Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Overview
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.
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 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report.
We operate on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. Any reference we make to a particular year applies to our fiscal year and not the calendar year. Fiscal 2023 was a 53-week accounting cycle and 2022 was a 52-week accounting cycle.
Global Economic Conditions
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. 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. 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 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. 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. 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.
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. 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.
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Raw Materials and Input Costs
Our U.S. 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. The U.S. 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. business. 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.
U.K. 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. E.U. and U.K. 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.
U.K. 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
We believe sustainability involves continuously improving social responsibility, economic viability and environmental stewardship. We are committed to helping society meet the global challenge of feeding a growing population in a responsible matter.
Environmental Stewardship . We were the first major meat and poultry company in the world to set a net zero greenhouse gas emissions target by 2040, demonstrating our leadership and dedication to improving the efficiency of our operations and supporting producers to reduce our environmental footprint. In support of this initiative, in April 2021, we issued $1.0 billion of sustainability-linked bonds, which require us to reduce our 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
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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 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.
Governance . 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 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
We operate in three reportable segments: the U.S., the U.K. and Europe, and Mexico. We measure segment profit as operating income. 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. For additional information, see “Note 20. Reportable Segments” of our Consolidated Financial Statements included in this annual report.
Results of Operations
2023 Compared to 2022
Net sales. 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:
Change from 2022
Sources of net sales 2023 Amount Percent
(In thousands, except percent data)
U.S. $ 10,027,742 $ (720,608) (6.7) %
U.K. and Europe 5,203,322 328,584 6.7 %
Mexico 2,131,153 285,864 15.5 %
Total net sales $ 17,362,217 $ (106,160) (0.6) %
U.S. Reportable Segment. U.S. 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.
U.K. and Europe Reportable Segment. U.K. 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 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 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. dollar. 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.
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Gross profit. 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:
Change from 2022 Percent of Net Sales
Components of gross profit 2023 Amount Percent 2023 2022
(In thousands, except percent data)
Net sales $ 17,362,217 $ (106,160) (0.6) % 100.0 % 100.0 %
Cost of sales 16,243,816 587,242 3.8 % 93.6 % 89.6 %
Gross profit $ 1,118,401 $ (693,402) (38.3) % 6.4 % 10.4 %
Sources of gross profit 2023 Change from 2022
Amount Percent
(In thousands, except percent data)
U.S. $ 522,484 $ (913,421) (63.6) %
U.K. and Europe 374,699 134,027 55.7 %
Mexico 221,432 86,260 63.8 %
Elimination (a)
(214) (268) (496.3) %
Total gross profit $ 1,118,401 $ (693,402) (38.3) %
Sources of cost of sales 2023 Change from 2022
Amount Percent
(In thousands, except percent data)
U.S. $ 9,505,258 $ 192,813 2.1 %
U.K. and Europe 4,828,623 194,557 4.2 %
Mexico 1,909,721 199,604 11.7 %
Elimination (a)
214 268 (496.3) %
Total cost of sales $ 16,243,816 $ 587,242 3.8 %
(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.
U.S. Reportable Segment. 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 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. cost of sales were individually immaterial.
U.K. and Europe Reportable Segment. Cost of sales incurred by the U.K. 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 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. 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 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. dollar. 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 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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Change from 2022 Percent of Net Sales
Components of operating income 2023 Amount Percent 2023 2022
(In thousands, except percent data)
Gross profit $ 1,118,401 $ (693,402) (38.3) % 6.4 % 10.4 %
SG&A expenses 551,770 (52,972) (8.8) % 3.2 % 3.5 %
Restructuring activities 44,345 13,879 45.6 % 0.3 % 0.2 %
Operating income $ 522,286 $ (654,309) (55.6) % 3.0 % 6.7 %
Change from 2022
Sources of operating income 2023 Amount Percent
(In thousands, except percent data)
U.S. $ 238,894 $ (855,131) (78.2) %
U.K. and Europe 128,151 129,085 NM (b)
Mexico 155,455 72,005 86.3 %
Eliminations (a)
(214) (268) (496.3) %
Total operating income $ 522,286 $ (654,309) (55.6) %
Sources of SG&A expenses (defined below) 2023 Change from 2022
Amount Percent
(In thousands, except percent data)
U.S. $ 283,590 $ (58,290) (17.0) %
U.K. and Europe 202,203 (8,937) (4.2) %
Mexico 65,977 14,255 27.6 %
Total SG&A expense $ 551,770 $ (52,972) (8.8) %
Sources of restructuring activities charges 2023 Change from 2022
Amount Percent
(In thousands, except percent data)
U.K. 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”).
U.S. Reportable Segment. Selling, general and administrative (“SG&A”) expense incurred by the U.S. operations during 2023 decreased $58.3 million, or 17.0%, from SG&A expense incurred by the U.S. 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.
U.K. and Europe Reportable Segment. SG&A expense incurred by the U.K. 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.
Mexico Reportable Segment. 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 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 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.
