PILGRIMS PRIDE CORP 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Pilgrim's Pride Corporation: 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. Change in Accounting Principle ASU 2016-13 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 . ASU 2016-02 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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 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 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. 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 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 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 39 Table of Contents 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. When transferred to the next stage in the production process, the transfer is often done at a standard cost, where additional costs may be incurred. 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 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 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. 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. /s/ KPMG LLP We have served as the Company’s auditor since 2012. Denver, Colorado February 10, 2021 40 Table of Contents PILGRIM’S PRIDE CORPORATION CONSOLIDATED BALANCE SHEETS December 27, 2020 December 29, 2019 (In thousands, except share and par value data) Cash and cash equivalents $ 547,624 $ 260,568 Restricted cash and cash equivalents 782 20,009 Trade accounts and other receivables, less allowance for doubtful accounts 741,992 741,281 Accounts receivable from related parties 1,084 944 Inventories 1,358,793 1,383,535 Income taxes receivable 69,397 60,204 Prepaid expenses and other current assets 183,039 131,695 Total current assets 2,902,711 2,598,236 Deferred tax assets 5,471 4,426 Other long-lived assets 24,780 36,325 Operating lease assets, net 288,886 301,513 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 Accounts payable to related parties 9,650 3,819 Revenue contract liability 65,918 41,770 Accrued expenses and other current liabilities 807,847 575,319 Income taxes payable — 7,075 Current maturities of long-term debt 25,455 26,392 Total current liabilities 1,937,580 1,648,155 Noncurrent operating lease liability, less current maturities 217,432 235,382 Long-term debt, less current maturities 2,255,546 2,276,029 Noncurrent income taxes payable — 7,731 Deferred tax liabilities 339,831 301,907 Other long-term liabilities 148,761 97,100 Total liabilities 4,899,150 4,566,304 Common stock, $ .01 par value, 800,000,000 shares authorized; 261,184,998 and 261,119,064 shares issued at year-end 2020 and year-end 2019, respectively; 243,512,490 and 249,572,119 shares outstanding at year-end 2020 and year-end 2019, respectively 2,612 2,611 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 Retained earnings 972,569 877,812 Accumulated other comprehensive loss ( 20,620 ) ( 75,129 ) Total Pilgrim’s Pride Corporation stockholders’ equity 2,563,761 2,525,663 Noncontrolling interest 11,586 10,397 Total stockholders’ equity 2,575,347 2,536,060 Total liabilities and stockholders’ equity $ 7,474,497 $ 7,102,364 The accompanying notes are an integral part of these Consolidated Financial Statements. 41 Table of Contents PILGRIM’S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF INCOME Year Ended 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 Administrative restructuring activities 123 ( 84 ) 4,765 Operating income 245,463 690,568 495,686 Interest expense, net of capitalized interest 126,118 132,630 162,812 Interest income ( 7,305 ) ( 14,277 ) ( 13,811 ) Foreign currency transaction loss 760 6,917 17,160 Gain on bargain purchase 3,746 ( 56,880 ) — Miscellaneous, net ( 39,681 ) 4,633 ( 2,702 ) Income before income taxes 161,825 617,545 332,227 Income tax expense 66,755 161,009 85,423 Net income 95,070 456,536 246,804 Less: Net income (loss) attributable to noncontrolling interest 313 612 ( 1,141 ) Net income attributable to Pilgrim’s Pride Corporation $ 94,757 $ 455,924 $ 247,945 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: 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. 42 Table of Contents PILGRIM’S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended Year Ended December 27, 2020 Year Ended December 29, 2019 Year Ended December 30, 2018 (In thousands) Net income $ 95,070 $ 456,536 $ 246,804 Other comprehensive income: Foreign currency translation adjustment Gains (losses) arising during the period 83,890 54,662 ( 99,475 ) Income tax effect — — 1,624 Derivative financial instruments designated as cash flow hedges 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 Gains arising during the period 73 510 1,146 Income tax effect ( 18 ) ( 124 ) ( 279 ) Reclassification to net earnings for gains realized ( 73 ) ( 619 ) ( 1,118 ) Income tax effect 18 151 272 Defined benefit plans Losses realized during the period ( 38,845 ) ( 2,161 ) ( 1,242 ) Income tax effect 7,121 1,016 303 Reclassification to net earnings of losses realized 1,502 1,313 1,203 Income tax effect ( 374 ) ( 320 ) ( 293 ) Total other comprehensive income (loss), net of tax 54,509 52,705 ( 96,694 ) Comprehensive income 149,579 509,241 150,110 Less: Comprehensive income (loss) attributable to noncontrolling interests 313 612 ( 1,141 ) Comprehensive income attributable to Pilgrim's Pride Corporation $ 149,266 $ 508,629 $ 151,251 The accompanying notes are an integral part of these Consolidated Financial Statements. 43 Table of Contents PILGRIM’S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Pilgrim’s Pride Corporation Stockholders Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Shares Amount Shares Amount (In thousands) Balance at December 31, 2017 260,168 $ 2,602 ( 11,416 ) $ ( 231,758 ) $ 1,932,509 $ 173,943 $ ( 31,140 ) $ 9,505 $ 1,855,661 Comprehensive income: 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 ) — — — — Requisite service period recognition — — — — 13,153 — — — 13,153 Common stock purchased under share repurchase program — — ( 15 ) ( 236 ) — — — — ( 236 ) 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 — — — — — 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 ) — — — — Requisite service period recognition — — — — 10,132 — — — 10,132 Common stock purchased under share repurchase program — — ( 116 ) ( 2,898 ) — — — — ( 2,898 ) 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 — — — — — — 54,509 — 54,509 Capital distribution under TSA — — — — ( 650 ) — — — ( 650 ) Stock-based compensation plans: Common stock issued under compensation plans 66 1 — — ( 1 ) — — — — Requisite service period recognition — — — — ( 276 ) — — — ( 276 ) 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 Financial Statements. 44 Table of Contents PILGRIM’S PRIDE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended 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 Deferred income tax expense 37,337 42,478 32,540 Gain on property disposals ( 13,766 ) ( 10,896 ) ( 1,889 ) 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 ) 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 Asset impairment — — 3,504 Changes in operating assets and liabilities: 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: Acquisitions of property, plant and equipment ( 354,762 ) ( 348,120 ) ( 348,666 ) Proceeds from property disposals 31,976 15,753 9,775 Purchase of acquired business, net of cash acquired ( 4,216 ) ( 384,694 ) — Cash used in investing activities ( 327,002 ) ( 717,061 ) ( 338,891 ) Cash flows from financing activities: Payments on revolving line of credit, long-term borrowings and finance lease obligations ( 430,988 ) ( 289,917 ) ( 1,117,009 ) Proceeds from revolving line of credit and long-term borrowings 404,522 259,466 748,382 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 Payment on early extinguishment of debt — — ( 9,781 ) 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 year 280,577 361,578 589,531 Cash and cash equivalents, end of year $ 548,406 $ 280,577 $ 361,578 Supplemental Disclosure Information: Interest paid (net of amount capitalized) $ 130,641 $ 130,882 $ 154,627 Income taxes paid 51,710 125,856 253,932 The accompanying notes are an integral part of these Consolidated Financial Statements. 45 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Business 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. Pilgrim’s products are sold to foodservice, retail and frozen entrée customers. The Company’s primary distribution is through retailers, foodservice distributors and restaurants throughout the countries listed above. Additionally, the Company exports chicken and pork products to approximately 115 countries. Pilgrim’s fresh products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens, selected chicken parts that are either marinated or non-marinated, primary pork cuts, added value pork and pork ribs. The Company’s prepared products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded, either marinated or non-marinated, processed sausages, bacon, slow-cooked, smoked meat and gammon joints. The Company’s other products include ready-to-eat meals, multi-protein frozen foods, vegetarian foods and desserts, pre-packed meats, sandwich, deli counter meats, pulled pork balls, meat balls and coated foods. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 14 U.S. states, the U.K., Mexico, France, Puerto Rico and the Netherlands. 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 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 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 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. in a common-control transaction. Moy Park was acquired by JBS S.A. from an unrelated third party on September 30, 2015. 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 Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) using management’s best estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments. Significant estimates made by the Company include the allowance for doubtful accounts, reserves related to inventory obsolescence or valuation, useful lives of long-lived assets, goodwill, valuation of deferred tax assets, insurance accruals, valuation of pension and other postretirement benefits obligations, income tax accruals, certain derivative positions and valuations of acquired businesses. The functional currency of the Company's U.S. and Mexico operations and certain holding-company subsidiaries in Luxembourg, the U.K. and Ireland is the U.S. dollar. The functional currency of its U.K. operations is the British pound. The functional currency of the Company's operations in France and the Netherlands is the euro. For foreign currency-denominated entities other than the Company's Mexico operations, translation from local currencies into U.S. dollars is performed for most assets and liabilities using the exchange rates in effect as of the balance sheet date. Income and expense accounts are remeasured using average exchange rates for the period. Adjustments resulting from translation of these financial records are reflected as a separate component of Accumulated other comprehensive loss in the Consolidated Balance Sheets. For the Company's Mexico operations, remeasurement from the Mexican peso to U.S. dollars is performed for monetary assets and liabilities using the exchange rate in effect as of the balance sheet date. 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 46 Table of Contents 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 Statements of Income. Revenue Recognition The vast majority of the Company's revenue is derived from contracts which are based upon a customer ordering its products. While there may be master agreements, the contract is only established when the customer’s order is accepted by the Company. The Company accounts for a contract, which may be verbal or written, when it is approved and committed by both parties, the rights of the parties are identified along with payment terms, the contract has commercial substance and collectability is probable. The Company evaluates the transaction for distinct performance obligations, which are the sale of its products to customers. Since its products are commodity market-priced, the sales price is representative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or port of destination), and depicts the transfer of control and recognition of revenue. There are instances of customer pick-up at the Company's facilities, in which case control transfers to the customer at that point and the Company recognizes revenue. The Company's performance obligations are typically fulfilled within days to weeks of the acceptance of the order. The Company makes judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is constrained. Due to the nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and updated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration. Shipping and Handling Costs In the rare case when shipping and handling activities are performed after a customer obtains control of the good, the Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the good. When revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued. Shipping and handling costs are recorded within cost of sales. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs are included in selling, general and administrative (“SG&A”) expense and totaled $ 20.2 million, $ 26.5 million and $ 20.8 million for 2020, 2019 and 2018, respectively. Research and Development Costs Research and development costs are expensed as incurred. Research and development costs totaled $ 5.4 million, $ 5.1 million and $ 4.0 million for 2020, 2019 and 2018, respectively. Cash and Cash Equivalents The Company considers highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. 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 Statements of Cash Flows. Restricted Cash The Company is required to maintain cash balances with a broker as collateral for exchange traded futures contracts. These balances are classified as restricted cash as they are not available for use by the Company to fund daily operations. The balance of restricted cash may also include investments in U.S. Treasury Bills that qualify as cash equivalents, as required by the broker, to offset the obligation to return cash collateral. 47 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Statements of Cash Flows: December 27, 2020 December 29, 2019 (In thousands) Cash and cash equivalents $ 547,624 $ 260,568 Restricted cash 782 20,009 Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows $ 548,406 $ 280,577 Investments 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. The Company’s current investments are comprised of fixed income securities, primarily commercial paper and a money market fund. These investments are classified as available-for-sale. These securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a separate component of accumulated other comprehensive income. Investments in fixed income securities with remaining maturities of less than one year and those identified by management at the time of purchase for funding operations in less than one year are classified as current assets. Investments in fixed income securities with remaining maturities in excess of one year that management has not identified at the time of purchase for funding operations in less than one year are classified as long-term assets. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length of time a security is in an unrealized loss position, the extent to which fair value is less than amortized cost, the impact of changing interest rates in the short and long term, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company determines the cost of each security sold and each amount reclassified out of accumulated other comprehensive income into earnings using the specific identification method. 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 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. The Company invests from time to time in ventures in which its ownership interest is less than 20% and over which it does not exercise significant influence. Such investments are accounted for under the cost method. The fair values for investments not traded on a quoted exchange are estimated based upon the historical performance of the ventures, the ventures’ forecasted financial performance and management’s evaluation of the ventures’ viability and business models. To the extent the book value of an investment exceeds its assessed fair value, the Company will record an appropriate impairment charge. Accounts Receivable The Company records accounts receivable when revenue is recognized. We record an allowance for doubtful accounts, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable, and periodic credit evaluations of our customers’ financial condition. We write off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable. Inventories Live chicken inventories are stated at the lower of cost or net realizable value and breeder hen inventories at the lower of cost, less accumulated amortization, or net realizable value. The costs associated with breeder hen inventories are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. Finished poultry products, feed, eggs and other inventories are stated at the lower of average cost or net realizable value. 