# Pilgrims Pride Corp: Form 10-Q for the period ended Mar 28, 2021

- Company: [Pilgrims Pride Corp](/companies/ppc.md) (CIK 802481)
- Form: 10-Q
- Filed: 2021-04-29
- Accepted by EDGAR: Apr 28, 2021, 20:25 ET
- Period: 2021-03-28
- Accession: 0000802481-21-000051
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/802481/000080248121000051/ppc-20210328.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/802481/000080248121000051/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-12-28 to 2021-03-28 | $3.27bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-12-28 to 2021-03-28 | $3.01bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2020-12-28 to 2021-03-28 | $261.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2020-12-28 to 2021-03-28 | $102.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-12-28 to 2021-03-28 | $158.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-12-28 to 2021-03-28 | $30.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-12-28 to 2021-03-28 | $35.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-12-28 to 2021-03-28 | $100.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-12-28 to 2021-03-28 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-12-28 to 2021-03-28 | $0.41 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-12-28 to 2021-03-28 | 243,858,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-12-28 to 2021-03-28 | −$143.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-12-28 to 2021-03-28 | $102.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2020-12-28 to 2021-03-28 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-03-28 | $367.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-03-28 | $2.88bn | us-gaap:AssetsCurrent |
| Total assets | at 2021-03-28 | $7.48bn | us-gaap:Assets |
| Current liabilities | at 2021-03-28 | $1.71bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2021-03-28 | $4.75bn | us-gaap:Liabilities |
| Current portion of debt | at 2021-03-28 | $25.5m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-03-28 | $2.72bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,287 characters.

### Executive Summary

### Overview

We are one of the largest chicken producers in the world, and as a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service. This gives us the opportunity to continue to create growth and development opportunities, further increasing our position as a leading domestic and global protein company. With the acquisition of Pilgrim's Pride Limited (“PPL”) and Moy Park in 2019 and 2017, respectively, we solidified ourselves as a leading European food company while diversifying our product mix with introduction into the pork market. With the acquisition of GNP in 2017, we further solidified ourselves as a leading poultry company within the U.S.

We reported net income attributable to Pilgrim’s of $100.2 million, or $0.41 per diluted common share, and profit before tax totaling $135.8 million, for the three months ended March 28, 2021. These operating results included net sales of $3.3 billion, gross profit of $261.2 million and $143.6 million of cash used in operating activities. We generated a consolidated operating margin of 4.8% with operating margins of 3.4%, 1.2% and 19.0% in our U.S., U.K. and Europe, and Mexico reportable segments, respectively.

### Impact of COVID-19

The extensive impact of the pandemic caused by the novel coronavirus (“COVID-19”) has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other jurisdictions have imposed various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations and extended closures of businesses. On April 28, 2020, former President Trump signed an executive order directing the Department of Agriculture to ensure meat and poultry processors in the U.S. continue operations uninterrupted to the maximum extent possible and designating meat and poultry processing plants as critical infrastructure.

As the global spread of the virus began to accelerate late in March of 2020, we began to experience adverse impacts to our business and financial results. The impact of the COVID-19 pandemic included disruptions in supply chain, an increase in both broiler and chick costs and an increase in payroll and benefits costs. With the uncertainty surrounding COVID-19, we believe that we will continue to experience certain disruptions to our business for the remainder of 2021.

As the quarter progressed, COVID-19 vaccinations increased while daily COVID-19 case rates decreased, leading to gradual relaxations of COVID-19 restrictions, such as those directly affecting restaurants’ indoor dining capacities and increased consumer mobility. The delivery of the second and third COVID-19 direct relief packages to taxpayers, in addition to extended unemployment benefits, were supportive of consumer income. These same relief packages have been a factor in labor shortages and higher absenteeism at our facilities, which has caused a reduction in chicken production.

The impact of COVID-19 and measures to prevent its spread have affected and continue to affect our business in a number of ways.

