What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-09 compared with 2022-02-18 · 183 added, 302 removed, 388 unchanged (56% of the section changed)

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Executive Summary

We are one of the largest chicken producers in the world, and as a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service.

We are one of the largest protein companies in the world, and as a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service.

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 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.

With the acquisition of the meats and meals operations of Kerry Consumer Foods (“Pilgrim’s Food Masters” or “PFM”) in September 2021, we further solidified ourselves as a leading European food company while diversifying our product mix 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.

Business Acquisitions” of our Consolidated Financial Statements included in this annual report for additional information relating to these acquisitions.

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.

Business Acquisitions” of our Consolidated Financial Statements included in this annual report for additional information relating to this acquisition.

We reported net income attributable to Pilgrim’s Pride Corporation of $745.9 million, or $3.10 per diluted common share, and profit before tax totaling $1.0 billion, for 2022.

These operating results included gross profit of $1.8 billion and generated $669.9 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 2021, we generated EBITDA and Adjusted EBITDA of $613.0 million and $1.3 billion, respectively.

We generated operating margins of 6.7% with operating margins of 10.2% and 4.5% in our U.S.

and Mexico reportable segments, respectively, and break-even in our U.K.

and Europe reportable segment.

During 2022, we generated EBITDA and Adjusted EBITDA of $1.57 billion and $1.65 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”, 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 2022 and 2021 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.

Global Economic Conditions

During 2022, we continued to experience solid recoveries in volume throughout the business from prior year levels as COVID-19 restrictions eased, but were confronted with significant challenges from inflation in commodity, labor and other operating costs across all our businesses.

The global feed ingredient and energy markets continue to be impacted by the Russia-Ukraine war, driving up prices as supply out of the Black Sea region is disrupted and future production is at risk.

We continued to experience labor shortages in the U.K.

as European Union (or “E.U.”) workers returned to their home countries following Brexit, thus affecting our ability to process, pack and transport products.

Despite inflationary headwinds and softening consumer demand throughout the U.K.

and E.U., we have and will continue to invest in our people, implement supply chain solutions, and conduct customer negotiations for cost recovery.

Our Mexico segment managed through significant challenges as Mexico remains a volatile market given inflationary pressures, implications of more significant bird disease, an evolving global protein industry, and overall business seasonality.

We have responded to these challenges by continuing negotiations with customers to mitigate the impact of extraordinary costs we have experienced.

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

Russia-Ukraine War Impacts

The Russia-Ukraine war began in February 2022.

The impact of the ongoing war and sanctions is not limited to businesses that operate in Russia and Ukraine and is negatively impacting other global economic markets including where we operate.

The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in some countries, and disrupted trade and supply chains.

The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.

The impact on the agriculture markets falls into two main categories:

(1) the effect on Ukrainian crop production, as the region is key in global grain production;

and (2) the duration of the disruption in trade flows.

Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply.

The duration of the war and related volatility makes global markets extremely sensitive to growing-season weather in other global grain producing regions and has led to a large risk premium in futures prices.

The continued volatility in the global markets as a result of the war has adversely impacted our costs by driving up prices, raising inflation and increasing pressure on the supply of feed ingredients and energy products throughout the global markets.

In addition, the U.S.

government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls.

Europe business may be impacted by the increase in energy prices and the availability of energy during the winter months.

The impact of these measures, now and in the future, could adversely affect our business, supply chain or customers.

Impact of COVID-19

The 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.

The extensive impact of the pandemic caused by COVID-19 has resulted and may 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.

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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 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.

We have not experienced a material impact from a plant closure and our facilities have been exempt from government closure orders.

• Demand for our products.

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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.

and Europe business, which is more retail focused, generally saw 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.

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• Foreign currency exchange rates and commodity prices.

During the year ended December 26, 2021, we experienced increased volatility in foreign currency exchange rates and commodity prices, in part related to the uncertainty from COVID-19, as well as actions taken by governments and central banks in response to COVID-19.

During the year ended December 25, 2022, we experienced increased volatility in foreign currency exchange rates and commodity prices.

On March 27, 2020, the U.S.

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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.

The first 50% was paid on December 31, 2021 and the remaining 50% was paid on 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 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.

During 2022, average chicken market prices were higher throughout the first half of the year before declining and settling below the five-year average by the end of the year.

Supply grew at mild rates in the first half of 2022;

however, production was impacted by poor hatchability that restricted further growth.

During this time, stable demand and low amounts of chicken in cold storage led to higher chicken market pricing, which maintained historically high levels throughout the first half of 2022.

