What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-11 · 279 added, 162 removed, 411 unchanged (52% of the section changed)

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This gives us the opportunity to continue to create growth and development opportunities, further increasing our position as a leading domestic and global protein company.

With the acquisition of Pilgrim’s Pride Ltd.

(“PPL”) and Moy Park in 2019 and 2017, respectively, we solidified ourselves as a leading European food company while diversifying our product mix with introduction into the pork market.

With the acquisition of the specialty meats and ready meals operations of Kerry Group plc (“Pilgrim’s Food Masters” or “PFM”), Pilgrim’s Pride Ltd.

(“PPL”) and Moy Park in 2021, 2019 and 2017, respectively, we solidified ourselves as a leading European food company while diversifying our product mix with introduction into the pork market and through leading, branded protein products in the U.K.

and the Republic of Ireland.

With the acquisition of GNP in 2017, we further solidified ourselves as a leading poultry company within the U.S.

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We reported net income attributable to Pilgrim’s Pride Corporation of $31.0 million, or $0.13 per diluted common share, and profit before tax totaling $92.4 million, for 2021.

These operating results included gross profit of $838.2 million and generated $724.2 million of cash from operations.

These operating results included gross profit of $1.4 billion and generated $326.5 million of cash from operations.

We generated operating margins of 1.4% with operating margins of (0.2)%, 0.0% and 13.2% in our U.S., U.K.

and Europe, and Mexico reportable segments, respectively.

During 2020, we generated EBITDA and Adjusted EBITDA of $617.7 million and $788.1 million, respectively.

A reconciliation of net income to EBITDA and Adjusted EBITDA is included in “Item 6.

Selected Financial Data” in this annual report.

During 2021, we generated EBITDA and Adjusted EBITDA of $613.0 million and $1.3 billion, respectively.

A reconciliation of net income to EBITDA and Adjusted EBITDA is included later in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report.

As discussed in “Note 20.

Commitments and Contingencies”, on October 13, 2020, we announced that we have entered into the Plea Agreement with the DOJ.

As a result of the Plea Agreement, we recognized a fine of $110,524,140 as expense during the third quarter of fiscal 2020.

On January 11, 2021, we announced that we have entered an agreement to settle all claims made by the putative Direct Purchaser Plaintiff Class in the In re Broiler Chicken Antitrust Litigation .

As a result of the settlement, we recognized a fine of $75.0 million as expense during the fourth quarter of fiscal 2020.

The Plea Agreement and Direct Purchaser Plaintiff Class settlement are included in Selling, general and administrative expense in the Consolidated Statements of Income for the year ended December 27, 2020.

In addition, as discussed below under “Hometown Strong Initiative”, we launched an initiative during 2020 to support the communities in which we operate with unexpected challenges, such as the novel coronavirus (“COVID-19”) pandemic, and as a result, we recorded $15.0 million in incremental donation expense related to this initiative during the third quarter of fiscal 2020.

Adjusted net income for the year ended December 27, 2020, which excludes the DOJ antitrust fine, the Direct Purchaser Plaintiff Class settlement, increase in donation expense and other items shown in the “Reconciliation of Adjusted Net Income”, was $250.4 million.

Selected Financial Data” section for a reconciliation of Net income attributable to Pilgrim's to Adjusted net income attributable to Pilgrim's.

Commitments and Contingencies”, we entered into agreements during 2021 to settle all claims made by two consolidated plaintiff classes in the litigation styled In re Broiler Chicken Antitrust Litigation as well as various direct action complaints filed by individual purchaser entities (“DAPs”).

The $609.8 million cost of the consolidated settlements, the DAP settlements and probable future DAP settlements are included in Selling, general and administrative expense in the Consolidated Statement of Income for the year ended December 26, 2021.

In addition, as discussed below under “Hometown Strong Initiative”, we launched an initiative during 2020 to support the communities in which we operate with unexpected challenges, such as the novel coronavirus (“COVID-19”) pandemic, and as a result, we recorded $15.0 million and $1.0 million in donation expense related to this initiative during 2020 and 2021, respectively.

Adjusted net income for the year ended December 26, 2021, which excludes items shown in the “Reconciliation of Adjusted Net Income”, was $557.4 million.

We operate on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31.

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Fiscal 2021 and 2020 were 52-week accounting cycles.

Unsolicited Offer from JBS to Purchase Outstanding Shares of PPC Common Stock

On September 20, 2021, the Company announced that its board of directors had formed a special committee of independent directors (“Special Committee”) to review and evaluate the previously announced unsolicited proposal received on August 12, 2021 from JBS to acquire all of the outstanding shares of common stock of PPC that JBS does not currently own.

On February 4, 2022, the Special Committee provided an update to the full board of directors on the status of the discussions with JBS.

After thorough review of the proposal from JBS in consultation with its financial and legal advisors, on October 29, 2021, the Special Committee informed JBS that it would not support the JBS proposal unless JBS significantly increased its purchase price.

On November 15, 2021, JBS offered to increase its purchase price from $26.50 per share to $28.50 per share.

The Special Committee, in consultation with its financial and legal advisors, determined that the revised proposal from JBS does not appropriately value the shares of PPC owned by shareholders other than JBS, and again informed JBS that the Special Committee would not support the JBS proposal unless JBS significantly increased its purchase price.

On January 12, 2022, JBS informed the Special Committee that it is continuing to evaluate the Special Committee’s response to the JBS proposal and is considering whether to further revise the terms of its proposal.

On February 17, 2022, JBS withdrew its proposal to acquire all of the outstanding shares of common stock of PPC not owned by JBS or its subsidiaries.

Pilgrim’s Food Masters Acquisition

On September 24, 2021, the Company acquired 100% of the equity of the specialty meats and ready meals businesses of Kerry Group plc for £695.3 million, or $954.1 million, subject to customary working capital adjustments.

The acquisition was funded with the Company's recent senior notes offering and borrowings under the credit facility.

The operations have since been renamed to Pilgrim’s Food Masters.

The specialty meats business is a leading manufacturer of branded and private label meats, meat snacks and food-to-go products in the U.K.

and the Republic of Ireland.

The ready meals business is a leading ethnic chilled and frozen ready meals business in the U.K.

The combined businesses produced over £725 million in annual sales during the year ended December 31, 2020 and have more than 4,000 team members.

The results of operations of the acquired business since September 24, 2021 are included in the Company’s Consolidated Statements of Income.

Net sales and net income generated by the acquired business during 2021 totaled $293.6 million and $2.3 million, respectively.

The acquisition solidifies Pilgrim's as a leading European food company.

The acquired operations are included in the Company's U.K.

and Europe reportable segment.

