lease obligations costs resulting from termination of 40 North Foods operations and $0.5 million of facility closure costs related to the Luverne, Minnesota facility.

*Net interest expense.* Net interest expense increased 83.6% to $115.2 million recognized in the thirty-nine weeks ended September 30, 2018 from $62.8 million recognized in the thirty-nine weeks ended September 24, 2017. Average borrowings increased from $1.8 billion in the thirty-nine weeks ended September 24, 2017 to $2.6 billion in the thirty-nine weeks ended September 30, 2018. The weighted average interest rate increased from 4.5% in the thirty-nine weeks ended ended September 24, 2017 to 5.2% in the thirty-nine weeks ended September 30, 2018.

*Income taxes.* Income tax expense decreased to $106.4 million, a 29.4% effective tax rate, for the thirty-nine weeks ended September 30, 2018 compared to income tax expense of $278.0 million, a 32.2% effective tax rate, for the thirty-nine weeks ended September 24, 2017. The decrease in income tax expense in 2018 resulted primarily from a reduction a reduction in pre-tax income as well as a reduction in the U.S. corporate income tax rate because of the recently enacted Tax Act, partially offset by the recognition of the one-time transition tax of $26.4 million.

### Liquidity and Capital Resources

The following table presents our available sources of liquidity as of September 30, 2018:

*(In millions)*

| Source of Liquidity | Facility Amount | Amount Outstanding | Amount Available |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents |  |  | $401.3 |
| Borrowing arrangements: |  |  |  |
| U.S. Credit Facility(a) | $750.0 | $— | $705.1 |
| Mexico Credit Facility(b) | 40.1 | — | 40.1 |
| U.K. and Europe Credit Facilities(c) | 141.9 | 1.5 | 140.4 |

(a) Availability under the U.S. Credit Facility (as described below) is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at September 30, 2018 totaled $44.9 million.

(b) As of September 30, 2018, the U.S. dollar-equivalent of the amount available under the Mexico Credit Facility (as described below) was $40.1 million. The Mexico Credit Facility provides for a loan commitment of $750.0 million Mexican pesos.

(c) As of September 30, 2018, the U.S. dollar-equivalent of the amount available under the U.K. and Europe Credit Facilities (as described below) were $140.4 million. The U.K. and Europe Credit Facilities provide for loan commitments of £100.0 million (or $130.3 million U.S. dollar equivalent) and €20.0 million (or $11.6 million U.S. dollar equivalent).

### Long-Term Debt and Other Borrowing Arrangements

### U.S. Senior Notes

On March 11, 2015, we completed a sale of $500.0 million aggregate principal amount of our 5.75% senior notes due 2025. On September 29, 2017, we completed an add-on offering of $250.0 million of these senior notes. The issuance price of this add-on offering was 102.0%, which created gross proceeds of $255.0 million. The additional $5.0 million will be amortized over the remaining life of the senior notes. On March 7, 2018, we completed another add-on offering of $250.0 million of these senior notes (together with the senior notes issued in March 2015 and September 2017, the “Senior Notes due 2025”). The issuance price of this add-on offering was 99.25%, which created gross proceeds of $248.1 million. The $1.9 million discount will be amortized over the remaining life of the senior notes. Each issuance of the Senior Notes due 2025 is treated as a single class for all purposes under the 2015 Indenture (defined below) and have the same terms.

The Senior Notes due 2025 are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among us, our guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “2015 Indenture”). The 2015 Indenture provides, among other things, that the Senior Notes due 2025 bear interest at a rate of 5.75% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015 for the Senior Notes due 2025 that were issued in March 2015 and beginning on March 15, 2018 for the Senior Notes due 2025 that were issued in September 2017 and March 2018.

On September 29, 2017, we completed a sale of $600.0 million aggregate principal amount of our 5.875% senior notes due 2027. On March 7, 2018, we completed an add-on offering of $250.0 million of these senior notes (together with the senior notes issued in September 2017, the “Senior Notes due 2027”). The issuance price of this add-on offering was 97.25%, which created gross proceeds of $243.1 million. The $6.9 million discount will be amortized over the remaining life of the Senior Notes due 2027. Each issuance of the Senior Notes due 2027 is treated as a single class for all purposes under the 2017 Indenture (defined below) and have the same terms.