During the third quarter of 2022, chicken production grew materially primarily due to increased head counts.

Growth in head counts resulted from consistent industry growth in egg sets relative to prior year levels and further aided by year-over-year improvements in hatchability.

Although foodservice and retail dollar sales continued to grow, volume growth slowed in foodservice and retail volumes were stagnant.

The slower volume growth and sustained supply growth in the third quarter exacerbated the normal seasonal pricing declines.

The fourth quarter of 2022 showed considerable supply growth as increased average liveweights added incremental growth on already increasing head counts.

With only mild improvements in retail and foodservice, volume demand growth was not able to match the pace of increased availability of chicken.

The result was rapidly growing cold storage chicken inventories and commodity chicken pricing levels near the bottom of the five-year average range at the end of 2022.

In the first three quarters of 2022, the U.K.

chicken market saw unprecedented cost increases in feed ingredients, utilities and labor.

During the fourth quarter, the U.K.

chicken market started to see stabilization of this inflation across all input costs.

Through our current customer models and additional negotiations we were able to offset the majority of these cost increases throughout the year.

We continue to focus on managing costs, including labor and yield efficiencies, agricultural performance and increasing operational efficiency through investments in capital projects.

Commodity prices for chicken in Mexico increased during 2022 and remained well above prices from the prior year.

The increase is primarily from increased demand that outpaced supply.

The cost to produce also increased from the prior year due to significant increases in corn and soy, the two main ingredients used for feed in Mexico, as well as cost increases from purchasing eggs from outside sources to replace egg loss from avian influenza.

While commodity market prices for chicken products declined, prices for 2023 will depend on (1) the evolution of foodservice, retail and export meat demand and (2) factors such as government regulation, the ongoing Russia-Ukraine war, further spread of avian influenza both domestically and abroad, uncertainty surrounding the general economy and overall protein supply.

market prices for pork products during 2022 recovered from the 2021 down slope and increased 44% over the course of the year.

This was supported by recovery in the E.U.

market as well as clearing pig backlogs which had arisen from labor shortages in abattoirs.

Despite pig price recovery, the cost of production continued to exceed market prices, with pig farmers experiencing losses of well above £50 per pig in the first half of 2022.

Although, the continuing price recovery reduced the pig farmer losses to less than £20 per pig by the end of the year.

Input costs for feed and energy in the U.K.

increased during the year consistent with global market conditions, albeit with the energy price growth capped in Q4 due to the U.K.

government intervention, with the recovery of inflation through retailers a key area of focus throughout the year.

Sustainability

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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.

issued $1.0 billion of sustainability-linked bonds, which require us to reduce our Scope 1 and 2 global greenhouse gas emissions intensity by 30% by 2030.

Social Responsibility .

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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

The Hometown Strong initiative was developed in order to help the communities in which we operate respond to the unexpected challenges on society, such as the COVID-19 pandemic.

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.

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, 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.

This could lead to potential new tariffs and regulations from both the European Union and the U.K.

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.

To cultivate discipline and drive accountability for Sustainability related matters, a series of key performance indicators have been established to evaluate and monitor progress.

These performance indicators are linked with compensation for both senior executive and plant level personnel.

As part of our business management processes, progress against these metrics are reviewed at least monthly.

In addition, the Board of Directors has formed a Sustainability Committee to provide oversight and counsel on strategies, policies, and investments to reduce the impact of climate change.

Reportable Segments

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net sales generated in 2021 primarily because of an increase in net sales per pound, contributing $1.7 billion, or 18.2 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.

Unit sales prices have increased during 2022 as we attempted to recover 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 a slight decrease in sales volume of $21.7 million, or 0.2 percentage points.

and Europe Reportable Segment.

and Europe sales generated in 2022 increased $940.7 million, or 23.9%, from 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 $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.

and Europe sales generated in 2021, primarily from an increase in net sales per pound and an increase in sales volume of $867.9 million, or 22.1 percentage points, and $629.6 million, or 16.0 percentage points, respectively.

The increase in net sales per pound was driven by price increases necessary to recover increased feed ingredients, labor, utilities and other operating costs.

The increase in sales volume is primarily from the prior year acquisition of our PFM operations.

The increases in net sales per pound and sales volumes were partially offset by the unfavorable impact of foreign currency translation of $556.8 million, or 14.2 percentage points, and a decrease in sales volume of $89.7 million, or 2.2 percentage points from the legacy businesses.

Mexico Reportable Segment.

