What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-09 · 297 added, 242 removed, 329 unchanged (62% 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 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.

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.

We reported net income attributable to Pilgrim’s Pride Corporation of $322.3 million, or $1.36 per diluted common share, and profit before tax totaling $365.2 million, for 2023.

These operating results included gross profit of $1.1 billion and generated $677.9 million of cash from operations.

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.

We generated consolidated operating margins of 3.0% with operating margins of 2.4%, 2.5%, and 7.3% in our U.S., U.K.

and Europe, and Mexico reportable segments, respectively.

During 2023, we generated EBITDA and Adjusted EBITDA of $951.7 million and $1,034.2 million, respectively.

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

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Any reference we make to a particular year applies to our fiscal year and not the calendar year.

Fiscal 2022 and 2021 were 52-week accounting cycles.

Fiscal 2023 was a 53-week accounting cycle and 2022 was a 52-week accounting cycle.

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.

During 2023, we continued to experience challenges from inflation in commodity, labor and other operating costs across all our businesses.

The impact on the global feed ingredient and energy markets due to the Russia-Ukraine war have lessened due to increased production in other areas in the global supply chain as discussed below.

Despite inflationary headwinds and subdued 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.

Mexico remains a volatile market given inflationary pressures, 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.

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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 impact of the ongoing war and sanctions has not been limited to businesses that operate in Russia and Ukraine and has negatively impacted and will likely continue to negatively impact 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.

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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.

In the fourth quarter of 2023, the global supply chains have become less sensitive to the conflict in Ukraine as grain production in other global areas had record high seasons alleviating much of the global supply constraints that existed after the initial outbreak of the war.

Ukraine supply constraints from Russia’s mid-2023 suspension of the Black Sea Grain Initiative and other impacts from the war have only minimally impacted grain exports from Ukraine and the global supply of grains due to the increased production from other areas.

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 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.

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.

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 2022, 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 2023.

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

• Our workforce .

Employee health and safety is our priority.

As an essential business in a critical infrastructure industry, we continue to produce chicken and pork products, while coordinating with and implementing guidance from the U.S.

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 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;

adding temperature and symptom screening stations for employees prior to entering our facilities;

increasing personal hygiene practices and providing our employees additional personal protective equipment and sanitation stations;

and increasing sanitation of our facilities.

In the U.S., we provided appreciation bonuses to eligible employees in April and May of 2020 and expanded certain sick leave policies to provide more flexibility.

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.

• 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.

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.

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, 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.

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.

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.

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% was paid on December 31, 2022.

Raw Materials

Our profitability is materially affected by the commodity prices of feed ingredients and chicken.

and Mexico reportable segments use corn and soybean meal as the main ingredients for feed production, while our U.K.

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

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.

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

Raw Materials and Input Costs

and Mexico segments use corn and soybean meal as the main ingredients for feed production, while our U.K.

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

During 2023, the global price of corn and wheat, measured at U.S.

dollars per metric ton, both decreased about 30% per the International Monetary Fund as reported by the St.

Louis Fed research center.

experienced dryer weather during the spring of 2023 that threatened corn supply, but the corn crop for the 2023/2024 growing season is confirmed to be at record production levels as prices trended down towards the end of 2023.

Favorable weather conditions in Brazil during 2023 positively impacted global corn supply, while Argentina saw a severe drought which restricted their crop production for the year.

Soybean prices began 2023 at higher levels, but came down during the second quarter and have remained stable throughout the remainder of the year.

During 2023, U.S.

commodity market prices for chicken products trended in line with seasonal norms throughout the first half of the year, but at levels at or below the five-year historical average, before rebounding in the third quarter and trending in line with the historical average for the remainder of the year.

During the first half of 2023, industry production growth paired with higher levels of cold storage supply led to increased broiler availability.

Additionally, although domestic demand grew in the first half, the increased demand pressure did not offset the incremental increase in supply keeping prices at our around seasonally expected levels despite a higher cost basis, which significantly impacted profitability in the commodity market-driven portion of our U.S.

As a result, the U.S.

chicken industry began reducing egg sets and chick placements as compared to prior year volumes beginning late in the second quarter and continued to be reduced throughout the second half of 2023.

The reduction in broiler production coincided with improved volume demand in both the foodservice and retail channels, enabling the industry to reduce cold storage inventories and reduce the impact of year-end seasonal inventory increases.

The rebalancing of supply and demand drove positive price fluctuations as U.S.

chicken market prices returned to the historical five-year average levels late into the third quarter of 2023 and followed expected seasonal pricing trends through the remainder of the year.

During 2023, the U.K.

chicken market saw an increase in labor costs due to the national living wages change in April 2023.

Through our current customer contracting models and additional negotiations we have offset the majority of these cost increases.

Our utilities and feed ingredient costs continued to decrease throughout 2023 from the beginning of the year.

