# Pilgrims Pride Corp: Form 10-Q for the period ended Sep 25, 2022

- Company: [Pilgrims Pride Corp](/companies/ppc.md) (CIK 802481)
- Form: 10-Q
- Filed: 2022-10-27
- Accepted by EDGAR: Oct 26, 2022, 21:46 ET
- Period: 2022-09-25
- Accession: 0000802481-22-000104
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/802481/000080248122000104/ppc-20220925.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/802481/000080248122000104/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-25.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-06-27 to 2022-09-25 | $4.47bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-12-27 to 2022-09-25 | $13.34bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-06-27 to 2022-09-25 | $3.97bn | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2021-12-27 to 2022-09-25 | $11.62bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-06-27 to 2022-09-25 | $497.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2021-12-27 to 2022-09-25 | $1.72bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-06-27 to 2022-09-25 | $158.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2021-12-27 to 2022-09-25 | $461.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-06-27 to 2022-09-25 | $339.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-12-27 to 2022-09-25 | $1.25bn | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-06-27 to 2022-09-25 | $36.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-12-27 to 2022-09-25 | $111.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-06-27 to 2022-09-25 | $65.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-12-27 to 2022-09-25 | $253.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-06-27 to 2022-09-25 | $258.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-12-27 to 2022-09-25 | $900.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-06-27 to 2022-09-25 | $1.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-12-27 to 2022-09-25 | $3.73 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-06-27 to 2022-09-25 | $1.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-12-27 to 2022-09-25 | $3.74 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-06-27 to 2022-09-25 | 239,208,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-12-27 to 2022-09-25 | 241,494,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-12-27 to 2022-09-25 | $790.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-12-27 to 2022-09-25 | $342.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2021-12-27 to 2022-09-25 | $199.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2022-09-25 | $654.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-25 | $4.03bn | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-25 | $9.08bn | us-gaap:Assets |
| Current liabilities | at 2022-09-25 | $2.61bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-25 | $6.34bn | us-gaap:Liabilities |
| Current portion of debt | at 2022-09-25 | $26.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2022-09-25 | $2.73bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,195 characters.

### Executive Summary

### Overview

We reported net income attributable to Pilgrim’s of $900.9 million, or $3.73 per diluted common share, and income before tax totaling $1.2 billion, for the nine months ended September 25, 2022. These operating results included net sales of $13.3 billion, gross profit of $1.7 billion and $790.6 million of cash provided by operating activities. We generated a consolidated operating margin of 9.4% with operating margins of 13.8%, 0.0% and 7.7% in our U.S., U.K. and Europe, and Mexico reportable segments, respectively. For the nine months ended September 25, 2022, we generated EBITDA and Adjusted EBITDA of $1.6 billion and $1.6 billion, respectively. A reconciliation of net income to EBITDA and Adjusted EBITDA is included below.

### Global Economic Conditions

During the third quarter of 2022, we continued to experience solid recoveries in volume throughout the business from prior year levels as COVID-19 restrictions eased, but were confronted with significant challenges from inflation in commodity, labor and other operating costs across all our businesses. The global feed ingredient and energy markets continue to be impacted by the Russia-Ukraine war, driving up prices as supply out of the Black Sea region is disrupted and future production is at risk. We continued to experience labor shortages in the U.K. as European Union (or “E.U.”) workers returned to their home countries following Brexit, thus affecting our ability to process, pack and transport products. Despite inflationary headwinds and softening consumer demand throughout the U.K. and E.U., we have and will continue to invest in our people, implement supply chain solutions, and conduct customer negotiations for cost recovery. Our Mexico segment is managing through significant challenges as Mexico remains a volatile market given inflationary pressures, implications of more significant bird disease, an evolving global protein industry, and overall business seasonality.

We have responded to these challenges by continuing negotiations with customers to recoup the extraordinary costs we have experienced. We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.

### Russia-Ukraine War Impacts

The Russia-Ukraine war began in February 2022. The impact of the ongoing war and sanctions will not be limited to businesses that operate in Russia and Ukraine and may negatively impact other global economic markets including where we operate. The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in some countries, and disrupted trade and supply chains. The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.

The impact on the agriculture markets falls into two main categories: (1) the effect on Ukrainian crop production, as the region is key in global grain production; and (2) the duration of the disruption in trade flows. Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply. The duration of the war and related volatility makes global markets extremely sensitive to growing-season weather in other global grain producing regions and has led to a large risk premium in futures prices. The continued volatility in the global markets as a result of the war has adversely impacted our costs by driving up prices, raising inflation and increasing pressure on the supply of feed ingredients and energy products throughout the global markets. In the third quarter of 2022, Ukraine resumed water-borne exports and their export volumes continue to climb. Their supply constraints did not have a material impact on our costs during the third quarter.

In addition, the U.S. government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls. Our U.K. and Europe business may be impacted by the increase in energy prices and the availability of energy during the winter months. The impact of these measures, now and in the future, could adversely affect our business, supply chain or customers.

### Impact of COVID-19

The impact of COVID-19 and measures to prevent its spread 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. Measures we implemented during the height of the pandemic that remain in place today include, but are not limited to: increasing physical distancing of our employees,

where possible; staggering start and shift breaks; increasing personal hygiene practices and providing our employees additional personal protective equipment and sanitation stations; and increasing sanitation of our facilities. We have also continued to support and encourage our employees and their family members to be vaccinated against COVID-19.