Economic Conditions

During the second half of 2021, we experienced significant challenges in the U.K.

economic environment.

We were confronted with severe labor shortages as European Union workers returned to their home countries following Brexit, affecting our ability to process, pack and transport products.

In addition, we also faced significant cost pressure from feed ingredients - specifically oils and micronutrients - and increased costs for utilities, logistics, chemicals, labor and packaging.

pork operations also had to overcome low hog prices resulting from an oversupply in Europe.

Although chicken and pork sales were stable or at increased levels, these sales were generated at significantly reduced margins.

We have responded to these challenges by opening negotiations with customers to recoup extraordinary costs we have experienced.

We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.

Impact of COVID-19

The extensive impact of the pandemic caused by COVID-19 has resulted and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other jurisdictions have imposed various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations and extended closures of businesses.

On April 28, 2020, an executive order designated meat and poultry processing plants as critical infrastructure.

As the global spread of the virus began to accelerate late in March of 2020, we began to experience adverse impacts to our business and financial results.

The extensive impact of the pandemic caused by COVID-19 has resulted and will likely continue to result in disruptions to the global economy, as well as businesses and capital markets around the world.

In an effort to halt the outbreak of COVID-19, a number of countries, states, counties and other jurisdictions imposed various measures, including but not limited to, voluntary and mandatory quarantines, stay-at-home orders, travel restrictions, limitations on gatherings of people, reduced operations and extended closures of businesses.

As the global spread of the virus began to accelerate late in March 2020, we began to experience adverse impacts to our business and financial results.

The impact of the COVID-19 pandemic included disruptions in supply chain, an increase in both broiler and chick costs and an increase in payroll and benefits costs.

During the second quarter of 2020, the impact of the COVID-19 pandemic on our financial results generally decreased because of increased demand for our products at retail grocery stores and quick service restaurants and our ability to meet this demand through our transitioned business operations, as further discussed below.

We believe that we will continue to experience disruptions and other changes to our business due to the COVID-19 pandemic into 2021.

As the various mitigation efforts implemented across the globe began to take effect, the impact of the COVID-19 pandemic on our financial results generally decreased because of increased demand for our products at retail grocery stores and quick service restaurants and our ability to meet this demand through our transitioned business operations, as further discussed below.

In 2021, we experienced intermittent impacts as noted above associated with the COVID-19 pandemic.

We believe that we will continue to experience intermittent disruptions to our business due to the COVID-19 pandemic into 2022.

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

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Centers for Disease Control and Prevention, the National Institute of Occupational Safety and Health, and local and regional Departments of Health in an effort to keep our employees safe and healthy.

Measures we have implemented include, but are not limited to:

Measures we implemented during the height of the pandemic include, but are not limited to:

increasing physical distancing of our employees, where possible, by staggering start and shift breaks, placing on-site tents to create more space for employees at break and at meal times, and installing physical barriers to distance employees while working on production lines;

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In addition, we implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely.

Finally, as COVID-19 vaccinations became more readily available in the first quarter of 2021, we strongly encouraged our employees to become vaccinated through sponsored vaccination clinics at our facilities and monetary bonuses to our employees once they completed the recommended vaccination regimen.

We have continued to support our employees and their family members to be vaccinated against COVID-19.

• Our operations.

A ll of our 60 production facilities are operating , although some facilities have reduced production levels and outputs due to increased health and safety measures, employee absenteeism and as a consequence of the decline in demand by restaurants and other foodservice businesses.

A ll of our production facilities continued to operate , although some facilities reduced production levels and outputs due to increased health and safety measures, employee absenteeism, and as a consequence of the decline in demand by restaurants and other foodservice businesses.

To date, we have not experienced a material impact from a plant closure and our facilities have largely been exempt from government closure orders.

• Demand for our products.

COVID-19 and the implementation of restricted living have led to a shift in demand from restaurants to retail grocery stores, with consumers eating more at home due to stay-at-home orders.

and Mexico businesses, demand for parts and whole-birds (typically bound for restaurants) and prepared foods (distributed, in part, to schools) has declined, while our U.K.

In early 2021, COVID-19 continued to affect demand for our products.

and Mexico businesses, demand for parts and whole-birds (typically bound for restaurants) and prepared foods (distributed, in part, to schools) declined, while our U.K.

and Europe business, which is more retail focused, has generally seen less of an impact.

In an effort to counter the adverse effects of COVID-19, we have transitioned, where commercially reasonable and possible to do so, our business operations to be in the best position to supply COVID-19 market demands.

These efforts have included transferring live supply to case ready, shifting production form and mix from foodservice to retail, increasing capacity utilization of retail packaging equipment, and analyzing export positions.

Our liquidity position is strong and we have taken additional measures to increase liquidity to prepare for the challenging environment ahead.

On March 20, 2020 and March 25, 2020, we elected to borrow $200.0 million and $150.0 million, respectively, under the U.S.

Credit Facility as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak.

The draw-down proceeds borrowed on March 20, 2020 and March 25, 2020 were repaid during the fourth quarter of 2020.

Those efforts included transferring live supply to case ready, shifting production form and mix from foodservice to retail, increasing capacity utilization of retail packaging equipment, and analyzing export positions.

However, as global vaccination levels increased and governmental restrictions eased, we noted the trend towards pre-pandemic levels of demand at retail grocery stores and restaurants.

Our liquidity position is strong and we took additional measures in 2020 to increase liquidity to prepare for the challenging environment.

• Foreign currency exchange rates and commodity prices.

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On March 27, 2020, the U.S.

government enacted the CARES Act, which includes modifications to the limitation on business interest expense and net operating loss provisions, and provides a payment delay of employer payroll taxes during 2020 after the date of enactment.

We estimate the payment of approximately $51 million of employer payroll taxes otherwise due in 2020 will be delayed with 50% due by December 31, 2021 and the remaining 50% by December 31, 2022.

government enacted the CARES Act, which included modifications to the limitation on business interest expense and net operating loss provisions, and provided a payment delay of employer payroll taxes during 2020 after the date of enactment.

We delayed the payment of $52 million in employer payroll taxes otherwise due in 2020.

The first 50% was paid on December 31, 2021 and the remaining 50% is due and payable by December 31, 2022.

Raw Materials

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and Europe reportable segment uses wheat, soybean meal and barley as the main ingredients for feed production.

During fiscal 2020, chicken prices in the market were volatile, beginning the fiscal year on the low end and then subsequently stabilizing and improving by the end of the fiscal year.

In particular, during the first quarter of 2020, market prices for chicken trended near the bottom of the historical range while sustaining prices sufficiently higher than the cost of feed and ingredients to provide positive margins.