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

Commodity prices for chicken in Mexico ended 2023 below prior-year prices despite incremental increases throughout the year.

Mexico grain prices were also below prior year levels.

market prices for pork products have followed an upward trend from 2022 but fell slightly during the fourth quarter of 2023, reflecting pig shortages from a 20% reduction of the English sow herd during 2022.

pig producers downsized their sow herds during 2023 by about 5% due to various factors.

Due to increased market pricing and stabilization of feed prices, U.K.

pig farming became profitable in the second quarter of 2023 and remained profitable in the second half of 2023.

prices for prepared foods have remained at elevated levels from inflationary pressure, primarily from increased pork prices.

We continue to focus on partnering with our Key Customers and increasing operational efficiency.

Sustainability

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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 Scope 1 and 2 global greenhouse gas emissions intensity by 30% by 2030.

In support of this initiative, in April 2021, we 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 .

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.

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.

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

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.

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

To cultivate discipline and drive accountability for Sustainability related matters, we use our annual budgeting process to establish strategies, plans, and risk mitigation tactics.

This process is further reinforced by a series of key performance indicators 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.

As part of our business management processes, progress against these metrics is reviewed at least monthly and evaluated by external agencies to assess progress against industry peers.

In addition, the Board of Directors 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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We measure segment profit as operating income.

Corporate expenses are allocated to the Mexico and U.K.

Certain 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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2023 Compared to 2022

Net sales for 2022 increased $2.7 billion, or 18.2%, from $14.8 billion generated in 2021 to $17.5 billion generated in 2022.

Net sales for 2023 decreased $106.2 million, or 0.6%, from $17.5 billion generated in 2022 to $17.4 billion generated in 2023.

The following table provides additional information regarding net sales:

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Reportable Segment.

net sales generated in 2022 increased $1.6 billion, or 17.9%, from U.S.

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 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.

net sales generated in 2023 decreased $720.6 million, or 6.7%, from U.S.

net sales generated in 2022 primarily because of a decrease in net sales per pound, contributing $1.2 billion, or 10.9 percentage points, to the decrease in net sales.

This decrease in net sales per pound was partially offset by an increase in sales volume of $453.3 million, or 4.2 percentage points.

The decrease in net sales per pound was driven by lower commodity market pricing for fresh chicken products as compared to prior year.

The increase in sales volume was driven primarily by an increase in pounds sold in our fresh products divisions.

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 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.

and Europe sales generated in 2023 increased $328.6 million, or 6.7%, from sales generated in 2022 primarily from an increase in net sales per pound and the favorable impact of foreign currency translation of $397.3 million, or 8.2 percentage points, and $33.5 million, or 0.7 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.

The increases in net sales per pound and favorable impact of foreign currency translation were partially offset by a decrease in sales volume of $102.3 million, or 2.1 percentage points.

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 $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.

Mexico sales generated in 2023 increased $285.9 million, or 15.5%, from sales generated in 2022 primarily because of the favorable impact of foreign currency remeasurement and an increase in sales volume, partially offset by a decrease in net sales price per pound.

The favorable impact of foreign currency remeasurement and increase in sales volume contributed $249.0 million, or 13.5 percentage points, and $86.2 million, or 4.7 percentage points, respectively, to the increase in net sales.

The favorable impact of foreign currency remeasurement was due to a strengthening of the Mexican peso against the U.S.

The sales volume across all lines of business increased during 2023 due to market demand.

Partially offsetting these increases in net sales was a decrease in net sales price per pound of $49.3 million, or 2.7 percentage points.

Gross profit.

Gross profit increased by $446.0 million, or 32.7%, from $1.4 billion generated in 2021 to $1.8 billion generated in 2022.

Gross profit decreased by $693.4 million, or 38.3%, from $1.8 billion generated in 2022 to $1.1 billion generated in 2023.

The following tables provide gross profit information:

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Mexico 221,432 86,260 63.8 %

Elimination 54 — — %

Elimination (a)

(214) (268) (496.3) %

Total gross profit $ 1,118,401 $ (693,402) (38.3) %

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Elimination (a)

214 268 (496.3) %

Total cost of sales $ 16,243,816 $ 587,242 3.8 %

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Cost of sales incurred by our U.S.

operations in 2022 increased $1.1 billion, or 13.7%, from cost of sales incurred by our U.S.

operations in 2023 increased $192.8 million, or 2.1%, from cost of sales incurred by our U.S.

operations in 2022.

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.

Cost of sales increased primarily because of increased sales volume of $392.9 million, or 4.2 percentage points, partially offset by a decrease in cost per pound sold of $203.9 million, or 2.2 percentage points.

The increase in our sales volume was primarily driven by our fresh products divisions.

Other factors affecting U.S.

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and Europe operations during 2023 increased $194.6 million, or 4.2%, from cost of sales incurred by the U.K.