- *Our operations.* All of our production facilities continue to operate. To date, we have not experienced a material impact from a plant closure.
- *Demand for our products.* As global vaccination levels increased and governmental restrictions eased, we noted the trend towards pre-pandemic levels of demand at retail grocery stores and restaurants and are not currently experiencing any significant change in demand as a result of the COVID-19 pandemic.
- *CARES Act.* On March 27, 2020, the U.S. government enacted the CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment. We delayed the payment of $52 million in employer payroll taxes otherwise due in 2020. The first 50% was paid on December 31, 2021 and the remaining 50% is due and payable by December 31, 2022.

### 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.

U.S. commodity market prices for chicken products declined 30% from historical highs in early July to levels slightly above the 5-year average by the end of September due to increasing chicken supply which outpaced the volume demand. As a result, chicken volumes in cold storage and availability increased, driving prices to decline more than seasonal norms. During the third quarter of 2022, industry production levels trended above previous year levels, +2.8% year-over-year, in ready to cook pounds. The increase in production was due to both the improvement in layer productivity and hatchability rates since late in the second quarter of 2022. Both factors led to more birds processed relative to the same time previous year. Average chicken liveweights for the quarter remained in line with a year ago. Third quarter demand remained steady across the channels as indicated by increased sales. In the foodservice channel, commercial foodservice restaurants volume demand remained flat while the non-commercial subchannel grew significantly relative to same quarter prior year. In retail, Pilgrim's fresh sales volumes outpaced the relatively flat market volumes; while the frozen subchannel saw mixed results as declining frozen commodity volumes more than offset value-added growth. The deli subchannel also experienced steady volume sales, even at elevated prices. The export market declined 9% in volume shipments for July and August.

During the third quarter of 2022, the U.K. chicken market continued to see rising costs of feed ingredients, utilities and labor. Through our current customer models and additional negotiations we have offset the majority of these cost increases. We continue to focus on managing costs, including labor and yield efficiencies, agricultural performance and increasing operational efficiency through investments in capital projects.

Commodity prices for chicken in Mexico increased during the third quarter of 2022 and remained well above prices from same quarter prior year. The increase is primarily from increased demand that outpaced supply. The cost to produce also increased from same quarter prior year due to significant increases in corn and soy, the two main ingredients used for feed in Mexico.

While commodity market prices for chicken products declined, prices for the remainder of the year will depend on (1) the evolution of foodservice, retail and export meat demand and (2) factors such as government regulation, the ongoing Russia-Ukraine war, further spread of avian influenza both domestically and abroad, uncertainty surrounding the general economy and overall protein supply.

U.K. market prices for pork products during the three months ended September 25, 2022 continued an upward trend, though the rate of growth slowed from 31% in the second quarter to 21% in the third quarter driven by the slowing of EU prices. The increase in Germany was at a more moderate growth rate of 6% in the third quarter compared to more than 50% in late first quarter. Despite some pig price recovery, the cost of production continued to exceed market prices, with pig farmers reducing their loss to around £16 per pig in the third quarter, which is a significant improvement over first and second quarter which had losses well above £50 per pig. Input costs for feed and energy in the U.K. continue to rise in the third quarter consistent with global market conditions, with the recovery of inflation through retailers an ongoing area of focus.

### Reportable Segments

We operate in three reportable segments: U.S., U.K. and Europe, and Mexico. We measure segment profit as operating income. Certain 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 September 25, 2022 Compared to the Three Months Ended September 26, 2021

*Net sales.* Net sales generated in the three months ended September 25, 2022 increased $641.4 million, or 16.8%, from net sales generated in the three months ended September 26, 2021. The following table provides net sales information:

*(In thousands, except percent data)*

| Sources of net sales Amount | Three Months Ended September 25, 2022 Percent | Change from Three Months Ended September 26, 2021 |  |
| --- | ---: | ---: | ---: |
| U.S. | $2,836,920 | $370,070 | 15.0% |
| U.K. and Europe | 1,203,095 | 272,655 | 29.3% |
| Mexico | 428,954 | (1,322) | (0.3)% |
| Total net sales | $4,468,969 | $641,403 | 16.8% |

*U.S. Reportable Segment.* U.S. net sales generated in the three months ended September 25, 2022 increased $370.1 million, or 15.0%, from U.S. net sales generated in the three months ended September 26, 2021 primarily due to an increase in net sales per pound which increased $386.4 million, or 15.7 percentage points, to the increase in net sales. The increase in net sales per pound was partially offset by a decrease in sales volume of $16.3 million, or 0.7 percentage points. The increase in net sales per pound was driven primarily by increases in price necessary to recover increased feed ingredients, labor, utilities and other operating costs during the three months ended September 25, 2022.

*U.K. and Europe Reportable Segment.* U.K. and Europe net sales generated in the three months ended September 25, 2022 increased $272.7 million, or 29.3%, from U.K. and Europe net sales generated in the three months ended September 26, 2021 primarily due to the acquisition of Pilgrim’s Food Masters (“PFM”) which contributed $247.6 million to the increase in net sales. The existing U.K. and Europe businesses contributed $25.1 million to the increase in net sales. This increase to net sales of the existing operations was driven by an increase of $238.0 million from increased net sales per pound, or 25.4 percentage points, partially offset by the unfavorable impact of foreign currency translation of $158.4 million, or 16.9 percentage points, and a decrease in sales volume of $54.5 million, or 5.8 percentage points. The increase in net sales per pound was driven by price increases necessary to recover increased feed ingredients, labor, utilities and other operating costs.

