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Item 8. Financial Statements and Supplementary Data

2021-02-11 compared with 2020-02-21 · 1136 added, 1264 removed, 1013 unchanged (70% of the section changed)

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Pilgrim's Pride Corporation:

Opinion on the Consolidated and Combined Financial Statements

We have audited the accompanying consolidated balance sheets of Pilgrim’s Pride Corporation and subsidiaries (the Company) as of December 29, 2019 and December 30, 2018, the related consolidated and combined statements of income, comprehensive income, stockholders’ equity, and cash flows for the fifty-two weeks ended December 29, 2019, the fifty-two weeks ended December 30, 2018, and the fifty-three weeks ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the consolidated and combined financial statements).

In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for the fifty-two weeks ended December 29, 2019, the fifty-two weeks ended December 30, 2018, and the fifty-three weeks ended December 31, 2017, in conformity with U.S.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Pilgrim's Pride Corporation and subsidiaries (the Company) as of December 27, 2020 and December 29, 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended December 27, 2020 and the related notes and financial statement schedule II (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 27, 2020 and December 29, 2019, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended December 27, 2020 in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 27, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 10, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting Principle

As discussed in Note 1 to the consolidated and combined financial statements, the Company has changed its method of accounting for revenue as of January 1, 2018 due to the adoption of ASU 2014-09, Revenue from Contracts with Customers.

As discussed in Note 1 to the consolidated and combined financial statements, the Company has changed its method of accounting for leases as of December 31, 2018 due to the adoption of ASU 2016-02, Leases .

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for expected credit losses on financial instruments as of December 30, 2019 due to the adoption of ASU 2016-13, Financial Instruments-Credit Losses .

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 31, 2018 due to the adoption of ASU 2016-02, Leases .

Basis for Opinion

These consolidated and combined financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated and combined financial statements based on our audits.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated and combined financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated and combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated and combined financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated and combined financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated and combined financial statements that was communicated or required to be communicated to the audit committee and that:

relates to accounts or disclosures that are material to the consolidated and combined financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated and combined financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of cost of inventory

As discussed in Note 1 to the consolidated and combined financial statements, the majority of the Company’s inventory is recorded at the lower of cost or net realizable value.

The Company has inventories of approximately $1.4 billion as of December 29, 2019.

Inventory cost consists of a combination of actual costs incurred and standard costs.

As discussed in Note 1 to the consolidated financial statements, certain types of inventory are recorded at the lower of cost or net realizable value.

The Company had inventories of approximately $1.4 billion as of December 27, 2020.

Certain inventory is recorded at standard cost, which is set by management to reflect the actual costs incurred.

The production of inventory is a process with many steps.

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As such, the cost of inventory at a particular step in the production process is often dependent on the costs recorded at a previous step in the production process.

We identified the evaluation of cost of inventory as a critical audit matter.

We identified the evaluation of the cost of certain types of inventory as a critical audit matter.

Due to the frequent movement of products, the many steps that a product takes through the production cycle, and the variety of costs incurred at certain steps, especially challenging auditor judgement was required to evaluate the amounts recorded as the costs are incurred and transferred throughout steps in the production process.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s inventory costing process, specifically controls over 1) actual costs incurred, 2) the monitoring of variances between actual costs incurred and standard costs, and 3) the transfer of costs throughout steps in the production process.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s inventory costing process, including controls over 1) actual costs incurred, 2) the monitoring of variances between actual costs incurred and standard costs, and 3) the accumulation and transfer of costs throughout steps in the production process.

For a sample of transactions, we assessed the actual costs incurred and the transfer of costs throughout steps in the production process by obtaining evidence over the actual costs incurred and tracing the standard cost transferred to the prior step in the production process.

We evaluated the nature and cause of the aggregate variances between actual costs incurred and standard costs.

For certain aggregate variances between actual costs incurred and standard costs, we assessed the reasonableness of standard cost by evaluating the nature and cause of the variance.

We have served as the Company’s auditor since 2012.

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CONSOLIDATED BALANCE SHEETS

December 29, 2019

December 30, 2018

December 27, 2020 December 29, 2019

(In thousands, except share and par value data)

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Accounts receivable from related parties 1,084 944

Inventories 1,358,793 1,383,535

Income taxes receivable 69,397 60,204

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Identified intangible assets, net 589,913 596,053

Goodwill 1,005,245 973,750

Property, plant and equipment, net 2,657,491 2,592,061

Total assets $ 7,474,497 $ 7,102,364

Accounts payable $ 1,028,710 $ 993,780

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Treasury stock, at cost, 17,672,508 shares and 11,546,945 shares at year-end 2020 and year-end 2019, respectively

( 345,134 ) ( 234,892 )

Additional paid-in capital 1,954,334 1,955,261

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Total liabilities and stockholders’ equity $ 7,474,497 $ 7,102,364

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

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

PILGRIM’S PRIDE CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

Fifty-Two Weeks Ended December 29, 2019

Fifty-Two Weeks Ended December 30, 2018

Fifty-Three Weeks Ended December 31, 2017

CONSOLIDATED STATEMENTS OF INCOME

December 27, 2020 December 29, 2019 December 30, 2018

(In thousands, except per share data)

Net sales $ 12,091,901 $ 11,409,219 $ 10,937,784

Cost of sales 11,253,705 10,338,825 10,094,308

Gross profit 838,196 1,070,394 843,476

Selling, general and administrative expense 592,610 379,910 343,025

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Interest income ( 7,305 ) ( 14,277 ) ( 13,811 )

Foreign currency transaction loss (gain)

Foreign currency transaction loss 760 6,917 17,160

Gain on bargain purchase 3,746 ( 56,880 ) —

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Income tax expense 66,755 161,009 85,423

Net income from Granite Holdings Sàrl prior to acquisition by Pilgrim’s Pride Corporation

Net income 95,070 456,536 246,804

Net income (loss) attributable to noncontrolling interest 313 612 ( 1,141 )

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Weighted average shares of Pilgrim's Pride Corporation common stock outstanding:

Basic 245,944 249,401 248,945

Effect of dilutive common stock equivalents 180 308 204

Diluted 246,124 249,709 249,149

Net income attributable to Pilgrim's Pride Corporation per share of common stock outstanding:

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

Basic $ 0.39 $ 1.83 $ 1.00

Diluted $ 0.39 $ 1.83 $ 1.00

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

PILGRIM’S PRIDE CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME

Fifty-Two Weeks

December 29, 2019

Fifty-Two Weeks

December 30, 2018

Fifty-Three Weeks

December 31, 2017

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 27, 2020 Year Ended December 29, 2019 Year Ended December 30, 2018

(In thousands)

Other comprehensive loss:

Net income $ 95,070 $ 456,536 $ 246,804

Other comprehensive income:

Foreign currency translation adjustment

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Gains (losses) arising during the period 3,719 ( 2,106 ) 817

Income tax effect 160 — —

Reclassification to net earnings for losses (gains)

realized ( 2,664 ) 383 348

Available-for-sale securities

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Defined benefit plans

Gains (losses) realized during the period

Losses realized during the period ( 38,845 ) ( 2,161 ) ( 1,242 )

Income tax effect 7,121 1,016 303

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Comprehensive income 149,579 509,241 150,110

Comprehensive income (loss) for Granite

Holdings Sàrl prior to acquisition by Pilgrim's

Pride Corporation

Comprehensive income (loss) attributable to

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Comprehensive income attributable to Pilgrim's Pride