- *Our workforce.* Employee health and safety is our priority. As an essential business in a critical infrastructure industry, we continue to produce chicken and pork products, while coordinating with and implementing guidance from the U.S. Centers for Disease Control and Prevention, the National Institute of Occupational Safety and Health, and local and regional Departments of Health in an effort to keep our employees safe and healthy. Measures we have implemented include, but are not limited to: increasing physical distancing of our employees, where possible, by staggering start and shift breaks, placing on-site tents to create more space for employees at break and at meal times, and installing physical barriers to distance employees while working on production lines; adding temperature and symptom screening stations for employees prior to entering our facilities; increasing personal hygiene practices and providing our employees additional personal protective equipment and sanitation stations; and increasing sanitation of our facilities. In the U.S., we provided appreciation bonuses to eligible employees in April and May of 2020 and expanded certain sick leave policies to provide more flexibility. In addition, we implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely.
- *Our operations.* All of our 60 production facilities are operating, although some facilities reduced production levels and outputs for a period of time due to increased health and safety measures, employee absenteeism and as a consequence of the decline in demand by restaurants and other foodservice businesses. To date, we have not

experienced a material impact from a plant closure and our facilities have largely been exempt from government closure orders.

- *Demand for our products.* COVID-19 and the implementation of restricted living have led to a shift in demand from restaurants to retail grocery stores, with consumers eating more at home due to pandemic restrictions. In our U.S. and Mexico businesses, demand for parts and whole-birds (typically bound for restaurants) and prepared foods (distributed, in part, to schools) has declined, while our U.K. and Europe business, which is more retail focused, has generally seen less of an impact. However, two PPL plants had their export licenses to China suspended due to pandemic issues. In an effort to counter the adverse effects of COVID-19, we have transitioned, where commercially reasonable and possible to do so, our business operations to be in the best position to supply COVID-19 market demands. These efforts have included transferring live supply to case ready, shifting production form and mix from foodservice to retail, increasing capacity utilization of retail packaging equipment, and analyzing export positions.
- *Liquidity.* Our liquidity position is strong and we have taken additional measures to increase liquidity to stay prepared during this challenging environment. On February 18, 2021, we borrowed $100.0 million under the U.S. Credit Facility. The draw-down proceeds may be used for general corporate purposes.
- *Foreign currency exchange rates and commodity prices.* During the three months ended March 28, 2021, we experienced increased volatility in foreign currency exchange rates and commodity prices, in part related to the uncertainty from COVID-19, as well as actions taken by governments and central banks in response to COVID-19. We expect continued volatility in foreign currency exchange rates and commodity prices during 2021, though we cannot reasonably estimate the duration, extent or impact of that volatility.
- *CARES Act.* On March 27, 2020, the U.S. government enacted the CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. As of the three months ended March 28, 2021, we have delayed approximately $52.3 million of employer payroll taxes with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.

### Senior Notes due 2031

On April 8, 2021, we completed a sale of $1.0 billion aggregate principal amount of 4.25% sustainability-linked senior notes due 2031 (“Senior Notes due 2031”). We used the net proceeds of the sale, together with cash on hand, to redeem our 5.75% senior notes due 2025. From and including October 15, 2026, the interest rate payable on the notes will increase to 4.50% per annum unless we timely notify the related indenture trustee that our greenhouse gas emissions intensity reduction target has been satisfied and that the satisfaction of the target has been confirmed by a qualified provider of third-party assurance or attestation services appointed by us to review our statement of the greenhouse gas emissions intensity in accordance with its customary procedures.

Additional information regarding the Senior Notes due 2031 is included in “Note 11. Debt.”

### Raw Materials and Pricing

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, soybean meal and barley as the main ingredients for feed production.