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. 48 Table of Contents 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: (1) pools of related inventory, (2) product continuation or discontinuation, (3) estimated market selling prices and (4) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in Operating lease assets, net, Accrued expenses and other current liabilities, and Noncurrent operating lease liability, less current maturities, in our Consolidated Balance Sheets. Finance leases are included in Property, plant and equipment, net, Current maturities of long-term debt and Long-term debt, less current maturities in our Consolidated Balance Sheets. 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 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. 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. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term with a corresponding reduction to the operating lease asset. The Company has lease agreements with lease and non-lease components. Beginning in 2019, lease and non-lease components are generally accounted for separately. 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 Property, plant and equipment are stated at cost, and repair and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of these assets. Estimated useful lives for building, machinery and equipment are five to 33 years and for automobiles and trucks are three to ten years . The charge to income resulting from amortization of assets recorded under capital leases is included with depreciation expense. The Company records impairment charges on long-lived assets held for use when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When the above is true, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (1) future cash flows estimated to be generated by these assets, which are based on additional assumptions such as asset utilization, remaining length of service and estimated salvage values, (2) estimated fair market value of the assets and (3) determinations with respect to the lowest level of cash flows relevant to the respective impairment test, generally groupings of related operational facilities. Given the interdependency of the Company’s individual facilities during the production process, which operate as a vertically integrated network, it evaluates impairment of assets held for use at the country level (i.e., the U.S. and Mexico). Management believes this is the lowest level of identifiable cash flows for its assets that are held for use in production activities. At the present time, the Company’s forecasts indicate that it can recover the carrying value of its assets held for use based on the projected undiscounted cash flows of the operations. 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 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 49 Table of Contents 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. Appropriate selling costs includes reasonable broker’s commissions, costs to produce title documents, filing fees, legal expenses and the like. We estimate appropriate closing costs as 4 % to 6 % of asset fair value. This range of rates is considered reasonable for our assets held for sale based on historical experience. Goodwill and Other Intangibles, net Goodwill represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in a business combination. Identified intangible assets represent trade names, customer relationships and non-compete agreements arising from acquisitions that are recorded at fair value as of the date acquired less accumulated amortization, if any. The Company uses various market valuation techniques to determine the fair value of its identified intangible assets. Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise. For goodwill, an impairment loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill. Management first reviews relevant qualitative factors to determine if an indication of impairment exists for a reporting unit. If management determines there is an indication that the carrying amount of reporting unit goodwill might be impaired, a quantitative analysis is performed. Management performed a qualitative analysis noting no indications of goodwill impairment in any of its reporting units as of December 27, 2020. For indefinite-lived intangible assets, an impairment loss is recognized if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value of that intangible asset. Management first reviews relevant qualitative factors to determine if an indication of impairment exists. If management determines there is an indication that the carrying amount of the intangible asset might be impaired, a quantitative analysis is performed. Management performed a qualitative analysis noting no indications of impairment for any of its indefinite-lived intangible assets as of December 27, 2020. 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 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 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. 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 Statements of Cash Flows. Litigation and Contingent Liabilities The Company is subject to lawsuits, investigations and other claims related to employment, environmental, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. The Company estimates the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. The Company expenses legal costs related to such loss contingencies as they are incurred. The accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control. Accrued Self Insurance Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit the Company’s total exposure. Certain categories of claim liabilities are actuarially determined. 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. 50 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Asset Retirement Obligations The Company monitors certain asset retirement obligations in connection with its operations. These obligations relate to clean-up, removal or replacement activities and related costs for “in-place” exposures only when those exposures are moved or modified, such as during renovations of our facilities. These in-place exposures include asbestos, refrigerants, wastewater, oil, lubricants and other contaminants common in manufacturing environments. Under existing regulations, the Company is not required to remove these exposures and there are no plans to undertake a renovation that would require removal of the asbestos or the remediation of the other in-place exposures at this time. The facilities are expected to be maintained and repaired by activities that will not result in the removal or disruption of these in-place exposures at this time. As a result, there is an indeterminate settlement date for these asset retirement obligations because the range of time over which the Company may incur these liabilities is unknown and cannot be reasonably estimated. Therefore, the Company has not recorded the fair value of any potential liability. Income Taxes The Company follows provisions under ASC No. 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 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. The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. For the unitary states, we have an obligation to make tax payments to JBS USA Holdings for our share of the unitary taxable income, which is included in taxes payable in our Consolidated Balance Sheets. Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date. The Company reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, potential for carry back of tax losses, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances have been established primarily for net operating loss carry forwards of certain foreign subsidiaries. The Company deems its earnings from Mexico, Puerto Rico and the U.K. as of December 27, 2020 to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided. The Company follows provisions under ASC No. 740-10-25 that provide a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 12. Income Taxes” to the Consolidated Financial Statements. Pension and Other Postemployment Benefits Our pension and other postemployment benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, long-term return on plan assets and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. We determine the long-term return on plan assets based on historical portfolio results and management’s expectation of the future economic environment. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over either (1) the estimated average future service period of active plan participants if the plan is active or (2) the estimated average future life expectancy of all plan participants if the plan is frozen. Derivative Financial Instruments 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. 51 Table of Contents 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. The Company considers these raw materials to be 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 enters into derivative contracts such as physical forward contracts and exchange-traded futures or option contracts in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for periods up to 12 months. The Company may enter into longer-term derivatives on particular commodities if deemed appropriate. • 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 reportable segment that are denominated in Mexican pesos. 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”). The permitted accounting treatments include: cash flow hedge; fair value hedge; and undesignated contracts. Undesignated contract accounting is the default accounting treatment for all derivatives unless they qualify, and we specifically designate them, for one of the other accounting treatments. Derivatives designated for any of the elective accounting treatments must meet specific, restrictive criteria both at the time of designation and on an ongoing basis. The Company has generally applied the NPNS exception to its forward physical grain purchase contracts. NPNS contracts are accounted for using the accrual method of accounting; 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 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. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We make significant estimates in regard to receivables collectability; inventory valuation; realization of deferred tax assets; valuation of long-lived assets; valuation of contingent liabilities, liabilities subject to compromise and self-insurance liabilities; valuation of pension and other postretirement benefits obligations; and valuation of acquired businesses. Recent Accounting Pronouncements Adopted in 2020 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 52 Table of Contents 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. In transition, the entity may elect to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or the beginning of the period of adoption using a cumulative-effect adjustment approach. We adopted the new standard on December 31, 2018 and recognized and measured leases at the beginning of the period of adoption. We elected the package of practical expedients available under the transition guidance which, among other things, allows the carry-forward of historical lease classification. 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 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. Adoption of the standard had a material impact on our Consolidated Balance Sheets as a result of the increase in assets and liabilities from recognition of operating lease assets and operating lease liabilities. However, the standard did not have a material impact on our Consolidated Statement of Income. In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities , an accounting standard update that simplifies the application of hedge accounting guidance in current U.S. GAAP and improves the reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. Among the simplification updates, the standard eliminates the requirement in current U.S. GAAP to separately recognize periodic hedge ineffectiveness. Mismatches between the changes in value of the hedged item and hedging instrument may still occur but they will no longer be separately reported. The standard requires the presentation of the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. The standard is effective for annual and interim reporting periods beginning after December 15, 2018, but early adoption is permitted. We have adopted this standard as of December 31, 2018. The adoption of this guidance did not have a material impact on our financial statements. In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , an accounting standard update that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. The Company will not reclassify the stranded tax effects associated with the U.S. Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. We adopted this standard as of December 31, 2018. The adoption of this guidance did not have a material impact on our financial statements. In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share based payments. The accounting standards update is effective as of the beginning of our 2019 calendar year with early adoption 53 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS permitted. We adopted this standard as of December 31, 2018. The adoption of this guidance did not have a material impact on our financial statements. Recent Accounting Pronouncements Adopted in 2018 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 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. There was no cumulative effect to be recorded as an adjustment to the opening balance of retained earnings. The comparative information was not restated and continues to be presented under the accounting standards in effect for those periods. Additional disclosures will include the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the prior guidance. We expect minimal impact from the adoption of the new standard to the financial statements on a go forward basis, except for expanded disclosures. Revenue is currently recognized at destination and will continue to be recognized at point in time under the new guidance. Additional information regarding revenue recognition is included in “Note 3. Revenue Recognition.” Recent Accounting Pronouncements Not Yet Adopted as of December 27, 2020 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. ASU 2019-12 removes certain exceptions to the general principles related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. 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. 2. BUSINESS ACQUISITIONS 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, 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 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 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 54 Table of Contents 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 fair values recorded for the assets acquired and liabilities assumed for PPL are as follows (in thousands): 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 Operating lease assets 5,613 Property, plant and equipment 329,711 Identified intangible assets 40,418 Other assets 14,647 Total assets acquired 654,456 Accounts payable 110,296 Other current liabilities 55,830 Operating lease liabilities 5,613 Deferred tax liabilities 16,804 Pension obligations 18,435 Other long-term liabilities 1,056 Total liabilities assumed 208,034 Total identifiable net assets 446,422 Gain on bargain purchase ( 53,134 ) Total consideration transferred $ 393,288 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: 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 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 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 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. See “Note 9. 