The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among us, our guarantor subsidiary and U.S. Bank National Association, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest at a rate of 5.875% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on March 30, 2018 for the Senior Notes due 2027 that were issued in September 2017 and beginning on March 15, 2018 for the Senior Notes due 2027 that were issued in March 2018.

The Senior Notes due 2025 and the Senior Notes due 2027 are each guaranteed on a senior unsecured basis by our guarantor subsidiary. In addition, any of our other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2025 and the Senior Notes due 2027. The Senior Notes due 2025 and the Senior Notes due 2027 and related guarantees are unsecured senior obligations of us and our guarantor subsidiary and rank equally with all of our and our guarantor subsidiary’s other unsubordinated indebtedness. The Senior Notes due 2025, the 2015 Indenture, the Senior Notes due 2027 and the 2017 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2025 and the Senior Notes due 2027 when due, among others.

We used the net proceeds from the sale of the Senior Notes due 2025 and the Senior Notes due 2027 that were issued in September 2017 to repay in full the JBS S.A. Promissory Note issued as part of the Moy Park acquisition and for general corporate purposes. We used the net proceeds from the sale of the Senior Notes due 2025 and the Senior Notes due 2027 that were issued in March 2018 to pay the second tender price of Moy Park Notes (as described below), repay a portion of outstanding secured debt, and for general corporate purposes. The Senior Notes due 2025 and the Senior Notes due 2027 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.

### Moy Park Senior Notes

Between May 29, 2014 and April 17, 2015, Moy Park (Bondco) plc completed the sale of £300.0 million aggregate principal amount of its 6.25% senior notes due 2021 (the “Moy Park Senior Notes”). Between November 3, 2017 and March 8, 2018, Moy Park (Bondco) plc completed the purchase for cash of the Moy Park Senior Notes through a tender offer. As of March 8, 2018, £234.3 million principal amount of Moy Park Senior Notes had been validly tendered and purchased by Moy Park (Bondco) plc.

On May 29, 2018, Moy Park (Bondco) plc redeemed all remaining Moy Park Senior Notes outstanding at the redemption price equal to 101.56% of the principal amount, plus accrued and unpaid interest. The principal value of the Moy Park Senior Notes redeemed on May 29, 2018 was £65.7 million. As of September 30, 2018, there are no Moy Park Senior Notes outstanding.

### U.S. Credit Facility

On July 20, 2018, we, and certain of our subsidiaries entered into a Fourth Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with CoBank, ACB, as administrative agent and collateral agent, and the other lenders party thereto. The U.S. Credit Facility provides for a $750.0 million revolving credit commitment and a term loan commitment of up to $500.0 million (the “Term Loans”). We used the proceeds from the term loan commitment under the U.S. Credit Facility, together with cash on hand, to repay the outstanding loans under our previous credit agreement with Coöperatieve Rabobank U.A., New York Branch, as administrative agent, and the other lenders and financial institutions party thereto.

The U.S. Credit Facility includes an accordion feature that allows us, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $1.25 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 July 20, 2023. All principal on the Term Loans is due at maturity on July 20, 2023. Installments of principal are required to be made, in an amount equal to 1.25% of the original principal amount of the Term Loans, on a quarterly basis prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require us to use the proceeds we receive from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. As of September 30, 2018, we had Term Loans outstanding totaling $500.0 million and the amount available for borrowing under the revolving loan commitment was $705.1 million. We had letters of credit of $44.9 million and no borrowings outstanding under the revolving loan commitment as of September 30, 2018.

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 1.25% through August 2, 2018 and, thereafter, based on our 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 0.25% through August 2, 2018 and, based on our net senior secured leverage ratio, between the base rate plus 0.25% and base rate plus 1.75% thereafter.

The U.S. Credit Facility contains customary financial and other various covenants for transactions of this type, including restrictions on our ability to incur additional indebtedness, incur liens, pay dividends, make certain restricted payments, consummate certain asset sales, enter into certain transactions with our affiliates, or merge, consolidate and/or sell or dispose of all or substantially all of our assets, among other things. The U.S. Credit Facility requires us 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. We are currently in compliance with the covenants under the U.S. Credit Facility.