Market prices for chicken products during the three months ended March 28, 2021 began the period slightly above the 5-year average and increased steadily at a rate higher than would be expected for historical seasonal movements, remaining well above the 5-year range throughout the quarter. During this time, the industry's broiler production trended below prior year levels as a result of fewer egg sets and chick placements. These were partially due to the impacts of a severe winter storm in February 2021. The trend of fewer egg sets and chick placements continued from the fourth quarter of 2020. With the easing of COVID-19 restrictions and vaccinations against COVID-19 increasing throughout the U.S., reduced broiler production coincided with robust retail demand and the continuing recovery of the foodservice environment, leading to the strong movements in market prices for chicken products experienced in the three months ended March 28, 2021.

While market prices for chicken products have improved thus far in 2021, prices for the remainder of the year will depend on the recovery of the foodservice industry and the evolution of retail meat demand, influenced by factors such as the COVID-19 pandemic, government regulation and uncertainty surrounding both the general economy and protein supply.

### Reportable Segments

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 the Mexico and U.K. and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. For additional information, see “Note 17. Reportable Segments” of our Condensed Consolidated Financial Statements included in this quarterly report.

### Results of Operations

### Three Months Ended March 28, 2021 Compared to the Three Months Ended March 29, 2020

*Net sales.* Net sales generated in the three months ended March 28, 2021 increased $198.5 million, or 6.5%, from net sales generated in the three months ended March 29, 2020. The following table provides net sales information:

*(In thousands, except percent data)*

| Sources of net sales Amount | Three Months Ended March 28, 2021 Percent | Change from Three Months Ended March 29, 2020 |  |
| --- | ---: | ---: | ---: |
| U.S. | $1,999,559 | $72,679 | 3.8% |
| U.K. and Europe | 854,734 | 32,472 | 3.9% |
| Mexico | 419,132 | 93,346 | 28.7% |
| Total net sales | $3,273,425 | $198,497 | 6.5% |

*U.S. Reportable Segment.* U.S. net sales generated in the three months ended March 28, 2021 increased $72.7 million, or 3.8%, from U.S. net sales generated in the three months ended March 29, 2020 primarily because of an increase in net sales per pound and an increase in sales volume. The increase in net sales per pound contributed $63.4 million, or 3.3 percentage points, to the increase in net sales. This increase in net sales per pound was driven primarily from higher than average chicken commodity prices in the U.S. during the three months ended March 28, 2021. The sales volume increase experienced by the U.S. segment contributed $9.3 million, or 0.5 percentage points, to the increase in net sales.

*U.K. and Europe Reportable Segment.* U.K. and Europe net sales generated in the three months ended March 28, 2021 increased $32.5 million, or 3.9%, from U.K. and Europe net sales generated in the three months ended March 29, 2020 primarily because of the favorable impact of foreign currency translation, increasing net sales by $61.1 million, or 7.4 percentage points. The favorable impact of foreign currency translation was partially offset by a decrease in sales volume and net sales per pound of $21.3 million, or 2.6 percentage points, and $7.3 million, or 0.9 percentage points, respectively.

*Mexico Reportable Segment.* Mexico net sales generated in the three months ended March 28, 2021 increased $93.3 million, or 28.7%, from Mexico net sales generated in the three months ended March 29, 2020 primarily because of an increase in net sales per pound contributing $145.4 million, or 44.6 percentage points, to the increase in net sales. This increase in net sales per pound was driven primarily by higher live chicken commodity prices in Mexico during the three months ended March 28, 2021 in comparison to the three months ended March 29, 2020. The increase in net sales per pound was partially offset by a decrease in sales volume and the unfavorable impact of foreign currency remeasurement of $44.6 million, or 13.6 percentage points, and $7.5 million, or 2.3 percentage points, respectively.