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.

and Europe operations during 2022 primarily because of increases in cost per pound sold and the unfavorable impact of foreign currency translation of $257.6 million, or 5.6 percentage points, and $31.1 million, or 0.7 percentage points, respectively.

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.

Partially offsetting these increases was the impact of a decrease in sales volume of $94.1 million, or 2.1 percentage points.

Other factors affecting cost of sales were individually immaterial.

Mexico Reportable Segment.

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.

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.

Cost of sales incurred by the Mexico operations during 2023 increased $199.6 million, or 11.7%, from cost of sales incurred by the Mexico operations during 2022 primarily because of the unfavorable impact of foreign currency remeasurement and an increase in sales volume which contributed $223.1 million, or 13.0 percentage points, and $79.9 million, or 4.7 percentage points, to the increase in cost of sales, respectively.

The unfavorable impact of foreign currency remeasurement was due to a strengthening of the Mexican peso against the U.S.

The sales volume across all lines of business increased during 2023 due to market demand.

Partially offsetting these increases in cost of sales was a decrease in the cost per pound sold of $103.4 million, or 6.0 percentage points.

Other factors affecting cost of sales were individually immaterial.

Operating income.

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

Operating income decreased $654.3 million, or 55.6%, from $1,176.6 million generated for 2022 to $522.3 million generated for 2023.

The following tables provide operating income information:

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$ 238,894 $ (855,131) (78.2) %

and Europe (934) (307) (49.0) %

and Europe 128,151 129,085 NM (b)

Mexico 155,455 72,005 86.3 %

Eliminations 54 — — %

Eliminations (a)

(214) (268) (496.3) %

Total operating income $ 522,286 $ (654,309) (55.6) %

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and Europe $ 44,345 $ 13,879 45.6 %

(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.

(b) This Y/Y change is designated not meaningful (or “NM”).

Reportable Segment.

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operations during 2023 decreased $58.3 million, or 17.0%, 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.

operations during 2022 primarily from decreases in legal defense costs, incentive compensation costs, and employee relation costs.

Other factors affecting SG&A expense were individually immaterial.

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SG&A expense incurred by the U.K.

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 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 legacy U.K.

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

and Europe operations during 2023 decreased $8.9 million, or 4.2%, from SG&A expense incurred by the U.K.

and Europe operations during 2022 primarily due to decreased labor and employee-related costs, decreased advertising costs, and the unfavorable impact of foreign currency translation.

Other factors affecting SG&A expense were individually immaterial.

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SG&A expense incurred by the Mexico operations during 2023 increased $14.3 million, or 27.6%, from SG&A expense incurred by the Mexico operations during 2022.

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

Factors affecting SG&A expense were individually immaterial.

SG&A expense increased primarily from increased payroll and employee-related costs due to labor reform law changes and the unfavorable impact of foreign currency remeasurement.

Other factors affecting SG&A expense were individually immaterial.

Interest expense .

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.

Consolidated interest expense increased 16.0% to $166.6 million in 2023 from $143.6 million in 2022, primarily from an increase of $34.3 million in interest expense on outstanding borrowings and a loss on early extinguishment of debt recognized as a component of interest expense of $20.7 million, partially offset by an increase in interest income of $26.6 million.

As a percent of net sales, interest expense in 2023 and 2022 was 1.0% and 0.8%, respectively.

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Our consolidated income tax expense in 2023 was $42.9 million, compared to income tax expense of $278.9 million in 2022.

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

The decrease in income tax expense in 2023 resulted from a decrease in pre-tax income during 2023.

2022 Compared to 2021

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.

For discussion of 2022 results of operations in comparison to 2021 results of operations, see Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II of the 2022 Annual Report on Form 10-K filed on February 9, 2023.

Liquidity and Capital Resources

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The following table presents our available sources of liquidity as of December 31, 2023:

Sources of Liquidity (a)

Sources of Liquidity Facility

Amount Amount

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Borrowing arrangements:

Credit Facility Revolving Note Payable (a)

800.0 — 765.0

Credit Facility Term Loans (b)

Revolving Syndicated Facility (a)

$ 850.0 $ — 824.9

Mexico Credit Facility (c)

and Europe Revolver Facility (d)

Mexico BBVA Credit Facility (b)

and Europe Revolver Facility (c)

191.1 — 191.1

(a) Availability under the U.S.

Credit Facility is also reduced by our outstanding standby letters of credit.

Revolving Syndicated Facility is also reduced by our outstanding standby letters of credit.

Standby letters of credit outstanding at December 31, 2023 totaled $25.1 million.

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

Credit Facility Term Loans, refer to “Note 13.

(b) As of December 31, 2023, the U.S.

dollar-equivalent of the amount available under the Mexico BBVA Credit Facility was $65.4 million ($1.1 billion Mexican pesos).