During this time, the industry experienced increased production compared to the first quarter of 2019.

The spread of COVID-19 and subsequent market reactions late into the first quarter of 2020 resulted in an unexpected shift in demand from foodservice to retail markets, triggering a shift in supply and demand, causing volatility in market prices.

The industry adjusted through reductions of egg sets and chick placements, which continued to trend throughout the year ended December 27, 2020, resulting in reduced broiler production in the last half of 2020.

Reduced broiler production coincided with robust retail demand, quickly recovering foodservice throughout the second half of 2020, which had

significantly improved over the low point during the second quarter of 2020.

As a result, chicken market prices stabilized moving into the third quarter, and even improved in the fourth quarter compared to the previous year.

While chicken prices have improved in the second half of 2020, prices in 2021 will depend on the recovery of the foodservice industry, influenced by factors such as the COVID-19 pandemic, government regulation, uncertainty surrounding the general economy and protein supply.

During 2021, chicken prices were higher than average for most of the year.

The jumbo cutout entered the first quarter slightly above the five-year average before increasing to new five-year highs and remained above the historical range through the end of the year.

During the first quarter of 2021, chicken production paced at a level below that of the first quarter of 2020 as fewer egg sets and reduced hatchability rates contributed to fewer chickens processed.

The year-over-year decline in production was paired with robust demand for chicken at retail, as well as the continued improvement of foodservice demand for chicken.

As a result, chicken supply did not pace with improved demand, resulting in continued cold storage stock draw downs and increased market prices.

From the second quarter of 2021 through the year ended December 26, 2021, broiler production posted year-over-year gains from both increased headcounts and average liveweights.

Sustained demand for retail chicken products and the continued improvements in foodservice demand pressured available supplies despite the production gains.

As a result, chicken prices remained well supported throughout the year, even displayed counter-seasonal increases in mid-third quarter and late fourth quarter, leading to new five-year highs.

While chicken prices have remained well supported in 2021, pricing throughout 2022 will be influenced by the development of both retail and foodservice demand in light of factors such as consumer and governmental responses to the spread of COVID-19 variants, uncertainty surrounding the general economy and protein supply due to labor availability and chicken hatchability.

Sustainability

We believe sustainability involves continuously improving social responsibility, economic viability and environmental stewardship.

We are committed to helping society meet the global challenge of feeding a growing population in a responsible matter.

Environmental Stewardship .

We were the first major meat and poultry company in the world to set a net zero greenhouse gas emissions target by 2040, demonstrating our leadership and dedication to improving the efficiency of our operations and supporting producers to reduce our environmental footprint.

In support of this initiative, in April 2021, we

issued $1.0 billion of sustainability-linked bonds, which require us to reduce our global greenhouse gas emissions intensity by 30% by 2030.

We are ahead of our targeted reductions as we close out 2021.

Social Responsibility .

Safety of our team members is a condition at Pilgrim’s.

The health of our workforce was our top priority throughout the COVID-19 pandemic, and we implemented hundreds of safety measures within our facilities, constantly evolving our operations as needed.

To support the communities where our team members live and work, we invested more than $20 million in local projects focused on alleviating food insecurity, strengthening long-term community infrastructure and well-being and aiding COVID-19 emergency response and relief efforts through our Hometown Strong initiative.

Finally, ensuring the well-being of animals under our care is an uncompromising commitment at Pilgrims.

We continually strive to improve our welfare efforts through the use of new technologies and the implementation of standards that meet and exceed regulatory requirements and industry guidelines.

Hometown Strong Initiative

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We believe the Hometown Strong initiative will provide consequential investment projects for a lasting impact on these communities and help them prepare for unanticipated challenges and build for the future.

For 2020, we committed to Hometown Strong donations of $20.0 million and during the year ended December 27, 2020, we recorded $15.0 million in incremental donations expense relating to this initiative.

Potential Impact of Tariffs

We recognized $15.0 million and $1.0 million of donations expense related to this initiative during 2020 and 2021, respectively.

Potential Impact of Tariffs, Labor Shortages and Freight Costs

We continue to monitor recent trade and tariff activity and its potential impact to exports and inputs costs across our reportable segments.

Currently, we are experiencing impacts to domestic and export prices of chicken resulting from uncertainty in trade policies and increased tariffs.

Currently, we are experiencing impacts to domestic and export prices of chicken resulting from uncertainty in trade policies, increased tariffs, labor shortages and increased freight costs.

With the implementation of the EU-U.K Trade and Cooperation Agreement, there is uncertainty regarding the processing of imports and administration costs that will follow.

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We are unable to give any assurance as to the scope, duration, or impact of any changes in trade policies or tariffs, how successful any mitigation efforts will be, or the extent to which mitigation will be necessary, and accordingly, changes in trade policies and increased tariffs could have a material adverse effect on our business and results of operations.

Also, continued congestion at ports and other transportation challenges could adversely affect our U.S.

export business.

Reportable Segments

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We measure segment profit as operating income.

Corporate expenses are allocated to Mexico and U.K.

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.

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2021 Compared to 2020

Net sales for 2020 increased $682.7 million, or 6.0%, from $11.4 billion generated in 2019 to $12.1 billion generated in 2020.

Net sales for 2021 increased $2.7 billion, or 22.2%, from $12.1 billion generated in 2020 to $14.8 billion generated in 2021.

The following table provides additional information regarding net sales:

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Reportable Segment.

net sales generated in 2020 decreased $140.7 million, or 1.8%, from U.S.

net sales generated in 2019 primarily because of a decrease in net sales per pound, contributing $188.2 million, or 2.4 percentage points, to the decrease in net sales.

This decrease in net sales per pound was partially offset by $47.5 million, or 0.6 percentage points, due to an increase in sales volume.

net sales generated in 2021 increased $1.6 billion, or 21.6%, from U.S.

net sales generated in 2020 primarily because of an increase in net sales per pound, contributing $1.7 billion, or 22.1 percentage points, to the increase in net sales.

Unit sales prices have increased in the fourth quarter of 2021 as we attempted to recover the increased costs, primarily for feed ingredients, energy, transportation and packaging materials, that we have incurred in growing and processing chicken.

This increase in net sales per pound was partially offset by $40.2 million, or 0.5 percentage points, due to a decrease in sales volume.

and Europe Reportable Segment.

and Europe sales generated in 2021 increased $659.8 million, or 20.2%, from U.K.

and Europe sales generated in 2019, primarily because of the recently acquired PPL operations, partially offset by a decrease in net sales by our existing U.K.

and Europe sales generated in 2020, primarily because of the recently acquired PFM operations, as well as an increase in net sales by our existing U.K.

and Europe operations.