*Mexico Reportable Segment.* Mexico net sales generated in the three months ended September 25, 2022 decreased $1.3 million, or 0.3%, from Mexico net sales generated in the three months ended September 26, 2021 primarily due to a decrease in sales volume of $47.5 million, or 11.0 percentage points, and the unfavorable impact of foreign currency remeasurement of $4.9 million, or 1.2 percentage points, partially offset by an increase in net sales per pound of $51.1 million, or 11.9 percentage points. The increase in net sales per pound was driven primarily by higher chicken prices that resulted from solid market fundamentals.

*Gross profit and cost of sales.* Gross profit increased by $125.4 million, or 33.7%, from $371.8 million generated in the three months ended September 26, 2021 to $497.3 million generated in the three months ended September 25, 2022. 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 September 25, 2022 Three Months Ended Percent | Change from Three Months Ended September 26, 2021 September 25, 2022 | September 26, 2021 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $4,468,969 | $641,403 | 16.8% | 100.0% | 100.0% |
| Cost of sales | 3,971,699 | 515,976 | 14.9% | 88.9% | 90.3% |
| Gross profit | $497,270 | $125,427 | 33.7% | 11.1% | 9.7% |

37

*(In thousands, except percent data)*

| Sources of gross profit Amount | Three Months Ended September 25, 2022 Percent | Change from Three Months Ended September 26, 2021 |  |
| --- | ---: | ---: | ---: |
| U.S. | $445,308 | $167,280 | 60.2% |
| U.K. and Europe | 52,469 | 20,145 | 62.3% |
| Mexico | (521) | (61,998) | (100.8)% |
| Elimination | 14 | — | —% |
| Total gross profit | $497,270 | $125,427 | 33.7% |

*(In thousands, except percent data)*

| Sources of cost of sales Amount | Three Months Ended September 25, 2022 Percent | Change from Three Months Ended September 26, 2021 |  |
| --- | ---: | ---: | ---: |
| U.S. | $2,391,612 | $202,790 | 9.3% |
| U.K. and Europe | 1,150,626 | 252,510 | 28.1% |
| Mexico | 429,475 | 60,676 | 16.5% |
| Elimination | (14) | — | —% |
| Total cost of sales | $3,971,699 | $515,976 | 14.9% |

*U.S. Reportable Segment.* Cost of sales incurred by our U.S. operations during the three months ended September 25, 2022 increased $202.8 million, or 9.3%, from cost of sales incurred by our U.S. segment during the three months ended September 26, 2021. The increase in cost of sales was primarily driven by an increase in cost per pound sold of $217.3 million, or 9.9 percentage points, partially offset by the impact of decreased sales volume of $14.5 million, or 0.6 percentage points. The increase in cost per pound sold included increases in live operations costs, prepared foods purchases, payroll costs, contract labor costs, supplies costs and utility costs. The increase in live operations costs includes an increase of $91.4 million in feed costs and a $25.3 million increase in chick costs. The increase in feed costs was driven primarily from higher corn and soy prices, our main ingredients in feed.

*U.K. and Europe Reportable Segment.* Cost of sales incurred by our U.K. and Europe operations during the three months ended September 25, 2022 increased $252.5 million, or 28.1%, from cost of sales incurred by our U.K. and Europe segment during the three months ended September 26, 2021 primarily because of costs incurred by the acquired PFM operations and from increases in cost of sales incurred by our existing U.K. and Europe operations. Cost of sales related to the existing U.K. and Europe operations increased due to higher cost per pound sold, partially offset by the favorable impact of foreign currency translation and decreased sales volume. The increase in cost per pound sold was driven by inflation in feed ingredients, utilities, CO2 costs and labor costs.

*Mexico Reportable Segment.* Cost of sales incurred by our Mexico operations during the three months ended March 28, 2021 increased $60.7 million, or 16.5%, from cost of sales incurred by our Mexico segment during the three months ended September 26, 2021. This increase was driven by increased cost per pound sold of $106.3 million, or 28.8 percentage points. The increase in cost per pound sold was driven by higher input costs, such as feed ingredients and cost of chicks which was negatively impacted by the cost to import eggs to offset the impacts of bird disease at our locations, and an unfavorable shift in product mix due to market demands. These increases were partially offset by a decrease in sales volume of $40.7 million, or 11.0 percentage points, and the favorable impact of foreign currency remeasurement of $4.9 million, or 1.3 percentage points.

*Operating income and SG&A expense.* Operating income increased by $218.4 million, or 180.8%, from income of $120.8 million generated in the three months ended September 26, 2021 to income of $339.2 million generated in the three months ended September 25, 2022. 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 September 25, 2022 Percent | Change from Three Months Ended September 26, 2021 September 25, 2022 | September 26, 2021 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $497,270 | $125,427 | 33.7% | 11.1% | 9.7% |
| SG&A expense | 158,068 | (92,998) | (37.0)% | 3.5% | 6.6% |
| Operating income | $339,202 | $218,425 | 180.8% | 7.6% | 3.2% |

*(In thousands, except percent data)*

| Sources of operating income Amount | Three Months Ended September 25, 2022 Percent | Change from Three Months Ended September 26, 2021 |
| --- | ---: | ---: |
| U.S. | $338,548 | $267,882 379.1% |
| U.K. and Europe | 14,198 | 13,753 3,090.6% |
| Mexico | (13,558) | (63,210) (127.3)% |
| Eliminations | 14 | — —% |
| Total operating income | $339,202 | $218,425 180.8% |
| **Sources of SG&A expense** | **Three Months Ended September 25, 2022** | **Change from Three Months Ended September 26, 2021** |
| **Amount** | **Percent** |  |
|  | **(In thousands, except percent data)** |  |
| U.S. | $106,760 | $(100,602) (48.5)% |
| U.K. and Europe | 38,271 | 6,392 20.1% |
| Mexico | 13,037 | 1,212 10.2% |
| Total SG&A expense | $158,068 | $(92,998) (37.0)% |