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: 55 Table of Contents 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 Net income attributable to Pilgrim's Pride Corporation per common share - diluted 0.39 1.38 0.76 The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company’s results of operations would have been had it completed the acquisitions on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisitions. FAMPAT/Plan Pro On April 1, 2020, Avícola Pilgrim's Pride de Mexico S.A. de C.V. acquired 100 % of the equity of FAMPAT S.A. de C.V. and Plan Pro Restaurantes S.A. de C.V. (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. 3. REVENUE RECOGNITION The vast majority of the Company's revenue is derived from contracts which are based upon a customer ordering its products. See “Note 1. 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) U.S. $ 7,189,539 $ 306,478 $ 7,496,017 U.K. 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) U.S. $ 7,353,925 $ 282,791 $ 7,636,716 U.K. 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 See “Note 1. General” for more information regarding shipping and handling costs. Contract Costs 56 Table of Contents 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. Taxes 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) 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 See “Note 1. General” for more information regarding the Company’s policies for accounts receivable. 4. LEASES 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. and Europe. 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. 57 Table of Contents 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): Year Ended 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 Less: 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 58 Table of Contents 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. 5. 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. dollars. 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 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. 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: 59 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 27, 2020 December 29, 2019 (Fair values in thousands) Fair values: 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) 782 20,009 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. 6. 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: 60 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 27, 2020 December 29, 2019 (In thousands) Trade accounts receivable $ 691,499 $ 696,372 Notes receivable 25,712 4,187 Other receivables 31,954 48,189 Receivables, gross 749,165 748,748 Allowance for doubtful accounts ( 7,173 ) ( 7,467 ) Receivables, net $ 741,992 $ 741,281 Accounts receivable from related parties (a) $ 1,084 $ 944 (a) Additional information regarding accounts receivable from related parties is included in “Note 18. Related Party Transactions.” Changes in the allowance for doubtful accounts were as follows: Total (In thousands) Balance, beginning of year $ ( 7,467 ) Provision charged to operating results ( 94 ) Account write-offs and recoveries 574 Effect of exchange rate ( 186 ) Balance, end of year $ ( 7,173 ) 7. INVENTORIES Inventories consisted of the following: December 27, 2020 December 29, 2019 (In thousands) Raw materials and work-in-process $ 868,369 $ 800,749 Finished products 356,052 425,919 Operating supplies 66,495 82,447 Maintenance materials and parts 67,877 74,420 Total inventories $ 1,358,793 $ 1,383,535 8. INVESTMENTS IN SECURITIES We recognize investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security’s length to maturity. 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 accounted for as cash equivalents: December 27, 2020 December 29, 2019 Cost Fair Value Cost Fair Value (In thousands) Fixed income securities $ 178,677 $ 178,677 $ 159,623 $ 159,623 Securities classified as cash and cash equivalents mature within 90 days. Securities classified as short-term investments mature between 91 and 365 days. Securities classified as long-term investments mature after 365 days. The specific identification method is used to determine the cost of each security sold and each amount reclassified out of accumulated other comprehensive loss to earnings. 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 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 61 Table of Contents 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.” 9. GOODWILL AND INTANGIBLE ASSETS The activity in goodwill by reportable segment for the years ended December 27, 2020 and December 29, 2019 were as follows: December 29, 2019 Additions Currency Translation December 27, 2020 (In thousands) U.S. $ 41,936 $ — $ — $ 41,936 U.K. and Europe 806,207 — 29,298 835,505 Mexico 125,607 2,197 — 127,804 Total $ 973,750 $ 2,197 $ 29,298 $ 1,005,245 December 30, 2018 Additions Currency Translation December 29, 2019 (In thousands) U.S. $ 41,936 $ — $ — $ 41,936 U.K. and Europe 782,207 — 24,000 806,207 Mexico 125,607 — — 125,607 Total $ 949,750 $ — $ 24,000 $ 973,750 Identified intangible assets consisted of the following: December 29, 2019 Additions Amortization Currency Translation December 27, 2020 (In thousands) Carrying amount: Trade names $ 78,343 $ — $ — $ — $ 78,343 Customer relationships 292,278 — — 4,784 297,062 Non-compete agreements 320 — — — 320 Trade names not subject to amortization 391,431 — — 13,809 405,240 Accumulated amortization: Trade names ( 45,518 ) — ( 1,968 ) — ( 47,486 ) Customer relationships ( 120,481 ) — ( 20,747 ) ( 2,018 ) ( 143,246 ) Non-compete agreements ( 320 ) — — — ( 320 ) Total $ 596,053 $ — $ ( 22,715 ) $ 16,575 $ 589,913 December 30, 2018 Additions Amortization Currency Translation December 29, 2019 (In thousands) Carrying amount: Trade names $ 78,343 $ — $ — $ — $ 78,343 Customer relationships 247,706 40,418 — 4,154 292,278 Non-compete agreements 320 — — — 320 Trade names not subject to amortization 380,067 — — 11,364 391,431 Accumulated amortization: Trade names ( 43,552 ) — ( 1,966 ) — ( 45,518 ) Customer relationships ( 98,441 ) — ( 20,920 ) ( 1,120 ) ( 120,481 ) Non-compete agreements ( 315 ) — ( 5 ) — ( 320 ) Total $ 564,128 $ 40,418 $ ( 22,891 ) $ 14,398 $ 596,053 62 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Additions shown in above table for 2019 are comprised of a customer relationships intangible asset recorded as part of the PPL acquisition. The Company valued this asset using the income approach resulting in a fair value of $ 40.4 million. The intangible asset has a useful life of eleven years . For additional information regarding the initial valuation and assumptions used, refer to “Note 2. Business Acquisitions.” Intangible assets are amortized over the estimated useful lives of the assets as follows: Customer relationships 3 - 16 years Trade names 20 years Non-compete agreements 3 years The Company recognized amortization expense related to identified intangible assets of $ 22.7 million in 2020, $ 22.9 million in 2019 and $ 25.7 million in 2018. The Company expects to recognize amortization expense associated with identified intangible assets of $ 23.3 million in 2021, $ 23.3 million in 2022, $ 22.3 million in 2023 and $ 21.2 million in 2024, and $ 21.2 million in 2025. As of December 27, 2020, the Company assessed qualitative factors to determine if it was necessary to perform either the two-step quantitative impairment test related to the carrying amount of its goodwill or quantitative impairment tests related to the carrying amounts of its identified intangible assets not subject to amortization. Based on these assessments, the Company determined that it was not necessary to perform either the two-step quantitative impairment test related to the carrying amount of its goodwill nor the quantitative impairment tests related to the carrying amounts of its identified intangible assets not subject to amortization at that date. As of December 27, 2020, the Company assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets subject to amortization might not be recoverable. There were no indicators present that required the Company to test the recoverability of the aggregate carrying amount of its identified intangible assets subject to amortization at that date. 10. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment (“PP&E”), net consisted of the following: December 27, 2020 December 29, 2019 (In thousands) Land $ 255,171 $ 222,076 Buildings 1,983,823 1,754,219 Machinery and equipment 3,230,199 3,139,748 Autos and trucks 73,647 64,122 Finance lease assets 2,182 2,182 Construction-in-progress 199,161 229,015 PP&E, gross 5,744,183 5,411,362 Accumulated depreciation ( 3,086,692 ) ( 2,819,301 ) PP&E, net $ 2,657,491 $ 2,592,061 The Company recognized depreciation expense of $ 314.4 million, $ 264.3 million and $ 248.3 million during 2020, 2019 and 2018, respectively. During 2020, the Company spent $ 354.8 million on capital projects and transferred $ 423.7 million of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during 2020 to improve operational efficiencies and reduce costs. During 2019, the Company spent $ 348.1 million on capital projects and transferred $ 400.8 million of completed projects from construction-in-progress to depreciable assets. During 2020, the Company sold certain PP&E for $ 32.0 million and recognized a gain of $ 13.8 million. PP&E sold in 2020 consisted of broiler farms in Mexico, vacant land in Alabama and other miscellaneous equipment. During 2019, the Company sold certain PP&E for $ 15.8 million and recognized a gain of $ 10.9 million. PP&E sold in 2019 included broiler farms in Mexico, a breeder farm in Texas, vacant land in Minnesota and miscellaneous equipment. 63 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company has closed or idled various facilities in the U.S. and the U.K. Neither the Board of Directors nor JBS has determined if it would be in the best interest of the Company to divest any of these idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. As of December 27, 2020, the carrying amount of these idled assets was $ 42.3 million based on depreciable value of $ 185.5 million and accumulated depreciation of $ 143.2 million. As of December 27, 2020, the Company assessed if events or changes in circumstances indicated that the aggregate carrying amount of its property, plant and equipment held for use might not be recoverable. There were no indicators present that required the Company to test the recoverability of the aggregate carrying amount of its property, plant and equipment held for use at that date. 11. CURRENT LIABILITIES Current liabilities, other than income taxes and current maturities of long-term debt, consisted of the following components: December 27, 2020 December 29, 2019 (In thousands) Accounts payable: Trade accounts $ 904,674 $ 875,374 Book overdrafts 106,435 98,267 Other payables 17,601 20,139 Total accounts payable 1,028,710 993,780 Accounts payable to related parties (a) 9,650 3,819 Revenue contract liabilities (b) 65,918 41,770 Accrued expenses and other current liabilities: Compensation and benefits 189,767 164,946 Other accrued expenses (d) 150,074 172,510 DOJ agreement 110,524 — Nonrecurring legal settlement 75,000 — Current maturities of operating lease liabilities (c) 71,592 66,239 Taxes 67,812 41,901 Insurance and self-insured claims 61,212 67,332 Accrued sales rebates (d) 44,708 20,378 Interest and debt-related fees 29,559 31,183 Derivative liabilities (e) 7,599 10,830 Total accrued expenses and other current liabilities 807,847 575,319 Total current liabilities $ 1,912,125 $ 1,614,688 (a) Additional information regarding accounts payable to related parties is included in “Note 18. Related Party Transactions.” (b) Additional information regarding revenue contract liabilities is included in “Note 3. Revenue Recognition.” (c) Additional information regarding current maturities of operating lease liabilities is included in “Note 4. Leases.” (d) Accrued sales rebates contains a $ 20.4 million reclassification previously presented in Other accrued expenses on our annual Form 10-K report for the year ended December 29, 2019 to conform to Current liabilities presented as of December 27, 2020. (e) Additional information regarding derivative liabilities is included in “Note 5. Derivative Financial Instruments.” 12. INCOME TAXES Income (loss) before income taxes by jurisdiction is as follows: Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) U.S. $ ( 27,095 ) $ 342,110 $ 175,805 Foreign 188,920 275,435 156,422 Total $ 161,825 $ 617,545 $ 332,227 The components of income tax expense (benefit) are set forth below: Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Current: Federal $ ( 8,800 ) $ 27,585 $ 8,835 Foreign 28,985 78,099 45,311 State and other 9,234 12,847 ( 1,263 ) Total current 29,419 118,531 52,883 Deferred: Federal 13,864 51,387 41,104 Foreign 19,622 ( 18,596 ) ( 17,160 ) State and other 3,850 9,687 8,596 Total deferred 37,336 42,478 32,540 $ 66,755 $ 161,009 $ 85,423 The effective tax rate for 2020 was 41.2 % compared to 26.1 % for 2019 and 25.7 % for 2018. The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate: Year Ended December 27, 2020 December 29, 2019 December 30, 2018 Federal income tax rate 21.0 % 21.0 % 21.0 % State tax rate, net 6.7 3.0 3.6 One-time transition tax — — 7.9 Global intangible low-taxed income ( 7.3 ) 1.5 4.4 DOJ fine 14.3 — — Intercompany financing ( 9.5 ) ( 1.6 ) ( 2.0 ) Permanent items 1.2 ( 1.6 ) ( 1.0 ) Difference in U.S. statutory tax rate and foreign country effective tax rate 5.4 2.1 2.3 Rate change 5.2 ( 0.1 ) ( 2.5 ) Foreign currency translation 3.0 ( 0.6 ) 1.1 Tax credits ( 1.4 ) ( 0.7 ) ( 7.9 ) Change in reserve for unrecognized tax benefits 0.3 2.7 ( 1.7 ) Change in valuation allowance 1.2 0.1 2.7 Other 1.1 0.3 ( 2.2 ) Total 41.2 % 26.1 % 25.7 % Included in the change in reserve for unrecognized tax benefits is an increase of 2.6 % in the effective tax rate related to a specific transaction undertaken by a Mexico subsidiary of the Company during tax year 2011. The amount was recorded and paid during the year ended December 29, 2019. Significant components of the Company’s deferred tax liabilities and assets are as follows: December 27, 2020 December 29, 2019 (In thousands) Deferred tax liabilities: PP&E and identified intangible assets $ 322,660 $ 290,427 Inventories 116,226 81,469 Insurance claims and losses 32,679 31,642 Business combinations 54,257 47,450 Incentive compensation 16,204 12,860 Operating lease assets 65,906 68,846 Other 26,968 14,267 Total deferred tax liabilities 634,900 546,961 Deferred tax assets: U.S. net operating losses 3,034 3,120 Foreign net operating losses 56,213 50,806 Credit carry forwards 15,223 15,575 Allowance for doubtful accounts 4,005 5,429 Accrued liabilities 94,769 51,148 Workers’ compensation 36,759 36,147 Pension and other postretirement benefits 35,899 29,429 Operating lease liabilities 65,906 68,846 Other 21,640 22,502 Total deferred tax assets 333,448 283,002 Valuation allowance ( 32,908 ) ( 33,522 ) Net deferred tax assets 300,540 249,480 Net deferred tax liabilities $ 334,360 $ 297,481 In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment. As of December 27, 2020, the Company believes it has sufficient positive evidence to conclude that realization of its federal, state and foreign net deferred tax assets are more likely than not to be realized. As of December 27, 2020, the Company’s valuation allowance is $ 32.9 million, of which $ 12.4 million relates to Moy Park operations, $ 7.7 million relates to PPL operations, $ 11.8 million relates to U.S. foreign tax credits and $ 1.0 million relates to state net operating losses. As of December 27, 2020, the Company had state net operating loss carry forwards of approximately $ 77.6 million that begin to expire in 2021. The Company also had Mexico net operating loss carry forwards as of December 27, 2020 of approximately $ 1.6 million that begin to expire in 2028. The Company also had U.K. net operating loss carry forwards as of December 27, 2020 of approximately $ 269.2 million that may be carried forward indefinitely. As of December 27, 2020, the Company had approximately $ 3.3 million of state tax credit carry forwards that begin to expire in 2022. For the year ended December 27, 2020 and year ended December 29, 2019, there is a tax effect of $ 6.9 million and $ 0.7 million, respectively, reflected in other comprehensive income. For the year ended December 27, 2020, there are immaterial tax effects reflected in income tax expense due to excess tax benefits and shortfalls related to stock-based compensation. For the year ended December 29, 2019, there are immaterial tax effects reflected in income tax expense due to excess tax benefits and shortfalls related to stock-based compensation. See “Note 1. General” for additional information. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: December 27, 2020 December 29, 2019 (In thousands) Unrecognized tax benefits, beginning of year $ 12,776 $ 12,412 Increase as a result of tax positions taken during prior years 731 597 Decrease for lapse in statute of limitations ( 236 ) ( 233 ) Unrecognized tax benefits, end of year $ 13,271 $ 12,776 Included in unrecognized tax benefits of $ 13.3 million as of December 27, 2020, was $ 1.1 million of tax benefits that, if reco gnized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months. The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 27, 2020, the Company had recorded a liability of $ 2.8 million for interest and penalties. During 2020, accrued interest and penalty amounts related to uncertain tax positions increased by $ 0.5 million. The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and several foreign locations including Mexico and the U.K. With few exceptions, the Company is no longer subject to examinations by taxing authorities for years prior to 2016 in U.S. federal, state and local jurisdictions, for years prior to 2011 in Mexico, and for years prior to 2017 in the U.K. As of July 27, 2020, JBS owns in excess of 80% of the outstanding common stock of Pilgrim’s. JBS has a federal tax election to file a consolidated tax return with subsidiaries in which it holds an ownership of at least 80%. The Company is currently analyzing the related impacts to our federal and state tax return filings. The Company has a tax sharing agreement with JBS USA Holdings effective for tax years beginning 2010. The net tax payable for year 2020 of $ 0.6 million was accrued in 2020 as a capital contribution and an account payable to a related party in our Consolidated Balance Sheet. The tax sharing agreement was updated during 2020 to consider the impact of Pilgrims’s joining the JBS consolidated tax return. 13. DEBT Long-term debt and other borrowing arrangements, including current notes payable to banks, consisted of the following components: Maturity December 27, 2020 December 29, 2019 (In thousands) Senior notes payable, net of premium and discount at 5.75 % 2025 $ 1,001,693 $ 1,002,095 Senior notes payable, net of discount at 5.875 % 2027 845,149 844,433 U.S. Credit Facility (defined below): Term note payable at 1.40 % 2023 450,000 475,000 Revolving note payable at 1.39 % 2023 — — Moy Park Bank of Ireland Revolving Facility with notes payable at LIBOR or EURIBOR plus 1.25 % to 2.00 % 2023 — — Mexico Credit Facility (defined below) with notes payable at TIIE Rate plus 1.50 % 2023 — — Secured loans with payables at weighted average of 3.34 % Various 38 948 Finance lease obligations Various 1,664 2,150 Long-term debt 2,298,544 2,324,626 Less: Current maturities of long-term debt ( 25,455 ) ( 26,392 ) Long-term debt, less current maturities 2,273,089 2,298,234 Less: Capitalized financing costs ( 17,543 ) ( 22,205 ) Long-term debt, less current maturities, net of capitalized financing costs $ 2,255,546 $ 2,276,029 64 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS U.S. Senior Notes On March 11, 2015, the Company completed a sale of $ 500.0 million aggregate principal amount of its 5.75 % senior notes due 2025. On September 29, 2017, the Company completed an add-on offering of $ 250.0 million of these senior notes. The issuance price of this add-on offering was 102.0 %, which created gross proceeds of $ 255.0 million. The additional $ 5.0 million will be amortized over the remaining life of the senior notes. On March 7, 2018, the Company completed another add-on offering of $ 250.0 million of these senior notes (together with the senior notes issued in March 2015 and September 2017, the “Senior Notes due 2025”). The issuance price of this add-on offering was 99.25 %, which created gross proceeds of $ 248.1 million. The $ 1.9 million discount will be amortized over the remaining life of the senior notes. Each issuance of the Senior Notes due 2025 is treated as a single class for all purposes under the 2015 Indenture (defined below) and have the same terms. The Senior Notes due 2025 are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiaries and Regions Bank, as trustee (the “2015 Indenture”). The 2015 Indenture provides, among other things, that the Senior Notes due 2025 bear interest at a rate of 5.75 % per annum from the date of issuance until maturity, payable semiannually in cash in arrears, beginning on September 15, 2015 for the Senior Notes due 2025 that were issued in March 2015 and beginning on March 15, 2018 for the Senior Notes due 2025 that were issued in September 2017 and March 2018. On September 29, 2017, the Company completed a sale of $ 600.0 million aggregate principal amount of its 5.875 % senior notes due 2027. On March 7, 2018, the Company completed an add-on offering of $ 250.0 million of these senior notes (together with the senior notes issued in September 2017, the “Senior Notes due 2027”). The issuance price of this add-on offering was 97.25 %, which created gross proceeds of $ 243.1 million. The $ 6.9 million discount will be amortized over the remaining life of the Senior Notes due 2027. Each issuance of the Senior Notes due 2027 is treated as a single class for all purposes under the 2017 Indenture (defined below) and have the same terms. The Senior Notes due 2027 are governed by, and were issued pursuant to, an indenture dated as of September 29, 2017 by and among the Company, its guarantor subsidiaries and Regions Bank, as trustee (the “2017 Indenture”). The 2017 Indenture provides, among other things, that the Senior Notes due 2027 bear interest at a rate of 5.875 % per annum from the date of issuance until maturity, payable semiannually in cash in arrears, beginning on March 30, 2018 for the Senior Notes due 2027 that were issued in September 2017 and beginning on March 15, 2018 for the Senior Notes due 2027 that were issued in March 2018. The Senior Notes due 2025 and the Senior Notes due 2027 are each guaranteed on a senior unsecured basis by the Company’s guarantor subsidiaries. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes due 2025 and the Senior Notes due 2027. The Senior Notes due 2025 and the Senior Notes due 2027 and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiaries and rank equally with all of the Company’s and its guarantor subsidiaries’ other unsubordinated indebtedness. The Senior Notes due 2025, the 2015 Indenture, the Senior Notes due 2027 and the 2017 Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes due 2025 and the Senior Notes due 2027, respectively, when due, among others. U.S. Credit Facility On July 20, 2018, the Company, and certain of the Company’s subsidiaries entered into a Fourth Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with CoBank, ACB, as administrative agent and collateral agent, and the other lenders party thereto. The U.S. Credit Facility provides for a $ 750.0 million revolving credit commitment and a term loan commitment of up to $ 500.0 million (the “Term Loans”). The Company used the proceeds from the term loan commitment under the U.S. Credit Facility, together with cash on hand, to repay the outstanding loans under the Company’s previous credit agreement with Coöperatieve Rabobank U.A., New York Branch, as administrative agent, and the other lenders and financial institutions party thereto. The U.S. Credit Facility includes an accordion feature that allows the Company, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $ 1.25 billion, subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase. The revolving loan commitment under the U.S. Credit Facility matures on July 20, 2023. All principal on the Term Loans is due at maturity on July 20, 2023. Installments of principal are required to be made, in an amount equal to 1.25 % of the original principal amount of the Term Loans, on a quarterly basis prior to the maturity date of the Term Loans. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. As of 65 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 27, 2020, the Company had outstanding borrowings under the term loan commitment of $ 450.0 million. As of December 27, 2020, the Company had outstanding letters of credit and available borrowings under the revolving credit commitment of $ 39.7 million and $ 710.3 million, respectively. The U.S. Credit Facility includes a $ 75.0 million sublimit for swingline loans and a $ 125.0 million sublimit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equal to (1) in the case of LIBOR loans, LIBOR plus a margin based on the Company’s net senior secured leverage ratio, between LIBOR plus 1.25 % and LIBOR plus 2.75 % and (2) in the case of alternate base rate loans, the base rate plus a margin based on the Company’s net senior secured leverage ratio, between the base rate plus 0.25 % and base rate plus 1.75 % thereafter. The U.S. Credit Facility contains customary financial and other various covenants for transactions of this type, including restrictions on the Company's ability to incur additional indebtedness, incur liens, pay dividends, make certain restricted payments, consummate certain asset sales, enter into certain transactions with the Company’s affiliates, or merge, consolidate and/or sell or dispose of all or substantially all of its assets, among other things. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The U.S. Credit Facility also provides that the Company may not incur capital expenditures in excess of $ 500.0 million in any fiscal year. All obligations under the U.S. Credit Facility continue to be unconditionally guaranteed by certain of the Company’s subsidiaries and continue to be secured by a first priority lien on (1) the accounts receivable and inventory of the Company and its non-Mexico subsidiaries, (2) 100 % of the equity interests in the Company's domestic subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., and 65 % of the equity interests in its direct foreign subsidiaries and (3) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility. The Company is currently in compliance with the covenants under the U.S. Credit Facility. Moy Park Bank of Ireland Revolving Facility Agreement On June 2, 2018, Moy Park Holdings (Europe) Ltd. and its subsidiaries entered into an unsecured multicurrency revolving facility agreement (the “Bank of Ireland Facility Agreement”) with the Governor and Company of the Bank of Ireland, as agent, and the other lenders party thereto. The Bank of Ireland Facility Agreement provides for a multicurrency revolving loan commitment of up to £ 100.0 million. The multicurrency revolving loan commitments under the Bank of Ireland Facility Agreement mature on June 2, 2023. Outstanding borrowings under the Bank of Ireland Facility Agreement bear interest at a rate per annum equal to the sum of (1) LIBOR or, in relation to any loan in euros, EURIBOR, plus (2) a margin, ranging from 1.25 % to 2.00 % based on Leverage (as defined in the Bank of Ireland Facility Agreement). All obligations under the Bank of Ireland Facility Agreement are guaranteed by certain of Moy Park's subsidiaries. As of December 27, 2020, the U.S. dollar-equivalent loan commitment and borrowing availability were both $ 135.6 million. As of December 27, 2020, there were no outstanding borrowings under the Bank of Ireland Facility Agreement. The Bank of Ireland Facility Agreement contains representations and warranties, covenants, indemnities and conditions that the Company believes are customary for transactions of this type. Pursuant to the terms of the Bank of Ireland Facility Agreement, Moy Park is required to meet certain financial and other restrictive covenants. Additionally, Moy Park is prohibited from taking certain actions without consent of the lenders, including, without limitation, incurring additional indebtedness, entering into certain mergers or other business combination transactions, permitting liens or other encumbrances on its assets and making restricted payments, including dividends, in each case except as expressly permitted under the Bank of Ireland Facility Agreement. The Bank of Ireland Facility Agreement contains events of default that the Company believes are customary for transactions of this type. If a default occurs, any outstanding obligations under the Bank of Ireland Facility Agreement may be accelerated. Mexico Credit Facility On December 14, 2018, certain of the Company's Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with Banco del Bajio, Sociedad Anónima, Institución de Banca Múltiple, as lender. The loan commitment under the Mexico Credit Facility is $ 1.5 billion Mexican pesos and can be borrowed on a revolving basis. Outstanding borrowings under the Mexico Credit Facility accrue interest at a rate equal to the 28-Day Interbank Equilibrium Interest Rate plus 1.50 %. The Mexico Credit Facility contains covenants and defaults that the Company believes are customary for transactions of this type. The Mexico Credit Facility will be used for general corporate and working capital purposes. The Mexico Credit Facility will mature on December 14, 2023. As of December 27, 2020, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility is $ 75.5 million. As of December 27, 2020, there were no outstanding borrowings under the Mexico Credit Facility. 66 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. STOCKHOLDERS’ EQUITY Accumulated Other Comprehensive Loss The following tables provide information regarding the changes in accumulated other comprehensive loss during 2020 and 2019: 2020 Gains (Losses) Related to Foreign Currency Translation Unrealized Losses on Derivative Financial Instruments Classified as Cash Flow Hedges Losses Related to Pension and Other Postretirement Benefits Unrealized Holding Gains on Available-for-Sale Securities Total (In thousands) Balance, beginning of year $ ( 1,108 ) $ ( 2,406 ) $ ( 71,615 ) $ — $ ( 75,129 ) Other comprehensive income (loss) before reclassifications 83,890 3,823 ( 31,724 ) 55 56,044 Amounts reclassified from accumulated other comprehensive loss to net income — ( 2,664 ) 1,128 ( 55 ) ( 1,591 ) Currency translation — 56 — — 56 Net current year other comprehensive income (loss) 83,890 1,215 ( 30,596 ) — 54,509 Balance, end of year $ 82,782 $ ( 1,191 ) $ ( 102,211 ) $ — $ ( 20,620 ) 2019 Losses Related to Foreign Currency Translation Unrealized Losses on Derivative Financial Instruments Classified as Cash Flow Hedges Losses Related to Pension and Other Postretirement Benefits Unrealized Holding Gains on Available-for-Sale Securities Total (In thousands) Balance, beginning of year $ ( 55,770 ) $ ( 683 ) $ ( 71,463 ) $ 82 $ ( 127,834 ) Other comprehensive income (loss) before reclassifications 54,662 ( 2,052 ) ( 1,145 ) 386 51,851 Amounts reclassified from accumulated other comprehensive loss to net income — 383 993 ( 468 ) 908 Currency translation — ( 54 ) — — ( 54 ) Net current year other comprehensive income (loss) 54,662 ( 1,723 ) ( 152 ) ( 82 ) 52,705 Balance, end of year $ ( 1,108 ) $ ( 2,406 ) $ ( 71,615 ) $ — $ ( 75,129 ) 67 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Details about Accumulated Other Comprehensive Loss Components Amount Reclassified from Accumulated Other Comprehensive Loss (a) Affected Line Item in the Consolidated Statements of Income 2020 2019 (In thousands) Realized gain on settlement of foreign currency derivatives classified as cash flow hedges $ 2,987 $ — Net sales Realized loss on settlement of foreign currency derivatives classified as cash flow hedges ( 114 ) ( 383 ) Cost of sales Realized loss on settlement of interest rate swap derivatives classified as cash flow hedges ( 209 ) — Interest expense, net of capitalized interest Realized gain on sale of securities 73 619 Interest income Amortization of pension and other postretirement plan actuarial losses (b) ( 1,503 ) ( 1,313 ) Miscellaneous, net Total before tax 1,234 ( 1,077 ) Tax expense 357 169 Total reclassification for the period $ 1,591 $ ( 908 ) (a) Amounts in parentheses represent income (expenses) related to results of operations. (b) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See “Note 15. Pension and Other Postretirement Benefits.” Share Repurchase Program and Treasury Stock 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 shares 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 approximately 6.3 million shares under this program with a market value of approximately $ 113.4 million. The Company accounted for the shares repurchased using the cost method. The Company currently plans to maintain these shares as treasury stock. Restrictions on Dividends 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. Additionally, the Moy Park Multicurrency Revolving Facility Agreement restricts Moy Park’s ability and the ability of certain of Moy Park’s subsidiaries to, among other things, make payments and distributions to the Company. 