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

Corporation $ 149,266 $ 508,629 $ 151,251

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

PILGRIM’S PRIDE CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Pilgrim’s Pride Corporation Stockholders

Treasury Stock

Retained Earnings (Accumulated

Common Stock Treasury Stock Additional

Capital Retained Earnings Accumulated

Comprehensive

Noncontrolling

Loss Noncontrolling

Interest Total

Shares Amount Shares Amount

(In thousands)

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Comprehensive income:

Other comprehensive income, net of tax expense of $3,715

Capital contribution under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim's Pride Corporation (the “TSA”)

Share-based compensation plans:

Net income (loss) — — — — — 247,945 — ( 1,141 ) 246,804

Other comprehensive loss, net of tax benefit of $ 1,627

— — — — — — ( 96,694 ) — ( 96,694 )

Capital distribution under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim's Pride Corporation (the "TSA") — — — — ( 524 ) — — — ( 524 )

Stock-based compensation plans:

Common stock issued under compensation plans 228 2 — — ( 2 ) — — — —

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Common stock purchased under share repurchase program — — ( 15 ) ( 236 ) — — — — ( 236 )

Deemed equity contribution resulting from the transfer of Granite Holdings

Sàrl net assets from JBS S.A.

to Pilgrim's Pride Corporation in a

common-control transaction

Transfer of Granite Holdings Sàrl to Pilgrim's from JBS S.A.

Capital contribution to subsidiary by noncontrolling interest — — — — — — — 1,421 1,421

Balance at December 30, 2018 260,396 2,604 ( 11,431 ) $ ( 231,994 ) $ 1,945,136 $ 421,888 $ ( 127,834 ) $ 9,785 $ 2,019,585

Comprehensive income:

Net income (loss)

Other comprehensive loss, net of tax benefit of $1,627

Capital contribution under TSA

Share-based compensation plans:

Net income — — — — — 455,924 — 612 456,536

Other comprehensive income, net of tax benefit of $ 723

— — — — — — 52,705 — 52,705

Stock-based compensation plans:

Common stock issued under compensation plans 723 7 — — ( 7 ) — — — —

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Common stock purchased under share repurchase program — — ( 116 ) ( 2,898 ) — — — — ( 2,898 )

Capital contribution to subsidiary by noncontrolling interest

Balance at December 29, 2019 261,119 $ 2,611 ( 11,547 ) $ ( 234,892 ) $ 1,955,261 $ 877,812 $ ( 75,129 ) $ 10,397 $ 2,536,060

Comprehensive income:

Net income — — — — — 94,757 — 313 95,070

Other comprehensive income, net of tax benefit of $ 6,907

Capital distribution under the TSA

Share-based compensation plans:

— — — — — — 54,509 — 54,509

Capital distribution under TSA — — — — ( 650 ) — — — ( 650 )

Stock-based compensation plans:

Common stock issued under compensation plans 66 1 — — ( 1 ) — — — —

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Common stock purchased under share repurchase program — — ( 6,126 ) ( 110,242 ) — — — — ( 110,242 )

Dissolution of subsidiary — — — — — — — 876 876

Balance at December 27, 2020 261,185 $ 2,612 ( 17,673 ) $ ( 345,134 ) $ 1,954,334 $ 972,569 $ ( 20,620 ) $ 11,586 $ 2,575,347

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

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

PILGRIM’S PRIDE CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

Fifty-Two Weeks Ended December 29, 2019

Fifty-Two Weeks Ended December 30, 2018

Fifty-Three Weeks Ended

December 31, 2017

CONSOLIDATED STATEMENTS OF CASH FLOWS

December 27, 2020 December 29, 2019 December 30, 2018

(In thousands)

Cash flows from operating activities:

Net income $ 95,070 $ 456,536 $ 246,804

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization 337,104 287,230 274,088

Gain on bargain purchase

Deferred income tax expense (benefit)

Share-based compensation

Deferred income tax expense 37,337 42,478 32,540

Gain on property disposals ( 13,766 ) ( 10,896 ) ( 1,889 )

Foreign currency transaction losses (gains) related to borrowing arrangements

Loan cost amortization 4,848 4,821 5,569

Gain on bargain purchase 3,746 ( 56,880 ) —

Accretion of bond discount 982 982 812

Amortization of bond premium ( 668 ) ( 668 ) ( 668 )

Gain on equity method investments

Loss (gain) on equity method investments 291 ( 63 ) ( 63 )

Stock-based compensation ( 276 ) 10,132 13,153

Noncash loss on subsidiary dissolution 115 — —

Foreign currency transaction losses (gains) related to borrowing arrangements — ( 4,970 ) 5,267

Loss on early extinguishment of debt recognized as a component of interest expense — — 15,818

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Trade accounts and other receivables 29,154 ( 25,000 ) ( 10,918 )

Inventories 26,041 ( 111,748 ) 83,174

Prepaid expenses and other current assets ( 50,347 ) ( 15,490 ) ( 11,612 )

Accounts payable and accrued expenses 295,327 119,892 86,834

Income taxes ( 39,436 ) ( 26,378 ) ( 248,470 )

Long-term pension and other postretirement obligations ( 7,883 ) ( 9,221 ) ( 6,751 )

Other operating assets and liabilities 6,608 5,764 4,458

Cash provided by operating activities 724,247 666,521 491,650

Cash flows from investing activities:

Purchase of acquired business, net of cash acquired

Acquisitions of property, plant and equipment ( 354,762 ) ( 348,120 ) ( 348,666 )

Proceeds from property disposals 31,976 15,753 9,775

Proceeds from settlement of life insurance contract

Purchase of acquired business, net of cash acquired ( 4,216 ) ( 384,694 ) —

Cash used in investing activities ( 327,002 ) ( 717,061 ) ( 338,891 )

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Proceeds from revolving line of credit and long-term borrowings 404,522 259,466 748,382

Purchase of common stock under share repurchase program

Purchase of common stock under stock repurchase program ( 110,242 ) ( 2,898 ) ( 236 )

Payment of capitalized loan costs — ( 652 ) ( 12,581 )

Proceeds (distribution) from capital contribution under the TSA — ( 525 ) 5,558

Capital contributions to subsidiary by noncontrolling stockholders

Payment on early extinguishment of debt — — ( 9,781 )

Payment of note payable to affiliate

Cash provided by (used in) financing activities

Capital contributions to subsidiary by noncontrolling stockholders — — 1,421

Cash used in financing activities ( 136,708 ) ( 34,526 ) ( 384,246 )

Effect of exchange rate changes on cash and cash equivalents 7,292 4,065 3,534

Increase (decrease) in cash and cash equivalents 267,829 ( 81,001 ) ( 227,953 )

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Cash and cash equivalents, beginning of year 280,577 361,578 589,531

Cash and cash equivalents, end of year $ 548,406 $ 280,577 $ 361,578

Supplemental Disclosure Information:

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Income taxes paid 51,710 125,856 253,932

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

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico and the Netherlands.

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states, the U.K., Mexico, France, Puerto Rico and the Netherlands.

As of December 29, 2019 , Pilgrim’s had approximately 53,100 employees and the capacity to process more than 45.3 million birds per week for a total of more than 13.0 billion pounds of live chicken annually.

As of December 27, 2020, Pilgrim’s had approximately 56,400 employees.

As of December 27, 2020, Pilgrim’s had the capacity to process more than 44.9 million birds per week for a total of more than 13.2 billion pounds of live chicken annually.