*U.S. Reportable Segment.* SG&A expense incurred by our U.S. reportable segment during the three months ended September 25, 2022 decreased $100.6 million, or 48.5%, from SG&A expense incurred by our U.S. reportable segment during the three months ended September 26, 2021. The decrease in SG&A expense resulted primarily from recognition of legal settlements and acquisition transaction costs in the prior year. A net increase in other U.S. SG&A expense partially offsets the decrease from legal settlement expense and acquisition transaction costs. This net increase is driven by incentive compensation costs.

*U.K. and Europe Reportable Segment.* SG&A expense incurred by our U.K. and Europe reportable segment during the three months ended September 25, 2022 increased $6.4 million, or 20.1%, from SG&A expense incurred by our U.K. and Europe segment during the three months ended September 26, 2021 primarily from the acquisition of the PFM business. Other factors affecting U.K. and Europe SG&A expense were individually immaterial.

*Mexico Reportable Segment.* SG&A expense incurred by our Mexico reportable segment during the three months ended September 25, 2022 increased approximately $1.2 million, or 10.2%, from SG&A expense incurred by our Mexico segment during the three months ended September 26, 2021. The primary driver of the increase in SG&A expense was marketing costs. Other factors affecting Mexico SG&A expense were individually immaterial.

*Net interest expense.* Net interest expense increased to $34.2 million recognized in the three months ended September 25, 2022 from $28.6 million recognized in the three months ended September 26, 2021. The increase in net interest expense resulted primarily from interest expense on outstanding borrowings. Average borrowings increased by $0.7 billion from $2.6 billion during the three months ended September 26, 2021 to $3.4 billion during the three months ended September 25, 2022 due to the issuance of the 2032 Senior Notes in September 2021 to purchase PFM. As a percent of net sales, interest expense in the three months ended September 25, 2022 and September 26, 2021 was 0.8% and 0.8%, respectively.

*Income taxes.* Income tax expense increased to $65.7 million, a 20.2% effective tax rate, for the three months ended September 25, 2022 compared to an income tax expense of $30.4 million, a 33.3% effective tax rate, for the three months ended September 26, 2021. The increase in income tax expense resulted primarily from the increase in profit before taxes.

### Nine Months Ended September 25, 2022 Compared to the Nine Months Ended September 26, 2021

*Net sales.* Net sales generated in the nine months ended September 25, 2022 increased $2.6 billion, or 24.2%, from net sales generated in the nine months ended September 26, 2021. The following table provides net sales information:

*(In thousands, except percent data)*

| Sources of net sales Amount | Nine Months Ended September 25, 2022 Percent | Change from Nine Months Ended September 26, 2021 |  |
| --- | ---: | ---: | ---: |
| U.S. | $8,318,007 | $1,603,128 | 23.9% |
| U.K. and Europe | 3,640,129 | 919,110 | 33.8% |
| Mexico | 1,382,876 | 80,085 | 6.1% |
| Total net sales | $13,341,012 | $2,602,323 | 24.2% |

*U.S. Reportable Segment.* U.S. net sales generated in the nine months ended September 25, 2022 increased $1.6 billion, or 23.9%, from U.S. net sales generated in the nine months ended September 26, 2021 primarily due to an increase in net sales per pound which contributed $1.6 billion, or 23.8 percentage points, to the increase in net sales. The increase in net sales per pound was driven primarily by price increases necessary to recover increased feed ingredients, labor costs, supplies costs, utility costs and other operating costs. Also contributing to the increase in net sales was an increase in sales volume of $4.0 million, or 0.1 percentage points.

*U.K. and Europe Reportable Segment.* U.K. and Europe net sales generated in the nine months ended September 25, 2022 increased $919.1 million, or 33.8%, from U.K. and Europe net sales generated in the nine months ended September 26, 2021 primarily due to the acquisition of PFM which contributed $774.1 million to the increase in net sales. The existing U.K. and Europe businesses contributed $145.0 million to the increase in net sales. This increase was driven by an increase of $506.7 million from increased net sales per pound, or 18.6 percentage points, partially offset by the unfavorable impact of foreign currency translation of $285.0 million, or 10.5 percentage points, and a decrease in sales volume of $76.7 million, or 2.8 percentage points. The increase in net sales per pound was driven by price increases necessary to recover increased feed ingredients, labor costs, CO2 costs, utility costs and other operating costs.

*Mexico Reportable Segment.* Mexico net sales generated in the nine months ended September 25, 2022 increased $80.1 million, or 6.1%, from Mexico net sales generated in the nine months ended September 26, 2021 primarily due to an increase in net sales per pound of $170.9 million, or 13.1 percentage points, partially offset by a decrease in sales volume of $80.7 million, or 6.2 percentage points, and a decrease from the unfavorable impact of foreign currency remeasurement of $10.1 million, or 0.8 percentage points. The increase in net sales per pound was driven primarily by higher chicken prices that resulted from solid market fundamentals.