Income taxes. Our consolidated income tax expense in 2023 was $42.9 million, compared to income tax expense of $278.9 million in 2022. The decrease in income tax expense in 2023 resulted from a decrease in pre-tax income during 2023.
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2022 Compared to 2021
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
Our principal sources of liquidity are cash generated from operations, funds from borrowings, and existing cash on hand. The following table presents our available sources of liquidity as of December 31, 2023:
Sources of Liquidity Facility
Amount Amount
Outstanding Available
(In millions)
Cash and cash equivalents $ 731.2
Borrowing arrangements:
U.S. Revolving Syndicated Facility (a)
$ 850.0 $ — 824.9
Mexico BBVA Credit Facility (b)
65.4 — 65.4
U.K. and Europe Revolver Facility (c)
191.1 — 191.1
(a) Availability under the U.S. 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) 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).
(c) As of December 31, 2023, 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.
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Historical Flow of Funds
Year Ended
Cash Flows from Operating Activities December 31, 2023 December 25, 2022
(In millions)
Net income $ 322.3 $ 746.5
Net noncash expenses 462.4 422.6
Changes in operating assets and liabilities:
Trade accounts and other receivables (19.0) (149.6)
Inventories 12.6 (472.2)
Prepaid expenses and other current assets 17.8 18.3
Accounts payable and accrued expenses (68.7) 263.3
Income taxes (8.9) (142.5)
Long-term pension and other postretirement obligations (10.0) (4.1)
Other operating assets and liabilities (30.7) (12.3)
Cash provided by operating activities $ 677.9 $ 669.9
Net Noncash Expenses
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 $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. 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 $422.6 million for the year ended December 25, 2022. 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.
Changes in Operating Assets and Liabilities
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. 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 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.
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
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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. 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 $142.5 million use of cash in 2022. This change resulted primarily from the timing of estimated tax payments and higher profitability in 2022.
Year Ended
Cash Flows from Investing Activities December 31, 2023 December 25, 2022
(In millions)
Acquisitions of property, plant and equipment $ (543.8) $ (487.1)
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 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. Proceeds from property disposals were primarily for the sale of a farm in Mexico and other miscellaneous equipment.
Year Ended
Cash Flows from Financing Activities December 31, 2023 December 25, 2022
(In millions)
Proceeds from revolving line of credit and long-term borrowings $ 1,768.2 $ 362.5
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)
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 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
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. Debt.”
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.
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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)
192 170
Current assets due from related parties (b)
— 2
Noncurrent assets 2,063 1,945
Current liabilities 1,384 1,402
Current liabilities due to non-obligated subsidiaries (a)
325 253
Current liabilities due to related parties (b)
32 8
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)
533
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, to reduce costs, and for system enhancement projects. We expect to fund these capital expenditures with cash flow from operations.
Contractual Obligations
In addition to our debt commitments at December 31, 2023, we had other commitments and contractual obligations that require us to make specified payments in the future. The following table summarizes the total amounts due as of December 31, 2023 under all debt agreements, commitments and other contractual obligations. The table indicates the years in which payments are due under the contractual obligations.
Payments Due By Period
Contractual Obligations
Total Less than
One Year One to
Three Years Three to
Five Years Greater than
Five Years
(In thousands)
Long-term debt (a)
$ 3,400,000 $ — $ — $ — $ 3,400,000
Interest (b)
1,572,567 171,005 341,750 341,750 718,062
Finance leases 2,628 742 1,141 745 —
Operating leases 305,430 77,745 109,010 62,816 55,859
Derivative liabilities 17,841 17,841 — — —
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) 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; and the approximate timing of the transaction.
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W e expect cash flows from operations, combined with availability under the U.S. 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
Refer to Part II, Item 8, Notes to Consolidated Financial Statements, “Note 1. Business and Summary of Significant Accounting Policies.”
Critical Accounting Policies and Estimates
General . Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, inventory, goodwill and other intangible assets, litigation and income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition. The vast majority of our revenue is derived from contracts which are based upon a customer ordering our products. While there may be master agreements, the contract is only established when the customer’s order is accepted by us. We account for a contract, which may be verbal or written, when it is approved and committed by both parties, the rights of the parties are identified along with payment terms, the contract has commercial substance and collectability is probable.
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We evaluate the transaction for distinct performance obligations, which are the sale of our products to customers. Since our products are commodity market-priced, the sales price is representative of the observable, standalone selling price. Each performance obligation is recognized based upon a pattern of recognition that reflects the transfer of control to the customer at a point in time, which is upon destination (customer location or port of destination) and depicts the transfer of control and recognition of revenue. There are instances of customer pick-up at our facilities, in which case control transfers to the customer at that point and we recognize revenue. Our performance obligations are typically fulfilled within days to weeks of the acceptance of the order.
We make judgments regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from revenue and cash flows with customers. Determination of a contract requires evaluation and judgment along with the estimation of the total contract value and if any of the contract value is constrained. Due to the nature of our business, there is minimal variable consideration, as the contract is established at the acceptance of the order from the customer. When applicable, variable consideration is estimated at contract inception and updated on a regular basis until the contract is completed. Allocating the transaction price to a specific performance obligation based upon the relative standalone selling prices includes estimating the standalone selling prices including discounts and variable consideration.