*Gross profit.* Gross profit increased by $84.1 million, or 47.5%, from $177.1 million generated in the three months ended March 29, 2020 to $261.2 million generated in the three months ended March 28, 2021. The following tables provide information regarding gross profit and cost of sales information:

*(In thousands, except percent data)*

| Components of gross profit Amount | Three Months Ended March 28, 2021 Three Months Ended Percent | Change from Three Months Ended March 29, 2020 March 28, 2021 | March 29, 2020 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $3,273,425 | $198,497 | 6.5% | 100.0% | 100.0% |
| Cost of sales | 3,012,182 | 114,353 | 3.9% | 92.0% | 94.2% |
| Gross profit | $261,243 | $84,144 | 47.5% | 8.0% | 5.8% |

37

*(In thousands, except percent data)*

| Sources of gross profit Amount | Three Months Ended March 28, 2021 Percent | Change from Three Months Ended March 29, 2020 |  |
| --- | ---: | ---: | ---: |
| U.S. | $132,859 | $(5,244) | (3.8)% |
| U.K. and Europe | 37,808 | (14,320) | (27.5)% |
| Mexico | 90,562 | 103,718 | (788.4)% |
| Elimination | 14 | (10) | (41.7)% |
| Total gross profit | $261,243 | $84,144 | 47.5% |

*(In thousands, except percent data)*

| Sources of cost of sales Amount | Three Months Ended March 28, 2021 Percent | Change from Three Months Ended March 29, 2020 |  |
| --- | ---: | ---: | ---: |
| U.S. | $1,866,700 | $77,923 | 4.4% |
| U.K. and Europe | 816,926 | 46,792 | 6.1% |
| Mexico | 328,570 | (10,372) | (3.1)% |
| Elimination | (14) | 10 | (41.7)% |
| Total cost of sales | $3,012,182 | $114,353 | 3.9% |

*U.S. Reportable Segment.* Cost of sales incurred by our U.S. operations during the three months ended March 28, 2021 increased $77.9 million, or 4.4%, from cost of sales incurred by our U.S. segment during the three months ended March 29, 2020. Cost of sales increased primarily because of the impact of increased cost per pound sold of $69.3 million, or 3.9 percentage points, and increased cost from sales volume of $8.6 million, or 0.5 percentage points. Included in the increased cost of sales was an $80.7 million increase in feed costs. This increase in feed costs is driven primarily from higher corn and soy commodity prices, our main ingredients in feed, for the three months ended March 28, 2021 compared to the three months ended March 29, 2020. Other factors affecting cost of sales were individually immaterial.

*U.K. and Europe Reportable Segment.* Cost of sales incurred by our U.K. and Europe operations during the three months ended March 28, 2021 increased $46.8 million, or 6.1%, from cost of sales incurred by our U.K. and Europe segment during the three months ended March 29, 2020. The increase in cost of sales was primarily from the unfavorable impact of foreign currency translation and increased cost per pound sold, contributing $58.4 million, or 7.6 percentage points, and $8.4 million, or 1.1 percentage points, respectively, to the increase in cost of sales. Partially offsetting the unfavorable impact of foreign currency translation and increased cost per pound sold was a decrease in cost due to reduced sales volume of $20.0 million, or 2.6 percentage points. Other factors affecting cost of sales were individually immaterial.

*Mexico Reportable Segment.* Cost of sales incurred by our Mexico operations during the three months ended March 28, 2021 decreased $10.4 million, or 3.1%, from cost of sales incurred by our Mexico segment during the three months ended March 29, 2020. This decrease was primarily because of a decrease in cost from sales volume and the favorable impact of foreign currency remeasurement of $46.3 million, or 13.7 percentage points, and $5.9 million, or 1.7 percentage points, respectively. These decreases were partially offset by an increase in cost per pound sold of $41.8 million, or 12.3 percentage points due to higher feed, chick and commodity meat costs. Other factors affecting cost of sales were individually immaterial.