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 Revolver Facility was $191.1 million (£150.0 million).

On October 12, 2023, we completed a sale of $500.0 million aggregate principal amount of unsecured, registered, senior notes due 2034 (“Senior Notes due 2034”).

The issuance price of this offering to the public was 98.041%, which created gross proceeds of $490.2 million before transaction costs.

We used the net proceeds from the offering of the Senior Notes due 2034, together with cash on hand, to purchase for cash the Senior Notes due 2027 through a tender offer and subsequent redemption of remaining outstanding notes.

As of October 12, 2023, $812.8 million principal amount of the Senior Notes due 2027 had been validly tendered and purchased by us.

The remaining outstanding Senior Notes due 2027 were purchased by us on October 16, 2023.

On April 19, 2023, we completed a sale of $1.0 billion aggregate principal amount of its 6.25% unsecured, registered senior notes due 2033 (“Senior Notes due 2033”).

We used the net proceeds to repay the term loans and the outstanding balance under the 2021 U.S.

Credit Facility.

The issuance price of this offering to the public was 99.312%, which created gross proceeds of $993.1 million before transaction costs.

On October 4, 2023, we entered into a Revolving Syndicated Facility Agreement with CoBank, ACB as administrative agent (the “RCF”).

This facility replaced the Fifth Amended and Restated U.S.

Credit Facility that was executed in 2021.

The RCF increased our availability under the revolving loan commitment from $800.0 million to $850.0 million and extended the maturity date from August 2026 to October 2028.

On August 15, 2023, we entered into an unsecured credit agreement (the “Mexico BBVA Credit Facility”) with BBVA México as lender.

The loan commitment under the Mexico BBVA Credit Facility is Mex$1.1 billion and can be borrowed on a revolving basis.

Outstanding borrowings under the Mexico BBVA Credit Facility accrue interest at a rate equal to TIIE plus 1.35%.

The Mexico BBVA Credit Facility will be used for general corporate and working capital purposes.

The Mexico BBVA Credit Facility will mature on August 15, 2026.

We expect cash flows from operations, combined with availability under our 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.

Historical Flow of Funds

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Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $462.4 million for the year ended December 31, 2023.

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.

Net noncash expense items included $419.9 million of depreciation and amortization, loss on early extinguishment of debt recognized as a component of interest expense of $20.7 million, loan cost amortization of $7.4 million, stock-based compensation expense of $7.2 million, deferred income tax expense of $6.7 million, asset impairment of $4.0 million, and accretion of bond discount of $2.3 million.

Partially offsetting the net noncash expenses was an $6.1 million gain on property disposals.

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Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $422.6 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.

Partially offsetting the net noncash expenses was an $18.9 million gain on property disposals.

Other items affecting net noncash expenses were individually immaterial.

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The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $19.0 million use of cash in 2023.

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

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

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 was primarily due to the timing of customer payments.

The change in inventories represented a $12.6 million source of cash in 2023.

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

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 $17.8 million source of cash in 2023.

This change resulted primarily from a net decrease in the commodity derivatives assets.

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.

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 $68.7 million use of cash in 2023.

This change resulted primarily from the timing of 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.

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 $8.9 million use of cash in 2023.

This change resulted primarily from the timing of estimated tax payments and lower profitability in 2023.

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.

Cash Flows from Investing Activities December 31, 2023 December 25, 2022

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Acquisitions of property, plant and equipment $ (543.8) $ (487.1)

Proceeds from property disposals 35.5 24.7

Proceeds from insurance recoveries 20.7 16.0

Proceeds from property disposals 19.8 35.5

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

Cash used in investing activities $ (503.4) $ (445.3)

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.

Capital expenditures were incurred for growth projects, such as the Athens, GA expansion and the South Georgia protein conversion plant, and to improve operational efficiencies, system enhancement projects, and to reduce costs for the years ended December 31, 2023 and December 25, 2022.

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.

Proceeds from property disposals were primarily for the sale of a farm in Mexico and other miscellaneous equipment.

Cash Flows from Financing Activities December 31, 2023 December 25, 2022

(In millions)

Payments on revolving line of credit and long-term borrowings $ (388.3) $ (2,006.2)

Proceeds from revolving line of credit and long-term borrowings $ 1,768.2 $ 362.5

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

Payments on revolving line of credit, long-term borrowings, and finance lease obligations (1,616.3) (388.3)

Payment of capitalized loan costs (19.8) (4.7)

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 (13.8) —

Distribution of equity under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim’s Pride Corporation (1.6) (2.0)

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

Cash provided by (used in) financing activities $ 116.7 $ (232.0)

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.

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.

Stockholders’ Equity.”

Proceeds from revolving line of credit and long-term borrowings are primarily from the offerings of our 2033 and 2034 Senior Notes, as well as borrowings on our 2021 U.S.

Credit Facility and our U.K.

and Europe Revolver Facility.

