PILGRIMS PRIDE CORP 10-K

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “PPC.” Holders The Company estimates that there were approximately 52,600 holders (including individual participants in security position listings) of the Company’s common stock as of February 10, 2021. Dividends The Company has no current intention to pay any dividends to its stockholders. Any change in dividend policy will depend upon future conditions, including earnings and financial condition, general business conditions, any applicable contractual limitations and other factors deemed relevant by our Board of Directors in its discretion. Both the U.S. Credit Facility and the indentures governing the Company’s senior notes restrict, but do not prohibit, the Company from declaring dividends. In addition, the terms of the Moy Park Multicurrency Revolving Facility Agreement restrict Moy Park’s ability and the ability of certain of Moy Park’s subsidiaries to, among other things, make payments and distributions to us, which could in turn impair our ability to pay dividends to our stockholders. See "Note 13. Debt” of our Consolidated Financial Statements included in this annual report for additional information. Issuer Purchases of Equity Securities On October 31, 2018, the Company’s Board of Directors approved a $200.0 million share repurchase authorization. The Company plans to repurchase shares through various means, which may include but are not limited to open market purchases, privately negotiated transactions, the use of derivative instruments and/or accelerated share repurchase programs. The extent to which the Company repurchases its share and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by the Company’s management team. The Company reserves the right to limit or terminate the repurchase program at any time without notice. As of December 27, 2020, the Company had repurchased 6,257,135 shares under this program for an aggregate cost of $113.4 million and an average price of $18.1195 per share. Set forth below is information regarding our stock repurchases for the three months ended December 27, 2020. Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Plans or Programs (a) September 28, 2020 through October 25, 2020 49,700 $ 15.62 6,155,144 $ 88,283,745 October 26, 2020 through November 29, 2020 101,991 16.27 6,257,135 86,624,088 November 30, 2020 through December 27, 2020 — — 6,257,135 86,624,088 Total 151,691 $ 16.06 6,257,135 $ 86,624,088 (a) Reflects the remaining dollar value of shares that may yet be repurchased under our share repurchase authorization, the parameters of which are described above. The plan was announced on October 31, 2018. Performance Graph The graph below shows a comparison from December 27, 2015 through December 27, 2020 of the cumulative 5-year total stockholder return of holders of the Company’s common stock with the cumulative total returns of the Russell 2000 index and a customized peer group of three companies: Hormel Foods Corp, Sanderson Farms Inc. and Tyson Foods Inc. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on December 27, 2015 and tracks it through December 27, 2020. 19 Table of Contents The graph covers the period from December 27, 2015 to December 27, 2020, and reflects the performance of the Company’s single class of common stock. The stock price performance represented by this graph is not necessarily indicative of future stock performance. 12/27/15 06/30/16 12/25/16 06/30/17 12/31/17 06/30/18 12/30/18 06/30/19 12/29/19 06/01/20 12/27/20 PPC $ 100.00 $ 125.88 $ 93.96 $ 108.29 $ 153.44 $ 99.45 $ 77.02 $ 125.43 $ 162.88 $ 83.44 $ 95.59 Russell 2000 100.00 102.22 121.31 127.36 139.08 149.73 123.76 144.78 155.35 135.19 186.36 Peer Group 100.00 106.20 102.35 102.92 122.77 113.35 108.34 131.79 150.91 127.43 132.33 20 Table of Contents Item 6. Selected Financial Data 2020 2019 (c) 2018 (c) 2017 (c) 2016 Operating Results Data: (In thousands, except ratios and per share data) Net sales $ 12,091,901 $ 11,409,219 $ 10,937,784 $ 10,767,863 $ 9,878,564 Gross profit 838,196 1,070,394 843,476 1,471,614 1,103,983 Operating income 245,463 690,568 495,686 1,072,322 792,082 Interest expense, net (a) 118,813 118,353 149,001 99,453 73,335 Gain on bargain purchase 3,746 (56,880) — — — Loss on early extinguishment of debt — — 16,758 166 — Income before income taxes 161,825 617,545 332,227 982,066 724,036 Income tax expense 66,755 161,009 85,423 263,899 243,919 Net income 95,070 456,536 246,804 718,167 480,117 Net income (loss) attributable to noncontrolling interest 313 612 (1,141) 102 (803) Net income attributable to Pilgrim’s Pride Corporation 94,757 455,924 247,945 694,579 440,532 Per Common Diluted Share Data: Net income attributable to Pilgrim’s Pride Corporation $ 0.39 $ 1.83 $ 1.00 $ 2.79 $ 1.73 Adjusted net income attributable to Pilgrim’s Pride Corporation (b) 1.02 1.62 1.28 2.89 1.75 Book value 10.52 10.11 8.06 7.45 8.21 Balance Sheet Summary: Working capital $ 965,131 $ 950,081 $ 938,434 $ 1,063,765 $ 624,728 Total assets 7,474,497 7,102,364 5,931,202 6,248,652 5,021,942 Notes payable and current maturities of long-term debt 25,455 26,392 30,405 47,775 15,712 Long-term debt, less current maturities 2,255,546 2,276,029 2,295,190 2,635,617 1,396,124 Total stockholders’ equity 2,575,347 2,536,060 2,019,585 1,855.661 2,086,132 Cash Flow Summary: Cash flows from operating activities $ 724,247 $ 666,521 $ 491,650 $ 801,321 $ 795,362 Depreciation and amortization 337,104 287,230 274,088 271,824 226,384 Impairment of property, plant and equipment — — 3,504 5,156 790 Acquisitions of property, plant and equipment (354,762) (348,120) (348,666) (339,872) (340,960) Purchase of acquired business, net of cash acquired (4,216) (384,694) — (658,520) — Payment of cash dividends — — — — (714,785) Cash flows from financing activities (136,708) (34,526) (384,246) 466,395 (828,219) Other Data: EBITDA (d) $ 617,742 $ 1,023,128 $ 755,316 $ 1,353,343 $ 1,023,755 Adjusted EBITDA (d) 788,073 973,771 798,187 1,388,029 1,029,682 Key Indicators (as a percent of net sales): Gross profit 6.9 % 9.4 % 7.7 % 13.7 % 11.2 % Selling, general and administrative expenses 4.9 % 3.3 % 3.1 % 3.6 % 3.1 % Operating income 2.0 % 6.1 % 4.5 % 10.0 % 8.0 % Interest expense, net 1.0 % 1.0 % 1.4 % 0.9 % 0.7 % Net income 0.8 % 4.0 % 2.3 % 6.5 % 4.5 % (a) Interest expense, net, consists of interest expense less interest income. (b) Adjusted net income attributable to Pilgrim’s Pride Corporation is calculated by adding to net income attributable to Pilgrim’s certain items of expense and deducting from net income attributable to Pilgrim’s certain items of income, as shown in the reconciliation table below. Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is presented because it is used by us, and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We also believe that this non-U.S. GAAP financial measure, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of such charges on net income attributable to Pilgrim’s Pride Corporation per common diluted share. Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is not a measurement of financial performance under U.S. GAAP, has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under U.S. GAAP. Management believes that presentation of adjusted net income attributable to Pilgrim’s provides useful supplemental information about our operating performance and enables comparison of our performance between periods because certain costs shown below are not indicative of our current operating performance. A reconciliation of net income attributable to Pilgrim’s Pride Corporation per common diluted share to adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share is as follows: 21 Table of Contents 2020 2019 2018 2017 2016 (In thousands except per share data) Net income attributable to Pilgrim’s Pride Corporation $ 94,757 $ 455,924 $ 247,945 $ 694,579 $ 440,532 Adjustments, net of tax: Loss on early extinguishment of debt — — 16,758 166 — Other nonrecurring losses — — 19,486 8,066 — Foreign currency transaction losses (gains) 760 6,917 17,160 (2,659) 4,055 Restructuring activities and transaction costs related to acquisitions 257 1,218 5,085 29,381 1,069 DOJ agreement 110,524 — — — — Nonrecurring legal settlement 75,000 — — — — Hometown Strong commitment 15,000 — — — — Gain on bargain purchase 3,746 (56,880) — — — Shareholder litigation settlement (34,643) Net tax expense of adjustments (14,976) (2,122) (15,039) (9,402) (1,773) 250,425 405,057 291,395 720,131 443,883 U.S. Tax Cuts & Jobs Act transition tax — — 26,400 — — Adjusted net income attributable to Pilgrim’s Pride Corporation 250,425 405,057 317,795 720,131 443,883 Weighted average diluted shares of common stock outstanding 246,124 249,709 249,149 248,971 254,126 Adjusted net income attributable to Pilgrim’s Pride Corporation per common diluted share $ 1.02 $ 1.62 $ 1.28 $ 2.89 $ 1.75 (c) Includes the material impact of new business acquisitions as follows: • Fiscal 2019 includes approximately two and one-half months of operating results from the acquisition of PPL, acquired for cash of $391.5 million on October 15, 2019. • Fiscal 2017 includes approximately three and one-half months of operating results from the acquisition of Moy Park, acquired for cash of $301.3 million and a note payable to the seller in the amount of £562.5 million on September 8, 2017. Fiscal 2018 and thereafter includes a full year of operating results. • Fiscal 2017 includes approximately eleven and one-half months of operating results from the acquisition of GNP, acquired for a cash purchase price of $350 million on January 6, 2017. Fiscal 2018 and thereafter includes a full year of operating results. (d) “EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction losses (gains), (2) transaction costs from business acquisitions, (3) DOJ agreement, (4) nonrecurring legal settlement, (5) restructuring activities, (6) Hometown Strong initiative expenses, (7) gain on bargain purchase, (8) shareholder litigation settlement, (9) net income (loss) attributable to noncontrolling interests and (10) other nonrecurring losses. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are: • They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments; • They do not reflect changes in, or cash requirements for, our working capital needs; • They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; • They are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; • EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests; • They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and • They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us. In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis. 22 Table of Contents A reconciliation of net income to EBITDA and Adjusted EBITDA is as follows: 2020 2019 2018 2017 2016 (In thousands) Net income $ 95,070 $ 456,536 $ 246,804 $ 718,167 $ 480,117 Add: Interest expense, net (a) 118,813 118,353 149,001 99,453 73,335 Income tax expense 66,755 161,009 85,423 263,899 243,919 Depreciation and amortization 337,104 287,230 274,088 271,824 226,384 EBITDA 617,742 1,023,128 755,316 1,353,343 1,023,755 Add: Other nonrecurring losses (b) — — 19,485 8,066 — Foreign currency transaction loss (gain) (c) 760 6,917 17,160 (2,659) 4,055 Transaction costs related to acquisitions (d) 134 1,302 320 19,606 — DOJ agreement (e) 110,524 — — — — Nonrecurring legal settlement (f) 75,000 — — — — Restructuring activities loss (gain) (g) 123 (84) 4,765 9,775 1,069 Hometown Strong commitment (h) 15,000 — — — — Minus: Gain on bargain purchase (i) (3,746) 56,880 — — — Shareholder litigation settlement (j) 34,643 — — — — Net income (loss) attributable to noncontrolling interest 313 612 (1,141) 102 (803) Adjusted EBITDA $ 788,073 $ 973,771 $ 798,187 $ 1,388,029 $ 1,029,682 (a) Interest expense, net, consists of interest expense less interest income. (b) Other nonrecurring losses include expenses incurred for Hurricane Maria in Puerto Rico, Hurricane Michael in Florida and certain Moy Park severance charges. (c) The Company measures the financial statements of its Mexico reportable segment as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than nonmonetary assets, of the Mexico reportable segment at current exchange rates. We remeasure nonmonetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. Currency exchange gains or losses resulting from these remeasurements, as well as, from our U.K. and Europe reportable segment are included in the line item Foreign currency transaction losses (gains) in the Consolidated Statements of Income. (d) Transaction costs related to acquisitions includes those charges that are incurred in conjunction with business acquisitions. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 2. Business Acquisitions” for more information regarding recent business acquisitions. (e) On October 13, 2020, Pilgrims announced that we have entered into a plea agreement (the “Plea Agreement”) with the DOJ. As a result of the Plea Agreement, we recognized a fine of $110,524,140. (f) On January 11, 2021, we announced that we have entered an agreement to settle all claims made by the putative Direct Purchaser Plaintiff Class relating to broiler chicken antitrust litigation. As a result of the settlement, we recognized an expense of $75.0 million. (g) Restructuring charges includes tangible asset impairment, severance, change-in-control compensation costs and losses incurred on both the sale of unneeded broiler eggs and flock depletion. (h) The Hometown Strong initiative was developed to help communities in which we operate respond to unexpected challenges. For the year ended December 27, 2020, we recorded $15.0 million in incremental donations expense relating to this initiative. (i) The gain on bargain purchase was recognized as a result of the PPL acquisition in October 2019. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 2. Business Acquisitions” for more information regarding this acquisition. (j) Shareholder litigation settlement is income received as a result of a settlement in the first quarter of 2020. See Part II, Item 8, Notes to Consolidated Financial Statements, “Note 20. Commitments and Contingencies” for more information regarding this settlement. 23 Table of Contents