*Operating income.* Operating income increased by $74.1 million, or 87.8%, from $84.4 million generated in the three months ended March 29, 2020 to $158.5 million generated in the three months ended March 28, 2021. The following tables provide information regarding operating income and selling, general and administrative (“SG&A”) expense:

*(In thousands, except percent data)*

| Components of operating income Three Months Ended Amount | Three Months Ended March 28, 2021 Percent | Change from Three Months Ended March 29, 2020 March 28, 2021 | March 29, 2020 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $261,243 | $84,144 | 47.5% | 8.0% | 5.8% |
| SG&A expense | 102,779 | 10,066 | 10.9% | 3.1% | 3.0% |
| Operating income | $158,464 | $74,078 | 87.8% | 4.8% | 2.7% |

38

*(In thousands, except percent data)*

| Sources of operating income Amount | Three Months Ended March 28, 2021 Percent | Change from Three Months Ended March 29, 2020 |
| --- | ---: | ---: |
| U.S. | $68,125 | $(16,927) (19.9)% |
| U.K. and Europe | 10,495 | (12,695) (54.7)% |
| Mexico | 79,830 | 103,710 (434.3)% |
| Eliminations | 14 | (10) (41.7)% |
| Total operating income | $158,464 | $74,078 87.8% |
| **Sources of SG&A expense** | **Three Months Ended March 28, 2021** | **Change from Three Months Ended March 29, 2020** |
| **Amount** | **Percent** |  |
|  | **(In thousands, except percent data)** |  |
| U.S. | $64,734 | $11,683 22.0% |
| U.K. and Europe | 27,313 | (1,625) (5.6)% |
| Mexico | 10,732 | 8 0.1% |
| Total SG&A expense | $102,779 | $10,066 10.9% |

*U.S. Reportable Segment.* SG&A expense incurred by our U.S. reportable segment during the three months ended March 28, 2021 increased $11.7 million, or 22.0%, from SG&A expense incurred by our U.S. reportable segment during the three months ended March 29, 2020. This increase in SG&A expense resulted primarily from legal fees and expenses of $11.1 million resulting from increased litigation. Other factors affecting SG&A expense were individually immaterial.

*U.K. and Europe Reportable Segment.* SG&A expense incurred by our U.K. and Europe reportable segment during the three months ended March 28, 2021 decreased $1.6 million, or 5.6%, from SG&A expense incurred by our U.K. and Europe segment during the three months ended March 29, 2020. Factors affecting SG&A expense in our U.K. and Europe operations were individually immaterial.

*Mexico Reportable Segment.* SG&A expense incurred by our Mexico reportable segment during the three months ended March 28, 2021 increased approximately $8,000, or 0.1%, from SG&A expense incurred by our Mexico segment during the three months ended March 29, 2020. Factors affecting our Mexico segment's SG&A expense were individually immaterial.

*Net interest expense.* Net interest expense decreased to $28.0 million recognized in the three months ended March 28, 2021 from $31.0 million recognized in the three months ended March 29, 2020. Average borrowings decreased by $75.7 million from $2.44 billion during the three months ended March 29, 2020 to $2.36 billion during the three months ended March 28, 2021. As a percent of net sales, interest expense in the three months ended March 28, 2021 and March 29, 2020 was 0.9% and 1.1%, respectively.

*Income taxes.* Income tax expense decreased to $35.4 million, a 26.0% effective tax rate, for the three months ended March 28, 2021 compared to income tax expense of $38.5 million, a 36.3% effective tax rate, for the three months ended March 29, 2020. The decrease in income tax expense resulted primarily from the effects of foreign currency fluctuations.

### Liquidity and Capital Resources

The following table presents our available sources of liquidity as of March 28, 2021:

*(In millions)*

| Sources of Liquidity | Facility Amount | Amount Outstanding | Amount Available |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $— | $— | $367.0 |
| Borrowing arrangements: |  |  |  |
| U.S. Credit Facility(a) | 750.0 | 100.0 | 610.3 |
| Mexico Credit Facility(b) | 72.9 | — | 72.9 |
| U.K. and Europe Credit Facilities(c) | 137.9 | — | 137.9 |

(a) Availability under the U.S. Credit Facility is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at March 28, 2021 totaled $39.7 million.