Approximately 4,800 contract growers supply poultry for the Company’s operations.

As of December 29, 2019 , Pilgrim’s had 5,400 employees and the capacity to process more than 46,200 pigs per week for a total of 443.0 million pounds of live pork annually.

As of December 27, 2020, Pilgrim’s had the capacity to process more than 45,000 pigs per week for a total of 436.7 million pounds of live pork annually.

Approximately 300 contract growers supply pork for the Company’s operations.

As of December 27, 2020, JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”) beneficially owned 80.26 % of the Company’s outstanding common stock.

Consolidated and Combined Financial Statements

Consolidated Financial Statements

The Company operates on the basis of a 52/53-week fiscal year ending on the Sunday falling on or before December 31.

Any reference we make to a particular year in the notes to these Consolidated and Combined Financial Statements applies to our fiscal year and not the calendar year.

Any reference we make to a particular year in the notes to these Consolidated Financial Statements applies to our fiscal year and not the calendar year.

On September 8, 2017, a subsidiary of the Company acquired 100 % of the issued and outstanding shares of Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”) from JBS S.A.

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from an unrelated third party on September 30, 2015.

For the period from September 30, 2015 through September 7, 2017, the Consolidated and Combined Financial Statements include the accounts of the Company and its majority-owned subsidiaries combined with the accounts of Moy Park.

For the periods subsequent to September 8, 2017, the Consolidated and Combined Financial Statements include the accounts of the Company and its majority-owned subsidiaries, including Moy Park.

For the period from September 30, 2015 through September 7, 2017, the Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries combined with the accounts of Moy Park.

For the periods subsequent to September 8, 2017, the Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries, including Moy Park.

We eliminate all significant affiliate accounts and transactions upon consolidation.

The Consolidated and Combined Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S.

The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S.

GAAP”) using management’s best estimates and judgments.

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Remeasurement is performed for non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition.

Income and expense accounts are remeasured using average exchange rates for

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Net adjustments resulting from remeasurement of these financial records are reflected in Foreign currency transaction losses (gains) in the Consolidated and Combined Statements of Income.

Income and expense accounts are remeasured

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

using average exchange rates for the period.

Net adjustments resulting from remeasurement of these financial records are reflected in Foreign currency transaction losses (gains) in the Consolidated Statements of Income.

The Company or its subsidiaries may use derivatives for the purpose of mitigating exposure to changes in foreign currency exchange rates.

Foreign currency transaction gains or losses are reported in the Consolidated and Combined Statements of Income.

During 2017, the Company reported an adjustment resulting from the translation of a British pound-denominated note payable owed to JBS as a component of Accumulated other comprehensive loss in the Consolidated Balance Sheets.

The Company designated this note payable as a hedge of its net investment in Moy Park.

This adjustment remains in Accumulated other comprehensive loss as of December 29, 2019 and will be reclassified if the Company disposes of its investment in Moy Park.

Foreign currency transaction gains or losses are reported in the Consolidated Statements of Income.

Revenue Recognition

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The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder.

Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated and Combined Statements of Cash Flows.

Restricted Cash

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The Company is required to maintain cash balances with a broker as collateral for exchange traded futures contracts.

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Treasury Bills that qualify as cash equivalents, as required by the broker, to offset the obligation to return cash collateral.

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

December 29, 2019

December 30, 2018

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2020 December 29, 2019

(In thousands)

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Total cash, cash equivalents and restricted cash shown in the

Consolidated and Combined Statements of Cash Flows

Consolidated Statements of Cash Flows $ 548,406 $ 280,577

The Company’s current investments are all highly liquid investments with a maturity of three months or less when acquired and are, therefore, considered cash equivalents.

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Purchases and sales are recorded on a settlement date basis.

Investments in entities in which the Company has an ownership interest greater than 50% and exercises control over the entity are consolidated in the Consolidated and Combined Financial Statements.

Investments in entities in which the Company has an ownership interest greater than 50% and exercises control over the entity are consolidated in the Consolidated Financial Statements.

Investments in entities in which the Company has an ownership interest between 20% and 50% and exercises significant influence are accounted for using the equity method.

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Finished poultry products, feed, eggs and other inventories are stated at the lower of average cost or net realizable value.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Pork inventories are stated at the lower of cost and net realizable value.

Cost includes costs incurred in bringing each product to its present location and condition such as purchase price, transportation, labor, and appropriate proportion of manufacturing overhead based on actual production.

We record valuation adjustments for our inventory and for estimated obsolescence at or equal to the difference between the cost of inventory and the estimated market value based upon known conditions affecting inventory, including significantly aged products, discontinued product lines, or damaged or obsolete products.

We allocate meat costs between our various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts.

This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as our breast meat cost.

Inventory typically transfers from one stage of production to another at a standard cost, where it accumulates additional cost directly incurred with the production of inventory, including overhead.

The standard cost at which each type of inventory transfers is set by management to reflect the actual costs incurred in the prior steps.

We monitor and adjust standard costs throughout the year to ensure that standard costs reasonably reflect the actual average cost of the inventory produced.

Pork inventories are stated at the lower of cost or net realizable value.

Cost includes expenditures incurred in bringing each product to its present location and condition such as purchase price, transportation, labor, and appropriate proportion of manufacturing overhead based on actual production.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company records valuation adjustments for its inventory and for estimated obsolescence at or equal to the difference between the cost of inventory and the estimated market value based upon known conditions affecting inventory, including significantly aged products, discontinued product lines, or damaged or obsolete products.

The Company allocates meat costs between its various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts.

This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as its breast meat cost.

Generally, the Company performs an evaluation of whether any lower of cost or net realizable value adjustments are required at the country level based on a number of factors, including:

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Beginning with the adoption of Accounting Standards Update (“ASU”) 2016-02 on December 31, 2018, operating lease assets and operating lease liabilities are initially recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of our leases do not provide an implicit interest rate, we use our incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the present value of future payments.

IBR is derived from our credit facility’s margin as a basis with adjustments to periodically updated LIBOR swap rate and foreign currency curve.

As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate (“IBR”) based on the information available at commencement date in determining the present value of future payments.

IBR is derived from the Company’s credit facility’s margin as a basis with adjustments to periodically updated LIBOR swap rate and foreign currency curve.

The operating lease asset also includes any lease payments made, including upfront costs and prepayments, and excludes lease incentives and initial direct costs incurred.

Our lease terms may include options to extend or terminate a lease when it is reasonably certain that we will exercise that option.

The Company’s lease terms may include options to extend or terminate a lease when it is reasonably certain that it will exercise that option.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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Beginning in 2019, lease and non-lease components are generally accounted for separately.

For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component.

For certain equipment leases, such as vehicles, the Company accounts for the lease and non-lease components as a single lease component.

Property, Plant and Equipment

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The Company records impairment charges on long-lived assets held for sale when the carrying amount of those assets exceeds their fair value less appropriate selling costs.

Fair value is based on amounts documented in sales contracts or letters of

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

intent accepted by the Company, amounts included in counteroffers initiated by the Company, or, in the absence of current contract negotiations, amounts determined using a sales comparison approach for real property and amounts determined using a cost approach for personal property.

Under the sales comparison approach, sales and asking prices of reasonably comparable properties are considered to develop a range of unit prices within which the current real estate market is operating.

Fair value is based on amounts documented in sales contracts or letters of intent accepted by the Company, amounts included in counteroffers initiated by the Company, or, in the absence of current contract negotiations, amounts determined using a sales comparison approach for real property and amounts determined using a cost approach for personal property.