*Gross profit and cost of sales.* Gross profit increased by $702.7 million, or 69.3%, from $1.0 billion generated in the nine months ended September 26, 2021 to $1.7 billion generated in the nine months ended September 25, 2022. The following tables provide information regarding gross profit and cost of sales information:

*(In thousands, except percent data)*

| Components of gross profit Amount | Nine Months Ended September 25, 2022 Nine Months Ended Percent | Change from Nine Months Ended September 26, 2021 September 25, 2022 | September 26, 2021 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $13,341,012 | $2,602,323 | 24.2% | 100.0% | 100.0% |
| Cost of sales | 11,624,991 | 1,899,629 | 19.5% | 87.1% | 90.6% |
| Gross profit | $1,716,021 | $702,694 | 69.3% | 12.9% | 9.4% |

*(In thousands, except percent data)*

| Sources of gross profit Amount | Nine Months Ended September 25, 2022 Percent | Change from Nine Months Ended September 26, 2021 |  |
| --- | ---: | ---: | ---: |
| U.S. | $1,411,948 | $760,713 | 116.8% |
| U.K. and Europe | 160,503 | 40,326 | 33.6% |
| Mexico | 143,528 | (98,345) | (40.7)% |
| Elimination | 42 | — | —% |
| Total gross profit | $1,716,021 | $702,694 | 69.3% |

40

*(In thousands, except percent data)*

| Sources of cost of sales Amount | Nine Months Ended September 25, 2022 Percent | Change from Nine Months Ended September 26, 2021 |  |
| --- | ---: | ---: | ---: |
| U.S. | $6,906,059 | $842,415 | 13.9% |
| U.K. and Europe | 3,479,626 | 878,784 | 33.8% |
| Mexico | 1,239,348 | 178,430 | 16.8% |
| Elimination | (42) | — | —% |
| Total cost of sales | $11,624,991 | $1,899,629 | 19.5% |

*U.S. Reportable Segment.* Cost of sales incurred by our U.S. operations during the nine months ended September 25, 2022 increased $842.4 million, or 13.9%, from cost of sales incurred by our U.S. segment during the nine months ended September 26, 2021. Cost of sales increased primarily because of an increase in cost per pound sold which contributed $838.8 million, or 13.8 percentage points, and an increase in sales volume of $3.6 million, or 0.1 percentage points. The increase in cost per pound sold included increases in live operations costs, payroll costs, prepared foods purchases, contract labor costs, supplies costs, utility costs and higher realized losses in commodity derivatives. The increase in live operations costs includes an increase of $292.8 million in feed costs and a $69.5 million increase in chick costs. The increase in feed costs was driven primarily from higher corn and soy prices, our main ingredients in feed.

*U.K. and Europe Reportable Segment.* Cost of sales incurred by our U.K. and Europe operations during the nine months ended September 25, 2022 increased $878.8 million, or 33.8%, from cost of sales incurred by our U.K. and Europe segment during the nine months ended September 26, 2021 primarily because of costs incurred by the acquired PFM operations and from increases in cost of sales incurred by our existing U.K. and Europe operations. Cost of sales related to the existing U.K. and Europe operations increased due to an increase in cost per pound sold, partially offset by the favorable impact of foreign currency translation and a decrease in sales volume. The increase in cost per pound sold was driven by inflation in feed ingredients, CO2 costs, utility costs, as well as increases in labor costs due to shortages resulting from Brexit and an increase in the national minimum wage.

*Mexico Reportable Segment.* Cost of sales incurred by our Mexico operations during the nine months ended September 25, 2022 increased $178.4 million, or 16.8%, from cost of sales incurred by our Mexico segment during the nine months ended September 26, 2021. This increase was driven by increased cost per pound sold of $253.2 million, or 23.9 percentage points, partially offset by a decrease in sales volume of $65.7 million, or 6.2 percentage points, and the favorable impact of foreign currency remeasurement of $9.0 million, or 0.9 percentage points. The increase in cost per pound sold was driven by higher input costs, such as feed ingredients, chick costs and packaging costs, and an unfavorable shift in product mix due to market demands.

*Operating income and SG&A expense.* Operating income increased by $1.1 billion from $156.1 million generated in the nine months ended September 26, 2021 to $1.3 billion generated in the nine months ended September 25, 2022. 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 Nine Months Ended Amount | Nine Months Ended September 25, 2022 Percent | Change from Nine Months Ended September 26, 2021 September 25, 2022 | September 26, 2021 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $1,716,021 | $702,694 | 69.3% | 12.9% | 9.4% |
| SG&A expense | 461,902 | (395,315) | (46.1)% | 3.5% | 8.0% |
| Operating income | $1,254,119 | $1,098,009 | 703.4% | 9.4% | 1.5% |

41

*(In thousands, except percent data)*

| Sources of operating income Amount | Nine Months Ended September 25, 2022 Percent | Change from Nine Months Ended September 26, 2021 |
| --- | ---: | ---: |
| U.S. | $1,146,821 | $1,232,201 NM(1) |
| U.K. and Europe | 406 | (32,365) (98.8)% |
| Mexico | 106,850 | (101,827) (48.8)% |
| Eliminations | 42 | — —% |
| Total operating income | $1,254,119 | $1,098,009 703.4% |
| (1)This year-over-year percent change is designated not meaningful (or “NM”) due to significant one-time items recognized in prior year. |  |  |
| **Sources of SG&A expense** | **Nine Months Ended September 25, 2022** | **Change from Nine Months Ended September 26, 2021** |
| **Amount** | **Percent** |  |
|  | **(In thousands, except percent data)** |  |
| U.S. | $265,127 | $(471,488) (64.0)% |
| U.K. and Europe | 160,097 | 72,691 83.2% |
| Mexico | 36,678 | 3,482 10.5% |
| Total SG&A expense | $461,902 | $(395,315) (46.1)% |

*U.S. Reportable Segment.* SG&A expense incurred by our U.S. reportable segment during the nine months ended September 25, 2022 decreased $471.5 million, or 64.0%, from SG&A expense incurred by our U.S. reportable segment during the nine months ended September 26, 2021. The decrease in SG&A expense resulted primarily from recognition of legal settlements and acquisition transaction costs in the prior year. A net increase in other U.S. SG&A expense partially offsets the decrease from legal settlement expense and acquisition transaction costs. This net increase is driven by incentive compensation and legal defense costs.