(b) The U.S. dollar-equivalent of the facility amount under the Mexico Credit Facility is $72.9 million ($1.5 billion Mexican pesos).

(c) The U.S. dollar-equivalent of the facility amount under the Europe Credit Facilities is $137.9 million (£100.0 million).

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.

### Historical Flow of Funds

*(In millions)*

| Cash Flows from Operating Activities | Three Months Ended March 28, 2021 | March 29, 2020 |
| --- | ---: | ---: |
| Net income | $100.5 | $67.4 |
| Net noncash expenses | 100.0 | 100.3 |
| Changes in operating assets and liabilities: |  |  |
| Trade accounts and other receivables | (54.9) | (26.3) |
| Inventories | (82.6) | 9.3 |
| Prepaid expenses and other current assets | 20.2 | (22.4) |
| Accounts payable, accrued expenses and other current liabilities | (240.2) | (108.0) |
| Income taxes | 25.4 | — |
| Long-term pension and other postretirement obligations | (10.8) | (6.3) |
| Other operating assets and liabilities | (1.2) | 7.0 |
| Cash provided by (used in) operating activities | $(143.6) | $21.1 |

### Net Noncash Expenses

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $100.0 million for the three months ended March 28, 2021. Net noncash expense items included depreciation and amortization of $86.5 million, deferred income tax expense of $12.5 million, stock-based compensation of $2.0 million, loan cost amortization of $1.2 million and accretion of discounts related to Senior Notes of $0.2 million. These expense items were partially offset by gains on property disposals of $2.4 million and amortization of premiums related to Senior Notes of $0.2 million.

Net noncash expenses provided $100.3 million in cash related to operating activities for the three months ended March 29, 2020. Net noncash expense items included depreciation and amortization of $79.8 million, deferred income tax expense of $17.0 million, an adjustment to a previously recognized gain on a bargain purchase of $1.7 million, loan cost amortization of $1.2 million, stock-based compensation expense of $0.7 million and a loss in equity-method investments and accretion of discounts related to Senior Notes of $0.3 million and $0.2 million, respectively. These expense items were partially offset by gains on property disposals and amortization of premiums related to Senior Notes of $0.5 million and $0.2 million, respectively.

### Changes in Operating Assets and Liabilities

The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $54.9 million use of cash related to operating activities for the three months ended March 28, 2021. This change primarily resulted from an increase in trade accounts receivable due to customer payment timing and increased sales. The change in trade accounts and other receivables, including accounts receivable from related parties, represented $26.3 million use of cash related to operating activities for the three months ended March 29, 2020. This change is primarily due to customer payment timing.

The change in inventories represented a $82.6 million use of cash related to operating activities for the three months ended March 28, 2021. This change resulted primarily from an increase in our raw materials and work-in-process inventories due to increased grain and chick costs. The change in inventories represented a $9.3 million source of cash related to operating activities for the three months ended March 29, 2020. This change resulted primarily from a decrease in our processed and work-in-process inventories.

The change in prepaid expenses and other current assets represented a $20.2 million source of cash related to operating activities for the three months ended March 28, 2021. This change resulted primarily from a net decrease in both commodity derivative assets and value-added tax receivables. The change in prepaid expenses and other current assets represented a $22.4 million use of cash related to operating activities for the three months ended March 29, 2020. This change resulted primarily from a net increase in commodity and currency rate derivative assets 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 $240.2 million use of cash related to operating activities for the three months ended March 28, 2021. This change resulted primarily from payment of the previously accrued DOJ agreement and a $75.0 million legal settlement, as well as cash payment of incentive compensation. The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities, including accounts payable to related parties, represented a $108.0 million use of cash related to operating activities for the three months ended March 29, 2020. This change resulted primarily from the timing of receipt of invoicing and payments and cash payment of incentive compensation.

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 $25.4 million source of cash related to operating activities for the three months ended March 28, 2021. This change resulted primarily from the timing of estimated tax payments.