Inventories. Live chicken and pig inventories are stated at the lower of cost or net realizable value and breeder hen, breeder sow and boar inventories at the lower of cost, less accumulated amortization, or net realizable value. The costs associated with breeder hen inventories are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. The costs associated with breeder sow inventories are accumulated up to the production stage and amortized on a straight-line basis over their productive lives to the estimated residual cull value. The costs associated with finished poultry products, finished pork products, feed, eggs and other inventories are stated at the lower of cost (average) or net realizable value. Inventory typically transfers from one stage of production to another at a standard cost, where it accumulates additional cost directly incurred with the production of inventory, including overhead. The standard cost at which each type of inventory transfers is set by management to reflect the actual costs incurred in the prior steps. We monitor and adjust standard costs throughout the year to ensure that standard costs reasonably reflect the actual average cost of the inventory produced.
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. We allocate meat costs between our various finished pork products based on a by-product costing technique that allocates the cost of the whole pig into the primal cuts by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes legs, shoulders, bellies, offal and fifth quarter parts, which are carried in inventory at the estimated recoverable amounts, with the remaining amount being reflected as our loin meat cost.
For our prepared foods inventories, raw materials and packaging materials are valued at the lower of weighted average cost and net realizable value, work in progress is valued at the latest production cost (raw materials, packaging), finished goods are valued at the lower of the latest actual monthly production cost (raw materials, packaging and direct labor) and attributable overheads and net realizable value, and engineering spares and consumables are valued at cost with an appropriate provision for obsolete engineering spares consistent with historical practice.
Generally, we perform an evaluation of whether any lower of cost or net realizable value adjustments are required at the country level based on a number of factors, including: (1) pools of related inventory, (2) product continuation or discontinuation, (3) estimated market selling prices and (4) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required. 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. 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 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
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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, 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.
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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 years ended December 31, 2023 and December 25, 2022.
Litigation and Contingent Liabilities. We are subject to lawsuits, investigations and other claims related to employment, environmental, product, and other matters. We are required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. We estimate the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. 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. 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 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 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. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date. 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
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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 . We allocate the consideration of an acquired business to its identifiable assets and liabilities based on estimated fair values. The excess of the consideration over the amount allocated to the assets and liabilities, if any, is recorded to goodwill. We use all available information to estimate fair values. We use various models to determine the value of assets acquired and liabilities assumed such as net realizable value to value inventory, cost method and market approach to value property, relief-from-royalty and multi-period excess earnings to value intangibles and discounted cash flow to value goodwill. We typically engage third-party valuation specialists to assist in the fair value determination of tangible long-lived assets and intangible assets other than goodwill. The fair value of acquired inventories is typically determined by extending physical counts of the inventories taken at or near the acquisition date to market pricing in effect for such inventories at or near the acquisition date. The carrying values of acquired receivables and accounts payable have historically approximated their fair values as of the business combination date. As necessary, we may engage third-party specialists to assist in the estimation of fair value for certain liabilities. We adjust the preliminary acquisition accounting, as necessary, typically up to one year after the acquisition closing date for those items that existed at the acquisition date and were provisionally accounted for at that time, as we obtain more information regarding asset valuations and liabilities assumed.
Our acquisition accounting methodology contains uncertainties because it requires management to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. Management estimates the fair value of assets and liabilities based upon quoted market prices, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates, including changes in assumptions regarding industry economic factors and business strategies. If actual results are materially different than the assumptions used to determine fair value of the assets and liabilities acquired through a business combination, it is possible that adjustments to the carrying values of such assets and liabilities will have an impact on our net earnings.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction 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. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of our performance with our competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are:
• They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
• They do not reflect changes in, or cash requirements for, our working capital needs;
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• They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
• Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
• They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows;
• EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;
• They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and
• They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.
In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.
(Unaudited) Year Ended
December 31, 2023 December 25, 2022
Net income $ 322,317 $ 746,538
Add:
Interest expense, net 166,621 143,644
Income tax expense 42,905 278,935
Depreciation and amortization 419,900 403,110
EBITDA 951,743 1,572,227
Add:
Foreign currency transaction losses 20,570 30,817
Transaction costs related to acquisitions — 948
Litigation settlements expense 39,400 34,086
Restructuring activities losses 44,345 30,466
Minus:
Property insurance recoveries 21,124 19,580
Net income attributable to noncontrolling interest 743 608
Adjusted EBITDA $ 1,034,191 $ 1,648,356
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Reconciliation of Adjusted Net Income
(Unaudited)
Year Ended
December 31,
2023 December 25,
2022
Net income attributable to Pilgrim’s
$ 321,574 $ 745,930
Add:
Foreign currency transaction losses 20,570 30,817
Restructuring activities losses 44,345 30,466
Transaction costs related to acquisitions — 948
Litigation settlements 39,400 34,086
Loss on early extinguishment of debt recognized as a component of interest expense (a)
20,694 —
Minus:
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
$ 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.