Payments on revolving line of credit, long-term borrowings, and finance lease obligations are primarily due to the paydown of our term loans and revolving notes on our 2021 U.S.

Credit Facility, the completed tender offer of our 2027 Senior Notes, and repayment of borrowings on our U.K.

and Europe Revolver Facility.

The payment of capitalized loan costs relates to the offering of 2033 and 2034 Senior Notes and the execution of the U.S.

Revolving Syndicated credit facility in 2023.

The payment on early extinguishment of debt primarily relates to the tender-offer payment of the 2027 Senior Notes.

The distribution of equity under the Tax Sharing Agreement is the 2022 distribution of equity that was paid in the first quarter of 2023.

Long-Term Debt and Other Borrowing Arrangements

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

Substantially all of our domestic inventories and domestic fixed assets are pledged as collateral to secure the obligations under the U.S.

Credit Facility.

Obligor Group Summarized Financial Information

All of the senior unsecured registered notes (collectively, the “Pilgrim’s Senior Notes”) issued by Pilgrim’s Pride Corporation prior to December 31, 2023 are fully and unconditionally guaranteed by Pilgrim’s Pride Corporation of West Virginia Inc., JFC LLC, Gold’n Plump Farms LLC and Gold’n Plump Poultry LLC (the “Subsidiary Guarantors”).

See “Note 13.

Debt” of our Consolidated Financial Statements included in this annual report for additional descriptions of these guarantees.

The following tables present summarized financial information for Pilgrim’s Pride Corporation parent company only (as issuer of the Pilgrim’s Senior Notes) and the Subsidiary Guarantors (together, the “Obligor Group”), on a combined basis after the elimination of all intercompany balances and transactions between Pilgrim’s Pride Corporation parent company only and the Subsidiary Guarantors and investments in any non-obligated subsidiary.

Summarized Balance Sheets December 31, 2023 December 25, 2022

(In millions)

Current assets $ 2,106 $ 1,983

Current assets due from non-obligated subsidiaries (a)

Current assets due from related parties (b)

Noncurrent assets 2,063 1,945

Current liabilities 1,384 1,402

Current liabilities due to non-obligated subsidiaries (a)

Current liabilities due to related parties (b)

Noncurrent liabilities 3,578 3,459

(a) Represents receivables and short-term lending due from and payables and short-term lending due to non-obligated subsidiaries.

(b) Represents receivables due from and payables due to JBS affiliates.

Summarized Income Statements Year Ended December 31, 2023

(In millions)

Net sales $ 10,104

Gross profit (a)

Operating income 293

Net income 49

Net income attributable to Obligor Group 49

(a) For the year ended December 31, 2023, the Obligor Group recognized $195.0 million of net sales to the non-obligated subsidiaries and no purchases from the non-obligated subsidiaries.

Capital Expenditures

We anticipate spending between $475 million and $525 million on the acquisition of property, plant and equipment in 2024.

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.

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

We expect to fund these capital expenditures with cash flow from operations.

Contractual Obligations

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Payments Due By Period

Contractual Obligations (a)

Contractual Obligations

Total Less than

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(In thousands)

Long-term debt (b)

Long-term debt (a)

$ 3,400,000 $ — $ — $ — $ 3,400,000

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Derivative liabilities 17,841 17,841 — — —

Purchase obligations (d)

Purchase obligations (c)

457,392 414,546 28,445 3,691 10,710

Total $ 5,755,858 $ 681,879 $ 480,346 $ 409,002 $ 4,184,631

(a) The total amount of unrecognized tax benefits at December 25, 2022 was $27.6 million.

We did not include this amount in the contractual obligations table above as reasonable estimates cannot be made at this time of the amounts or timing of future cash outflows.

(b) Long-term debt is presented at face value and excludes $35.0 million in letters of credit outstanding related to normal business transactions.

(c) Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings as of December 25, 2022.

(d) Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased;

(a) Long-term debt is presented at face value and excludes $25.1 million in letters of credit outstanding related to normal business transactions.

(b) Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings as of December 31, 2023.

(c) Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased;

fixed, minimum, or variable price provisions;

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

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.

Revolving Syndicated Facility, the Mexico BBVA Credit Facility and the U.K.

and Europe Revolver 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.

Pillar II Tax Initiative

The Organization for Economic Cooperation and Development (“OECD”) is an international organization made up of 38 member countries that work on establishing international standards seeking solutions to a series of social, economic, and environmental challenges, from improving economic performance, creating jobs to promoting solid education and combating international tax avoidance.

Regarding the fight against tax avoidance, the Base Erosion Profit Shifting (“BEPS”) project was created in 2013, which is an initiative of the G20 (Group of twenty countries with the largest economies) together with the OECD, aimed at implementing 15 measures to combat tax avoidance, improve the coherence of international tax rules, and ensure a more transparent tax environment on the international stage and to avoid the abuse of tax norms that result in erosion of the tax base, mainly through profit shifting to destinations with more favorable taxation or no taxation.

Pillar II is part of one of OECD's most recent initiatives, known as BEPS 2.0, is intended to address tax issues related to changes in business models in a globalized environment.

The goal of Pillar II is to create a global minimum taxation system for multinational companies with an annual global turnover exceeding EUR 750 million, aiming to implement a balance in the global income tax collection of these companies, which may consist of additional taxation for economic groups.

In short, this additional taxation aims to ensure the payment of a minimum effective global rate of 15%, per jurisdiction, where the multinational group operates.

Starting in 2024, Pillar II rules come into effect in various countries, impacting several multinationals and their subsidiaries groups operating in these jurisdictions.

During the initial three years, transition rules (Safe Harbor) simplify the calculations of the effective rate per jurisdiction, enabling adaptation to the affected multinational groups.

Although the implementation of Pillar II offers uncertainties in the US legal system, the Company and its subsidiaries are monitoring the potential impacts that this new rule may bring to the Group.

During 2023, the Company conducted Safe Harbor analysis using 2022 financial data for the jurisdictions where the Company operates.

The results of this preliminary analysis indicate that some countries within the Group may be subject to the additional payment of income tax under the rules of Pillar II.

However, the percentage of additional payment cannot be accurately estimated as of the time the issuance of these Financial Statements, particularly due to the fact that the impact of Pillar 2 will be based on 2024 results, which cannot yet be known.

Recent Accounting Pronouncements

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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.

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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:

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

(1) pools of related inventory, (2) product continuation or discontinuation, (3) estimated market selling prices and (4) expected distribution channels.

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Goodwill represents the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in a business combination.

Identified intangible assets represent trade names, customer relationships and non-compete agreements arising from acquisitions that are recorded at fair value as of the date acquired less accumulated amortization, if any.

We use various market valuation techniques to determine the fair value of its identified intangible assets.

Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise.

Identified intangible assets represent trade names and customer relationships arising from acquisitions that are recorded at fair value as of the date acquired less accumulated amortization, if any.

We use various market valuation techniques to determine the fair value of our identified intangible assets.

Goodwill is not amortized but is tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise.

For goodwill, an impairment loss is recognized for any excess of the carrying amount of a reporting unit’s goodwill over the implied fair value of that goodwill.

Management first reviews relevant qualitative factors to determine 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.

If management determines it is more

likely than not that the carrying amount of a reporting unit goodwill might be impaired, a quantitative impairment test is performed.

Management has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative impairment test.

Management would be able to resume performing the qualitative assessment in any subsequent period.

When performing quantitative impairment tests, we estimate the fair value of our reporting units with material goodwill carrying amounts using an income approach (discounted cash flow method).

We develop projections for cash flows over a 5-year period based on assumptions about revenue growth and margin changes using internally-developed economic projections and industry data obtained from government authorities such as the U.S.

Department of Agriculture and other sources.

We also make terminal value assumptions about revenue growth and margin changes for periods beyond the projection period.

We utilize margin assumptions based on operating performance expectations, margins historically realized in the reporting units’ industries, and general macroeconomic trends.

We utilize the weighted average cost of capital as a proxy for the discount rate.

We consider reporting units that have 20% or less excess fair value over carrying amount to have a heightened risk of future goodwill impairment.

In 2022 and 2021, we reviewed relevant qualitative factors and determined that no indicators of goodwill impairment existed for our Moy Park, Pilgrim’s Food Masters, Pilgrim’s Mexico, and Pilgrim’s U.S.

reporting units.

Our Pilgrim’s U.K.

reporting unit reported goodwill of $2.1 million and $1.8 million at December 25, 2022 and December 26, 2021, respectively.

These amounts were considered immaterial to warrant quantitative goodwill impairment testing.

In 2023, we experienced (1) an increase in long-term treasury rates that management determined could negatively affect discount rates and (2) continued inflationary pressures impacting primarily our Moy Park and Pilgrim’s Food Masters reporting units that management determined could negatively affect our margins.

Both discount rates and margins are used in estimating the fair value of the reporting units.

Therefore, management elected to bypass qualitative assessments and performed quantitative goodwill impairment tests for the Moy Park, Pilgrim’s Food Masters, Pilgrim’s Mexico, and Pilgrim’s U.S.

reporting units as of December 31, 2023.

Our Pilgrim’s U.K.

reporting unit reported goodwill of $2.3 million at December 31, 2023.

This amount was considered immaterial to warrant quantitative goodwill impairment testing.

Our Moy Park reporting unit had goodwill of $784.8 million at December 31, 2023.

In estimating the reporting unit’s fair value, we generally assumed revenue growth would normalize to slightly below the weighted average long-term inflation rate for the countries in which the reporting unit operates.