Under the sales comparison approach, sales and asking prices of reasonably comparable

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

properties are considered to develop a range of unit prices within which the current real estate market is operating.

Under the cost approach, a current cost to replace the asset new is calculated and then the estimated replacement cost is reduced to reflect the applicable decline in value resulting from physical deterioration, functional obsolescence and economic obsolescence.

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Identifiable intangible assets with definite lives, such as customer relationships, non-compete agreements and trade names that the Company expects to use for a limited amount of time, are amortized over their estimated useful lives on a straight-line basis.

The useful lives range from three to 20 years for trade names and non-compete agreements and 5 to 16 years for customer relationships.

The useful lives range from three to 20 years for non-compete agreements and trade names and three to 16 years for customer relationships.

Identified intangible assets with definite lives are tested for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Management assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets with definite lives might not be recoverable and determined that there were no impairment indicators during the fifty-two weeks ended December 29, 2019 and fifty-two weeks ended December 30, 2018 .

Management assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets with definite lives might not be recoverable and determined that there were no impairment indicators during the year ended December 27, 2020 and year ended December 29, 2019.

Book Overdraft Balances

The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder.

Litigation and Contingent Liabilities

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Certain categories of claim liabilities are actuarially determined.

The assumptions used to arrive at periodic expenses are reviewed

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

regularly by management.

The assumptions used to arrive at periodic expenses are reviewed regularly by management.

However, actual expenses could differ from these estimates and could result in adjustments to be recognized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Asset Retirement Obligations

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740-10-30-27 in the Expenses-Income Taxes topic with regard to members of a group that file a consolidated tax return but issue separate financial statements.

The Company files its own U.S.

federal tax return, but it is included in certain state unitary returns with JBS USA Food Company Holdings (“JBS USA Holdings”).

The Company files its U.S.

federal tax return and certain state unitary returns with JBS USA Food Company Holdings (“JBS USA Holdings”).

The income tax expense of the Company is computed using the separate return method.

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See “Note 12.

Income Taxes” to the Consolidated and Combined Financial Statements.

Income Taxes” to the Consolidated Financial Statements.

Pension and Other Postemployment Benefits

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Derivative Financial Instruments

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The Company uses derivative financial instruments (e.g., futures, forwards and options) for the purpose of mitigating exposure to changes in commodity prices and foreign currency exchange rates.

The Company uses derivative financial instruments (e.g., futures, forwards options and swaps) for the purpose of mitigating exposure to changes in commodity prices, foreign currency exchange rates and interest rates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Commodity Price Risk - The Company utilizes various raw materials, which are all considered commodities, in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel.

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• Foreign Currency Risk - The Company has foreign operations and, therefore, has exposure to foreign exchange risk when the financial results of those operations are translated to US dollars.

The Company will occasionally purchase derivative financial instruments such as foreign currency forward contracts in an attempt to mitigate currency exchange rate exposure related to the net assets of its Mexico operations that are denominated in Mexican pesos.

The Company’s Moy Park operation also attempts to mitigate foreign currency exposure on certain euro- and U.S.

dollar-denominated transactions through the use of derivative financial instruments.

The Company’s U.K.

and Europe reportable segment also attempts to mitigate foreign currency exposure on certain transactions denominated in foreign currencies through the use of derivative financial instruments.

• Interest Rate Risk - The Company has exposure to variability in cash flows from interest payments due to the use of variable interest rates on certain long-term debt arrangements.

The Company has purchased an interest rate swap contract to convert the variable interest rate to a fixed interest rate on a portion of its outstanding long-term debt arrangements in order to manage this interest rate risk and add stability to interest expense and cash flows.

Pilgrim’s recognizes all commodity derivative instruments that qualify for derivative accounting treatment as either assets or liabilities and measures those instruments at fair value unless they qualify for, and we elect, the normal purchases and normal sales scope exception (“NPNS”).

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NPNS contracts are accounted for using the accrual method of accounting;

therefore, there were no amounts recorded in the Consolidated and Combined Financial Statements at December 29, 2019 and December 30, 2018 .

therefore, there were no amounts recorded in the Consolidated Financial Statements at December 27, 2020 and December 29, 2019.

Undesignated contracts may include contracts not designated as a hedge or for which the NPNS exception was not elected, contracts that do not qualify for hedge accounting and derivatives that do not or no longer qualify for the NPNS scope exception.

The fair value of these derivatives is recognized in the Consolidated Balance Sheets within Prepaid expenses and other current assets or Accrued expenses and other current liabilities .

Changes in fair value of these derivatives are recognized immediately in the Consolidated and Combined Statements of Income within Net sales , Cost of sales or Selling, general and administrative expense , depending on the risk they are intended to mitigate.

Changes in fair value of these derivatives are recognized immediately in the Consolidated Statements of Income within Net sales , Cost of sales or Selling, general and administrative expense , depending on the risk they are intended to mitigate.

While management believes these instruments help mitigate various market risks, they are not designated nor accounted for as hedges as a result of the extensive record keeping requirements.

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Recent Accounting Pronouncements Adopted in 2020

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) , along with several updates, which, in an effort to increase transparency and comparability among organizations utilizing leasing, requires an entity that is a lessee to recognize the assets and liabilities arising from operating leases on the balance sheet.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which, in an effort to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The adoption of this guidance did not have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , new accounting guidance to improve the effectiveness of disclosures related to fair value measurements.

The new guidance removes certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy along with the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements.

Additions to the disclosure requirements include more quantitative information related to significant unobservable inputs used in Level 3 fair value measurements and gains and losses included in other comprehensive income.

The adoption of this guidance did not have a material impact on our financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):

Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans , new accounting guidance to improve the effectiveness of disclosures related to defined benefit plans by eliminating certain required disclosures, clarifying existing disclosures, and adding new disclosures.

Changes include removing disclosures related to the amounts in accumulated other comprehensive income expected to be recognized in the next fiscal year, adding narrative disclosure of the reasons for significant gains and losses related to changes in the defined benefit obligation, and clarifying the disclosures required for plans with projected and accumulated benefit obligations in excess of plan assets.

The adoption of this guidance did not have a material impact on our financial statements.

Recent Accounting Pronouncements Adopted in 2019

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , along with several updates, which, in an effort to increase transparency and comparability among organizations utilizing leasing, requires an entity that is a lessee to recognize the assets and liabilities arising from operating leases on the balance sheet.

This guidance also requires disclosures about the amount, timing and uncertainty of cash flows arising from leases.

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The Company also elected the practical expedient allowing use of hindsight in assessing the lease term.

We made an accounting policy election to not apply the new guidance to leases with a term of 12 months or less and will recognize those

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

payments in the Consolidated Statement of Income on a straight-line basis over the lease term.

We made an accounting policy election to not apply the new guidance to leases with a term of 12 months or less and will recognize those payments in the Consolidated Statement of Income on a straight-line basis over the lease term.

We implemented a system solution for administering our leases and facilitating compliance with the new guidance.

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The accounting standard update more closely aligns the accounting for employee and non-employee share based payments.

The accounting standards update is effective as of the beginning of our 2019 calendar year with early adoption permitted.

The accounting standards update is effective as of the beginning of our 2019 calendar year with early adoption

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We adopted this standard as of December 31, 2018.

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Recent Accounting Pronouncements Adopted in 2018

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides for a single five-step model to be applied to all revenue contracts with customers.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which provides for a single five-step model to be applied to all revenue contracts with customers.

The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts.

Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard.

We adopted this standard as of January 1, 2018, the beginning of our 2018 fiscal year, using the cumulative effect adjustment, often referred to as modified retrospective approach.

We adopted this as of January 1, 2018, the beginning of our 2018 fiscal year, using the cumulative effect adjustment, often referred to as modified retrospective approach.

Under this method, we did not restate the prior financial statements presented, and would record any adjustments in the opening balance sheet for January 2018.

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Recent Accounting Pronouncements Not Yet Adopted as of December 27, 2020

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash.

We will adopt the provisions of the new guidance effective December 30, 2019, the beginning of our 2020 fiscal year.

We do not expect the impact of the new guidance on our financial statements to be material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , new accounting guidance to improve the effectiveness of disclosures

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

related to fair value measurements.

We will adopt the provisions of the new guidance effective December 30, 2019, the beginning of our 2020 fiscal year.

We do not expect the impact of the new guidance on our financial statements to be material.

In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20):

We will adopt the provisions of the new guidance effective December 30, 2019, the beginning of our 2020 fiscal year.

We do not expect the impact of the new guidance on our financial statements to be material.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes , which is intended to improve consistency and simplify several areas of existing guidance.

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We are currently evaluating the effect that the ASU 2019-12 will have on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides optional expedients and exceptions to the application of current GAAP to existing contracts, hedging relationships and other transactions affected by reference rate reform.

The new guidance will ease the transition to new reference rates by allowing entities to update contracts and hedging relationships without applying many of the contract modification requirements specific to those contracts.

The provisions of the new guidance will be effective beginning March 12, 2020, extending through December 31, 2022 with the option to apply the guidance at any point during that time period.

Once an entity elects an expedient or exception it must be applied to all eligible contracts or transactions.

We currently have hedging transactions and debt agreements that reference LIBOR and will apply the new guidance as these contracts are modified to reference other rates.

BUSINESS ACQUISITIONS

On October 15, 2019, the Company acquired 100 % of the equity of Tulip from Danish Crown AmbA for £ 310.0 million , or $ 391.5 million , subject to customary working capital adjustments.

Tulip Limited

On October 15, 2019, the Company acquired 100 % of the equity of Tulip Limited and its subsidiaries (together “Tulip”) from Danish Crown AmbA for £ 311.3 million, or $ 393.3 million, subject to customary working capital adjustments.

The acquisition was funded with cash on hand.

Tulip, a leading, integrated prepared pork supplier, is headquartered in Warwick, U.K., operates 14 fresh and value-added facilities in that country and employs approximately 5,400 people as of December 29, 2019 .

Tulip, which has subsequently changed its name to Pilgrim’s Pride Ltd.

(“PPL”), is a leading, integrated prepared pork supplier headquartered in Warwick, U.K.

The acquisition solidifies Pilgrim's as a leading European food company, creating one of the largest integrated prepared foods businesses in the U.K.

The Tulip operations are included in the Company’s U.K.

The PPL operations are included in the Company’s U.K.

and Europe reportable segment.

Transaction costs incurred in conjunction with the acquisition were approximately $ 1.4 million.

These costs were expensed as incurred.

The results of operations of the acquired business since October 15, 2019 are included in the Company’s Consolidated and Combined Statements of Income.

Net sales generated and net loss incurred by the acquired business during 2019 totaled $ 306.7 million and $ 2.7 million , respectively.

The assets acquired and liabilities assumed in the Tulip acquisition were measured at their fair values as of October 15, 2019 as set forth below.

The excess of the fair values of the net tangible assets and identifiable intangible assets over the purchase price was recorded as gain on bargain purchase in the Company’s U.K.

These costs were expensed as incurred and are reflected within Selling, general and administrative expense in the Company’s Consolidated Statements of Income.

The results of operations of the acquired business since October 15, 2019 are included in the Company’s Consolidated Statements of Income.

Net sales and net income generated by the acquired business during 2020 totaled $ 1.4 billion and $ 9.6 million, respectively.

The assets acquired and liabilities assumed in the acquisition were measured at their fair values as of October 15, 2019 as set forth below.

The excess of the fair values of the net tangible assets and identifiable intangible assets over the purchase

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

price was recorded as gain on bargain purchase in the Company’s U.K.

and Europe reportable segment.

The fair values recorded were determined based upon various external and internal valuations.

The preliminary fair values recorded were determined based upon a preliminary valuation.

The estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date).

The primary areas of acquisition accounting that are not yet finalized relate to the preliminary nature of the valuation of property, plant and equipment, intangible assets and residual gain on bargain purchase as well as calculation of final working capital adjustments.

We continue to review inputs and assumptions used in the preliminary valuations.

The fair values recorded for the assets acquired and liabilities assumed for Tulip are as follows (in thousands):

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The fair values recorded for the assets acquired and liabilities assumed for PPL are as follows (in thousands):

Cash and cash equivalents $ 6,854

Trade accounts and other receivables 146,423

Inventories 104,211

Prepaid expenses and other current assets 6,579

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Identified intangible assets 40,418

Other assets 14,647

Total assets acquired 654,456

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Total consideration transferred $ 393,288

The Company performed a valuation of the assets and liabilities of Tulip as of October 15, 2019.

The Company performed a valuation of the assets and liabilities of PPL as of October 15, 2019.

Significant assumptions used in the valuation and the bases for their determination are summarized as follows:

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Property, plant and equipment at fair value gave consideration to the highest and best use of the assets.

The valuation of the Company's real property improvements and the majority of its personal property was based on the cost approach.

The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.

The valuation of PPL’s real property improvements and the majority of its personal property was based on the cost approach.

The valuation of PPL’s land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.

Customer relationships .

The Company valued Tulip customer relationships using the income approach, specifically the multi-period excess earnings model.

The Company valued PPL customer relationships using the income approach, specifically the multi-period excess earnings model.

Under this model, the fair value of the customer relationships asset was determined by estimating the net cash inflows from the relationships discounted to present value.

In estimating the fair value of the customer relationships, net sales related to existing Tulip customers were estimated to grow at a rate of 2.0 % annually, but we also anticipate losing existing Tulip customers at an attrition rate of 10.0 % .

Income taxes were estimated at 18.0 % of pre-tax income in 2020 and 17.0 % of pre-tax income thereafter and net cash flows attributable to our existing customers were discounted using a rate of 22.0 % .

In estimating the fair value of the customer relationships, net sales related to existing PPL customers were estimated to grow at a rate of 2.0 % annually, but the Company also anticipates losing existing PPL customers at an attrition rate of 10.0 %.

Income taxes were estimated at 18.0 % of pre-tax income in 2020 and 17.0 % of pre-tax income thereafter and net cash flows attributable to PPL’s existing customers were discounted using a rate of 22.0 %.

The resulting customer relationships intangible asset has a fair value of $ 40.4 million and a useful life of 11 years.

Goodwill and Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the Tulip acquisition.

On September 8, 2017, the Company purchased 100 % of the issued and outstanding shares of Moy Park from JBS S.A.

for cash of $ 301.3 million and a note payable to the seller in the amount of £ 562.5 million .

Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers.

With four fresh processing plants, ten prepared foods cook plants, three feed mills, six hatcheries and one rendering facility in Northern Ireland, England, France, and the Netherlands, Moy Park processes 6.1 million birds per seven-day work week, in addition to producing around 462.0 million pounds of prepared foods per year.