The impact of the acquired business contributed $1.1 billion, or 44.3 percentage points, to the increase in net sales.

The decrease in our existing U.K.

and Europe operations was driven by a decrease in sales volume and a decrease in net sales per pound, contributing $159.6 million, or 6.7 percentage points, and $14.5 million, or 0.6 percentage points, respectively, to the decrease in net sales.

These decreases in sales volume and net sales

per pound were partially offset by $8.0 million, or 0.4 percentage points, due to the favorable impact of foreign currency translation.

The impact of the acquired business contributed $293.6 million, or 9.0 percentage points, to the increase in net sales.

The increase in our existing U.K.

and Europe operations was driven by an increase due to the favorable impact of foreign currency translation, an increase in sales volume and an increase in net sales per pound, contributing $248.8 million, or 7.6 percentage points, $111.7 million, or 3.4 percentage points, and $5.7 million, or 0.2 percentage points, respectively, to the increase in net sales.

The increase in sales volume was primarily driven by increased sales in foodservice.

The increase in net sales per pound was primarily driven by increased feed costs.

Mexico Reportable Segment.

Mexico sales generated in 2020 decreased $67.1 million, or 4.8%, from Mexico sales generated in 2019 primarily because of the unfavorable impact of foreign currency remeasurement and a decrease in sales volume, partially offset by an increase in net sales per pound.

The impact of the unfavorable impact of foreign currency remeasurement and decreased sales volume contributed $154.9 million, or 11.1 percentage points, and $22.1 million, or 1.6 percentage points, to the decrease in net sales.

Partially offsetting these decreases in net sales by $109.9 million, or 7.9 percentage points, was an increase in net sales per pound.

Mexico sales generated in 2021 increased $407.9 million, or 30.9%, from Mexico sales generated in 2020 primarily because of an increase in net sales per pound and the favorable impact of foreign currency remeasurement, partially offset by a decrease in sales volume.

The increase in net sales per pound and the impact of the favorable impact of foreign currency remeasurement contributed $337.3 million, or 25.6 percentage points, and $99.3 million, or 7.5 percentage points, to the increase in net sales.

Partially offsetting these increases in net sales by $28.7 million, or 2.2 percentage points, was a decrease in sales volume.

Gross profit.

Gross profit decreased by $232.2 million, or 21.7%, from $1.1 billion generated in 2019 to $838.2 million generated in 2020.

Gross profit increased by $527.6 million, or 62.9%, from $0.8 billion generated in 2020 to $1.4 billion generated in 2021.

The following tables provide gross profit information:

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Cost of sales incurred by our U.S.

operations in 2020 increased $92.3 million, or 1.3%, from cost of sales incurred by our U.S.

operations in 2021 increased $1.2 billion, or 17.0%, from cost of sales incurred by our U.S.

operations in 2020.

Cost of sales increased primarily because of increased cost per pound sold and increased poultry sales volume of $49.3 million, or 0.7 percentage points, and $43.0 million, or 0.6 percentage points, respectively.

Included in the increase in cost per pound sold and increased sales volume was a $43.4 million increase in live input costs, a $34.6 million increase in benefits costs mainly due to the COVID-19 pandemic, an $18.0 million increase in depreciation costs, a $16.9 million increase in payroll costs due to higher pay rates, a $15.8 million increase in outside service costs from increased outside processing labor and a $15.6 million increase in insurance costs, mainly from higher workers’ compensation costs.

Partially offsetting these increases in cost per pound sold and increased sales volume was a decrease in derivative expense of $59.9 million resulting from higher realized losses on commodity derivatives in 2019.

Cost of sales increased primarily because of increased cost per pound sold of $1.2 billion, or 17.5 percentage points, partially offset by a decrease in sales volume of $37.5 million, or 0.5 percentage points.

Included in the increase in cost per pound sold and increased sales volume was an $870.2 million increase in live input costs, a $158.7 million increase in prepared foods purchases, a $90.5 million increase in payroll costs, a $45.0 million increase in outside service costs primarily from increased outside processing labor, a $24.8 million increase in depreciation charges and an $18.9 million increase in freight charges.

Included in the $870.2 million increase in live input costs were a $746.5 million increase in feed costs, $73.5 million increase in chick costs, and a $35.0 million increase in contract grower costs.

Other factors affecting U.S.

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and Europe operations during 2021 increased $713.9 million, or 23.4%, from cost of sales incurred by the U.K.

and Europe operations during 2019 primarily because of costs incurred by the acquired PPL operations, partially offset by decreases in cost of sales incurred by our existing U.K.

and Europe operations during 2020 primarily because of costs incurred by the acquired PFM operations and from increases in cost of sales incurred by our existing U.K.

and Europe operations.

Cost of sales incurred by the acquired PPL operations contributed $1.0 billion, or 45.9 percentage points, to the increase in cost of sales.

Cost of sales related to the existing U.K.

and Europe operations decreased $169.7 million, or 7.7 percentage points, due to a decrease in poultry sales volume and a decrease in cost per pound sold of $147.1 million and

$29.9 million, respectively.

These decreases in cost of sales were partially offset by the $7.3 million unfavorable impact of foreign currency translation.

The decrease in cost per pound sold is due to the adjusted product mix from foodservice to retail due to the COVID-19 pandemic.

and Europe operations increased due to an increase in sales volume, an increase in cost per pound sold and the unfavorable impact of foreign currency translation and the impact of the acquired businesses of $323.5 million, or 10.6 percentage points, $100.5 million, or 3.3 percentage points, and $289.9 million, or 9.5 percentage points, respectively.

Other factors affecting cost of sales were individually immaterial.

Mexico Reportable Segment.

Cost of sales incurred by the Mexico operations during 2020 decreased $21.0 million, or 1.7%, from cost of sales incurred by the Mexico operations during 2019 primarily because of the favorable impact of foreign currency remeasurement and decreased poultry sales volume of $141.0 million, or 11.5 percentage points, and $19.4 million, or 1.6 percentage points, respectively.

Partially offsetting these decreases in cost of sales was an increase of $139.4 million, or 11.4 percentage points in cost per pound sold.

Included in the decreased poultry sales volume and increased cost per pound sold was a $73.7 million increase in poultry input costs due to increased grain and ingredient costs.

Cost of sales incurred by the Mexico operations during 2021 increased $251.2 million, or 20.9%, from cost of sales incurred by the Mexico operations during 2020 primarily because of an increase in cost per pound sold and the unfavorable impact of foreign currency remeasurement of $193.8 million, or 16.2 percentage points, and $83.5 million, or 6.9 percentage points, respectively.