We also assumed margins in future years would increase through the projection period as the reporting unit continues to remove costs from operations through rationalization projects then normalize in the long-term as we believe this is consistent with market participant views in an exit transaction.

The current year results are not indicative of future market participant expectations in an exit transaction primarily due to current challenging market conditions associated with continued inflationary pressures in the countries in which the Moy Park reporting unit operates.

Based on the outcome of the quantitative test, management determined that no goodwill impairment existed in the Moy Park reporting unit as of December 31, 2023;

however, the Moy Park reporting unit does have a heightened risk of future goodwill impairment as the excess fair value over carrying amount of the reporting unit was less than 20%.

An increase in the discount rate of 25-50 basis points or a reduction in estimated long-term margins by 75-100 basis points across all future projected years, with all other assumptions unchanged, would have caused the carrying value of this reporting unit to exceed its fair value, which may have resulted in material goodwill impairment loss.

Our Pilgrim’s Food Masters, Pilgrim’s Mexico and Pilgrim’s U.S.

reporting units had goodwill of $329.4 million, $127.8 million and $41.9 million, respectively, at December 31, 2023.

In estimating the reporting units’ fair value, we generally assumed revenue growth would normalize to the approximate weighted average long-term inflation rate for the U.K., Ireland, Mexico and the U.S., respectively.

We also assumed margins in future years would normalize over time as we believe this is consistent with market participant views in an exit transaction.

The current year results, as well as the first year of projected results, are not indicative of future market participant expectations in an exit transaction as product price increases have lagged behind increased input costs that resulted from inflationary pressures experienced in the U.K., Ireland, Mexico and the U.S.

during 2022 and early 2023.

Based on the outcome of the quantitative tests, management determined that no goodwill impairment existed in the Pilgrim’s Food Masters, Pilgrim’s Mexico, or Pilgrim’s U.S.

reporting units as of December 31, 2023, and the reporting units do not have a heightened risk of future goodwill impairment as the excess fair value over carrying amount of each reporting unit exceeded 20%.

Other intangible assets with indefinite lives are not amortized but are tested for impairment on an annual basis in the fourth quarter of each fiscal year or more frequently if impairment indicators arise.

An impairment loss is recognized if the carrying amount of an indefinite-life intangible asset exceeds the estimated fair value of that intangible asset.

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 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.

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

If management determines there is an indication that the carrying amount of the intangible asset might be impaired, a quantitative impairment test is performed.

Management has the option to bypass the qualitative assessment for any indefinite-life intangible asset in any period and proceed directly to performing the quantitative impairment test.

The fair value of our indefinite-life intangible assets is calculated principally using a relief-from-royalty valuation approach, which uses significant unobservable inputs as defined by the fair value hierarchy, and is believed to reflect market participant views which would exist in an exit transaction.

Under this valuation approach, we make estimates and assumptions about brand sales growth, royalty rates and discount rates based on specific brand sales projections, general economic projections, anticipated future cash flows and marketplace data.

We consider indefinite-life intangible assets that have 20% or less excess fair value over carrying amount to have a heightened risk of future impairment.

Our 2022 and 2021 indefinite-life intangible assets impairment analyses did not result in an impairment charge.

In 2023, we experienced an increase in long-term treasury rates that management determined could negatively affect discount rates, which are used in estimating the fair value of the reporting units.

Therefore, management elected to bypass qualitative assessments for all indefinite-life intangible assets and performed quantitative impairment tests.

Based on the outcome of the quantitative tests, management determined that no material impairment existed as of December 31, 2023.

The estimated fair values of two indefinite-life intangible assets did not exceed their carrying amounts by more than 20% at December 31, 2023.

One brand reported in the U.K.

and Europe reportable segment had a carrying amount of $36.1 million at December 31, 2023.

For this brand, a hypothetical increase in the discount rate of approximately 25-50 basis points, with all other assumptions unchanged, would have caused the carrying amount of this brand to exceed its fair value, which may have resulted in impairment loss.

A hypothetical decrease in the royalty rate of this brand of approximately 25-50 basis points, with all other assumptions unchanged, would have caused the carrying amount of this brand to exceed its fair value, which may have resulted in impairment loss.

One brand reported in the Mexico reportable segment had a carrying amount of $0.8 million at December 31, 2023.

Potential future full impairment of its carrying amount would not be considered a material impairment loss.

We generally assumed brand revenue growth rates in future years would normalize over time as we believe this is consistent with market participant views in an exit transaction.

The current year results are not indicative of future market participant expectations in an exit transaction primarily due to the expected temporary impacts of continued inflationary pressures and volatile market conditions.

We do not currently consider any of our other indefinite-life intangible assets, which had aggregate carrying amount of $543.5 million at December 31, 2023 to be at heightened risk of future impairment.

Identifiable intangible assets with definite lives, such as customer relationships 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.