All obligations under the U.S. Credit Facility continue to be unconditionally guaranteed by certain of our subsidiaries and continue to be secured by a first priority lien on (i) the accounts receivable and inventory of us and our 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 us and the guarantors under the U.S. Credit Facility.

### Mexico Credit Facility

On September 27, 2016, certain of our Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility was $750.0 million Mexican pesos. Outstanding borrowings under the Mexico Credit Facility accrued interest at a rate equal to the Interbank Equilibrium Interest Rate plus 0.95%. The Mexico Credit Facility is scheduled to mature on September 27, 2019. Outstanding borrowings under the Mexico Credit Facility bear interest at a per annum rate of 9.07%. As of September 30, 2018, the U.S. dollar-equivalent loan commitment and the U.S. dollar-equivalent borrowing availability under the Mexico Credit Facility were both $40.1 million. As of September 30, 2018, there were no outstanding borrowings under the Mexico Credit Facility.

### Moy Park Bank of Ireland Revolving Facility Agreement

On June 2, 2018, Moy Park Holdings (Europe) Ltd. and its subsidiaries entered into an unsecured multicurrency revolving facility agreement (the “Bank of Ireland Facility Agreement”) with the Governor and Company of the Bank of Ireland, as agent, and the other lenders party thereto. The Bank of Ireland Facility Agreement provides for a multicurrency revolving loan commitment of up to £100.0 million. The multicurrency revolving loan commitments under the Bank of Ireland Facility Agreement matures on June 2, 2023. Outstanding borrowings under the Bank of Ireland Facility Agreement bear interest at a rate per annum equal to the sum of (i) LIBOR or, in relation to any loan in euros, EURIBOR, plus (ii) a margin, ranging from 1.25% to 2.00% based on Leverage (as defined in the Bank of Ireland Facility Agreement). All obligations under the Bank of Ireland Facility Agreement are guaranteed by certain of Moy Park's subsidiaries. As of September 30, 2018, the U.S. dollar-equivalent loan commitment and borrowing availability were both $130.3 million. There were no outstanding borrowings under the Bank of Ireland Facility Agreement as of September 30, 2018.

The Bank of Ireland Facility Agreement contains representations and warranties, covenants, indemnities and conditions that we believe are customary for transactions of this type. Pursuant to the terms of the Bank of Ireland Facility Agreement, Moy Park is required to meet certain financial and other restrictive covenants. Additionally, Moy Park is prohibited from taking certain actions without consent of the lenders, including, without limitation, incurring additional indebtedness, entering into certain mergers or other business combination transactions, permitting liens or other encumbrances on its assets and making restricted payments, including dividends, in each case except as expressly permitted under the Bank of Ireland Facility Agreement. The Bank of Ireland Facility Agreement contains events of default that we believe are customary for transactions of this type. If a default occurs, any outstanding obligations under the Bank of Ireland Facility Agreement may be accelerated.

### Moy Park Multicurrency Revolving Facility Agreement

On March 19, 2015, Moy Park Holdings (Europe) Ltd. and its subsidiaries, entered into an agreement with Barclays Bank plc, which expired on March 19, 2018. The agreement provided for a multicurrency revolving loan commitment of up to £20.0 million.

### Moy Park Receivables Finance Agreement

Moy Park Ltd., entered into a £45.0 million receivables finance agreement on January 29, 2016 (the “Receivables Finance Agreement”), with Barclays Bank plc. Moy Park Holdings (Europe) Ltd. repaid the Receivables Finance Agreement in full using available cash and proceeds from the Bank of Ireland Facility Agreement and terminated the Receivables Finance Agreement with Barclays Bank plc on June 4, 2018.