*U.K. and Europe Reportable Segment.* SG&A expense incurred by our U.K. and Europe reportable segment during the nine months ended September 25, 2022 increased $72.7 million, or 83.2%, from SG&A expense incurred by our U.K. and Europe segment during the nine months ended September 26, 2021 primarily from the acquisition of the PFM business. Other factors affecting SG&A expense were individually immaterial.

*Mexico Reportable Segment.* SG&A expense incurred by our Mexico reportable segment during the nine months ended September 25, 2022 increased approximately $3.5 million, or 10.5%, from SG&A expense incurred by our Mexico segment during the nine months ended September 26, 2021. The primary drivers of the increase in SG&A expense were compensation-related costs and marketing costs. Other factors affecting our Mexico segment’s SG&A expense were individually immaterial.

*Net interest expense.* Net interest expense slightly decreased to $106.3 million recognized in the nine months ended September 25, 2022 from $106.4 million recognized in the nine months ended September 26, 2021. The decrease in net interest expense resulted primarily due to a $24.7 million loss on early extinguishment of debt recognized in the prior year, partially offset by an increase in interest expense on outstanding borrowings of $23.1 million. Average borrowings increased by $1.0 billion from $2.4 billion during the nine months ended September 26, 2021 to $3.4 billion during the nine months ended September 25, 2022 due to the issuance of the 2031 Senior Notes in September 2021 to fund the acquisition of PFM. As a percent of net sales, interest expense in the nine months ended September 25, 2022 and September 26, 2021 was 0.8% and 1.0%, respectively.

*Income taxes.* Income tax expense increased to $253.7 million, a 21.9% effective tax rate, for the nine months ended September 25, 2022 compared to an income tax expense of $55.9 million, a 110.3% effective tax rate, for the nine months ended September 26, 2021. The increase in income tax expense resulted primarily from the increase in profit before taxes.

### Liquidity and Capital Resources

The following table presents our available sources of liquidity as of September 25, 2022:

*(In millions)*

| Sources of Liquidity | Facility Amount | Amount Outstanding | Amount Available |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $— | $— | $654.2 |
| Borrowing arrangements: |  |  |  |
| U.S. Credit Facility Revolving Note Payable(a) | 800.0 | — | 763.9 |
| U.S. Credit Facility Term Loans(b) | 700.0 | 486.4 | — |
| Mexico Credit Facility(c) | 74.2 | — | 74.2 |
| U.K. and Europe Revolver Facility(d) | 162.9 | 10.9 | 152.0 |

(a) Availability under the U.S. Credit Facility is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at September 25, 2022 totaled $36.1 million.

(b) For more information on the U.S. Credit Facility Term Loans, refer to “Note 12. Debt.”

(c) The U.S. dollar-equivalent of the facility amount under the Mexico Credit Facility is $74.2 million (Mex$1.5 billion).

(d) The U.S. dollar-equivalent of the facility amount under the U.K. and Europe Revolver Facility is $162.9 million (£150.0 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 | Nine Months Ended September 25, 2022 | September 26, 2021 |
| --- | ---: | ---: |
| Net income (loss) | $901.6 | $(5.2) |
| Net noncash expenses | 258.3 | 282.1 |
| Changes in operating assets and liabilities: |  |  |
| Trade accounts and other receivables | (211.8) | (138.9) |
| Inventories | (455.5) | (149.7) |
| Prepaid expenses and other current assets | (3.5) | 13.7 |
| Accounts payable, accrued expenses and other current liabilities | 297.3 | 274.9 |
| Income taxes | 10.2 | 66.4 |
| Long-term pension and other postretirement obligations | (3.1) | (13.5) |
| Other operating assets and liabilities | (2.9) | (2.4) |
| Cash provided by operating activities | $790.6 | $327.4 |

### Net Noncash Expenses

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $258.3 million for the nine months ended September 25, 2022. Net noncash expense items included depreciation and amortization of $301.0 million, stock-based compensation of $6.0 million, loan cost amortization of $4.3 million and accretion of discounts related to Senior Notes of $1.3 million. These expense items were partially offset by a deferred income tax benefit of $48.6 million and gains on property disposals of $5.6 million.

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $282.1 million for the nine months ended September 26, 2021. Net noncash expense items included depreciation and amortization of $274.3 million, loss on early extinguishment of debt of $24.7 million, stock-based compensation of $8.4 million, loan cost amortization of $3.8 million and accretion of discounts related to Senior Notes of $1.1 million. These expense items were partially offset by a deferred income tax benefit of $26.4 million, gains on property disposals of $3.6 million and amortization of premiums related to Senior Notes of $0.2 million.