Mexico sales generated in 2022 increased $115.8 million, or 6.7%, from Mexico sales generated in 2021 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.

The increase in net sales per pound and the impact of the favorable impact of foreign currency remeasurement contributed $203.9 million, or 11.8 percentage points, and $12.6 million,

or 0.7 percentage points, respectively, to the increase in net sales.

The increase in net sales per pound was primarily due to demand driving up commodity chicken prices.

Partially offsetting these increases in net sales was a decrease in sales volume of $100.7 million, or 5.8 percentage points, due to negative impacts associated with bird disease to our live operations.

Gross profit.

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Elimination (a)

(54) 419 (88.6) %

Total cost of sales $ 15,656,574 $ 2,244,943 16.7 %

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operations in 2021.

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.

Cost of sales increased primarily because of increased cost per pound sold of $1.1 billion, or 14.0 percentage points, partially offset by a slight decrease in sales volume of $19.5 million, or 0.2 percentage points.

Included in the increase in cost per pound sold and increased sales volume was an $650.0 million increase in live input costs, a $150.7 million increase in payroll costs, a $148.1 million increase in prepared foods input costs, a $78.1 million increase in outside service costs primarily from increased outside processing labor, a $52.6 million increase in utilities costs and a $43.1 million increase in supplies costs.

Included in the $650.0 million increase in live input costs were a $503.2 million increase in feed costs, $101.6 million increase in chick costs, and a $36.1 million increase in contract grower costs.

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and Europe operations during 2022 increased $864.2 million, or 22.9%, from cost of sales incurred by the 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 related to the existing U.K.

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.

and Europe operations during 2021 primarily because of increases in cost per pound sold and sales volume of $845.7 million, or 22.5 percentage points, and $548.8 million, or 16.0% percentage points.

The increase in cost per pound was driven by increased feed ingredients, labor, utilities and other operating costs.

The increase in sales volume is primarily from the prior year acquisition of our PFM operations.

Partially offsetting these increases was the favorable impact of foreign currency translation of $529.4 million, or 14.0 percentage points.

Other factors affecting cost of sales were individually immaterial.

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Cost of sales incurred by the Mexico operations during 2022 increased $256.2 million, or 17.6%, from cost of sales incurred by the Mexico operations during 2021 primarily because of an increase in cost per pound sold and the unfavorable impact of foreign currency remeasurement of $328.8 million, or 22.6 percentage points, and $12.2 million, or 0.8 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.

The increase in cost per pound sold was primarily driven by increased feed ingredients, hatchery egg costs and packaging costs.

Hatchery costs increased due to the cost to import eggs from outside sources to offset the impacts of bird disease in our live operations.

Partially offsetting these increases in cost of sales was a

decrease in sales volume of $84.8 million, or 5.8 percentage points.

Other factors affecting cost of sales were individually immaterial.

Operating income.

Operating income decreased $34.3 million, or 14.0%, from $245.5 million generated for 2020 to $211.2 million generated for 2021.

Operating income increased $965.4 million, or 457.2%, from $211.2 million generated for 2021 to $1.2 billion generated for 2022.

The following tables provide operating income information:

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Mexico 83,450 (145,323) (63.5) %

Elimination 54 (419) (88.6) %

Eliminations 54 — — %

Total operating income $ 1,176,595 $ 965,431 457.2 %

Sources of SG&A expenses 2021 Change from 2020

Sources of SG&A expenses (defined below) 2022 Change from 2021

Amount Percent

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Total SG&A expense $ 604,742 $ (544,119) (47.4) %

Sources of restructuring activities charges 2022 Change from 2021

Amount Percent

(In thousands, except percent data)

and Europe $ 30,466 $ 24,664 425.1 %

Reportable Segment.

Selling, general and administrative (“SG&A”) expense incurred by the U.S.

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

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.

operations during 2022 decreased $601.1 million, or 63.7%, from SG&A expense incurred by the U.S.

operations during 2021 primarily from a net decrease in the recognition of legal settlements of $622.1 million.

Also contributing to the net decrease in SG&A expense was a net decrease in acquisition costs, partially offset by increases in employee relation costs, incentive compensation costs, and consulting fees.

Other factors affecting SG&A expense were individually immaterial.

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and Europe operations during 2022 increased $52.1 million, or 32.8%, from SG&A expense incurred by the U.K.

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 during 2021 primarily because of expenses incurred by the acquired PFM operations and an increase in SG&A expense incurred from our legacy 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.