Partially offsetting these increases in cost of sales was a decrease of $26.1 million, or 2.2 percentage points in sales volume.

Other factors affecting cost of sales were individually immaterial.

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SG&A expenses 1,148,861 556,251 93.9 % 7.8 % 4.9 %

Administrative restructuring activities 123 207 (246.4) % — % — %

Restructuring activities 5,802 5,679 4,617.1 % — % — %

Operating income $ 211,164 $ (34,299) (14.0) % 1.4 % 2.0 %

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operations during 2021 increased $511.9 million, or 118.7%, from SG&A expense incurred by the U.S.

operations during 2019 primarily from the $110.5 million DOJ agreement, the $75.0 million Direct Purchaser Plaintiff Class settlement, $15.0 million in incremental donations expense related to the Hometown Strong initiative and a $25.6 million increase in professional fees mainly due to increased legal representation services.

These increases in SG&A expense were partially offset by a $20.0 million decrease in payroll and benefit costs due to decreased incentive and stock-based compensation.

operations during 2020 primarily from an increase of $470.7 million in litigation settlements and a $24.0 million increase in professional fees mainly due to increased legal representation services.

Other factors affecting SG&A expense were individually immaterial.

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and Europe operations during 2021 increased $43.6 million, or 37.7%, from SG&A expense incurred by the U.K.

and Europe operations during 2019 primarily because of expenses incurred by the acquired PPL operations of $25.7 million, partially offset by a decrease in SG&A expense incurred from our existing U.K.

and Europe operations of $2.8 million.

The decrease in SG&A expense in our existing U.K.

and Europe was mainly due to a $2.1 million decrease in travel and entertainment expense due to the COVID-19 pandemic and a $2.0 million decrease in legal and other professional fees expense.

and Europe operations during 2020 primarily because of expenses incurred by the acquired PFM operations and an increase in SG&A expense incurred from our existing U.K.

and Europe operations.

The increase in SG&A expense in our existing U.K.

and Europe was mainly due to transactions costs related to the acquisition of PFM and an increase in contract labor services.

Other factors affecting SG&A expense were individually immaterial.

Mexico Reportable Segment.

SG&A expense incurred by the Mexico operations during 2020 increased $5.0 million, or 12.2%, from SG&A expense incurred by the Mexico operations during 2019 primarily because of a $2.4 million increase in employee relations expenses and a $1.5 million increase in professional fees expense.

Other factors affecting SG&A expense were individually immaterial.

SG&A expense incurred by the Mexico operations during 2021 increased $0.8 million, or 1.7%, from SG&A expense incurred by the Mexico operations during 2020.

Factors affecting SG&A expense were individually immaterial.

Interest expense .

Consolidated interest expense decreased 4.9% to $126.1 million in 2020 from $132.6 million in 2019, primarily because of a decrease in weighted average interest rates to 4.7% in 2020 from 5.3% in 2019.

Consolidated interest expense increased 15.6% to $145.8 million in 2021 from $126.1 million in 2020, primarily from a loss on early extinguishment of debt recognized as a component of interest expense of $24.7 million.

As a percent of net sales, interest expense in 2021 and 2020 was 1.0% and 1.0%, respectively.

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Our consolidated income tax expense in 2021 was $61.1 million, compared to income tax expense of $66.8 million in 2020.

The decrease in income tax expense in 2020 resulted from a decrease in pre-tax income during 2020.

The decrease in income tax expense in 2021 resulted from a decrease in pre-tax income during 2021, partially offset by the recognition of a $6.5 million reserve recognized against certain U.K.

interest deductions and the recognition of deferred tax expense of $32.0 million related to the enactment of the U.K.

tax rate changed to 25% effective April 1, 2023.

2020 Compared to 2019

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Reportable Segment.

net sales generated in 2019 increased $211.1 million, or 2.8%, from U.S.

net sales generated in 2018 primarily because of an increase in sales volume and an increase in net sales per pound.

The increase in sales volume contributed $139.6 million, or 1.8 percentage points, to the increase in net sales.

The increase in net sales per pound contributed $71.5 million, or 1.0 percentage points, to the increase in net sales.

net sales generated in 2020 decreased $140.7 million, or 1.8%, from U.S.

net sales generated in 2019 primarily because of a decrease in net sales per pound, contributing $188.2 million, or 2.4 percentage points, to the decrease in net sales.

This decrease in net sales per pound was partially offset by $47.5 million, or 0.6 percentage points, due to an increase in sales volume.

and Europe Reportable Segment.

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and Europe operations.

The impact of the acquired business contributed $306.7 million, or 14.2 percentage points, to the increase in net sales.

The impact of the acquired business contributed $1.1 billion, or 44.3 percentage points, to the increase in net sales.

The decrease in our existing U.K.

and Europe operations was mainly due to the unfavorable impact of foreign currency translation of $94.4 million, or 4.4 percentage points.

The unfavorable impact of foreign currency translation was partially offset by an increase in sales volume and net sales per pound of $15.3 million, or 0.7 percentage points, and $7.6 million, or 0.4 percentage points, respectively.

These decreases in sales volume and net sales per pound were partially offset by $8.0 million, or 0.4 percentage points, due to the favorable impact of foreign currency translation.

Mexico Reportable Segment.

Mexico sales generated in 2019 increased $25.3 million, or 1.9%, from Mexico sales generated in 2018 primarily because of an increase in net sales per pound, partially offset by a decrease in sales volume and the unfavorable impact of foreign currency remeasurement.

The increase in net sales per pound contributed $59.2 million, or 4.4 percentage points, to the increase in Mexico net sales.

The decrease in sales volume and unfavorable impact of foreign currency remeasurement partially offset the increase in net sales per pound by $32.1 million, or 2.4 percentage points, and $1.8 million, or 0.1 percentage points, respectively.

Partially offsetting these decreases in net sales by $109.9 million, or 7.9 percentage points, was an increase in net sales per pound.

Gross profit.

Gross profit increased by $226.9 million, or 26.9%, from $843.5 million generated in 2018 to $1.1 billion generated in 2019.

Gross profit decreased by $232.2 million, or 21.7%, from $1.1 billion generated in 2019 to $838.2 million generated in 2020.

The following tables provide gross profit information:

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Cost of sales incurred by our U.S.

operations in 2019 decreased $6.5 million, or 0.1%, from cost of sales incurred by our U.S.

operations in 2020 increased $92.3 million, or 1.3%, from cost of sales incurred by our U.S.

operations in 2019.

Cost of sales primarily decreased because of reduced cost per pound sold, partially offset by increased poultry sales volume.