### Changes in Operating Assets and Liabilities

The change in trade accounts and other receivables represented a $211.8 million use of cash related to operating activities for the nine months ended September 25, 2022. This change primarily resulted from an increase in trade accounts receivable due to increased sales prices. The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $138.9 million use of cash related to operating activities for the nine months ended September 26, 2021. This change primarily resulted from an increase in trade accounts receivable due to customer payment timing and increased sales.

The change in inventories represented a $455.5 million use of cash related to operating activities for the nine months ended September 25, 2022. This change resulted primarily from increased raw material costs, such as feed ingredients, and a build-up of our finished goods inventories. The change in inventories represented a $149.7 million use of cash related to operating activities for the nine months ended September 26, 2021. This change resulted primarily from an increase in our raw materials and work-in-process inventories due to increased feed and chick costs.

The change in prepaid expenses and other current assets represented a $3.5 million use of cash related to operating activities for the nine months ended September 25, 2022. This change resulted primarily from a net decrease in commodity derivative assets. The change in prepaid expenses and other current assets represented a $13.7 million source of cash related to operating activities for the nine months ended September 26, 2021. This change resulted primarily from a net increase in commodity derivative assets.

The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities represented a $297.3 million source of cash related to operating activities for the nine months ended September 25, 2022. This change resulted primarily from increased cost of feed ingredients and other input costs and the timing of payments. The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities, including accounts payable to related parties, represented a $274.9 million source of cash related to operating activities for the nine months ended September 26, 2021. This change resulted primarily from an accrual for probable losses related to ongoing litigation.

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 $10.2 million source of cash related to improved operating results for the nine months ended September 25, 2022. 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 $66.4 million source of cash related to operating activities for the nine months ended September 26, 2021.

*(In millions)*

| Cash Flows from Investing Activities | Nine Months Ended September 25, 2022 | September 26, 2021 |
| --- | ---: | ---: |
| Acquisitions of property, plant and equipment | $(342.5) | $(280.9) |
| Proceeds from property disposals | 14.6 | 22.9 |
| Purchase of acquired businesses, net of cash acquired | (9.7) | (953.9) |
| Proceeds from insurance recoveries | 7.3 | — |
| Cash used in investing activities | $(330.3) | $(1,211.9) |

Capital expenditures were primarily incurred to improve operational efficiencies and reduce costs for the nine months ended September 25, 2022 and September 26, 2021. Purchase of acquired businesses, net of cash acquired primarily represents a payment for a working capital adjustment related to the acquisition of PFM. Proceeds from property disposals were primarily for the sale of a farm in Mexico. Proceeds from insurance recoveries reflects cash received on property insurance recoveries related to the Mayfield, Kentucky tornado that occurred in December 2021.

*(In millions)*

| Cash Flows from Financing Activities | Nine Months Ended September 25, 2022 | September 26, 2021 |
| --- | ---: | ---: |
| Payments on revolving line of credit, long-term borrowings and finance lease obligations | $(370.3) | $(2,006.0) |
| Proceeds from revolving line of credit and long-term borrowings | 362.5 | 2,951.9 |
| Purchase of common stock under share repurchase program | (199.5) | — |
| Payments of capitalized loan costs | (3.1) | (22.3) |
| Distribution from Tax Sharing Agreement with JBS USA Holdings | (2.0) | (0.7) |
| Payment on early extinguishment of debt | — | (21.3) |
| Cash provided by (used in) financing activities | $(212.4) | $901.6 |

44

Proceeds from revolving line of credit and long-term borrowings include the drawdown of the delayed draw commitment on the term loan under the U.S. Credit Facility of $193.7 million and $80.1 million on the U.K. and Europe Revolver Facility. Payments on revolving line of credit, long-term borrowings and finance lease obligations include the payment of $215.2 million on the U.S. term loans and $67.3 million on the U.K. and Europe Revolver Facility. The payments of capitalized loan costs were those loan costs incurred as part of the refinancing of the U.S. Credit Facility and the U.K. and Europe Revolver Facility. The Distribution from Tax Sharing Agreement with JBS USA Holdings is payment of net tax incurred during the tax year 2021 under the Tax Sharing Agreement. During the nine months ended September 25, 2022, 7.5 million shares were repurchased under the share repurchase program. For further information relating to the share repurchase program, refer to “Note 13. 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 12. 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. Business and Summary of Significant Accounting Policies” 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 26, 2021, filed with the Securities and Exchange Commission (the “SEC”) on February 18, 2022 (as amended on March 15, 2022, the “2021 Annual Report”).

### Reconciliation of Net Income to EBITDA and Adjusted EBITDA

“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction losses, (2) transaction costs related to business acquisitions, (3) costs related to litigation settlements, (4) property insurance recoveries for Mayfield, Kentucky tornado property damage losses and (5) net income attributable to noncontrolling interests. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of our performance with our competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are:

- They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
- They do not reflect changes in, or cash requirements for, our working capital needs;
- They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
- Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
- They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows;
- EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;
- They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and
- They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.

*(In thousands)*

|  | Nine Months Ended September 25, 2022 |
| --- | ---: |
| Net income | $901,580 |
| Add: |  |
| Interest expense, net | 106,346 |
| Income tax expense | 253,679 |
| Depreciation and amortization | 300,962 |
| EBITDA | 1,562,567 |
| Add: |  |
| Foreign currency transaction losses | 14,348 |
| Transaction costs related to business acquisitions | 972 |
| Litigation settlements | 28,282 |
| Minus: |  |
| Property insurance recoveries for Mayfield tornado losses | 19,997 |
| Net income attributable to noncontrolling interest | 674 |
| Adjusted EBITDA | $1,585,498 |

46

## Market risk

As filed, 12,444 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 from those described below.