The useful lives range from 15 to 20 years for trade names and three to 18 years for customer relationships.

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

Management assessed if events or changes in circumstances indicated that the aggregate carrying amount of its identified intangible assets with definite lives might not be recoverable and determined that there were no impairment indicators during the year ended December 25, 2022 and year ended December 26, 2021.

Litigation and Contingent Liabilities.

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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.

Income Taxes.

We follow provisions under ASC No.

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

We file our U.S.

federal tax return and certain state unitary returns with JBS USA Holdings.

We follow provisions under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes , with regard to members of a group that file a consolidated tax return but issue separate financial statements.

We file certain state unitary returns with JBS USA Food Company Holdings.

Our income tax expense is computed using the separate return method.

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes.

For the unitary states, we have an obligation to make tax payments to JBS USA Holdings for our share of the unitary taxable income, which is included in taxes payable in our Consolidated Balance Sheets.

For the unitary states, we have an obligation to make tax payments to JBS USA Food Company Holdings for our share of the unitary taxable income, which is included in taxes payable in our Consolidated Balance Sheets.

Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards.

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

Defined Benefit Pension and Other Postretirement Plans.

We sponsor four qualified defined benefit pension plans, two nonqualified defined benefit retirement plans, and one defined benefit postretirement life insurance plan.

Some of these plans are administered by a board of trustees made up of management within the participating companies and representatives

from associated labor groups while others are administered by an investment committee made up of management from the participating company.

We use independent third-party actuaries to assist in determining our pension obligations and net periodic benefit cost.

We, along with the actuaries, review assumptions including estimates of the present value of projected future pension payments to participants.

We accumulate and amortize the impact of actuarial gains and losses over future periods.

Our defined benefit pension and other postretirement plans contains uncertainties because it requires management to make assumptions and apply judgments.

The key assumptions made in developing key estimates include discount rates, expected returns on plan assets, retirement rates, and mortality.

These assumptions can have a material impact on the funded status and the net periodic benefit cost.

The discount rates reflect yields on high-quality corporate bonds as of the measurement date and were compared to the effective discount rate determined by discounting plan cash flows using the 12/31/2023 Empower Above Mean Curve.

All other assumptions reflect estimates of future experience and considering relevant historical information, such as credible plan experience, from representative populations and relevant plan characteristics.

The mortality assumption reflects experience from representative populations, based on the Pri-2012 Private Retirement Plans Mortality Table Report issued by the Society of Actuaries (“SOA”) in October 2019 and the Mortality Improvement Scale MP-2021 Report issued by the SOA in October 2021.

It is reasonable to expect that changes in external factors will result in changes to the assumptions noted above that are used to measure pension obligations and net periodic benefit cost in future periods.

Business Combination Accounting .

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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

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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 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.

(1) foreign currency transaction losses (gains), (2) transaction costs related to business acquisitions, (3) costs related to litigation settlements, (4) restructuring activities losses, (5) property insurance recoveries, and (6) 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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December 31, 2023 December 25, 2022

(In thousands)

Net income $ 322,317 $ 746,538

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EBITDA 951,743 1,572,227

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

Foreign currency transaction losses 20,570 30,817

Transaction costs related to acquisitions — 948

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

Litigation settlements expense 39,400 34,086

Restructuring activities losses 44,345 30,466

Hometown Strong commitment expenses — 1,000

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

Property insurance recoveries on Mayfield tornado losses 19,580 —

Gain recognized on deconsolidation of subsidiary — 1,131

Property insurance recoveries 21,124 19,580

Net income attributable to noncontrolling interest 743 608

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2023 December 25,

(In thousands, except per share data)

Net income attributable to Pilgrim’s

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

$ 321,574 $ 745,930

Foreign currency transaction losses 20,570 30,817

Restructuring activities losses 44,345 30,466

Transaction costs related to acquisitions — 948

DOJ agreement and litigation settlements 34,086 656,225

Hometown Strong commitment expenses — 1,000

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 (19,580) —

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

Net tax expense (benefit) of adjustments (a)

Litigation settlements 39,400 34,086

Loss on early extinguishment of debt recognized as a component of interest expense (a)

Property insurance recoveries 21,124 19,580

Adjusted net income attributable to Pilgrim’s before tax impact of adjustments 425,459 822,667

Net tax benefit of adjustments (b)

(25,140) (19,115)

Adjusted net income attributable to Pilgrim ’ s

$ 400,319 $ 803,552

Weighted average diluted shares of common stock outstanding 237,297 240,394

Adjusted net income attributable to Pilgrim ’ s per common diluted share

(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.

$ 1.69 $ 3.34

(a) The loss on early extinguishment of debt recognized as a component of interest expense was due to the repurchase of the Senior Notes due 2027.

(b) Net tax impact of adjustments represents the tax impact of all adjustments shown above.

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