The decrease in cost per pound sold contributed $92.6 million to the decrease in cost of sales.

This decrease is partially offset by an increase in poultry sales volume of $86.0 million.

Included in the decrease in cost per pound sold and increased sales volume was an $81.2 million increase in hourly labor due to an increase in required labor for reduced use of third-party poultry processors and a $15.1 million increase in contracted processing labor.

Partially offsetting these increases in cost of sales was a $16.0 million decrease in freight cost due to decreased contract rates, $14.9 million in costs in 2018 relating to Hurricane Michael and Hurricane Maria, a $14.8 million decrease in commodity and currency derivative losses, an $11.3 million decrease in feed costs, a $9.2 million decrease in cost relating to third-party poultry processors and a $5.7 million decrease in property taxes.

Other factors affecting U.S.

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and Europe operations.

Cost of sales incurred by the acquired PPL operations contributed $297.5 million to the increase in cost of sales.

Cost of sales incurred by the acquired PPL operations contributed $1.0 billion, or 45.9 percentage points, to the increase in cost of sales.

Cost of sales related to the existing U.K.

and Europe operations decreased due to the favorable impact of foreign currency translation of $87.1 million, partially offset by an increase in poultry sales volume of $14.1 million and an increase in cost per pound sold of $9.6 million.

Included in the increase in sales volume and cost per pound was a $22.8 million increase in payroll cost due to national minimum wage increases, a $7.8 million increase in maintenance costs due to additional equipment and production lines and a $4.4 million increase in utilities as a result of increased rates.

Partially offsetting these increases in cost of sales was a $12.7 million decrease in live costs mainly due to increased efficiencies.

and Europe operations decreased $169.7 million, or 7.7 percentage points, due to a decrease in poultry sales volume and a decrease in cost per pound sold of $147.1 million and $29.9 million, respectively.

These decreases in cost of sales were partially offset by the $7.3 million unfavorable impact of foreign currency translation.

The decrease in cost per pound sold is due to the adjusted product mix from foodservice to retail due to the COVID-19 pandemic.

Other factors affecting cost of sales were individually immaterial.

Mexico Reportable Segment.

Cost of sales incurred by the Mexico operations during 2019 increased $16.8 million, or 1.4%, from cost of sales incurred by the Mexico operations during 2018 primarily because of increased cost per pound sold.

The increase in cost per pound sold was partially offset by a decrease in sales volume and the favorable impact of foreign currency remeasurement.

The increase in cost per pound sold contributed $46.8 million to the increase in cost of sales.

Partially offsetting this increase in cost of sales was the decrease in sales volume of $28.4 million and favorable impact of foreign currency remeasurement of $1.6 million.

Included in the increase in cost per pound sold and sales volume decrease was a $16.1 million increase in grower pay due to increased live operations and a $5.7 million increase in freight costs.

Partially offsetting these increases in cost of sales was a $6.6 million increase in gains on sale of assets during 2019.

Partially offsetting these decreases in cost of sales was an increase of $139.4 million, or 11.4 percentage points in cost per pound sold.

Included in the decreased poultry sales volume and increased cost per pound sold was a $73.7 million increase in poultry input costs due to increased grain and ingredient costs.

Other factors affecting cost of sales were individually immaterial.

Operating income.

Operating income increased $194.9 million, or 39.3%, from $495.7 million generated for 2018 to $690.6 million generated for 2019.

Operating income decreased $445.1 million, or 64.5%, from $690.6 million generated for 2019 to $245.5 million generated for 2020.

The following tables provide operating income information:

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Total SG&A expense $ 592,610 $ 212,700 56.0 %

Sources of administrative restructuring activities 2019 Change from 2018

Amount Percent

(In thousands, except percent data)

$ (84) $ (2,224) (103.9) %

and Europe — (2,625) (100.0) %

Total administrative restructuring activities $ (84) $ (4,849) (101.8) %

Reportable Segment.

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operations during 2020 increased $184.8 million, or 75.0%, from SG&A expense incurred by the U.S.

operations during 2018 primarily because of a $17.7 million increase in incentive compensation expenses and a $7.0 million increase in legal fees due to increased litigation.

These increases in SG&A expense were partially offset by a $20.0 million decrease in payroll and benefit costs due to decreased incentive and stock-based compensation.

Other factors affecting SG&A expense were individually immaterial.

Administrative restructuring activities incurred by the U.S.

operations during 2019 decreased $2.2 million, or 103.9%, from administrative restructuring activities incurred during 2018.

Administrative restructuring activities incurred by the U.S.

reportable segment during 2019 included $84,000 of sublease income related to the termination of 40 North Foods operations.

Administrative restructuring activities incurred by the U.S.

reportable segment during 2018 included severance costs totaling $1.0 million related to GNP, facility closure costs totaling $0.5 million related to the Luverne, Minnesota facility and severance, asset impairment and lease obligations costs totaling $0.7 million that resulted from the termination of the 40 North Foods operation.

and Europe Reportable Segment.

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and Europe operations during 2020 increased $22.9 million, or 24.7%, from SG&A expense incurred by the U.K.

and Europe operations during 2018 primarily because of expenses incurred by the acquired PPL operations, partially offset by a decrease in SG&A expense incurred from our existing U.K.

and Europe operations.

SG&A expense incurred by the acquired PPL operations contributed $13.1 million to the increase in SG&A expense.

and Europe operations of $2.8 million.

The decrease in SG&A expense in our existing U.K.

and Europe was mainly due to favorable impact of foreign currency translation of $3.3 million.

and Europe was mainly due to a $2.1 million decrease in travel and entertainment expense due to the COVID-19 pandemic and a $2.0 million decrease in legal and other professional fees expense.

Other factors affecting SG&A expense were individually immaterial.

Administrative restructuring activities incurred by the U.K.

and Europe operations during 2019 decreased $2.6 million, or 100.0%, from administrative restructuring activities incurred during 2018.

During 2018, administrative restructuring activities represented impairment costs of $2.6 million related to Rose Energy Ltd.

Mexico Reportable Segment.

SG&A expense incurred by the Mexico operations during 2019 increased $4.1 million, or 11.0%, from SG&A expense incurred by the Mexico operations during 2018 primarily because of a $2.3 million increase in payroll mainly due to increased rates and a $1.1 million increase marketing expenses due to increased brand development.

Other factors affecting SG&A expense were individually immaterial.

Interest expense .

Consolidated interest expense decreased 18.5% to $132.6 million in 2019 from $162.8 million in 2018, primarily because of a decrease in average borrowings to $2.3 billion in 2019 from $2.5 billion in 2018.

As a percent of net sales, interest expense in 2020 and 2019 was 1.0% and 1.2%, respectively.