### Moy Park France Invoice Discounting Facility

In June 2009, Moy Park France Sàrl entered into a €20.0 million invoice discounting facility with GE De Facto (the “Invoice Discounting Facility”). The facility limit was decreased by 50 percent in June 2018. The Invoice Discounting Facility is payable on demand and the term is extended on an annual basis. The agreement can be terminated by either party with three months’ notice. Outstanding borrowings under the Invoice Discounting Facility bear interest at a per annum rate equal to EURIBOR plus a margin of 0.80%. As of September 30, 2018, the U.S. dollar-equivalent loan commitment, borrowing availability and outstanding borrowings under the Invoice Discounting Facility were $11.6 million, $10.1 million, and $1.5 million, respectively.

The Invoice Discounting Facility contains financial covenants and various other covenants that may adversely affect Moy Park's ability to, among other things, incur additional indebtedness, consummate certain asset sales, enter into certain transactions with JBS and our other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of Moy Park's assets.

### Collateral

Substantially all of our domestic inventories and domestic fixed assets are pledged as collateral to secure the obligations under the U.S. Credit Facility. In addition, there is no collateral pledged on the other U.K. and Europe credit facilities.

### Off-Balance Sheet Arrangements

We maintain operating leases for various types of equipment, some of which contain residual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease maturities range from one to ten years. We estimate the maximum potential amount of the residual value guarantees is approximately $53.9 million; however, the actual amount would be offset by any recoverable amount based on the fair market value of the underlying leased assets. No liability has been recorded related to this contingency as the likelihood of payments under these guarantees is not considered to be probable, and the fair value of the guarantees is immaterial. We historically have not experienced significant payments under similar residual guarantees.

We are a party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. Among other considerations, we have not recorded a liability for any of these indemnities as, based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on our financial condition, results of operations and cash flows.

### Historical Flow of Funds

### Thirty-Nine Weeks Ended September 30, 2018

Cash provided by operating activities was $425.3 million for the thirty-nine weeks ended September 30, 2018. The cash flows provided by operating activities resulted primarily from net income of $255.0 million, net noncash expenses of $229.3 million, a change in accounts payable, accrued expenses and other current liabilities of $78.1 million, a change in inventories of $64.8 million and a change in other operating assets and liabilities of $1.6 million. These cash flows were offset by the use of $175.6 million in cash related to income taxes, the use of $15.4 million in cash related to prepaid expenses and other current assets, the use of $9.1 million in cash related to long-term pension and other postretirement obligations and the use of $3.4 million in cash related to trade accounts and other receivables.

The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $3.4 million use of cash related to operating activities for the thirty-nine weeks ended September 30, 2018. This change is primarily due to customer payment timing.

The change in inventories represented a $64.8 million source of cash related to operating activities for the thirty-nine weeks ended September 30, 2018. This change resulted primarily from a decrease in our finished products inventory.

The change in prepaid expenses and other current assets represented a $15.4 million use of cash related to operating activities for the thirty-nine weeks ended September 30, 2018. This change resulted primarily from a net increase in both commodity derivatives and value-added tax receivables.

The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities, including accounts payable to related parties, represented a $78.1 million source of cash related to operating activities for the thirty-nine weeks ended September 30, 2018. This change resulted primarily from the timing of payments.

The change in income taxes, which includes income taxes receivable, income taxes payable, deferred tax assets, deferred tax liabilities reserves for uncertain tax positions, and the tax components within accumulated other comprehensive loss, represented a $175.6 million use of cash related to operating activities for the thirty-nine weeks ended September 30, 2018. This change resulted primarily from the timing of estimated tax payments.

Net noncash expenses provided $229.3 million in cash related to operating activities for the thirty-nine weeks ended September 30, 2018. Net noncash expense items included depreciation and amortization of $211.5 million, share-based compensation of $9.3 million, noncash loss on early extinguishment of debt of $6.0 million and foreign currency transaction loss related to borrowing arrangements of $4.2 million, which were partially offset by a deferred income tax benefit of $2.1 million.

Cash used in investing activities totaled $229.2 million for the thirty-nine weeks ended September 30, 2018. Cash used to acquire property, plant and equipment totaled $231.9 million. Capital expenditures were primarily incurred to improve operational efficiencies and reduce costs. Cash proceeds generated from property disposals for the period totaled $2.7 million.