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

*(In thousands)*

|  | Three Months Ended September 25, 2022 Amount | Impact of 10% Increase in Feed Ingredient Prices |
| --- | ---: | ---: |
| Feed ingredient purchases(a) | $1,196,562 | $119,656 |
| Feed ingredient inventory(b) | 247,161 | 24,716 |

(a) Based on our feed consumption, a 10% increase in the price of our feed ingredient purchases would have increased cost of sales for the three months ended September 25, 2022.

(b) A 10% increase in ending feed ingredient prices would have increased inventories as of September 25, 2022.

*(In thousands)*

|  | September 25, 2022 Amount | Impact of 10% Increase in Commodity Prices |
| --- | ---: | ---: |
| Net commodity derivative assets(a) | $34,800 | $3,480 |

(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 September 25, 2022.

### 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 $75.6 million as of September 25, 2022.

*Variable-rate debt.* Our variable-rate debt instruments represent approximately 15.7% of our total debt as of September 25, 2022. Holding other variables constant, including levels of indebtedness, an increase in interest rates of 25 basis points would have increased our interest expense by $2.5 million for the three months ended September 25, 2022.

### 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 September 25, 2022. 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 September 25, 2022 Impact of 10% Deterioration in Exchange Rate | Impact of 10% Appreciation in Exchange Rate |
| --- | ---: | ---: |
| Foreign currency remeasurement gain (loss) | $(2,391) | $2,922 |
| Exchange rate of Mexican peso to the U.S. dollar: |  |  |
| As reported | 20.21 | 20.21 |
| Hypothetical 10% change | 22.23 | 18.19 |

#### 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 September 25, 2022, our U.K. and Europe subsidiaries that are denominated in British pounds had net assets of $2.4 billion. A 10% weakening in British pound against the U.S. dollar exchange rate would cause a decrease in the net assets of our U.K. and Europe subsidiaries by $218.8 million. A 10% strengthening in the British pound against the U.S dollar exchange rate would cause an increase in the net assets of our U.K. and Europe subsidiaries of $267.4 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

The U.S., Mexico and most of Europe are currently experiencing pronounced inflation. None of the locations in which we operate are experiencing hyperinflation. We have responded to these inflationary challenges by continuing negotiations with customers to recoup the extraordinary costs we have experienced. We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.

### 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 and pork industries generally, including fluctuations in the commodity prices of feed ingredients, pigs 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, inflation 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 for various reasons, including, but not limited to, the ongoing Russia-Ukraine war;
- The impact of cyber-attacks, natural disasters, power losses, unauthorized access, telecommunication failures, and other problems on our information systems;
- 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 2021 Annual Report.

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.

The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made. 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, 2,298 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 September 25, 2022, 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 and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 25, 2022, 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 September 25, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 4,733 characters.

For a discussion of our 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 our 2021 Annual Report 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 and the risk factors listed below.

**Our business may be negatively impacted by economic or other consequences from Russia’s war against Ukraine and the sanctions imposed as a response to that action.**

We face risks related to the ongoing Russia-Ukraine war that began in February 2022. The impact of the ongoing war and sanctions will not be limited to businesses that operate in Russia and Ukraine and may negatively impact other global economic markets including where we operate. The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in some countries, and disrupted trade and supply chains. The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.

The impact on the agriculture markets falls into two main categories: (1) the effect on Ukrainian crop production, as the region is key in global grain production; and (2) the duration of the disruption in trade flows. Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply. The duration of the war and related volatility makes global markets extremely sensitive to growing-season weather in other global grain producing regions and has led to a large risk premium in futures prices. The continued volatility in the global markets as a result of the war has adversely impacted our costs by driving up prices, raising inflation and increasing pressure on the supply of feed ingredients and energy products throughout the global markets.

In addition, the U.S. government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls. The impact of these measures, now and in the future, could adversely affect our business, supply chain or customers.

Finally, there may be increased risk of cyberattack as a result of the ongoing conflict. We have not seen any new or heightened risk of potential cyberattacks since the outbreak of the Russia-Ukraine war. See our risk factors disclosed in our 2021 Annual Report.

**Extreme weather, natural disasters or other events beyond our control as well as interruption by man-made problems such as power disruptions could negatively impact our business.**

Bioterrorism, fire, pandemic, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of our flocks, production or availability of feed ingredients, or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have an adverse effect on our financial results. Moreover, climate change, including the impact of global warming, has resulted in risks that include changes in weather conditions, extreme weather events and adverse impacts on agricultural production, as well as potential regulatory compliance risks, all of which could have a material adverse effect on our results of operations, financial condition and liquidity.

The British National Grid recently warned that the U.K., where the Company has significant operations, could face planned power cuts to homes and businesses throughout the winter of 2023 if the country is unable to import electricity from Europe and it struggles to attract enough gas imports to fuel its gas-fired power plants. A significant power outage could have a material adverse impact on our business, results of operations, and financial condition. Although we maintain incident management and disaster response plans, in the event of a major disruption caused by a man-made problem such as a power disruption, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our development activities, lengthy interruptions in service, breaches of data security and loss of critical data, and our insurance may not cover such events or may be insufficient to compensate us for the potentially significant losses we may incur.

Filed Oct 27, 2022.
Source: SEC EDGAR, the filing index for accession 0000802481-22-000104. Last ingested by Listed: Oct 29, 2026, 06:16 ET. No prices; not investment advice.