Its product portfolio comprises fresh and added-value poultry, ready-to-eat meals, breaded and multi-protein frozen foods, vegetarian foods and desserts, supplied to major food retailers and restaurant chains in Europe (including the U.K.).

Moy Park has approximately 10,200 employees as of December 29, 2019 .

The Moy Park operations are included in our U.K.

and Europe reportable segment.

The acquisition was treated as a common-control transaction under U.S.

A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent.

The accounting and reporting for a transaction between entities under common control is not to be considered a business combination under U.S.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

there is no change in control over the net assets from the parent’s perspective, there is no change in basis in the assets or liabilities.

Therefore, Pilgrim's, as the receiving entity, recognized the assets and liabilities received at their historical carrying amounts, as reflected in the parent’s financial statements.

The difference between the proceeds transferred and the carrying amounts of the net assets on the date of the acquisition is recognized in equity.

Transaction costs incurred in conjunction with the acquisition were approximately $ 19.9 million .

These costs were expensed as incurred.

Beginning September 8, 2017, the results of operations and financial position of Moy Park have been included in the consolidated results of operations and financial position of the Company.

The results of operations and financial position of Moy Park have been combined with the results of operations and financial position of Pilgrim's from September 30, 2015, the common control date, through September 7, 2017.

Net sales and net income generated by the acquired business during 2019 totaled $ 2.1 billion and $ 70.7 million , respectively.

Net sales and net income generated by the acquired business during 2018 totaled $ 2.1 billion and $ 52.1 million , respectively.

In January 6, 2017, the Company acquired 100 % of the membership interests of JFC LLC and its subsidiaries (together, “GNP”) from Maschhoff Family Foods, LLC for $ 350.0 million , subject to customary working capital adjustments.

The purchase was funded through cash on hand and borrowings under the U.S.

Credit Facility.

GNP is a vertically integrated poultry business located in Minnesota and Wisconsin.

The acquired business has a production capacity of 2.1 million birds per five-day work week in its two plants and employed approximately 1,700 people as of December 29, 2019 .

The GNP operations are included in our U.S.

reportable segment.

The following table summarizes the consideration paid for GNP (in thousands):

Negotiated sales price

Working capital adjustment

Preliminary purchase price

Transaction costs incurred in conjunction with the purchase were approximately $ 0.6 million .

These costs were expensed as incurred.

The results of operations of the acquired business since January 6, 2017 are included in the Company’s Consolidated and Combined Statements of Income.

Net sales and net income generated by the acquired business during 2019 totaled $ 422.1 million and $ 39.5 million , respectively.

Net sales generated and net loss incurred by the acquired business during 2018 totaled $ 398.4 million and $ 1.4 million , respectively.

The assets acquired and liabilities assumed in the GNP acquisition were measured at their fair values as of January 6, 2017 as set forth below.

The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill.

The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce.

These benefits include (1) complementary product offerings, (2) an enhanced footprint in the U.S., (3) shared knowledge of innovative technologies such as gas stunning, aeroscalding and automated deboning, (4) enhanced position in the fast-growing antibiotic-free and certified organic chicken segments due to the addition of GNP’s portfolio of Just BARE® Certified Organic and Natural/American Humane CertifiedTM/No-Antibiotics-Ever product lines and (5) attractive cost-reduction synergy opportunities and value creation.

The Company has tax basis in the goodwill, and therefore, the goodwill is deductible for tax purposes.

The fair values recorded were determined based upon various external and internal valuations.

The fair values recorded for the assets acquired and liabilities assumed for GNP are as follows (in thousands):

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Cash and cash equivalents

Trade accounts and other receivables

Prepaid expenses and other current assets

Property, plant and equipment

Identifiable intangible assets

Other long-lived assets

Total assets acquired

Accounts payable

Other current liabilities

Other long-term liabilities

Total liabilities assumed

Total identifiable net assets

Total net assets

The Company recognized certain identifiable intangible assets as of January 6, 2017 due to this acquisition.

The following table presents the fair values and useful lives, where applicable, of these assets:

(In thousands)

Customer relationships

Non-compete agreement

Total fair value

Weighted average useful life

The Company performed a valuation of the assets and liabilities of GNP as of January 6, 2017.

Significant assumptions used in the valuation and the bases for their determination are summarized as follows:

Property, plant and equipment, net .

Property, plant and equipment at fair value gave consideration to the highest and best use of the assets.

The valuation of the Company's real property improvements and the majority of its personal property was based on the cost approach.

The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.

Trade names .

The Company valued two trade names using the income approach, specifically the relief from royalty method.

Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned.

Royalty rates were selected based on consideration of several factors, including (1) prior transactions involving GNP trade names, (2) incomes derived from license agreements on comparable trade names within the food industry and (3) the relative profitability and perceived contribution of each trade name.

The royalty rate used in the determination of the fair values of the two trade names was 2.0 % of expected net sales related to the respective trade names.

In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of 2.5 % .

Income taxes were estimated at 39.3 % of pre-tax income, a tax amortization benefit factor was estimated at 1.2098 and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of 13.8 % .

Customer relationships .

The Company valued GNP customer relationships using the income approach, specifically the multi-period excess earnings model.

Under this model, the fair value of the customer relationships asset was determined by estimating the net cash inflows from the relationships discounted to present value.

In estimating the fair value of the customer relationships, net sales related to existing GNP customers were estimated to grow at a rate of 2.5 % annually, but we also anticipate losing existing GNP customers at an attrition rate of 4.0 % .

Income taxes were estimated at 39.3 % of pre-tax income, a tax amortization benefit factor was estimated at 1.2098 and net cash flows attributable to our existing customers were discounted using a rate of 13.8 % .

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Goodwill and Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the GNP acquisition.

Unaudited Pro Forma Financial Information

The following unaudited pro forma information presents the combined financial results for the Company, Tulip, Moy Park and GNP as if the acquisitions had been completed at the beginning of 2017 .

Goodwill and Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the acquisition.

The following unaudited pro forma information presents the combined financial results for the Company and PPL as if the acquisition had been completed at the beginning of 2018:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2020 2019 2018

(In thousands, except per share amounts)

Net sales $ 12,091,901 $ 12,462,566 $ 12,342,474

Net income attributable to Pilgrim's Pride Corporation 97,038 344,869 189,152

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Pro forma adjustments exclude cost savings from any synergies resulting from the acquisitions.

FAIR VALUE MEASUREMENTS

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:

Unadjusted quoted prices in active markets for identical assets or liabilities;

Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability;

Unobservable inputs, such as discounted cash flow models or valuations.

The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets.

The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument.

The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations.

For each class of assets and liabilities not measured at fair value in the Consolidated Balance Sheets but for which fair value is disclosed, the Company is not required to provide the quantitative disclosure about significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy.

In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments.

The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.

As of December 29, 2019 and December 30, 2018 , the Company held derivative assets and liabilities that were required to be measured at fair value on a recurring basis.

Derivative assets and liabilities consist of long and short positions on exchange-traded commodity futures instruments and foreign currency forward contracts to manage translation and remeasurement risk.

The following items were measured at fair value on a recurring basis:

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 29, 2019

FAMPAT/Plan Pro

On April 1, 2020, Avícola Pilgrim's Pride de Mexico S.A.

acquired 100 % of the equity of FAMPAT S.A.

and Plan Pro Restaurantes S.A.

(together, “FAMPAT/Plan Pro”) for an aggregate purchase price of 70.4 million Mexican pesos, or $ 3.0 million.

The acquisition was funded with cash on hand.