Cash used by financing activities totaled $373.9 million for the thirty-nine weeks ended September 30, 2018. Cash proceeds from long-term debt totaled $703.1 million and cash proceeds from equity contributions under a tax sharing agreement with JBS USA Food Company Holdings totaled $5.6 million. These sources of cash were offset by $1.1 billion in cash used for payments on revolving lines of credit, long-term borrowings and capital lease obligations and $11.1 million in cash used to pay capitalized loan costs.

### Thirty-Nine Weeks Ended September 24, 2017

Cash provided by operating activities was $618.5 million for the thirty-nine weeks ended September 24, 2017. The cash flows provided by operating activities were primarily from net income of $584.2 million, net noncash expenses of $244.0 million, changes in income taxes of $149.1 million and deferred income tax expense of $25.8 million. These cash flows were offset by the use of $149.8 million in cash related to inventories, the use of $146.5 million in cash related to trade accounts and other receivables and the use of $36.1 million in cash related to accounts payable, accrued expenses and other current liabilities.

The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $146.5 million use of cash related to operating activities for the thirty-nine weeks ended September 24, 2017. This change is primarily due to customer payment timing.

The change in inventories represented a $149.8 million use of cash related to operating activities for the thirty-nine weeks ended September 24, 2017. This change in cash related to inventories was primarily related to increases in work-in-process and finished products.

The change in prepaid expenses and other current assets represented a $15.4 million use of cash related to operating activities for the thirty-nine weeks ended September 24, 2017. This change resulted primarily from a net decrease in commodity derivatives.

The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities, including accounts payable to related parties, represented a $36.1 million use of cash related to operating activities for the thirty-nine weeks ended September 24, 2017. This change resulted primarily from the timing of payments.

The change in income taxes, which includes income taxes receivable, income taxes payable, deferred tax assets, deferred tax liabilities reserves for uncertain tax positions, and the tax components within accumulated other comprehensive loss, represented a $149.1 million source of cash related to operating activities for the thirty-nine weeks ended September 24, 2017. This change resulted primarily from the timing of estimated tax payments.

Net noncash expenses provided $244.0 million in cash related to operating activities for the thirty-nine weeks ended September 24, 2017. Net noncash expense items included depreciation and amortization of $204.6 million, cash proceeds of $25.8 million related to deferred income tax expense, cash proceeds of $6.8 million from foreign currency transactions related to borrowing arrangements and cash proceeds of $4.9 million and $2.5 million related to asset impairment and share-based compensation, respectively.

Cash used in investing activities totaled $914.3 million for the thirty-nine weeks ended September 24, 2017. Cash used to acquire GNP, net of cash acquired, totaled $658.5 million, and cash used to acquire property, plant and equipment totaled $258.4 million. Capital expenditures were primarily incurred to improve operational efficiencies, reduce costs and tailor processes to meet specific customer needs in order to further solidify our competitive advantages. Cash proceeds from property disposals totaled $2.6 million.

Cash proceeds from financing activities totaled $389.8 million for the thirty-nine weeks ended September 24, 2017. Cash proceeds from long-term debt totaled $1.0 billion and cash proceeds from equity contributions under a tax sharing agreement with JBS USA Food Company Holdings totaled $5.0 million. These sources of cash were partially offset by $609.7 million in cash used for payments on revolving lines of credit, long-term borrowings and capital lease obligations, and $14.6 million in cash used for the purchase of common stock under a share repurchase program.

### Contractual Obligations

Contractual obligations at September 30, 2018 were as follows:

*(In thousands)*

| Contractual Obligations(a) | Total | Less than One Year | One to Three Years | Three to Five Years | Greater than Five Years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Long-term debt(b) | $2,351,929 | $20,671 | $50,008 | $431,250 | $1,850,000 |
| Interest(c) | 929,376 | 125,502 | 247,928 | 244,977 | 310,969 |
| Capital leases | 5,368 | 3,669 | 1,687 | 12 | — |
| Operating leases | 235,458 | 55,855 | 84,808 | 55,821 | 38,974 |
| Derivative liabilities | 13,739 | 13,739 | — | — | — |
| Purchase obligations(d) | 413,088 | 412,995 | 93 | — | — |
| Total | $3,948,958 | $632,431 | $384,524 | $732,060 | $2,199,943 |

(a) The total amount of unrecognized tax benefits at September 30, 2018 was $11.9 million. We did not include this amount in the contractual obligations table above as reasonable estimates cannot be made at this time of the amounts or timing of future cash outflows.