*(In millions)*

| Cash Flows from Investing Activities | Three Months Ended March 28, 2021 | March 29, 2020 |
| --- | ---: | ---: |
| Acquisitions of property, plant and equipment | $(102.2) | $(77.2) |
| Proceeds from property disposals | 13.1 | 0.6 |
| Business acquisition | — | (1.7) |
| Cash used in investing activities | $(89.1) | $(78.3) |

Capital expenditures were primarily incurred to improve operational efficiencies and reduce costs for the three months ended March 28, 2021 and March 29, 2020. Proceeds from property disposals were mainly a result of sales of a processing plant in our U.K. and Europe reportable segment, as well as a farm in our Mexico reportable segment during the three months ended March 28, 2021.

*(In millions)*

| Cash Flows from Financing Activities | Three Months Ended March 28, 2021 | March 29, 2020 |
| --- | ---: | ---: |
| Proceeds from revolving line of credit and long-term borrowings | $328.9 | $356.5 |
| Payments on revolving line of credit, long-term borrowings and finance lease obligations | (235.3) | (13.4) |
| Distribution from Tax Sharing Agreement with JBS USA Food Company Holdings | (0.6) | — |
| Purchase of common stock under share repurchase program | — | (27.9) |
| Cash provided by financing activities | $93.0 | $315.2 |

Proceeds and payments from revolving line of credit and long-term borrowings is mainly due to borrowings and repayment on our revolving loan commitment under the U.S. and Mexico Credit Facilities. During the three months ended March 29, 2020, 1.5 million shares were repurchased under the share repurchase program. For further information relating to the share repurchase program, refer to “Note 12. Stockholders’ Equity.”

### Debt

Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and other term loan agreements. For a description, refer to “Note 11. Debt.”

### 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.

### Recent Accounting Pronouncements

See “Note 1. General” of our Condensed Consolidated Financial Statements included in this quarterly report for additional information relating to these recent accounting pronouncements.

### Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our annual report on Form 10-K for the fiscal year ended December 27, 2020, filed with the Securities and Exchange Commission (the “SEC”) on February 11, 2021 (the “2020 Annual Report”).

## Market risk

As filed, 12,273 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, soybean oil, 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. 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, (1) executing purchase agreements with suppliers for future physical delivery of feed ingredients at established prices and (2) purchasing or selling derivative financial instruments such as futures and options.

For this sensitivity analysis, market risk is estimated as a hypothetical 10% increase in the weighted-average cost of our primary feed ingredients as of the periods presented.

*(In thousands)*

|  | Three Months Ended March 28, 2021 Amount | Impact of 10% Increase in Feed Ingredient Prices |
| --- | ---: | ---: |
| Feed purchases(a) | $966,587 | $96,659 |
| Feed inventory(b) | 209,277 | 20,928 |

(a) Based on our feed consumption, a 10% increase in the price of our feed purchases would have increased cost of sales for the three months ended March 28, 2021.

(b) A 10% increase in ending feed ingredient prices would have increased inventories as of March 28, 2021.

The impact of this fluctuation, if realized, could be mitigated by related commodity hedging activity. However, fluctuations greater than 10% could occur.

*(In thousands)*

|  | March 28, 2021 Amount | Impact of 10% Increase in Commodity Prices |
| --- | ---: | ---: |
| Net commodity derivative assets(a) | $35,380 | $3,538 |

(a) 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% increase in corn, soybean meal, soybean oil and wheat prices would have resulted in an increase in the fair value of our net commodity derivative asset position, including margin cash, as of March 28, 2021.

### Interest Rates

*Fixed-rate debt.* Market risk for fixed-rate debt is estimated as the potential decrease in fair value resulting from a hypothetical increase in interest rates of 10%. Using a discounted cash flow analysis, a hypothetical 10% increase in interest rates would have decreased the fair value of our fixed-rate debt by $45.2 million as of March 28, 2021.