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

and Europe was mainly due to increased advertising costs, increased payroll costs, and an increase in contract labor services.

Other factors affecting SG&A expense were individually immaterial.

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SG&A expense incurred by the Mexico operations during 2022 increased $4.9 million, or 10.4%, from SG&A expense incurred by the Mexico operations during 2021.

SG&A expense increased primarily from increased marketing costs and payroll-related costs.

Factors affecting SG&A expense were individually immaterial.

Interest expense .

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.

Consolidated interest expense increased 4.7% to $152.7 million in 2022 from $145.8 million in 2021, primarily due to an increase in interest expense on outstanding borrowings of $27.3 million.

This increase in interest expense on outstanding borrowings was primarily due to the impacts of the September 2021 issuance of $900.0 million of bonds for the PFM acquisition and the increase in variable rate debt interest expense, partially offset by the impact of $24.7 million loss on

early extinguishment of debt recognized in 2021.

As a percent of net sales, interest expense in 2022 and 2021 was 0.9% and 1.0%, respectively.

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Our consolidated income tax expense in 2022 was $278.9 million, compared to income tax expense of $61.1 million in 2021.

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.

The increase in income tax expense in 2022 resulted from an increase in pre-tax income during 2022.

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.

The following table provides additional information regarding net sales:

Change from 2019

Sources of net sales 2020 Amount Percent

(In thousands, except percent data)

$ 7,496,017 $ (140,699) (1.8) %

and Europe 3,274,292 890,499 37.4 %

Mexico 1,321,592 (67,118) (4.8) %

Total net sales $ 12,091,901 $ 682,682 6.0 %

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.

and Europe Reportable Segment.

and Europe sales generated in 2020 increased $890.5 million, or 37.4%, 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 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.

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.

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.

The following tables provide gross profit information:

Change from 2019 Percent of Net Sales

Components of gross profit 2020 Amount Percent 2020 2019

(In thousands, except percent data)

Net sales $ 12,091,901 $ 682,682 6.0 % 100.0 % 100.0 %

Cost of sales 11,253,705 914,880 8.8 % 93.1 % 90.6 %

Gross profit $ 838,196 $ (232,198) (21.7) % 6.9 % 9.4 %

Sources of gross profit 2020 Change from 2019

Amount Percent

(In thousands, except percent data)

$ 500,465 $ (233,014) (31.8) %

and Europe 218,327 46,576 27.1 %

Mexico 118,931 (46,137) (28.0) %

Elimination 473 377 392.7 %

Total gross profit $ 838,196 $ (232,198) (21.7) %

Sources of cost of sales 2020 Change from 2019

Amount Percent

(In thousands, except percent data)

$ 6,995,552 $ 92,315 1.3 %

and Europe 3,055,965 843,923 38.2 %

Mexico 1,202,661 (20,981) (1.7) %

Elimination (a)

(473) (377) 392.7 %

Total cost of sales $ 11,253,705 $ 914,880 8.8 %

(a) Our Consolidated Financial Statements include the accounts of our company and our majority owned subsidiaries.

We eliminate all significant affiliate accounts and transactions upon consolidation.

Reportable Segment.

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 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.

Other factors affecting U.S.

cost of sales were individually immaterial.

and Europe Reportable Segment.

Cost of sales incurred by the U.K.

and Europe operations during 2020 increased $843.9 million, or 38.2%, 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.

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.

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.

Other factors affecting cost of sales were individually immaterial.

Operating income.

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:

Change from 2019 Percent of Net Sales

Components of operating income 2020 Amount Percent 2020 2019

(In thousands, except percent data)

Gross profit $ 838,196 $ (232,198) (21.7) % 6.9 % 9.4 %

SG&A expenses 592,610 212,700 56.0 % 4.9 % 3.3 %

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

Operating income $ 245,463 $ (445,105) (64.5) % 2.0 % 6.1 %

Change from 2019

Sources of operating income 2020 Amount Percent

(In thousands, except percent data)

$ 69,377 $ (417,898) (85.8) %

and Europe 102,734 23,552 29.7 %

Mexico 72,879 (51,136) (41.2) %

Elimination 473 377 392.7 %

Total operating income $ 245,463 $ (445,105) (64.5) %

Sources of SG&A expenses 2020 Change from 2019

Amount Percent

(In thousands, except percent data)

$ 431,088 $ 184,800 75.0 %

and Europe 115,470 22,901 24.7 %

Mexico 46,052 4,999 12.2 %

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

Reportable Segment.