Transaction costs were immaterial;

these costs were expensed as incurred and are reflected within Selling, general and administrative expense in the Company’s Consolidated Statements of Income.

The acquired operations produce value-added products such as taquitos, enchiladas and pizza, bringing additional breadth and diversity to the Company's product portfolio.

T he results of operations and financial position of FAMPAT/Plan Pro have been included in the consolidated results of operations and financial position of the Company from the date of acquisition.

The FAMPAT/Plan Pro operations are included in the Company’s Mexico reportable segment.

The allocation of the purchase price reflects fair value using Level 3 unobservable inputs and resulted in a fair value of goodwill of $ 2.2 million at the acquisition date, which is not deductible for income tax purposes.

The values recorded were determined based on a valuation using management’s estimates and assumptions.

REVENUE RECOGNITION

The vast majority of the Company's revenue is derived from contracts which are based upon a customer ordering its products.

General” for more information regarding the Company’s policies for revenue recognition.

Disaggregated Revenue

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

Year Ended December 27, 2020

Domestic Export Net Sales

(In thousands)

Fair value assets:

Commodity futures instruments

Commodity options instruments

Foreign currency instruments

Fair value liabilities:

Commodity futures instruments

Commodity options instruments

Foreign currency instruments

December 30, 2018

$ 7,189,539 $ 306,478 $ 7,496,017

and Europe 2,976,878 297,414 3,274,292

Mexico 1,321,592 — 1,321,592

Net sales $ 11,488,009 $ 603,892 $ 12,091,901

Year Ended December 29, 2019

Domestic Export Net Sales

(In thousands)

Fair value assets:

Commodity futures instruments

Commodity options instruments

Foreign currency instruments

Fair value liabilities:

Commodity futures instruments

Commodity option instruments

Foreign currency instruments

Derivative Financial Instruments” for additional information.

The carrying amounts and estimated fair values of our fixed-rate debt obligation recorded in the Consolidated Balance Sheets consisted of the following:

December 29, 2019

December 30, 2018

$ 7,353,925 $ 282,791 $ 7,636,716

and Europe 2,105,578 278,215 2,383,793

Mexico 1,388,710 — 1,388,710

Net sales $ 10,848,213 $ 561,006 $ 11,409,219

Shipping and Handling Costs

General” for more information regarding shipping and handling costs.

Contract Costs

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company can incur incremental costs to obtain or fulfill a contract such as broker expenses that are not expected to be recovered.

The amortization period for such expenses is less than one year;

therefore, the costs are expensed as incurred.

There is no change in accounting for taxes due to the adoption of the new revenue standard, as there is no material change to the timing of revenue recognition.

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

Contract Balances

The Company receives payment from customers based on terms established with the customer.

Payments are typically due within two weeks of delivery.

There are rarely contract assets related to costs incurred to perform in advance of scheduled billings.

Revenue contract liabilities relate to payments received in advance of satisfying the performance under the customer contract.

The revenue contract liability relates to customer prepayments and the advanced consideration received from governmental agency contracts for which performance obligations to the end customer have not been satisfied.

Changes in the revenue contract liability balances for the years ended December 27, 2020 and December 29, 2019 were as follows:

December 27, 2020 December 29, 2019

(In thousands)

Fixed-rate senior notes payable at 5.75%, at Level 1 inputs

Fixed-rate senior notes payable at 5.875%, at Level 1 inputs

Secured loans, at Level 3 inputs

See “Note 12.

Long-Term Debt and Other Borrowing Arrangements” for additional information.

The carrying amounts of our cash and cash equivalents, derivative trading accounts' margin cash, restricted cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximate their fair values due to their relatively short maturities.

Derivative assets were recorded at fair value based on quoted market prices and are included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets.

Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item Accrued expenses and other current liabilities on the Consolidated Balance Sheets.

The fair values of the Company’s Level 1 fixed-rate debt obligation was based on the quoted market price at December 29, 2019 or December 30, 2018 , as applicable.

The fair values of the Company’s Level 3 fixed-rate debt obligation was based on discounted cash flows at December 29, 2019 or December 30, 2018 , as applicable.

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis.

Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S.

There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

Balance, beginning of year $ 41,770 $ 33,328

Revenue recognized ( 32,816 ) ( 57,074 )

Cash received, excluding amounts recognized as revenue during the period 56,964 65,516

Balance, end of year $ 65,918 $ 41,770

Accounts Receivable

General” for more information regarding the Company’s policies for accounts receivable.

The Company is party to operating lease agreements for warehouses, office space, vehicle maintenance facilities and livestock growing farms in the U.S., distribution centers, hatcheries and office space in Mexico and farms, processing facilities and office space in the U.K.

Additionally, the Company leases equipment, over-the-road transportation vehicles and other assets in all three reportable segments.

The Company is also party to a limited number of finance lease agreements in the U.S.

The Company’s leases have remaining lease terms of one year to 15 years, some of which may include options to extend the lease for up to one year and some of which may include options to terminate the lease within one year .

The exercise of options to extend lease terms is at the Company’s sole discretion.

Certain leases also include options to purchase the leased property.

Certain lease agreements include rental payment increases over the lease term that can be either fixed or variable.

Fixed payment increases and variable payment increases based on an index or rate are included in the initial lease liability using the index or rate at commencement date.

Variable payment increases not based on an index are recognized as incurred.

Certain lease agreements contain residual value guarantees, primarily vehicle and transportation equipment leases.

The following table presents components of lease expense (in thousands).

Operating lease cost, finance lease amortization and finance lease interest are respectively included in Cost of sales, Selling, general and administrative expense and Interest expense, net of capitalized interest in the Consolidated Statements of Income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2020 December 29, 2019

Operating lease cost (a)

$ 90,887 $ 99,242

Amortization of finance lease assets 436 167

Interest on finance leases 99 32

Short-term lease cost 64,410 59,225

Variable lease cost 3,839 3,031

Net lease cost $ 159,671 $ 161,697

(a) Sublease income is immaterial and not included in operating lease costs.

The weighted-average remaining lease term and discount rate for lease liabilities included in our Consolidated Balance Sheets are as follows:

December 27, 2020 December 29, 2019

Weighted-average remaining lease term (years):

Operating leases 5.44 5.77

Finance leases 3.69 4.54

Weighted-average discount rate:

Operating leases 4.53 % 4.80 %

Finance leases 5.08 % 5.21 %

Supplemental cash flow information related to leases is as follows (in thousands):

December 27, 2020 December 29, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 91,254 $ 100,473

Operating cash flow from finance leases 99 32

Financing cash flows from finance leases 486 167

Operating lease assets obtained in exchange for operating lease liabilities $ 60,776 $ 34,648

Finance lease assets obtained in exchange for finance lease liabilities — 2,182

Future minimum lease payments under noncancelable leases as of December 27, 2020 are as follows (in thousands):

Operating Leases Finance Leases

For the fiscal years ending December:

2021 $ 83,116 $ 494

2022 68,373 494

2023 56,235 494

2024 42,328 347

2025 29,261 —

Thereafter 46,890 —

Total future minimum lease payments 326,203 1,829

imputed interest ( 37,179 ) ( 165 )

Present value of lease liabilities $ 289,024 $ 1,664

Lease liabilities as of December 27, 2020 are included in our Consolidated Balance Sheets as follows (in thousands):

Operating Leases Finance Leases (a)

Accrued expenses and other current liabilities $ 71,592 $ —

Current maturities of long-term debt — 420

Noncurrent operating lease liability, less current maturities 217,432 —

Long-term debt, less current maturities — 1,244

Total lease liabilities $ 289,024 $ 1,664

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(a) Additional information regarding finance lease assets is included in “Note 10.