*Variable-rate debt.* Our variable-rate debt instruments represent approximately 23.1% of our total debt as of March 28, 2021. Holding other variables constant, including levels of indebtedness, an increase in interest rates of 25 basis points would have increased our interest expense by an immaterial amount for the three months ended March 28, 2021.

### Foreign Currency

#### Mexico Subsidiaries

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 operations.

The Mexican peso exchange rate can directly and indirectly impact our financial condition and results of operations. For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in the current exchange rate used to convert Mexican pesos to U.S. dollars as of March 28, 2021. However, fluctuations greater than 10% could occur. No assurance can be given as to how future movements in the Mexican peso could affect our future financial condition or results of operations.

*(In thousands, except for exchange rate data)*

|  | Three Months Ended March 28, 2021 Impact of 10% Deterioration in Exchange Rate(a) | Impact of 10% Appreciation in Exchange Rate(b) |
| --- | ---: | ---: |
| Foreign currency remeasurement gain (loss) | $(13,708) | $16,754 |
| Exchange rate of Mexican peso to the U.S. dollar: |  |  |
| As reported | 20.58 | 20.58 |
| Hypothetical 10% change | 22.64 | 18.53 |

(a) Based on the net monetary asset position of our Mexican subsidiaries, a 10% weakening in the exchange rate of Mexican pesos to U.S. dollar will result in recognition of foreign currency remeasurement loss for the three months ended March 28, 2021.

(b) Based on the net monetary asset position of our Mexican subsidiaries, a 10% strengthening in the exchange rate of Mexican pesos to U.S. dollar will result in recognition of foreign currency remeasurement gain for the three months ended March 28, 2021.

#### U.K. and Europe Foreign Investments

We are exposed to foreign exchange-related variability of investments and earnings from our U.K. and Europe subsidiaries. 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. For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in exchange rates used to convert U.S. dollars to British pound and to euro, and the effect of this change on our U.K. and Europe foreign investments.

*Net Assets.* As of March 28, 2021, our U.K. and Europe subsidiaries that are denominated in British pound had net assets of $2.3 billion. A 10% deterioration in the British pound to U.S. dollar exchange rate would cause a decrease in the net assets of our U.K. and Europe subsidiaries of $207.7 million. A 10% appreciation in the British pound to U.S. dollar exchange rate would cause an increase in the net assets of our U.K. and Europe subsidiaries of $253.8 million.

*Cash flow hedging transactions.* We periodically enter into foreign currency forward contracts, which are designated and qualify as cash flow hedges, to hedge foreign currency risk on a portion of sales generated and purchases made by our U.K. and Europe subsidiary. A 10% weakening or strengthening of the U.S. dollar against the British pound and U.S. dollar against the euro would result in immaterial changes in the fair values of these derivative instruments. 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., the U.K. and Europe, and Mexico and our rapid inventory turnover rate, the results of operations have not been significantly affected by inflation.

### 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:

- The impact of the COVID-19 pandemic, efforts to contain the pandemic and resulting economic downturn on our operations and financial condition;
- 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 flock 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 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 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, including risks associated with Brexit;
- Restrictions imposed by, and as a result of, Pilgrim's leverage;
- 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 27, 2020 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, 2,257 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 or submits under the Exchange Act 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 or submits under the Exchange Act 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 March 28, 2021, the Company’s management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 28, 2021, 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.

### Changes in Internal Control over Financial Reporting

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 three months ended March 28, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 654 characters.

For a discussion of the Company's potential risks and uncertainties, please see “ Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company's annual report on Form 10-K for the year ended December 27, 2020 and “Part I—Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the Company's periodic filings with the SEC. The have been no material changes to the risk factors disclosed in “ Part I—Item 1A—Risk Factors” in the annual report on Form 10-K for the year ended December 27, 2020.

Filed Apr 29, 2021.
Source: SEC EDGAR, the filing index for accession 0000802481-21-000051. Last ingested by Listed: Oct 29, 2026, 06:16 ET. No prices; not investment advice.