(b) Long-term debt is presented at face value and excludes $44.9 million in letters of credit outstanding related to normal business transactions.

(c) Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings as of September 30, 2018.

(d) Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction.

We expect cash flows from operations, combined with availability under our credit facilities, to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.

### Recent Accounting Pronouncements

### Adopted in 2018

In May 2014, the 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. We adopted this new guidance effective January 1, 2018.

In March 2017, the FASB issued new accounting guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost, which requires the service cost component of net benefit cost to be reported in the same line of the income statement as other compensation costs earned by the employee and the other components of net benefit cost to be reported below income from operations. We adopted this new guidance effective January 1, 2018.

### Not Yet Adopted as of September 30, 2018

In February 2016, the FASB issued new accounting guidance on lease arrangements, which requires an entity that is a lessee to recognize the assets and liabilities arising from leases on the balance sheet. We will adopt this new guidance effective December 31, 2018. We are currently evaluating the impact of the new guidance on our financial statements. We anticipate this standard will have a material impact on our Consolidated Balance Sheet as a result of the increase in assets and liabilities from recognition of operating leases. However, we do not believe the standard will have a material impact on our Consolidated Statement of Income.

In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments, which replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.

In August 2017, the FASB issued an accounting standard update that simplifies the application of hedge accounting guidance in current GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. We will adopt this new guidance effective December 31, 2018. We are currently evaluating the impact of the new guidance on our financial statements.

In February 2018, the FASB issued an accounting standard update that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.

In July 2018, the FASB issued an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share based payments. We will adopt this new guidance effective December 31, 2018. We are currently evaluating the impact of the new guidance on our financial statements.

In August 2018, the FASB issued an accounting standard update to improve the effectiveness of disclosures related to fair value measurements. This accounting standard update removes certain disclosure requirements related to transfers between fair value hierarchy levels and the valuation processes used for certain fair value measurements. The update requires additional disclosures as to significant unobservable inputs used in certain fair value measurements and gains and losses included in other comprehensive income. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.

In August 2018, the FASB issued an accounting standard update to improve the effectiveness of disclosures related to defined benefit plans. The update removes disclosures related to the amounts in accumulated other comprehensive income expected to be recognized in the next fiscal year, adds narrative disclosure of the reasons for significant gains and losses related to changes in the defined benefit obligation, and clarifies the disclosures required for plans with projected and accumulated benefit obligations in excess of plan assets. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected an adoption date.

See “Note 1. Description of Business and Basis of Presentation” of our Condensed Consolidated and Combined Financial Statements included in this quarterly report for additional information relating to these recent accounting pronouncements.

### Critical Accounting Policies

During the thirty-nine weeks ended September 30, 2018, (i) updates to our critical accounting policies related to the adoption of ASC 2014-09, *Revenue from Contracts with Customers* on January 1, 2018 are included in “Note 13. Revenue Recognition”, (ii) no existing accounting policies became critical accounting policies because of an increase in the materiality of associated transactions or changes in the circumstances to which associated judgments and estimates relate and (iii) other than the changes included in "Note 13. Revenue Recognition", there were no significant changes in the manner in which critical accounting policies were applied or in which related judgments and estimates were developed.

## Market risk

As filed, 12,149 characters.

### Market Risk-Sensitive Instruments and Positions

The risk inherent in our market risk-sensitive instruments and positions is primarily the potential loss arising from adverse changes in commodity prices, foreign currency exchange rates, interest rates and the credit quality of available-for-sale securities as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions our management may take to mitigate our exposure to such changes. Actual results may differ.

### Commodity Prices

We purchase certain commodities, primarily corn, soybean meal and wheat, for use as ingredients in the feed we either sell commercially or consume in our live operations. As a result, our earnings are affected by changes in the price and availability of such feed ingredients. In the past, we have from time to time attempted to minimize our exposure to the changing price and availability of such feed ingredients using various techniques, including, but not limited to, (i) executing purchase agreements with suppliers for future physical delivery of feed ingredients at established prices and (ii) purchasing or selling derivative financial instruments such as futures and options.