Property, Plant and Equipment.”

As of December 27, 2020, the Company had $ 1.7 million operating leases and no finance leases that have not yet commenced.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, wheat, natural gas, electricity and diesel fuel, which are all considered commodities.

The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements.

These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances.

Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next twelve months.

The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.

The Company has operations in Mexico, the U.K., France and the Netherlands.

Therefore, it has exposure to translational foreign exchange risk when the financial results of those operations are remeasured in U.S.

The Company has purchased foreign currency forward contracts to manage this translational foreign exchange risk.

The Company has exposure to variability in cash flows from interest payments due to the use of variable interest rates on certain long-term debt arrangements in the U.S.

reportable segment.

The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements.

The Company’s counterparties require that it post collateral for changes in the net fair value of the derivative contracts.

This cash collateral is reported in the line item Restricted cash and cash equivalents on the Consolidated Balance Sheets.

The Company has not designated certain derivative financial instruments that it has purchased to mitigate commodity purchase exposures in the U.S.

and Mexico or foreign currency transaction exposures on our Mexico operations as cash flow hedges.

Therefore, the Company recognized changes in the fair value of these derivative financial instruments immediately in earnings.

Gains or losses related to the commodity derivative financial instruments are included in the line item Cost of sales in the Consolidated Statements of Income.

Gains or losses related to the foreign currency derivative financial instruments are included in the line item Foreign currency transaction loss (gain) and Cost of sales in the Consolidated Statements of Income.

The Company has designated certain derivative financial instruments related to its U.K.

and Europe reportable segment that it has purchased to mitigate foreign currency transaction exposures as cash flow hedges.

Before the settlement date of the financial derivative instruments, the Company recognizes changes in the fair value of the effective portion of the cash flow hedge into accumulated other comprehensive income (“AOCI”) while it recognize changes in the fair value of the ineffective portion immediately in earnings.

When the derivative financial instruments associated with the effective portion are settled, the amount in AOCI is then reclassified to earnings.

Gains or losses related to these derivative financial instruments are included in the line item Net sales and Cost of sales in the Consolidated Statements of Income.

The Company has designated a derivative financial instrument related to its U.S.

reportable segment that it has purchased to mitigate variable interest rate exposures as a cash flow hedge.

The interest rate swap has monthly settlement dates.

Upon each settlement date, the Company recognizes changes in the fair value of the effective portion of the cash flow hedge into AOCI, while it recognizes changes in the ineffective portion immediately in earnings.

Upon settlement of the effective portion, the amount in AOCI is then reclassified to earnings.

Gains or losses related to the interest rate swap derivative financial instrument are included in the line item Interest expense, net of capitalized interest in the Consolidated Statements of Income.

The Company recognized $ 40.7 million in net gains during 2020 and $ 30.1 million and $ 27.1 million in net losses related to changes in the fair value of its derivative financial instruments during 2019 and 2018, respectively.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2020 December 29, 2019

(Fair values in thousands)

Commodity derivative assets $ 24,059 $ 5,053

Commodity derivative liabilities ( 6,531 ) ( 5,430 )

Foreign currency derivative assets 2,204 426

Foreign currency derivative liabilities ( 428 ) ( 5,400 )

Interest rate swap derivative liabilities ( 640 ) —

Cash collateral posted with brokers (a)

Derivatives Coverage (b) :

Corn 16.0 % 12.0 %

Soybean meal 24.0 % 44.0 %

Period through which stated percent of needs are covered:

Corn December 2021 December 2020

Soybean meal December 2021 July 2020

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

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

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

Gain (Loss) Recognized in Other Comprehensive Loss on Derivative

December 27, 2020 December 29, 2019 December 30, 2018

Foreign currency derivatives $ 4,514 $ ( 2,052 ) $ 829

Interest rate swap derivatives ( 850 ) — —

Total $ 3,664 $ ( 2,052 ) $ 829

Gain (Loss) Reclassified from AOCI into Income

December 27, 2020 December 29, 2019 December 30, 2018

Foreign currency derivatives $ 2,873 $ ( 383 ) $ ( 348 )

Interest rate swap derivatives ( 209 ) — —

Total $ 2,664 $ ( 383 ) $ ( 348 )

As of December 27, 2020, the pre-tax deferred net gains on derivatives recorded in AOCI that are expected to be reclassified to the Consolidated Statements of Income during the next twelve months are $ 0.7 million.

This expectation is based on the anticipated settlements on the hedged investments in foreign currencies that will occur over the next twelve months, at which time the Company will recognize the deferred gains to earnings.

At December 27, 2020, the pre-tax deferred net losses on interest rate swap derivatives recorded in AOCI that are expected to be reclassified to the Consolidated Statements of Income during the next twelve months are $ 0.5 million.

This expectation is based on the anticipated settlements on the hedged interest rate that will occur over the next twelve months, at which time the Company will recognize the deferred losses to earnings.

TRADE ACCOUNTS AND OTHER RECEIVABLES

Trade accounts and other receivables (including accounts receivable from related parties), less allowance for doubtful accounts, consisted of the following:

December 29, 2019

December 30, 2018

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 27, 2020 December 29, 2019

(In thousands)

6 unchanged sentences

Accounts receivable from related parties (a)

Additional information regarding accounts receivable from related parties is included in “Note 19.

$ 1,084 $ 944

(a) Additional information regarding accounts receivable from related parties is included in “Note 18.

Related Party Transactions.”

1 unchanged sentence

(In thousands)

Balance as of December 30, 2018

Balance, beginning of year $ ( 7,467 )

Provision charged to operating results ( 94 )

Account write-offs and recoveries 574

Tulip acquisition

Effect of exchange rate ( 186 )

Balance as of December 29, 2019

Balance, end of year $ ( 7,173 )

Inventories consisted of the following:

December 29, 2019

December 30, 2018

December 27, 2020 December 29, 2019

(In thousands)

7 unchanged sentences

Additionally, those securities identified by management at the time of purchase for funding operations in less than one year are classified as current.

The following table summarizes our investments in available-for-sale securities:

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 29, 2019

December 30, 2018

The following table summarizes our investments in available-for-sale securities accounted for as cash equivalents:

December 27, 2020 December 29, 2019

(In thousands)

Cash equivalents:

Fixed income securities $ 178,677 $ 178,677 $ 159,623 $ 159,623

4 unchanged sentences

Gross realized gains recognized during 2020 and 2019 related to the Company’s available-for-sale securities totaled $ 5.8 million and $ 11.5 million, respectively, while gross realized losses were immaterial.

Proceeds received from the sale or maturity of available-for-sale securities during 2019 and 2018 are disclosed in the Consolidated and Combined Statements of Cash Flows.

Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during 2019 and 2018 that have been included in accumulated other comprehensive loss and the net amount of gains and losses reclassified out of accumulated other comprehensive loss to earnings during 2019 and 2018 are disclosed in “Note 16.

Proceeds received from the sale or maturity of available-for-sale securities investments during 2020 and 2019 are disclosed in the Consolidated Statements of Cash Flows.

Net unrealized holding gains and losses on the Company’s available-for-sale securities recognized during 2020 and 2019 that have been included in accumulated other comprehensive loss and the net amount of gains

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and losses reclassified out of accumulated other comprehensive loss to earnings during 2020 and 2019 are disclosed in “Note 14.

Stockholders’ Equity.”