Selling, general and administrative (“SG&A”) expense incurred by the U.S.

operations during 2020 increased $184.8 million, or 75.0%, 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.

Other factors affecting SG&A expense were individually immaterial.

and Europe Reportable Segment.

SG&A expense incurred by the U.K.

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 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.

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.

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.

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

Income taxes.

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

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

For discussion of 2021 results of operations in comparison to 2020 results of operations, see the 2021 annual report on Form 10-K filed on February 18, 2022.

Liquidity and Capital Resources

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Borrowing arrangements:

Credit Facility (a)

Revolving credit 800.0 36.1 763.9

Term loan 700.0 506.3 193.7

Mexico Credit Facility (b)

and Europe Credit Facilities (c)

Credit Facility Revolving Note Payable (a)

800.0 — 765.0

Credit Facility Term Loans (b)

700.0 480.1 —

Mexico Credit Facility (c)

and Europe Revolver Facility (d)

124.5 — 124.5

(a) Availability under the U.S.

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Standby letters of credit outstanding at December 25, 2022 totaled $35.0 million.

(b) As of December 26, 2021, the U.S.

dollar-equivalent of the amount available under the Mexican Credit Facility was $72.8 million ($1.5 billion Mexican pesos).

(b) For more information on the U.S.

Credit Facility Term Loans, refer to “Note 13.

dollar-equivalent of the amount available under the Mexican Credit Facility was $77.5 million ($1.5 billion Mexican pesos).

(d) As of December 25, 2022, the U.S.

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

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.

and Europe Revolver Facility was $124.5 million (£150.0 million).

Historical Flow of Funds

Cash Flows from Operating Activities December 25, 2022 December 26, 2021

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Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $422.5 million for the year ended December 25, 2022.

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.

Net noncash expense items included $403.1 million of depreciation and amortization, $21.3 million of deferred income tax expense, $7.0 million of stock-based compensation expense, loan cost amortization of $4.8 million, asset impairment of $3.6 million and accretion of bond discount of $1.7 million.

Partially offsetting the net noncash expenses was an $18.9 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 $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.

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.

Changes in Operating Assets and Liabilities

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 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 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 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 $149.6 million use of cash in 2022.

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

The change in cash was primarily due to the timing of customer payments and the increase in sales prices.

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

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

The change in inventories represented a $472.2 million use of cash in 2022.

The change in cash resulted from an increase in our raw materials and work-in-process inventory values due to higher input costs.

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

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

The change in prepaid expenses and other current assets represented a $18.3 million source of cash in 2022.

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

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 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.

This 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 $115.2 million source of cash in 2021.

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

Accounts payable and accrued expenses, including accounts payable to related parties, represented a $263.3 million source of cash in 2022.

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

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 timing of payments as well as increased prices for feed ingredients, transportation and packaging materials.

This change resulted primarily from the timing of estimated tax payments and higher profitability in 2022.

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 $ (487.1) $ (381.7)

Proceeds from property disposals 35.5 24.7

Proceeds from insurance recoveries 16.0 —

Purchase of acquired businesses, net of cash acquired (9.7) (966.8)

Cash used in investing activities $ (445.3) $ (1,323.7)

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 25, 2022 and December 26, 2021.

Proceeds from property disposals were primarily for the sale of farms in Mexico.

Proceeds from insurance recoveries reflects cash received on property insurance recoveries related to the Mayfield, Kentucky tornado that occurred in December 2021.

Purchase of acquired businesses, net of cash acquired primarily represents a payment for a working capital adjustment related to the acquisitions of PFM and Randall Parker Foods.

Cash Flows from Financing Activities December 25, 2022 December 26, 2021

2 unchanged sentences

Proceeds from revolving line of credit and long-term borrowings 362.5 2,951.7

Purchase of common stock under share repurchase program (199.6) —

Payment of capitalized loan costs (4.7) (22.3)

Distribution of equity under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim’s Pride Corporation (2.0) (0.7)

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)

Cash provided by (used in) financing activities $ (232.0) $ 901.3

Proceeds from revolving line of credit and long-term borrowings and payments on revolving line of credit and long-term borrowings are mainly due to borrowings and payments on our U.S.

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.

During 2022, 7.5 million shares were repurchased under the share repurchase program.

The payment of capitalized loan costs relate to the consent solicitation of the 2031 and 2032 Senior Notes and the execution of a new U.K.

revolving line of credit.

The distribution of equity under the Tax Sharing Agreement is the 2021 distribution of equity that is paid in the first quarter of 2022.