For this sensitivity analysis, market risk is estimated as a hypothetical 10.0% change in the weighted-average cost of our

primary feed ingredients as of September 30, 2018. However, fluctuations greater than 10.0% could occur. Based on our feed consumption during the thirteen weeks ended September 30, 2018, such a change would have resulted in a change to cost of sales of approximately $76.6 million, excluding the impact of any feed ingredients derivative financial instruments in that period. A 10.0% change in ending feed ingredient inventories at September 30, 2018 would be $12.2 million, excluding any potential impact on the production costs of our chicken inventories.

We purchase commodity derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs for the next 12 months. A 10.0% change in corn and soybean meal prices on September 30, 2018 would have resulted in a change of approximately $0.8 million in the fair value of our net commodity derivative asset position, including margin cash, as of that date.

### Interest Rates

Our variable-rate debt instruments represent approximately 21.3% of our total debt at September 30, 2018. Holding other variables constant, including levels of indebtedness, an increase in interest rates of 25 basis points would have increased our interest expense by $0.3 million for the thirteen weeks ended September 30, 2018.

Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a hypothetical decrease in interest rates of 10.0%. Using a discounted cash flow analysis, a hypothetical 10.0% decrease in interest rates would have decreased the fair value of our fixed-rate debt by approximately $10.7 million as of September 30, 2018.

### Foreign Currency

Our earnings are also affected by foreign exchange rate fluctuations related to the Mexican peso net monetary position of our Mexico subsidiaries. We manage this exposure primarily by attempting to minimize our Mexican peso net monetary position. We are also exposed to the effect of potential currency exchange rate fluctuations to the extent that amounts are repatriated from Mexico to the U.S. We currently anticipate that the future cash flows of our Mexico subsidiaries will be reinvested in our Mexico segment.

The Mexican peso exchange rate can directly and indirectly impact our financial condition and results of operations in

several ways, including potential economic recession in Mexico because of devaluation of their currency. Foreign currency exchange losses, representing the change in the U.S. dollar value of the net monetary assets of our Mexican subsidiaries denominated in Mexican pesos, were a net gain of $6.8 million and $1.2 million in the thirteen weeks ended September 30, 2018 and September 24, 2017, respectively. Foreign currency exchange losses, representing the change in the U.S. dollar value of the net monetary assets of our Mexican subsidiaries denominated in Mexican pesos, were a gain of $3.1 million and $2.4 million in the thirty-nine weeks ended September 30, 2018 and September 24, 2017, respectively. The average exchange rates for the thirteen weeks ended September 30, 2018 and September 24, 2017 were 18.95 Mexican pesos to 1 U.S. dollar and 17.81 Mexican pesos to 1 U.S. dollar, respectively. For this sensitivity analysis, market risk is estimated as a hypothetical 10.0% deterioration in the current exchange rate used to convert Mexican pesos to U.S. dollars as of September 30, 2018 and September 24, 2017. However, fluctuations greater than 10.0% could occur. Based on the net monetary asset position of our Mexico segment at September 30, 2018, such a change would have resulted in a decrease in foreign currency transaction gains recognized in the thirteen weeks ended September 30, 2018 of approximately $5.9 million. Based on the net monetary asset position of our Mexico segment at September 24, 2017, such a change would have resulted in a decrease in foreign currency transaction gains recognized in the thirteen weeks ended September 24, 2017 of approximately $2.0 million. No assurance can be given as to how future movements in the Mexican peso could affect our future financial condition or results of operations.

Additionally, we are exposed to foreign exchange-related variability of investments and earnings from our foreign investments in Europe (including the U.K.). Foreign currency market risk is the possibility that our financial results or financial position could be better or worse than planned because of changes in foreign currency exchange rates. At September 30, 2018, our U.K. and Europe segment had net assets of approximately $2.0 billion, denominated in British pounds, after consideration of our derivative and nonderivative financial instruments. Based on our sensitivity analysis, a 10.0% adverse change in exchange rates would cause a reduction of $202.4 million to our net assets.