15. PENSION AND OTHER POSTRETIREMENT BENEFITS The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans such as the Pilgrim's Pride Retirement Plan for Union Employees (the “Union Plan”) the Pilgrim's Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan and the Geo Adams Group Pension Fund (together, the “U.K. Plans”), nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plan. Expenses recognized under all retirement plans totaled $ 17.4 million, $ 19.0 million and $ 12.1 million in 2020, 2019 and 2018, respectively. The Company used a year-end measurement date of December 27, 2020 for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the financial statements. Qualified Defined Benefit Pension Plans The Company sponsors four qualified defined benefit pension plans named the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”), the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”), the Tulip Limited Pension Plan (the “Tulip Plan”) and the Geo Adams Group Pension Fund (the “Geo Adams Plan” and, together with the Tulip Plan, the “U.K. Plans”). The Union Plan covers certain locations or work groups within PPC. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was 68 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS frozen for that group as of March 31, 2007. The U.K. Plans cover certain eligible active and former U.K. employees who were employed at locations that the Company purchased through its acquisition of Tulip in 2019. Participation in the Tulip Plan was frozen as of October 31, 2007 and participation in the Geo Adams Plan was frozen as of September 5, 2018. Nonqualified Defined Benefit Pension Plans The Company sponsors two nonqualified defined benefit retirement plans named the Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “SERP Plan”) and the Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”). Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on compensation in excess of certain IRC limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits under the SERP Plan were frozen as of February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors. Defined Benefit Postretirement Life Insurance Plan The Company sponsors one defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Retiree Life Plan” and together with the Union Plan, the GK Pension Plan, the SERP Plan and the Directors’ Emeriti Plan, the “U.S. Plans”). Pilgrim’s Pride assumed defined benefit postretirement medical and life insurance obligations, including the Retiree Life Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. These retired employees all reached the age of 65 in 2012 and liabilities of the postretirement medical plan then ended. Defined Benefit Plans Obligations and Assets The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows: Pension Benefits Other Benefits 2020 2019 2020 2019 Change in projected benefit obligation: (In thousands) Projected benefit obligation, beginning of year $ 369,066 $ 157,619 $ 1,527 $ 1,462 Interest cost 8,102 6,673 36 52 Actuarial losses 38,822 20,729 90 132 Benefits paid ( 13,745 ) ( 8,288 ) — — Curtailments and settlements ( 8,226 ) ( 10,076 ) ( 60 ) ( 119 ) Prior service cost 20 8 — — Tulip acquisition — 198,417 — — Currency translation loss 10,155 3,984 — — Projected benefit obligation, end of year $ 404,194 $ 369,066 $ 1,593 $ 1,527 69 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Pension Benefits Other Benefits 2020 2019 2020 2019 Change in plan assets: (In thousands) Fair value of plan assets, beginning of year $ 294,589 $ 102,414 $ — $ — Actual return on plan assets 12,672 18,904 — — Contributions by employer 14,774 8,295 60 119 Benefits paid ( 13,745 ) ( 8,288 ) — — Curtailments and settlements ( 8,226 ) ( 10,076 ) ( 60 ) ( 119 ) Expenses paid from assets ( 715 ) ( 70 ) — — Tulip acquisition — 179,702 — — Currency translation gain 6,634 3,708 — — Fair value of plan assets, end of year $ 305,983 $ 294,589 $ — $ — Pension Benefits Other Benefits 2020 2019 2020 2019 Funded status: (In thousands) Unfunded benefit obligation, end of year $ ( 98,211 ) $ ( 74,477 ) $ ( 1,593 ) $ ( 1,527 ) Pension Benefits Other Benefits 2020 2019 2020 2019 Amounts recognized in the Consolidated Balance Sheets as of end of year: (In thousands) Current liability $ ( 7,510 ) $ ( 14,967 ) $ ( 169 ) $ ( 158 ) Long-term liability ( 90,701 ) ( 59,510 ) ( 1,424 ) ( 1,369 ) Recognized liability $ ( 98,211 ) $ ( 74,477 ) $ ( 1,593 ) $ ( 1,527 ) Pension Benefits Other Benefits 2020 2019 2020 2019 Amounts recognized in accumulated other comprehensive loss at end of year: (In thousands) Net actuarial loss $ 95,522 $ 58,239 $ 174 $ 91 The accumulated benefit obligation for the Company's defined benefit pension plans was $ 404.2 million and $ 369.1 million as of December 27, 2020 and December 29, 2019, respectively. Each of the Company’s defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets as of December 27, 2020 and December 29, 2019. As of December 27, 2020, the weighted average duration of our defined benefit obligation is 27.50 years. Net Periodic Benefit Costs Net benefit costs include the following components: Pension Benefits Other Benefits 2020 2019 2018 2020 2019 2018 (In thousands) Interest cost $ 8,102 $ 6,673 $ 5,463 $ 36 $ 52 $ 46 Estimated return on plan assets ( 13,071 ) ( 6,921 ) ( 6,065 ) — — — Settlement loss (gain) 3,371 3,538 — 7 7 ( 3 ) Other 735 ( 62 ) — — — — Amortization of net loss 1,503 1,313 1,203 — — — Net cost $ 640 $ 4,541 $ 601 $ 43 $ 59 $ 43 70 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Economic Assumptions The weighted average assumptions used in determining pension and other postretirement plan information were as follows: Pension Benefits Other Benefits 2020 2019 2018 2020 2019 2018 Benefit obligation: Discount rate 1.83 % 2.56 % 4.40 % 1.80 % 2.77 % 4.07 % Net pension and other postretirement cost: Discount rate 2.16 % 3.10 % 3.69 % 2.77 % 4.07 % 3.39 % Expected return on plan assets 4.34 % 4.62 % 5.50 % NA NA NA The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company's pension and other benefit obligations. The weighted average discount rate for each plan was established by comparing the projection of expected benefit payments to the AA Above Median yield curve. The expected benefit payments were discounted by each corresponding discount rate on the yield curve. For payments beyond 30 years, the Company extended the curve assuming the discount rate derived in year 30 is extended to the end of the plan's payment expectations. Once the present value of the string of benefit payments was established, the Company determined the single rate on the yield curve, that when applied to all obligations of the plan, would exactly match the previously determined present value. As part of the evaluation of pension and other postretirement assumptions, the Company applied assumptions for mortality that incorporate generational white and blue collar mortality trends. In determining its benefit obligations, the Company used generational tables that take into consideration increases in plan participant longevity. The U.S. pension and other postretirement benefit plans used variations of the Pri-2012 mortality table for both 2020 and 2019 in combination with the MP2020 mortality improvement scale for 2020 and the MP2019 mortality improvement scale for 2019. For pre-retirement employees, the U.K. pension plans used variations of the AxC00 mortality table for both 2020 and 2019 in combination with the CMI_2019 Sk=7.5 mortality improvement scale for 2020 and the CMI_2018 Sk=7.5 mortality improvement scale for 2019. For postretirement employees, the U.K. pension plans used variations of the S3PMA mortality table for both 2020 and 2019 in combination with the CMI_2019 Sk=7.5 mortality improvement scale for 2020 and the CMI_2018 Sk=7.5 mortality improvement scale for 2019. The sensitivity of the projected benefit obligation for pension benefits to changes in the discount rate is set out below. The impact of a change in the discount rate of 0.25% on the projected benefit obligation for other benefits is immaterial. This sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that for calculating the liability recognized in the Consolidated Balance Sheets. Increase in Discount Rate of 0.25% Decrease in Discount Rate of 0.25% (In thousands) Impact on projected benefit obligation for pension benefits $ ( 10,820 ) $ 11,391 The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan's current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate. Plan Assets The following table reflects the pension plans’ actual asset allocations: 71 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2020 2019 Cash and cash equivalents 1 % 4 % Pooled separate accounts for the Union Plan (a) : Equity securities 2 % 2 % Fixed income securities 2 % 2 % Pooled separate accounts and common collective trust funds for the GK Pension Plan (a) : Equity securities 20 % 20 % Fixed income securities 13 % 12 % Real estate 1 % 2 % Pooled separate accounts for the U.K. Plans (a) : Equity securities 35 % 40 % Fixed income funds 20 % 18 % Real estate 6 % — % Total assets 100 % 100 % (a) Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the SEC. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments. Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the PSAs for the Union Plan is 50 % in each of fixed income securities and equity securities, the target asset allocation for the investment of pension assets in the PSAs and/or CCTs for the GK Pension Plan is 35 % in fixed income securities, 60 % in equity securities and 5 % in real estate and investment of pension assets in the PSAs for the U.K. Plans is 28 % in fixed income securities, 62 % in equity securities and 10 % in real estate. The plans only invest in fixed income and equity instruments for which there is a readily available public market. The Company develops its expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which its plans invest. The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of December 27, 2020 and December 29, 2019: 72 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2020 2019 Level 1 (a) Level 2 (b) Level 3 (c) Total Level 1 (a) Level 2 (b) Level 3 (c) Total (In thousands) Cash and cash equivalents $ 1,487 $ — $ — $ 1,487 $ 11,582 $ — $ — $ 11,582 PSAs for the Union Plan: Large U.S. equity funds (d) — 3,100 — 3,100 — 3,071 — 3,071 Small/Mid U.S. equity funds (e) — 392 — 392 — 372 — 372 International equity funds (f) — 1,874 — 1,874 — 1,878 — 1,878 Fixed income funds (g) — 5,365 — 5,365 — 4,452 — 4,452 PSAs and CCTs for the GK Pension Plan: Large U.S. equity funds (d) — 29,602 — 29,602 — 20,378 — 20,378 Small/Mid U.S. equity funds (e) — 17,569 — 17,569 — 12,495 — 12,495 International equity funds (f) — 16,320 — 16,320 — 25,149 — 25,149 Fixed income funds (g) — 38,944 — 38,944 — 35,627 — 35,627 Real estate (h) — 5,677 — 5,677 — 5,613 — 5,613 PSAs for the U.K. Plans: Large U.S. equity funds (d) — 39,002 — 39,002 — 17,756 — 17,756 International equity funds (f) — 69,251 — 69,251 — 102,494 — 102,494 Fixed income funds (e) — 60,212 — 60,212 — 53,722 — 53,722 Real estate (h) — 17,188 — 17,188 — — — — Total assets $ 1,487 $ 304,496 $ — $ 305,983 $ 11,582 $ 283,007 $ — $ 294,589 (a) Unadjusted quoted prices in active markets for identical assets are used to determine fair value. (b) Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value. (c) Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value. (d) This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods. (e) This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns. (f) This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S. (g) This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). These investment options typically carry more risk than short-term fixed income investment options, but less overall risk than equities. (h) This category is comprised of investment options that invest in real estate investment trusts or private equity pools that own real estate. These long-term investments are primarily in office buildings, industrial parks, apartments or retail complexes. These investment options typically carry more risk, including liquidity risk, than fixed income investment options. Benefit Payments The following table reflects the benefits as of December 27, 2020 expected to be paid through 2030 from the Company's pension and other postretirement plans. The Company’s pension plans are primarily funded plans. Therefore, anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. The Company's other postretirement plans are unfunded. Therefore, anticipated benefits with respect to these plans will come from the Company’s own assets. Pension Benefits Other Benefits (In thousands) 2021 $ 26,629 $ 169 2022 16,912 163 2023 16,411 156 2024 16,043 149 2025 15,612 140 2026-2030 71,456 555 Total $ 163,063 $ 1,332 73 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As required by funding regulations or laws, the Company anticipates contributing $ 7.5 million and $ 0.2 million to its pension and other postretirement plans, respectively, during 2021. Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss (Gain) The amounts in accumulated other comprehensive loss that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows: Pension Benefits Other Benefits 2020 2019 2018 2020 2019 2018 (In thousands) Net actuarial loss (gain), beginning of year $ 58,239 $ 54,343 $ 54,235 $ 91 $ ( 34 ) $ 35 Amortization ( 1,503 ) ( 1,313 ) ( 1,203 ) — — — Settlement adjustments ( 3,371 ) ( 3,538 ) — ( 7 ) ( 7 ) 3 Actuarial loss (gain) 38,822 20,729 ( 15,635 ) 90 132 ( 72 ) Asset loss (gain) 400 ( 11,982 ) 16,946 — — — Net prior service cost 378 — — — — — Currency translation loss 2,557 — — — — — Net actuarial loss (gain), end of year $ 95,522 $ 58,239 $ 54,343 $ 174 $ 91 $ ( 34 ) Risk Management Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below: Asset volatility. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-term. The Company monitors the level of investment risk but has no current plan to significantly modify the mixture of investments. The investment position is discussed more below. Changes in bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings. The investment position is managed and monitored by a committee of individuals from various departments. This group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The majority of equities are in U.S. large and small cap companies with some global diversification into international entities. Remeasurement The Company remeasures both plan assets and obligations on a quarterly basis. Defined Contribution Plans The Company sponsors two defined contribution retirement savings plans in the U.S. reportable segment for eligible U.S. and Puerto Rico employees. The Company maintains three postretirement plans for eligible employees in the Mexico reportable segment, as required by Mexico law, which primarily cover termination benefits. The Company maintains two defined contribution retirement savings plans in the U.K. and Europe reportable segment for eligible U.K. and Europe employees, as required by U.K. and Europe law. The Company’s expenses related to its defined contribution plans totaled $ 14.1 million, $ 13.7 million and $ 11.4 million in 2020, 2019 and 2018, respectively. 