For further information on the share repurchase program, refer to Part II, Item 8, Notes to Consolidated Financial Statements, “Note 14.

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Long-Term Debt and Other Borrowing Arrangements

Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and and other term loan agreements.

Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and other term loan agreements.

For a description, refer to Part II, Item 8, Notes to Consolidated Financial Statements, “Note 13.

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We anticipate spending between $400 million and $500 million on the acquisition of property, plant and equipment in 2023.

Capital expenditures will primarily be incurred to improve efficiencies and reduce costs.

Capital expenditures will primarily be incurred to grow our operations, improve efficiencies and to reduce costs.

We expect to fund these capital expenditures with cash flow from operations and proceeds from the revolving lines of credit under our various debt facilities.

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W e expect cash flows from operations, combined with availability under the U.S.

Credit Facility, and U.K.

and Europe Credit Facilities to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.

Credit Facility, the Mexico Credit Facility and the U.K.

and Europe Credit Facility to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.

Recent Accounting Pronouncements

30 unchanged sentences

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

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

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.

3 unchanged sentences

(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.

4 unchanged sentences

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 26, 2021.

Management first reviews relevant qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent), that the fair value of a reporting unit is less than the unit’s carrying amount (including goodwill).

If management determines it is more likely than not that the carrying amount of a reporting unit goodwill might be impaired, a quantitative analysis is performed.

Management performed a qualitative analysis noting that is was not more likely than not that there was goodwill impairment in any of its reporting units as of December 25, 2022.

However, management will be closely monitoring the performance of its reporting units within the U.K.

and Europe for sustained declines in operating results that miss projected operating performance as it relates to possible future goodwill impairment indicators.

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.

Management first reviews relevant qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that an intangible asset is impaired.

If management determines there is an indication that the carrying amount of the intangible asset might be impaired, and 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 26, 2021.

Management performed a qualitative analysis noting that it was not more likely than not that there was impairment for any of its indefinite-lived intangible assets as of December 25, 2022.

Management will be closely monitoring the performance of its branded products within the U.K.

and Europe for sustained declines in operating results as it relates to possible future impairment to those identifiable intangible assets.

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

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We expense legal costs related to such loss contingencies as they are incurred.

With respect to our environmental remediation obligations, the accrual for environmental remediation liabilities is measured on an undiscounted basis.

With respect to our environmental remediation obligations,

the accrual for environmental remediation liabilities is measured on an undiscounted basis.

These reserves may change in the future due to changes in our assumptions, the effectiveness of strategies, or other factors beyond our control.

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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 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.

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“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.

(1) foreign currency transaction losses (gains), (2) transaction costs related to business acquisitions, (3) expenses recognized for the DOJ agreement and litigation settlements, (4) restructuring activities losses, (5) Hometown Strong initiative expenses, (6) consumption of the PFM inventory fair value step-up increment, (7) property insurance recoveries on Mayfield tornado losses, (8) gain recognized on deconsolidation of a subsidiary and (9) 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.

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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.

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.

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EBITDA 1,572,227 612,950

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

Foreign currency transaction losses (gains) 30,817 (9,382)

Transaction costs related to acquisitions 948 18,858

Expenses related to the DOJ agreement and litigation settlements 34,086 656,225

Restructuring activities loss 5,802 123

Restructuring activities losses 30,466 5,802

Hometown Strong commitment expenses — 1,000

Consumption of Pilgrim’s Food Masters inventory fair value step-up increment

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

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

Property insurance recoveries on Mayfield tornado losses 19,580 —

Gain recognized on deconsolidation of subsidiary — 1,131

5 unchanged sentences

Net income attributable to Pilgrim's $ 745,930 $ 31,000

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

Restructuring activities loss 5,802 123

Foreign currency transaction losses (gains) 30,817 (9,382)

Restructuring activities losses 30,466 5,802

Transaction costs related to acquisitions 948 18,858

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

DOJ agreement and litigation settlements 34,086 656,225

Hometown Strong commitment expenses — 1,000

2 unchanged sentences

Negative adjustment to the gain recognized on the bargain purchase of PPL (19,580) —

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

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

Net tax impact of adjustments (a)

Net tax expense (benefit) of adjustments (a)

(19,115) (174,619)

Adjusted net income attributable to Pilgrim's $ 803,552 $ 557,381

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

Weighted average diluted shares of common stock outstanding 240,394 244,129

Adjusted net income attributable to Pilgrim's per common diluted share $ 3.34 $ 2.28

(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