At September 30, 2018, we had foreign currency forward contracts, which were designated and qualify as cash flow hedges, with an aggregate notional amount of $18.3 million to hedge a portion of our investments in Europe (including the U.K.). On the basis of our sensitivity analysis, a weakening of the U.S. dollar against the British pound by 10.0% would result in a $1.9 million negative change in our cash flows on settlement while a weakening of the U.S. dollar against the euro by 10.0% would result in a less than $0.1 million negative change in our cash flows on settlement. No assurance can be given as to how future movements in currency rates could affect our future financial condition or results of operations.

### Quality of Investments

Certain retirement plans that we sponsor invest in a variety of financial instruments. We have analyzed our portfolios of investments and, to the best of our knowledge, none of our investments, including money market funds units, commercial paper and municipal securities, have been downgraded, and neither we nor any fund in which we participate hold significant amounts of structured investment vehicles, auction rate securities, collateralized debt obligations, credit derivatives, hedge funds investments, fund of funds investments or perpetual preferred securities. Certain postretirement funds in which we participate hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.

### Impact of Inflation

Due to low to moderate inflation in the U.S., Europe (including the U.K.) and Mexico and our rapid inventory turnover rate, the results of operations have not been significantly affected by inflation during the past three-year period.

### Forward Looking Statements

Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made herein, in our other filings with the SEC, in press releases, and in certain other oral and written presentations. Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “imply,” “intend,” “should,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include the following:

- Matters affecting the chicken industry generally, including fluctuations in the commodity prices of feed ingredients and chicken;
- Our ability to obtain and maintain commercially reasonable terms with vendors and service providers;
- Our ability to maintain contracts that are critical to our operations;
- Our ability to retain management and other key individuals;
- Outbreaks of avian influenza or other diseases, either in our own flocks or elsewhere, affecting our ability to conduct our operations and/or demand for our poultry products;
- Contamination of our products, which has previously and can in the future lead to product liability claims and product recalls;
- Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate;
- Changes in laws or regulations, including the Tax Act, affecting our operations or the application thereof;
- Our ability to ensure that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations will comply with anti-corruption laws or other laws governing the conduct of business with government entities;
- New immigration legislation or increased enforcement efforts in connection with existing immigration legislation that cause our costs of business to increase, cause us to change the way in which we do business or otherwise disrupt our operations;
- Competitive factors and pricing pressures or the loss of one or more of our largest customers;
- Inability to consummate, or effectively integrate, any acquisition, including the acquisition of Moy Park, or to realize the associated anticipated cost savings and operating synergies;
- Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign segments;
- Restrictions imposed by, and as a result of, the leverage of Pilgrim's Pride;
- Disruptions in international markets and distribution channels;
- Our ability to maintain favorable labor relations with our employees and our compliance with labor laws;
- Extreme weather or natural disasters;
- The impact of uncertainties in litigation; and
- Other risks described herein and under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2017 as filed with the SEC.

Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.

In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes to information contained in previous filings or communications. Although we have attempted to list comprehensively these important cautionary risk factors, we must caution investors and others that other factors may in the future prove to be important and affect our business or results of operations.

## Controls and procedures

As filed, 2,313 characters.

### Disclosure Controls and Procedures

Under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files with the U.S. Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our Company in the reports that it files with the SEC is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of September 30, 2018, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information we are required to disclose in our reports filed with the SEC is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, identified no change in the Company’s internal control over financial reporting that occurred during the thirty-nine weeks ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 674 characters.

In addition to the other information set forth in this quarterly report, you should carefully consider the risks discussed in our annual report on Form 10-K for the year ended December 31, 2017, including under the heading “Item 1A. Risk Factors”, which, along with risks disclosed in this report, are risks we believe could materially affect the Company’s business, financial condition or future results. These risks are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition or future results.

Filed Nov 1, 2018.
Source: SEC EDGAR, the filing index for accession 0000802481-18-000071. Last ingested by Listed: Oct 29, 2026, 06:16 ET. No prices; not investment advice.