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Our consolidated income tax expense in 2020 was $66.8 million, compared to income tax expense of $161.0 million in 2019.

The increase in income tax expense in 2019 resulted from an increase in pre-tax income during 2019.

The decrease in income tax expense in 2020 resulted from a decrease in pre-tax income during 2020.

Liquidity and Capital Resources

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Credit Facility (a)

750.0 39.7 710.3

Revolving credit 800.0 36.1 763.9

Term loan 700.0 506.3 193.7

Mexico Credit Facility (b)

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dollar-equivalent of the amount available under the U.K.

and Europe Credit Facilities are $135.6 million (£100.0 million) and $12.2 million (€10.0 million).

and Europe Credit Facilities are $134.1 million (£100.0 million).

On February 8, 2022, we borrowed the remaining $193.7 million of the delayed draw commitment on the term loan under the U.S.

Credit Facility.

In July 2021, one of our Mexican subsidiaries received an observation letter from the Mexican Tax Authority (the “MTA”) asserting a withholding tax liability due in connection with our 2015 acquisition of Provemex Holding LLC and its subsidiaries.

Although we do not expect any claims or assessments set forth in the observation letter to result in future cash outlays, we are currently evaluating the claims and assessments as set forth in the observation letter.

We responded to the observation letter in August 2021 and in November 2021, we received notice that the MTA ratified their assertions contained in the observation letter without acknowledging our arguments.

The MTA now has six months to issue a formal assessment, at which time we plan to file an administrative appeal against any formal assessment received.

Cash Flows from Operating Activities December 26, 2021 December 27, 2020

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Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $335.8 million for the year ended December 26, 2021.

Net noncash expense items included $337.1 million of depreciation and amortization, $37.3 million of deferred income tax expense, loan cost amortization of $4.8 million, and a $3.7 million negative adjustment to a previously recognized gain on bargain purchase from the PPL acquisition.

Partially offsetting the net noncash expenses was a $13.8 million gain on property disposals.

Net noncash expense items included $380.8 million of depreciation and amortization, a $24.7 million loss on early extinguishment of debt, $11.7 million of stock-based compensation expense and loan cost amortization of $5.1 million.

Partially offsetting the net noncash expenses was $86.4 million of deferred income tax benefit and a $1.5 million gain on property disposals.

Other items affecting net noncash expenses were individually immaterial.

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $369.7 million for the year ended December 27, 2020.

Net noncash expenses included depreciation and amortization of $287.2 million, $42.5 million of deferred income tax expense, stock-based compensation of $10.1 million and

loan cost amortization of $4.8 million.

Partially offsetting the net noncash expenses are a $56.9 million gain on bargain purchase from the PPL acquisition, a $10.9 million net gain on property disposals and foreign currency transaction gain related to borrowing arrangements of $5.0 million.

Partially offsetting

the net noncash expenses was a $13.8 million gain on property disposals.

Other items affecting net noncash expenses were individually immaterial.

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Accounts payable and accrued expenses, including accounts payable to related parties, represented a $359.6 million source of cash in 2021.

This change resulted primarily from the accrual of the $110.5 million DOJ agreement, the accrual of the $75.0 million Direct Purchaser Plaintiff Class settlement and the timing of payments.

This change resulted primarily from the timing of payments as well as increased prices for feed and grain, transportation costs and packaging materials.

Accounts payable and accrued expenses, including accounts payable to related parties, represented a $295.3 million source of cash in 2020.

This change resulted primarily from the timing of payments.

The change in inventories represented a $26.0 million source of cash in 2020.

The change in cash related to a decrease in our finished products inventory.

This change resulted primarily from the accrual of the $110.5 million DOJ agreement, the accrual of the $75.0 million Direct Purchaser Plaintiff Class settlement and the timing of payments.

The change in inventories represented a $177.9 million use of cash in 2021.

The change in cash related to an increase in our finished products inventory.

The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $29.1 million source of cash in 2020.

The change in cash is primarily due to the timing of customer payments and receipt of insurance claims.

The change in cash resulted from an increase in our raw materials and work-in-process inventory.

The change in inventories represented a $26.0 million source of cash in 2020.

The change in cash resulted from a decrease in our finished products inventory.

The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $259.4 million use of cash in 2021.

The change is primarily due to the timing of customer payments.

The change in cash is primarily due to the timing of customer payments.

The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $29.1 million use of cash in 2020.

The change in cash is primarily due to the timing of customer payments and receipt of insurance claims.

The change in prepaid expenses and other current assets represented a $53.8 million use of cash in 2021.

This change resulted primarily from a net increase in both commodity derivatives and value-added tax receivables.

This change resulted primarily from a net increase in value-added tax receivables and prepaid property insurance.

The change in prepaid expenses and other current assets represented a $50.3 million use of cash in 2020.

The change resulted primarily from a net increase in both commodity derivatives and value-added tax receivables.

The change in income taxes, which includes income taxes receivables, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions and the tax components within accumulated other comprehensive loss, represented a $39.4 million use of cash in 2020.

This change resulted primarily from a net increase in both commodity derivatives and value-added tax receivables.

This change resulted primarily from the timing of estimated tax payments.

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(In millions)

Purchase of acquired businesses, net of cash acquired $ (966.8) $ (4.2)

Acquisitions of property, plant and equipment (381.7) (354.8)

Proceeds from property disposals 24.7 32.0

Purchase of acquired business, net of cash acquired (4.2) (384.8)

Cash used in investing activities $ (1,323.7) $ (327.0)

Purchase of acquired businesses represents cash used to acquire Pilgrim’s Food Masters (formerly Kerry Consumer Foods’ Meats and Ready Meals businesses) and Randall Parker Foods which totaled $966.8 million.

Capital expenditures were primarily incurred to improve operational efficiencies and reduce costs for the years ended December 26, 2021 and December 27, 2020.

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Proceeds from revolving line of credit and long-term borrowings 2,951.7 404.5

Purchase of common stock under share repurchase program (110.2) (2.9)

Payment of capitalized loan costs (22.3) —

Payment on early extinguishment of debt (21.3) —

Distribution of equity under Tax Sharing Agreement between JBS USA Food Company

Holdings and Pilgrim's Pride Corporation (0.7) —

Purchase of common stock under share repurchase program — (110.2)

Cash used in financing activities $ 901.3 $ (136.7)

1 unchanged sentence

Credit Facility and Mexico Credit Facility.

The payment on early extinguishment of debt is primarily due to the early tender consideration paid as a result of the redemption of the senior notes due 2025.

The payment of capitalized loan costs were those loan costs incurred as a part of the sale of the senior notes due 2031, the sale of the senior notes due 2032 and the refinancing of the U.S.