16. INCENTIVE COMPENSATION The Company sponsors short-term incentive plans that provides the grant of either cash or stock-based bonus awards payable upon achievement of specified performance goals. Full-time, salaried exempt employees of the Company's U.S. operations who are selected by the administering committee are eligible to participate in the Pilgrim's Short Term Incentive 74 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan (“STIP”). Certain full-time, salaried employees of the Company’s Mexico operations are eligible to participate in the Pilgrim’s Mexico Incentive Plan (“PMIP”). The Company assumed responsibility for the Moy Park Incentive Plan dated January 1, 2013, as amended (the “MPIP”) through its acquisition of Moy Park on September 8, 2017. As of December 27, 2020, the Company has accrued $ 27.9 million, $ 3.8 million and $ 2.9 million related to cash bonus awards that could potentially be awarded under the STIP, MPIP and PMIP, respectively. The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and liability-based awards to the Company’s officers and other employees, members of the Board of Directors and any consultants (the “LTIP”). Awards that may be granted under the LTIP include “incentive stock options,” within the meaning of the IRC, nonqualified stock options, stock appreciation rights, restricted stock awards and restricted stock units (“RSUs”). Equity-based awards are converted into shares of the Company's common stock shortly after award vesting. Compensation cost to be recognized for an equity-based awards grant is determined by multiplying the number of awards granted by the closing price of a share of the Company's common stock on the award grant date. Liability-based awards granted under the LTIP are converted into cash shortly after award vesting. Compensation cost to be recognized for a liability-based awards grant is first determined by multiplying the number of awards granted by the closing price of a share of PPC’s common stock on the award grant date. However, the compensation cost to be recognized is adjusted at each subsequent milestone date (i.e., forfeiture date, vesting date or financial reporting date) by multiplying the number of awards granted by the closing price of a share of PPC’s common stock on the milestone date. On May 1, 2019, the Company's stockholders approved the Pilgrim’s Pride Corporation 2019 Long Term Incentive Plan (the “2019 LTIP”), which replaced the expiring Pilgrim’s Pride Corporation 2009 Long-Term Incentive Plan (the “2009 LTIP”). The 2019 LTIP became effective as of December 28, 2019. As of December 27, 2020, we have in reserve approximately 1.8 million shares of common stock for future issuance under the 2019 LTIP. The following awards were outstanding during 2020: Benefit Plan Award Type Grant Date Grant Date Fair Value per Award Vesting Condition Vesting Date Intended Settlement Method Milestone Date Fair Value per Award Awards Granted Performance Target Achievement Award Adjustment Awards Forfeited to Date 2009 LTIP RSU 3/1/2018 $ 24.93 Service (a) Stock NA 163,764 — ( 51,473 ) 2009 LTIP RSU 3/1/2018 $ 24.93 Performance/Service (b) Stock NA 217,253 ( 53,381 ) ( 78,449 ) 2009 LTIP RSU 3/1/2018 $ 24.93 Performance/Service (c) Cash $ 19.35 66,272 ( 17,863 ) ( 15,235 ) 2009 LTIP RSU 5/10/2018 $ 21.54 Service (d) Stock NA 8,358 — — 2009 LTIP RSU 1/7/2019 $ 16.47 Performance/Service (e) Stock NA 414,620 39,620 ( 137,413 ) 2009 LTIP RSU 1/7/2019 $ 16.47 Performance/Service (f) Cash $ 19.35 109,654 13,705 — 2009 LTIP RSU 4/30/2019 $ 26.91 Service 7/1/2020 Cash $ 15.12 200,000 — — 2009 LTIP RSU 4/30/2019 $ 26.91 Performance/Service (g) Stock NA 470,000 — ( 470,000 ) 2009 LTIP RSU 5/24/2019 $ 27.86 Service (d) Stock NA 11,170 — — 2019 LTIP RSU 1/8/2020 $ 30.94 Performance/Service (h) Stock NA 195,140 — ( 33,729 ) 2019 LTIP RSU 1/8/2020 $ 30.94 Performance/Service (i) Cash $ 19.35 121,310 — — 2019 LTIP RSU 4/29/2020 $ 22.01 Service (d) Stock NA 13,630 — — (a) The restricted stock units vest in ratable tranches on December 31, 2018, December 31, 2019 and December 31, 2020. Expected compensation cost related to these units totals $ 2.8 million based on a closing stock price for the Company’s common stock of $ 24.93 per share on March 1, 2018. Compensation cost will be amortized to profit/loss over the remaining vesting period. (b) The restricted stock units vest in ratable tranches on December 31, 2019, December 31, 2020 and December 31, 2021. Expected compensation cost related to these units totals $ 2.1 million based on a closing stock price for the Company’s common stock of $ 24.93 per share on March 1, 2018. Compensation cost will be amortized to profit/loss over the remaining vesting period. (c) The restricted stock units vest in ratable tranches on December 31, 2019, December 31, 2020 and December 31, 2021. Expected compensation cost related to these units totals $ 0.6 million based on a closing stock price for the Company's common stock of $ 19.35 per share on December 27, 2020. Compensation cost will be amortized to profit/loss over the remaining vesting period. (d) These restricted stock units were granted to the non-employees who currently serve on the Company's Board of Directors. Each participating director's units will vest upon his departure from the Company's Board of Directors. Compensation cost was recognized in profit/loss upon the grant date. 75 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (e) The restricted stock units vest in ratable tranches on December 31, 2020, December 31, 2021 and December 31, 2022. Expected compensation cost related to these units totals $ 5.2 million based on a closing stock price for the Company's common stock of $ 16.47 per share on January 7, 2019. Compensation cost will be amortized to profit/loss over the remaining vesting period. (f) The restricted stock units vest in ratable tranches on December 31, 2020, December 31, 2021 and December 31, 2022. Expected compensation cost related to these units totals $ 2.1 million based on a closing stock price for the Company's common stock of $ 19.35 per share on December 27, 2020. Compensation cost will be amortized to profit/loss upon satisfaction of the performance conditions over the remaining vesting period. (g) The restricted stock units were cancelled in their entirety by the Company's Board of Directors on December 8, 2020. (h) If performance conditions related to the Company's 2020 operating results are satisfied, the restricted stock units vest in ratable tranches on December 31, 2021, December 31, 2022 and December 31, 2023. Expected compensation cost related to these units totals $ 5.0 million based on a closing stock price for the Company's common stock of $ 30.94 per share on January 8, 2020. Compensation cost will be amortized to profit/loss upon satisfaction of the performance conditions over the remaining vesting period. (i) If performance conditions related to the Company's 2020 operating results are satisfied, the restricted stock units vest in ratable tranches on December 31, 2021, December 31, 2022 and December 31, 2023. Expected compensation cost related to these units totals $ 3.8 million based on a closing stock price for the Company's common stock of $ 30.94 per share on December 27, 2020. Compensation cost will be amortized to profit/loss upon satisfaction of the performance conditions over the remaining vesting period. Compensation costs and the income tax benefit recognized for our stock-based compensation arrangements are included below: 2020 2019 2018 (In thousands) Equity-based awards compensation cost: Cost of sales $ 838 $ 461 $ 389 Selling, general and administrative expense 1,938 9,671 12,764 Total cost 2,776 10,132 13,153 Income tax benefit 676 2,466 3,202 Net cost $ 2,100 $ 7,666 $ 9,951 Liability-based awards compensation cost: Selling, general and administrative expense $ 1,081 $ 671 $ — Income tax benefit 263 163 — Net cost $ 818 $ 508 $ — The Company’s RSU activity is included below: 2020 2019 2018 Number Weighted Average Milestone Date Fair Value (a) Number Weighted Average Milestone Date Fair Value (a) Number Weighted Average Milestone Date Fair Value (a) (In thousands, except weighted average fair values) Equity-based RSUs: Outstanding at beginning of year 926 $ 24.04 1,069 $ 22.97 389 $ 18.39 Transferred to liability-based awards ( 200 ) 26.91 ( 36 ) 24.67 — — Granted 249 28.14 843 22.01 1,114 23.05 Vested ( 66 ) 24.93 ( 723 ) 22.08 — — Forfeited ( 325 ) 25.95 ( 227 ) 21.51 ( 434 ) 19.06 Outstanding at end of year 584 $ 22.12 926 $ 24.04 1,069 $ 22.97 76 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2020 2019 2018 Number Weighted Average Milestone Date Fair Value (a) Number Weighted Average Milestone Date Fair Value (a) Number Weighted Average Milestone Date Fair Value (a) (In thousands, except weighted average fair values) Liability-based RSUs: Outstanding at beginning of year 143 $ 32.97 — $ — — $ — Transferred from equity-based awards 200 26.91 36 14.77 — — Granted 135 29.47 110 16.47 — — Vested ( 211 ) 16.04 ( 3 ) 26.86 — — Forfeited — — — — — — Outstanding at end of year 267 $ 19.35 143 $ 32.97 — $ — (a) The milestone date fair value is either the closing price of the Company’s common stock on the grant date for equity-based awards or the closing price of a share of the Company's common stock on the respective milestone date for cash-based liability-based awards (i.e., grant date, vesting date, forfeiture date or financial reporting date). The total fair values of equity-based awards and liability-based awards vested during 2020 were $ 2.5 million and $ 3.0 million, respectively. The total fair values of equity-based awards and liability-based awards vested during 2019 were $ 14.0 million and $ 0.1 million, respectively. As of December 27, 2020, the total unrecognized compensation cost related to all nonvested equity-based awards was $ 5.1 million. This cost is expected to be recognized over a weighted average period of 1.76 years. As of December 27, 2020, the total unrecognized compensation cost related to all nonvested liability-based awards was $ 3.8 million. This cost is expected to be recognized over a weighted average period of 1.74 years. Historically, we have issued new shares to satisfy equity-based award conversions. 17. 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: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2 Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or Level 3 Unobservable inputs, such as discounted cash flow models or valuations. 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 27, 2020 and December 29, 2019, 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, foreign currency forward contracts to manage translation and remeasurement risk and interest rate swap instruments. The following items were measured at fair value on a recurring basis: 77 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 27, 2020 December 29, 2019 Level 1 Total Level 1 Total (In thousands) (In thousands) Assets: Commodity futures instruments $ 13,285 $ 13,285 $ 4,147 $ 4,147 Commodity options instruments 10,774 10,774 906 906 Foreign currency instruments 2,204 2,204 426 426 Liabilities: Commodity futures instruments ( 4,496 ) ( 4,496 ) ( 4,797 ) ( 4,797 ) Commodity options instruments ( 2,035 ) ( 2,035 ) ( 633 ) ( 633 ) Foreign currency instruments ( 428 ) ( 428 ) ( 5,400 ) ( 5,400 ) Interest rate swap instrument ( 640 ) ( 640 ) — — See “Note 5. Derivative Financial Instruments” for additional information. 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 carrying amounts and estimated fair values of our fixed-rate debt obligation recorded in the Consolidated Balance Sheets consisted of the following: December 27, 2020 December 29, 2019 Carrying Amount Fair Value Carrying Amount Fair Value (In thousands) Fixed-rate senior notes payable at 5.75 %, at Level 1 inputs $ ( 1,001,693 ) $ ( 1,024,510 ) $ ( 1,002,095 ) $ ( 1,034,200 ) Fixed-rate senior notes payable at 5.875 %, at Level 1 inputs ( 845,149 ) ( 911,957 ) ( 844,433 ) ( 919,505 ) Secured loans, at Level 3 inputs ( 38 ) ( 38 ) ( 948 ) ( 939 ) See “Note 13. Debt” 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 27, 2020 or December 29, 2019, as applicable. The fair value of the Company’s Level 3 fixed-rate debt obligation was based on discounted cash flow using weighted average cost of capital of 0.5 % as of December 27, 2020 and ranging from 0.5 % to 3.6 % as of December 29, 2019. 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. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported. 78 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. RELATED PARTY TRANSACTIONS Pilgrim's has been and, in some cases, continues to be a party to certain transactions with affiliated companies. Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Sales to related parties: JBS USA Food Company (a) $ 14,228 $ 14,108 $ 13,843 JBS Five Rivers — — 7,096 JBS Global (UK) Ltd. — 141 — JBS Chile Ltda. 225 482 60 Combo, Mercado de Congelados 887 207 159 JBS Australia Pty. Ltd. 2,540 — — Total sales to related parties $ 17,880 $ 14,938 $ 21,158 Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Cost of goods purchased from related parties: JBS USA Food Company (a) $ 142,615 $ 134,790 $ 117,596 Seara Meats B.V. 8,138 22,797 36,223 JBS Aves Ltda. — — 1,123 JBS Toledo NV 155 307 445 JBS Global (UK) Ltd. 674 170 21 Total cost of goods purchased from related parties $ 151,582 $ 158,064 $ 155,408 Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Expenditures paid by related parties: JBS USA Food Company (b) $ 39,025 $ 32,161 $ 62,189 JBS Chile Ltda. — 6 33 Seara Food Europe Holdings 9 77 — Total expenditures paid by related parties $ 39,034 $ 32,244 $ 62,222 Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Expenditures paid on behalf of related parties: JBS USA Food Company (b) $ 16,266 $ 9,103 $ 9,192 JBS S.A. — — 170 Seara International Ltd. — — 45 Total expenditures paid on behalf of related parties $ 16,266 $ 9,103 $ 9,407 Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Other related party transactions: Capital distribution under tax sharing agreement (c) $ 650 $ — $ 525 Total other related party transactions $ 650 $ — $ 525 79 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 27, 2020 December 29, 2019 (In thousands) Accounts receivable from related parties: JBS USA Food Company (a) $ 714 $ 643 JBS Chile Ltda. — 301 JBS Australia Pty. Ltd. 370 — Total accounts receivable from related parties $ 1,084 $ 944 December 27, 2020 December 29, 2019 (In thousands) Accounts payable to related parties: JBS USA Food Company (a) $ 8,562 $ 2,826 JBS Global UK Ltd. 5 5 Seara Meats B.V. 1,075 988 JBS Chile Ltda. 8 — Total accounts payable to related parties $ 9,650 $ 3,819 (a) The Company routinely execute transactions to both purchase products from JBS USA Food Company (“JBS USA”) and sell products to them. As of December 27, 2020, approximately $ 1.5 million of goods from JBS USA were in transit and not reflected on our Consolidated Balance Sheets. (b) The Company has an agreement with JBS USA to allocate costs associated with JBS USA’s procurement of SAP licenses and maintenance services for both companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA in proportion to the percentage of licenses used by each company. The agreement expires on the date of expiration, or earlier termination, of the underlying SAP license agreement. The Company also has an agreement with JBS USA to allocate the costs of supporting the business operations by one consolidated corporate team, which have historically been supported by their respective corporate teams. Expenditures paid by JBS USA on behalf of the Company will be reimbursed by the Company and expenditures paid by the Company on behalf of JBS USA will be reimbursed by JBS USA. This agreement expires on December 31, 2021. (c) The Company entered into a tax sharing agreement during 2014 with JBS USA Holdings effective for tax years starting in 2010. The net tax payable for tax year 2020 was accrued in 2020 and will be paid in 2021. The net tax payable for tax year 2018 was accrued in 2018 and was paid in 2019. 19. REPORTABLE SEGMENTS The Company operates in three reportable segments: U.S., U.K. and Europe and Mexico. The Company measures segment profit as operating income. Corporate expenses are allocated to the Mexico and U.K. and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. reportable segment. We conduct separate operations in the continental U.S. and in Puerto Rico. For segment reporting purposes, the Puerto Rico operations are included in the U.S. reportable segment. The chicken products processed by the U.S. reportable segment are sold to foodservice, retail and frozen entrée customers. The segment’s primary distribution is through retailers, foodservice distributors and restaurants. The U.K. and Europe reportable segment processes primarily chicken and pork products that are sold to foodservice, retail and frozen entrée customers. The segment’s primary distribution is through retailers, foodservice distributors and restaurants. The chicken products processed by the Mexico reportable segment are sold to foodservice, retail and frozen entrée customers. The segment’s primary distribution is through retailers, foodservice distributors and restaurants. Additional information regarding reportable segments is as follows: Year Ended December 27, 2020 (a) December 29,2019 (b) December 30, 2018 (c) (In thousands) Net sales U.S. $ 7,496,017 $ 7,636,716 $ 7,425,661 U.K. and Europe 3,274,292 2,383,793 2,148,666 Mexico 1,321,592 1,388,710 1,363,457 Total $ 12,091,901 $ 11,409,219 $ 10,937,784 80 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a) For the year 2020, the United States reportable segment had intercompany sales to the Mexico reportable segment of $ 210.6 million. These sales consisted of fresh products, prepared products and grain. (b) For the year 2019, the United States reportable segment had intercompany sales to the Mexico reportable segment of $ 188.9 million. These sales consisted of fresh products, prepared products and grain. (c) For the year 2018, the United States reportable segment had intercompany sales to the Mexico reportable segment of $ 100.7 million. These sales consisted of fresh products, prepared products and grain. Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Operating income U.S. $ 69,377 $ 487,275 $ 291,381 U.K. and Europe 102,734 79,182 84,524 Mexico 72,879 124,015 119,649 Elimination 473 96 132 Total operating income 245,463 690,568 495,686 Interest expense, net of capitalized interest 126,118 132,630 162,812 Interest income ( 7,305 ) ( 14,277 ) ( 13,811 ) Foreign currency transaction loss 760 6,917 17,160 Gain on bargain purchase 3,746 ( 56,880 ) — Miscellaneous, net ( 39,681 ) 4,633 ( 2,702 ) Income before income taxes 161,825 617,545 332,227 Income tax expense 66,755 161,009 85,423 Net income $ 95,070 $ 456,536 $ 246,804 Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Depreciation and amortization: U.S. $ 218,244 $ 207,584 $ 196,079 U.K. and Europe 92,673 60,499 50,586 Mexico 26,187 19,147 27,423 Total $ 337,104 $ 287,230 $ 274,088 Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Capital expenditures: U.S. $ 264,149 $ 269,609 $ 257,913 U.K. and Europe 77,597 58,795 58,334 Mexico 13,016 19,716 32,419 Total $ 354,762 $ 348,120 $ 348,666 December 27, 2020 December 29, 2019 (In thousands) Total assets: U.S. $ 5,189,021 $ 5,207,282 U.K. and Europe 3,034,219 2,824,382 Mexico 1,212,428 1,020,331 Eliminations ( 1,961,171 ) ( 1,949,631 ) Total $ 7,474,497 $ 7,102,364 81 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) Net sales to customers by customer location: U.S. $ 7,190,809 $ 7,355,631 $ 7,173,280 Europe 3,225,717 2,363,017 2,134,822 Mexico 1,350,588 1,437,081 1,411,727 Asia-Pacific 252,573 175,898 159,515 Canada, Caribbean and Central America 30,792 31,808 26,450 Africa 25,321 28,400 21,286 South America 16,101 17,384 10,704 Total $ 12,091,901 $ 11,409,219 $ 10,937,784 December 27, 2020 December 29, 2019 (In thousands) Long-lived assets (a) : U.S. $ 1,815,460 $ 1,789,530 U.K. and Europe 842,049 801,887 Mexico 292,651 306,413 Eliminations ( 3,783 ) ( 4,256 ) Total $ 2,946,377 $ 2,893,574 (a) For this disclosure, we exclude financial instruments, deferred tax assets and intangible assets in accordance with ASC 280-10-50-41, Segment Reporting . Long-lived assets, as used in ASC 280-10-50-41, implies hard assets that cannot be readily removed. The following table sets forth net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of products. 82 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) U.S. chicken: Fresh $ 6,137,265 $ 6,214,954 $ 5,959,458 Prepared 714,563 842,365 773,983 Exports 306,478 282,791 258,732 Total U.S. chicken 7,158,306 7,340,110 6,992,173 U.K. and Europe chicken: Fresh 863,670 918,852 925,124 Prepared 751,196 817,292 865,864 Exports 227,224 262,041 303,921 Total U.K. and Europe chicken 1,842,090 1,998,185 2,094,909 Mexico chicken: Fresh 1,210,952 1,245,976 1,252,403 Prepared 66,572 95,733 76,860 Total Mexico chicken 1,277,524 1,341,709 1,329,263 Total chicken 10,277,920 10,680,004 10,416,345 U.K. and Europe pork: Fresh 730,703 135,985 — Prepared 486,290 134,426 — Exports 70,190 16,174 — Total U.K. and Europe pork 1,287,183 286,585 — Other products: U.S. 337,711 296,606 433,488 U.K. and Europe 145,019 99,023 53,757 Mexico 44,068 47,001 34,194 Total other products 526,798 442,630 521,439 Total net sales $ 12,091,901 $ 11,409,219 $ 10,937,784 20. COMMITMENTS AND CONTINGENCIES General The Company is a party to many routine contracts in which it provides general indemnities in the normal course of business to third parties for various risks. Among other considerations, the Company has not recorded a liability for any of these indemnities because, based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on its financial condition, results of operations and cash flows. Purchase Obligations The Company will sometimes enter into noncancelable contracts to purchase capital equipment and certain commodities such as corn, soybean meal, wheat and electricity. As of December 27, 2020, the Company was party to outstanding purchase contracts totaling $ 450.4 million payable in 2021 and $ 0.2 million payable in 2022. There were no outstanding purchase contracts in 2023 and thereafter. Operating Leases Additional information regarding operating leases is included in “Note 4. Leases.” Financial Instruments The Company’s loan agreements generally obligate the Company to reimburse the applicable lender for incremental increased costs due to a change in law that imposes (1) any reserve or special deposit requirement against assets of, deposits 83 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS with or credit extended by such lender related to the loan, (2) any tax, duty or other charge with respect to the loan (except standard income tax) or (3) capital adequacy requirements. In addition, some of the Company’s loan agreements contain a withholding tax provision that requires the Company to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts the Company could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default, and, in a secured financing transaction, would entitle the lender to foreclose upon the collateral to realize the amount due. Litigation The Company is subject to various legal proceedings and claims which arise in the ordinary course of business. In the Company’s opinion, it has made appropriate and adequate accruals for claims where necessary; however, the ultimate liability for these matters is uncertain, and if significantly different than the amounts accrued, the ultimate outcome could have a material effect on the financial condition or results of operations of the Company. For a discussion of material legal proceedings and claims, see Part II, Item 1. “Legal Proceedings.” The Company believes it has substantial defenses to the claims made in the pending litigations described below and intends to vigorously defend these cases. Tax Claims and Proceedings During 2014 and 2015 the Mexican tax authorities opened a review of Avícola Pilgrim’s Pride de Mexico, S.A. de C.V. (“PPC Mexico”) in regards to tax years 2009 and 2010, respectively. In both instances, the Mexican tax authorities claim that controlled company status did not exist for certain subsidiaries because PPC Mexico did not own 50% of the shares in voting rights of Incubadora Hidalgo, S. de R.L de C.V. and Comercializadora de Carnes de México S. de R.L de C.V. (both in 2009) and Pilgrim’s Pride, S. de R. L. de C.V. (in 2010). As a result, PPC Mexico should have considered dividends paid out of these subsidiaries partially taxable since a portion of the dividend amount was not paid from the net tax profit account ( CUFIN ). PPC Mexico is currently appealing. Amounts under appeal are $ 24.3 million and $ 16.1 million for tax years 2009 and 2010, respectively. No loss has been recorded for these amounts at this time. In re Broiler Chicken Antitrust Litigation Between September 2, 2016 and October 13, 2016, a series of purported federal class action lawsuits styled as In re Broiler Chicken Antitrust Litigation, Case No. 1:16-cv-08637 were filed with the U.S. District Court for the Northern District of Illinois (the “Illinois Court”) against PPC and 19 other defendants by and on behalf of direct and indirect purchasers of broiler chickens alleging violations of federal and state antitrust and unfair competition laws. The complaints seek, among other relief, treble damages for an alleged conspiracy among defendants to reduce output and increase prices of broiler chickens from the period of January 2008 to the present. The class plaintiffs have filed three consolidated amended complaints: one on behalf of direct purchasers (“the Direct Purchaser Plaintiff Class”) and two on behalf of distinct groups of indirect purchasers. Between December 8, 2017 and January 15, 2021, 61 individual direct action complaints were filed with the Illinois Court by individual direct purchaser entities naming PPC as a defendant, the allegations of which largely mirror those in the class action complaints . Subsequent amendments to certain complaints added allegations of price fixing and bid rigging on certain sales, which have been stayed by the Illinois Court pending resolution of the original supply reduction conspiracy. On August 28, 2020, the Illinois Court issued a revised scheduling order through trial, which contemplates class certification briefing and related expert reports proceeding from October 30, 2020 to May 6, 2021, the close of all merits fact discovery on June 11, 2021, and summary judgment briefing and related expert reports proceeding from July 2, 2021 to February 22, 2022. The Illinois Court has set a trial date of October 17, 2022. On January 11, 2021, PPC announced that it had entered into an agreement to settle all claims made by the putative Direct Purchaser Plaintiff Class, which is subject to court approval. Pursuant to this agreement, PPC agreed to pay the Direct Purchaser Plaintiff Class $ 75.0 million, which PPC recognized as an expense during the fourth quarter of fiscal 2020. On September 1, 2020, the Attorney General of New Mexico filed a complaint in the First Judicial District Court in the County of Santa Fe, New Mexico. The complaint alleges the same claims as those made in the In re Broiler Chicken Antitrust Litigation under New Mexico state law. Other Claims and Proceedings On October 10, 2016, Patrick Hogan, acting on behalf of himself and a putative class of persons who purchased shares of PPC’s stock between February 21, 2014 and October 6, 2016, filed a class action complaint in the U.S. District Court for the District of Colorado (the “Colorado Court”) against PPC and its named executive officers (the “Hogan Litigation”). The complaint alleges, among other things, that PPC’s SEC filings contained statements that were rendered materially false and 84 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS misleading by PPC’s failure to disclose that (2) PPC colluded with several of its industry peers to fix prices in the broiler-chicken market as alleged in the In re Broiler Chicken Antitrust Litigation, (2) its conduct constituted a violation of federal antitrust laws, (3) PPC’s revenues during the class period were the result of illegal conduct and (4) that PPC lacked effective internal control over financial reporting. The complaint also states that PPC’s industry was anticompetitive and seeks compensatory damages. On April 4, 2017, the Colorado Court appointed another stockholder, George James Fuller, as lead plaintiff. On May 11, 2017, the plaintiff filed an amended complaint, which extended the end date of the putative class period to November 17, 2017. PPC and the other defendants moved to dismiss on June 12, 2017, and the plaintiff filed its opposition on July 12, 2017. PPC and the other defendants filed their reply on August 1, 2017. On March 14, 2018, the Colorado Court dismissed the plaintiff’s complaint without prejudice and issued final judgment in favor of PPC and the other defendants. On April 11, 2018, the plaintiff moved for reconsideration of the Colorado Court’s decision and for permission to file a Second Amended Complaint. PPC and the other defendants filed a response to the plaintiff’s motion on April 25, 2018. On November 19, 2018, the Colorado Court denied the plaintiff’s motion for reconsideration and granted plaintiff leave to file a Second Amended Complaint. On June 8, 2020, the plaintiff filed a Second Amended Complaint against the same defendants, based in part on the Indictment (defined below). On July 31, 2020, defendants filed a motion to dismiss the Second Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiffs filed an opposition to the motion to dismiss on August 31, 2020, and defendants filed their reply on September 20, 2020. The Colorado Court's decision on the motion to dismiss is pending. On January 27, 2017, a purported class action on behalf of broiler chicken farmers was brought against PPC and four other producers in the U.S. District Court for the Eastern District of Oklahoma (the “Oklahoma Court”) alleging, among other things, a conspiracy to reduce competition for grower services and depress the price paid to growers. Plaintiffs allege violations of the Sherman Antitrust Act and the Packers and Stockyards Act and seek, among other relief, treble damages. The complaint was consolidated with a subsequently filed consolidated amended class action complaint styled as In re Broiler Chicken Grower Litigation, Case No. CIV-17-033-RJS (the “ Grower Litigation ”). The defendants (including PPC) jointly moved to dismiss the consolidated amended complaint on September 9, 2017 for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Oklahoma Court granted only certain other defendants’ motions challenging jurisdiction. On January 6, 2020, the Oklahoma Court denied the pending Rule 12 motion, and lifted the stay on discovery. The case is currently in discovery. On October 6, 2020, the Oklahoma plaintiffs filed a motion with the U.S. Judicial Panel on Multidistrict Litigation (the “JPML”) seeking consolidation of a series of copycat complaints filed in September and October 2020 in the U.S. District Courts for the District of Colorado, the District of Kansas, and the Northern District of California. On December 15, 2020, the JPML ordered the transfer of all cases to the Oklahoma Court for consolidated or coordinated pretrial proceedings. On March 9, 2017, a stockholder derivative action, DiSalvio v. Lovette, et al., No. 2017 cv. 30207, was brought against all of PPC’s directors and its Chief Financial Officer, Fabio Sandri, in the Nineteenth Judicial District Court for the County of Weld in Colorado (the “Weld County Court”). The complaint alleges, among other things, that the named defendants breached their fiduciary duties by failing to prevent PPC and its officers from engaging in an antitrust conspiracy as alleged in the In re Broiler Chicken Antitrust Litigation, and issuing false and misleading statements as alleged in the Hogan class action litigation. On April 17, 2017, a related stockholder derivative action, Brima v. Lovette, et al., No. 2017 cv. 30308, was brought against all of PPC’s directors and its Chief Financial Officer in the Weld County Court. The Brima complaint contains largely the same allegations as the DiSalvio complaint. The DiSalvio and Brima litigations (“the Derivative Litigation”) have been consolidated, and on October 14, 2020, an amended shareholder derivative complaint was filed which alleges, among other things, that the named defendants breached their fiduciary duties by failing to prevent PPC from engaging in an antitrust conspiracy as alleged in the Broiler litigation, the Indictment (as defined below), and other related proceedings; and by failing to prevent the issuance of false and misleading statements as alleged in the Hogan securities litigation and the UFCW securities litigation (as defined below). The consolidated case is currently stayed, pending the resolution of the motion to dismiss in the Hogan Litigation described above. On January 24, 2018, a stockholder derivative action styled as Sciabacucchi v. JBS S.A. et al. was brought against all of PPC’s directors, JBS S.A., JBS USA Holdings and several members of the Batista family, in the Court of Chancery of the State of Delaware (the “Chancery Court”). The complaint alleges, among other things, that the named defendants breached their fiduciary duties arising out of PPC’s acquisition of Moy Park. On May 24, 2018, Employees Retirement System of the City of St. Louis filed a derivative complaint, which was virtually identical to the Sciabacucchi complaint. Both complaints sought compensatory damages. On July 2, 2018, the Chancery Court granted a stipulation consolidating the cases and making the first complaint (Sciabacucchi) the operative complaint. Also by stipulation, various defendants have been voluntarily dismissed from the case without prejudice. The remaining defendants are JBS S.A., JBS USA Holding, and directors Lovette, Nogueira de Souza, Tomazoni, and Molina. PPC also remains in the case as a nominal defendant. On March 15, 2019, the Chancery Court denied the non-PPC defendants’ motion to dismiss. As a result, the case proceeded to discovery, and trial was scheduled to commence in November 2020. On October 3, 2019, the parties entered into a stipulation agreeing to settle the dispute for (1) a cash payment to PPC by the non-PPC defendants of $ 42.5 million less any fees and expenses awarded to the plaintiffs’ counsel, 85 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS as well as any applicable taxes (the “Settlement Amount”), and (2) corporate governance changes to be implemented by PPC. No portion of the Settlement Amount will be paid by PPC to the non-PPC defendants. The settlement was approved by the Chancery Court on January 28, 2020. On March 2, 2020, the Settlement Amount was transferred to PPC, and as a result, PPC recognized income, net of legal fees, of $ 34.6 million, which is included in Miscellaneous, net in the Consolidated Statement of Income for the year ended December 27, 2020. Between August 30, 2019 and October 16, 2019, four purported class action lawsuits were filed in the U.S. District Court for the District of Maryland (the “Maryland Court”) against PPC and a number of other chicken producers, as well as WMS (Webber, Meng, Sahl and Company) and Agri Stats. The plaintiffs seek to represent a nationwide class of processing plant production and maintenance workers (“Plant Workers”). They allege that the defendants conspired to fix and depress the compensation paid to Plant Workers in violation of the Sherman Act and seek damages from January 1, 2009 to the present. On November 12, 2019, the Maryland Court ordered the consolidation of the four cases for pretrial purposes. The defendants (including PPC) jointly moved to dismiss the consolidated complaint on November 22, 2019. Shortly thereafter, the plaintiffs informed the defendants and the Maryland Court that they would be amending their complaint, which they did on December 20, 2019. The consolidated amended complaint asserts largely similar allegations to the pleadings in the consolidated complaint, but was expanded to include more class members and turkey processors as well as chicken processors. The defendants moved to dismiss the consolidated amended complaint on March 2, 2020. The Maryland Court dismissed PPC and a number of other defendants on September 16, 2020 without prejudice. Plaintiffs subsequently filed amended complaints on November 2, 2020 re-naming PPC and the other dismissed defendants. Defendants moved to dismiss on December 18, 2020. The briefing is set to be complete on February 25, 2021. On July 6, 2020, United Food and Commercial Workers International Union Local 464A (“UFCW”), acting on behalf of itself and a putative class of persons who purchased shares of PPC stock between February 9, 2017 and June 3, 2020, filed a class action complaint in the Colorado Court against PPC, and Messrs. Lovette, Penn, and Sandri. The complaint alleges, among other things, that PPC’s public statements regarding its business and the drivers behind its financial results were false and misleading due to the defendants’ purported failure to disclose its participation in an antitrust conspiracy as alleged in the Broiler litigation and the Indictment (defined below). On September 4, 2020, UFCW and the New Mexico State Investment Council filed competing motions to be appointed lead plaintiff under the Private Litigation Securities Reform Act. A decision on the lead plaintiff motions is currently pending. PPC believes it has strong defenses in the pending litigations described above and intends to contest them vigorously. PPC cannot predict the outcome of these pending litigations nor when they will be resolved. The consequences of the pending litigation matters are inherently uncertain, and adverse actions, judgments or settlements in some or all of these matters has resulted and may in the future result in materially adverse monetary damages, fines, penalties or injunctive relief against PPC. Any claims or litigation, even if fully indemnified or insured, could damage PPC’s reputation and make it more difficult to compete effectively or to obtain adequate insurance in the future. DOJ Antitrust Matter On July 1, 2019, the DOJ issued a subpoena to PPC in connection with its investigation arising from the In re Broiler Chicken Antitrust Litigation . The Company has been cooperating with the DOJ investigation. On June 3, 2020, PPC learned of an indictment by a Grand Jury in the Colorado Court against Jayson Penn, the chief executive officer and president of PPC at that time, in addition to two former employees of PPC and a former employee of a different company (the “Indictment”). The Indictment alleges that the defendants entered into and engaged in a conspiracy to suppress and eliminate competition by rigging bids and fixing prices and other price-related terms for broiler chicken products sold in the U.S., in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. Section 1. On June 4, 2020, PPC learned that Mr. Penn pleaded not guilty to the charges. Effective June 15, 2020, Mr. Penn began a paid leave of absence from PPC. In connection with Mr. Penn’s leave of absence, PPC’s Board of Directors appointed the chief financial officer of PPC, Fabio Sandri, to serve in the additional role of PPC’s interim president and chief executive officer. On September 22, 2020, PPC's Board of Directors appointed Fabio Sandri as PPC's President and Chief Executive Officer in addition to his role as Chief Financial Officer. On September 22, 2020, PPC disclosed that Mr. Penn was no longer with the Company. The Company has initiated a search process to identify a new chief financial officer. On October 6, 2020, PPC learned of a superseding indictment by a Grand Jury in the Colorado Court against former Chief Executive Officer of PPC, William Lovette, one additional former employee of PPC, and four employees of different companies. The superseding indictment alleges similar claims to the Indictment. On October 13, 2020, the Company announced that it had entered into a plea agreement (the “Plea Agreement”) with the DOJ pursuant to which the Company agreed to (1) plead guilty to one count of conspiracy in restraint of competition involving sales of broiler chicken products in the U.S. in violation of the Sherman Antitrust Act, 15 U.S.C. § 1, and (2) pay a 86 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS fine of $ 110,524,140 . The Company recognized the fine as expense which is included in Selling, general and administrative expense in the Consolidated Statements of Income for the year ended December 27, 2020. Under the Plea Agreement, which is subject to the approval of the Colorado Court, the DOJ agreed not to bring further charges against the Company for any antitrust violation involving the sale of broiler chicken products in the U.S. occurring prior to the date of the Plea Agreement. The Company continues to cooperate with the DOJ in connection with the ongoing federal antitrust investigation into alleged price fixing and other anticompetitive conduct in the broiler chicken industry. J&F Investigation On May 3, 2017, certain officers of J&F Investimentos S.A. (“J&F,” and together with the companies controlled by J&F, the “J&F Group”), a company organized in Brazil and an indirect controlling stockholder of the Company, including a former senior executive and former board members of the Company, entered into cooperation agreements ( acordos de colaboração ) (collectively, the “Cooperation Agreements”) with the Brazilian Office of the Prosecutor General ( Procuradoria-Geral da República ) in connection with certain illicit conduct by J&F and such individuals acting in their capacity as J&F executives. The details of such illicit conduct are set forth in separate annexes to the Cooperation Agreements, and include admissions of improper payments to politicians and political parties in Brazil during a ten-year period in exchange for receiving, or attempting to receive, favorable treatment for certain J&F Group companies in Brazil. On June 5, 2017, J&F, for itself and as the controlling shareholder of the J&F Group companies, entered into a leniency agreement (the “Leniency Agreement”) with the Brazilian Federal Prosecutor (Ministério Público Federal) whereby J&F assumed responsibility for the conduct that was described in the annexes to the Cooperation Agreements. In connection with the Leniency Agreement, J&F has agreed to pay a fine of 10.3 billion Brazilian reais , adjusted for inflation, over a 25 -year period. Various proceedings by Brazilian governmental authorities remain pending against J&F and certain of its former or current officers seeking to invalidate the Cooperation Agreements and impose more severe penalties for additional alleged illicit conduct that was not disclosed in the annexes to the Cooperation Agreements. On October 14, 2020, certain affiliates of the Company – J&F Investimentos, S.A., JBS S.A., Joesley Batista and Wesley Batista – entered into a settlement agreement (the “Settlement”) with the SEC. The Company was not a party to the Settlement, was not a respondent in the related proceedings, and is not required to make any related payment. Under the Settlement, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 (the “SEC Order”) finding securities law violations by such affiliates that resulted in the Company, an indirect subsidiary, failing to maintain accurate books and records and internal accounting controls. According to the SEC Order, the violations, which related to certain intercompany transactions from 2009 to 2015, were unbeknownst to the Company’s management, and the SEC Order will have no impact on the Company’s previously filed financial statements or its prior assessments of internal control over financial reporting. On October 14, 2020, J&F reached an agreement (the “J&F Plea Agreement”) with the DOJ regarding violations stemming from the same facts and conduct that were the subject of the Leniency Agreement and the Cooperation Agreements (described above). Pursuant to the J&F Plea Agreement, J&F pled guilty to one count of conspiracy to violate the U.S. Foreign Corrupt Practices Act. The J&F Plea Agreement imposed a fine of $ 256,497,026 , and J&F was required to make a payment of $ 128,248,513 under the J&F Plea Agreement (due to J&F receiving a 50 % credit for amounts paid to Brazilian authorities). JBS and PPC are not parties to the J&F Plea Agreement and will not bear any liabilities arising from it. The J&F Plea Agreement resolved the U.S. criminal legal exposure of J&F and all its affiliates related to the conduct that was the subject of the Leniency Agreement and the Cooperation Agreements. 21. MARKET RISKS AND CONCENTRATIONS The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, investment securities and trade accounts receivable. The Company’s cash equivalents and investment securities are high-quality debt and equity securities placed with major banks and financial institutions. The Company’s trade accounts receivable are generally unsecured. Credit evaluations are performed on all significant customers and updated as circumstances dictate. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across geographic areas. The Company does not have a single customer that exceeds the 10% of net sales. For the year ended December 27, 2020, our largest single customer wa s 6.9 % of net sales. The Company does not believe it has significant concentrations of credit risk in its trade accounts receivable. As of December 27, 2020, we employed approximat ely 30,900 persons in the U.S. reportable segment, approximately 10,500 persons in the Mexico reportable segment and approximately 15,000 persons in the U.K. and Europe reportable segment. Approximately 35.2 % of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expire in 2021 or later. We have not experienced any labor-related work stoppage at any location in over ten years . We believe our relationship 87 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS with our employees and union leadership is satisfactory. At any given time, we will likely be in some stage of contract negotiations with various collective bargaining units. In the absence of an agreement, we may become subject to labor disruption at one or more of these locations, which could have an adverse effect on our financial results. As of December 27, 2020, the aggregate carrying amount of net assets belonging to our Mexico and U.K. and Europe reportable segments was $ 922.5 million and $ 2.3 billion, respectively. As of December 29, 2019, the aggregate carrying amount of net assets belonging to our Mexico and U.K. and Europe reportable segments was $ 873.9 million and $ 2.1 billion, respectively. 22. QUARTERLY RESULTS (UNAUDITED) 2020 First (a) Second Third (b) Fourth Year (In thousands, except per share data) Net sales $ 3,074,928 $ 2,824,023 $ 3,075,121 $ 3,117,829 $ 12,091,901 Gross profit 177,099 119,859 313,842 227,396 838,196 Net income (loss) attributable to PPC 67,268 ( 6,036 ) 33,446 79 94,757 Net income (loss) per share amounts - basic 0.27 ( 0.02 ) 0.14 — 0.39 Net income (loss) per share amounts - diluted 0.27 ( 0.02 ) 0.14 — 0.39 Number of days in period 91 91 91 91 364 2019 First Second Third Fourth (c) Year (In thousands, except per share data) Net sales $ 2,724,675 $ 2,843,085 $ 2,777,970 $ 3,063,489 $ 11,409,219 Gross profit 218,939 367,864 282,197 201,394 1,070,394 Net income attributable to PPC 84,011 170,068 109,765 92,080 455,924 Net income per share amounts - basic 0.34 0.68 0.44 0.37 1.83 Net income per share amounts - diluted 0.34 0.68 0.44 0.37 1.83 Number of days in period 91 91 91 91 364 2018 First (d) Second (e) Third (f) Fourth (g) Year (In thousands, except per share data) Net sales $ 2,746,678 $ 2,836,713 $ 2,697,604 $ 2,656,789 $ 10,937,784 Gross profit 287,665 274,222 169,741 111,848 843,476 Net income (loss) attributable to PPC 119,418 106,541 29,310 ( 7,324 ) 247,945 Net income (loss) per share amounts - basic 0.48 0.43 0.12 ( 0.03 ) 1.00 Net income (loss) per share amounts - diluted 0.48 0.43 0.12 ( 0.03 ) 1.00 Number of days in period 91 91 91 91 364 (a) In the first quarter of 2020, the company recognized a negative adjustment to the previously recognized gain on bargain purchase from the 2019 acquisition of PPL for approximately $ 1.7 million. (b) In the third quarter of 2020, the company recognized a negative adjustment to the previously recognized gain on bargain purchase from the 2019 acquisition of PPL for approximately $ 2.0 million. (c) On October 15, 2019, the Company acquired 100 % of the equity of PPL and its subsidiaries (together, “PPL”) from Danish Crown AmbA for £ 311.3 million, or $ 393.3 million for cash. In the fourth quarter of 2019, the Company recognized a gain on bargain purchase of $ 56.9 million and transaction costs of approximately $ 1.3 million related to the acquisition of PPL. (d) In the first quarter of 2018, the Company recognized impairment charges of approximately $ 0.5 million related to the Luverne, Minnesota plant held for sale. Also in the first quarter of 2018, the Company had transaction costs of approximately $ 0.2 million related to the acquisition of Moy Park and GNP. (e) In the second quarter of 2018, the Company recognized impairment charges of approximately $ 0.1 million related to its 40 North Foods leasehold improvements. (f) In the third quarter of 2018, the Company recognized impairment charges of approximately $ 0.3 million related to the Luverne, Minnesota plant held for sale. (g) In the fourth quarter of 2018, the Company recognized impairment charges of approximately $ 2.6 million related to Rose Energy Ltd. within its U.K. and Europe reportable segment. Also in the fourth quarter of 2018, the Company recognized nonrecurring charges of $ 3.0 million and $ 11.9 million related to Hurricane Michael and Hurricane Maria, respectively. Hurricane Michael hit the Company’s Live Oak complex in October 2018, causing two days of plant closure. Hurricane Maria hit the Company’s Puerto Rico complex in September 2017, causing six months of plant closure. SCHEDULE II PILGRIM’S PRIDE CORPORATION 88 Table of Contents VALUATION AND QUALIFYING ACCOUNTS Additions Beginning Balance Charged to Operating Results Charged to Other Accounts Deductions Ending Balance (In thousands) Trade Accounts and Other Receivables— Allowance for Doubtful Accounts: 2020 $ 7,467 $ 94 $ 186 $ 574 (a) $ 7,173 2019 8,057 1,690 110 2,390 (a) 7,467 2018 8,145 1,633 ( 39 ) 1,682 (a) 8,057 Trade Accounts and Other Receivables— Allowance for Sales Adjustments: 2020 $ 8,380 $ 287,193 $ — $ 289,571 (b) $ 6,002 2019 12,987 267,165 — 271,772 (b) 8,380 2018 9,477 254,135 — 250,625 (b) 12,987 Deferred Tax Assets— Valuation Allowance: 2020 $ 33,522 $ 156 $ — $ — (c) $ 33,678 2019 26,150 — 8,190 818 (c) 33,522 2018 14,479 11,776 — 105 (c) 26,150 (a) Uncollectible accounts written off, net of recoveries. (b) Deductions either written off, rebilled or reclassified as liabilities for market development fund rebates. (c) Reductions in the valuation allowance. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.