Credit Facility.

Shares repurchased under the share repurchase program during the year ended December 27, 2020 totaled 6.3 million.

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Refer to Part II, Item 8, Notes to Consolidated Financial Statements, “Note 1.

Business and Summary of Significant Accounting Policies.”

Critical Accounting Policies and Estimates

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On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventory, goodwill and other intangible assets, litigation and income taxes.

We base our estimates on historical experience and on various other assumptions that are believed

to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

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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.

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.

Live chicken and pig inventories are stated at the lower of cost or net realizable value and breeder hen, breeder sow and boar 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 cost (average) or net realizable value.

The costs associated with breeder sow inventories are accumulated up to the production stage and amortized on a straight-line basis over their productive lives to the estimated residual cull value.

The costs associated with finished poultry products, finished pork products, feed, eggs and other inventories are stated at the lower of cost (average) 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.

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

We allocate meat costs between our various finished pork products based on a by-product costing technique that allocates the cost of the whole pig into the primal cuts by estimated yields and amounts to be recovered for certain by-product parts.

This primarily includes legs, shoulders, bellies, offal and fifth quarter parts, which are carried in inventory at the estimated recoverable amounts, with the remaining amount being reflected as our loin meat cost.

For our prepared foods inventories, raw materials and packaging materials are valued at the lower of weighted average cost and net realizable value, work in progress is valued at the latest production cost (raw materials, packaging), finished goods are valued at the lower of the latest actual monthly production cost (raw materials, packaging and direct labor) and attributable overheads and net realizable value, and engineering spares and consumables are valued at cost with an appropriate provision for obsolete engineering spares consistent with historical practice.

Generally, we perform an evaluation of whether any lower of cost or market 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.

We also record valuation adjustments, when necessary, 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 obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products.

If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required.We also record valuation adjustments, when necessary, 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 obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products.

Goodwill and Other Intangibles, net.

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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.

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.

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We recognize potential interest and penalties related to income tax positions as a part of the income tax provision.

Business Combination Accounting .

We allocate the consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values.

The excess of the consideration over the amount allocated to the assets and liabilities, if any, is recorded to goodwill.

We use all available information to estimate fair values.

We use various models to determine the value of assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market

approach to value property, relief-from-royalty and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill.

We typically engage third-party valuation specialists to assist in the fair value determination of tangible long-lived assets and intangible assets other than goodwill.

The fair value of acquired inventories is typically determined by extending physical counts of the inventories taken at or near the acquisition date to market pricing in effect for such inventories at or near the acquisition date.

The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the business combination date.

As necessary, we may engage third-party specialists to assist in the estimation of fair value for certain liabilities.

We adjust the preliminary acquisition accounting, as necessary, typically up to one year after the acquisition closing date for those items that existed at the acquisition date and were provisionally accounted for at that time, as we obtain more information regarding asset valuations and liabilities assumed.

Our acquisition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities.

Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses.

Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including changes in assumptions regarding industry economic factors and business strategies.

If actual results are materially different than the assumptions used to determine fair value of the assets and liabilities acquired through a business combination, it is possible that adjustments to the carrying values of such assets and liabilities will have an impact on our net earnings.

Notes to Consolidated Financial Statements, “2.

Business Acquisitions” in this annual report for the acquisition-related information associated with significant acquisitions completed in the last three fiscal years.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization.

“Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of:

(1) foreign currency transaction loss (gain), (2) transaction costs related to business acquisitions, (3) expenses recognized for the DOJ agreement and litigation settlements, (4) restructuring activities loss (gain), (5) Hometown Strong initiative expenses, (6) consumption of the Pilgrim's Food Masters (“PFM”) inventory fair value step-up increment, (7) gain recognized on our bargain purchase of PPL, (8) income recognized on a shareholder litigation settlement with JBS, (9) gain recognized on deconsolidation of a subsidiary and (10) net income attributable to noncontrolling interest.

EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S.

GAAP, to compare the performance of companies.

We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations.

We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S.

GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of our performance with our competitors.

EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S.

EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S.

Some of the limitations of these measures are:

• They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;

• They do not reflect changes in, or cash requirements for, our working capital needs;

• They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

• Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;

• They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows;

• EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;

• They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations;

• They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative

to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S.

You should compensate for these limitations by relying primarily on our U.S.

GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.

(Unaudited) Year Ended

December 26, 2021 December 27, 2020

(In thousands)

Net income $ 31,268 $ 95,070

Interest expense, net 139,736 118,813

Income tax expense 61,122 66,755

Depreciation and amortization 380,824 337,104

EBITDA 612,950 617,742

Foreign currency transaction loss (gain) (9,382) 760

Transaction costs related to acquisitions 18,858 134

Expenses related to the DOJ agreement and litigation settlements 656,225 185,524

Restructuring activities loss 5,802 123

Hometown Strong commitment expenses 1,000 15,000

Consumption of Pilgrim's Food Masters inventory fair value step-up increment 4,974 —

Negative adjustment to the gain recognized on the bargain purchase of PPL — (3,746)

Income recognized from shareholder litigation settlement with JBS — 34,643

Gain recognized on deconsolidation of subsidiary 1,131 —

Net income attributable to noncontrolling interest 268 313

Adjusted EBITDA $ 1,289,028 $ 788,073

Reconciliation of Adjusted Net Income

2021 December 27,

(In thousands, except per share data)

Net income attributable to Pilgrim's $ 31,000 $ 94,757

Foreign currency transaction loss (gain) (9,382) 760

Restructuring activities loss 5,802 123

Transaction costs related to acquisitions 18,858 134

Expenses related to DOJ agreement and litigation settlements 656,225 185,524

Hometown Strong commitment expenses 1,000 15,000

Consumption of Pilgrim's Food Masters inventory fair value step-up increment 4,974 —

Loss on early extinguishment of debt recognized as a component of interest expense 24,654 —

Negative adjustment to the gain recognized on the bargain purchase of PPL — 3,746

Income recognized from shareholder litigation settlement with JBS — (34,643)

Gain recognized on deconsolidation of subsidiary (1,131) —

Net tax impact of adjustments (a)

(174,619) (14,976)

Adjusted net income attributable to Pilgrim's $ 557,381 $ 250,425

Weighted average diluted shares of common stock

outstanding 244,129 246,124

Adjusted net income attributable to Pilgrim's per

common diluted share $ 2.28 $ 1.02

(a) Net tax impact of adjustments represents the tax impact of all adjustments shown above with the exclusion of the DOJ agreement as this item is non-deductible for tax purposes.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis