10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 27, 2015 OR |
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¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to _______
Commission File number 1-9273
PILGRIM’S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)
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| | |
Delaware | | 75-1285071 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
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1770 Promontory Circle, Greeley, CO | | 80634-9038 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s telephone number, including area code: (970) 506-8000
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | ý | | Accelerated Filer | | ¨ |
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Non-accelerated Filer | ¨ (Do not check if a smaller reporting company) | | Smaller reporting company | | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of October 28, 2015, was 255,145,196.
INDEX
PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 6. | | |
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PART I. | FINANCIAL INFORMATION |
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ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
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PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
| | September 27, 2015 | | December 28, 2014 |
| | (Unaudited) | | |
| | (In thousands) |
Cash and cash equivalents | | $ | 396,719 |
| | $ | 576,143 |
|
Trade accounts and other receivables, less allowance for doubtful accounts | | 369,681 |
| | 378,890 |
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Account receivable from related parties | | 2,581 |
| | 5,250 |
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Inventories | | 841,273 |
| | 790,305 |
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Income taxes receivable | | 4,971 |
| | 10,288 |
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Current deferred tax assets | | 37,561 |
| | 27,345 |
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Prepaid expenses and other current assets | | 96,857 |
| | 95,439 |
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Assets held for sale | | 6,555 |
| | 1,419 |
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Total current assets | | 1,756,198 |
| | 1,885,079 |
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Other long-lived assets | | 31,813 |
| | 24,406 |
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Identified intangible assets, net | | 32,177 |
| | 26,783 |
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Goodwill | | 174,431 |
| | — |
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Property, plant and equipment, net | | 1,347,239 |
| | 1,182,795 |
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Total assets | | $ | 3,341,858 |
| | $ | 3,119,063 |
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| | | | |
Notes payable to banks | | $ | 5,869 |
| | $ | — |
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Accounts payable | | 524,025 |
| | 399,486 |
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Account payable to related parties | | 10,402 |
| | 4,862 |
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Accrued expenses and other current liabilities | | 304,459 |
| | 311,879 |
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Income taxes payable | | 20,874 |
| | 3,068 |
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Current deferred tax liabilities | | 40,368 |
| | 25,301 |
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Current maturities of long-term debt | | 102 |
| | 262 |
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Total current liabilities | | 906,099 |
| | 744,858 |
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Long-term debt, less current maturities | | 1,000,398 |
| | 3,980 |
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Deferred tax liabilities | | 89,589 |
| | 76,216 |
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Other long-term liabilities | | 103,104 |
| | 97,208 |
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Total liabilities | | 2,099,190 |
| | 922,262 |
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Common stock | | 2,597 |
| | 2,590 |
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Treasury stock | | (45,080 | ) | | — |
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Additional paid-in capital | | 1,672,501 |
| | 1,662,354 |
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Retained earnings (accumulated deficit) | | (324,400 | ) | | 591,492 |
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Accumulated other comprehensive loss | | (66,002 | ) | | (62,541 | ) |
Total Pilgrim’s Pride Corporation stockholders’ equity | | 1,239,616 |
| | 2,193,895 |
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Noncontrolling interest | | 3,052 |
| | 2,906 |
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Total stockholders’ equity | | 1,242,668 |
| | 2,196,801 |
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Total liabilities and stockholders’ equity | | $ | 3,341,858 |
| | $ | 3,119,063 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
(Unaudited) |
|
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| | September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
| | (In thousands, except per share data) |
Net sales | | $ | 2,112,529 |
| | $ | 2,268,048 |
| | $ | 6,219,324 |
| | $ | 6,472,929 |
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Cost of sales | | 1,827,985 |
| | 1,817,783 |
| | 5,125,640 |
| | 5,458,083 |
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Gross profit | | 284,544 |
| | 450,265 |
| | 1,093,684 |
| | 1,014,846 |
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Selling, general and administrative expense | | 52,620 |
| | 44,629 |
| | 150,961 |
| | 138,437 |
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Administrative restructuring charges | | 792 |
| | 135 |
| | 5,605 |
| | 2,286 |
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Operating income | | 231,132 |
| | 405,501 |
| | 937,118 |
| | 874,123 |
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Interest expense, net of capitalized interest | | 10,501 |
| | 11,372 |
| | 26,870 |
| | 45,407 |
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Interest income | | (319 | ) | | (1,171 | ) | | (3,086 | ) | | (2,974 | ) |
Foreign currency transaction loss | | 12,773 |
| | 6,414 |
| | 23,806 |
| | 4,932 |
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Miscellaneous, net | | (2,071 | ) | | (610 | ) | | (7,135 | ) | | (2,609 | ) |
Income before income taxes | | 210,248 |
| | 389,496 |
| | 896,663 |
| | 829,367 |
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Income tax expense | | 73,153 |
| | 133,693 |
| | 313,751 |
| | 284,932 |
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Net income | | 137,095 |
| | 255,803 |
| | 582,912 |
| | 544,435 |
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Less: Net income (loss) attributable to noncontrolling interests | | 33 |
| | (181 | ) | | 146 |
| | (26 | ) |
Net income attributable to Pilgrim’s Pride Corporation | | $ | 137,062 |
| | $ | 255,984 |
| | $ | 582,766 |
| | $ | 544,461 |
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Weighted average shares of common stock outstanding: | | | | | | | | |
Basic | | 259,280 |
| | 258,999 |
| | 259,540 |
| | 258,966 |
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Effect of dilutive common stock equivalents | | 223 |
| | 523 |
| | 225 |
| | 482 |
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Diluted | | 259,503 |
| | 259,522 |
| | 259,765 |
| | 259,448 |
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Net income attributable to Pilgrim's Pride Corporation per share of common stock outstanding: | | | | | | | | |
Basic | | $ | 0.53 |
| | $ | 0.99 |
| | $ | 2.25 |
| | $ | 2.10 |
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Diluted | | $ | 0.53 |
| | $ | 0.99 |
| | $ | 2.24 |
| | $ | 2.10 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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PILGRIM’S PRIDE CORPORATION |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
(Unaudited) |
|
| | Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| | September 27, 2015 | | September 28, 2014 | | September 27, 2015 | | September 28, 2014 |
| | (In thousands) |
Net income | | $ | 137,095 |
| | $ | 255,803 |
| | $ | 582,912 |
| | $ | 544,435 |
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Other comprehensive income (loss): | | | | | | | | |
Gain (loss) associated with available-for-sale securities, net of tax expense of $43, $10, $30 and $30, respectively | | 70 |
| | 17 |
| | 50 |
| | (12 | ) |
Loss associated with pension and other postretirement benefits, net of tax benefit of $6,206, $396, $2,129 and $6,105, respectively | | (10,234 | ) | | (653 | ) | | (3,511 | ) | | (10,068 | ) |
Total other comprehensive loss, net of tax | | (10,164 | ) | | (636 | ) | | (3,461 | ) | | (10,080 | ) |
Comprehensive income | | 126,931 |
| | 255,167 |
| | 579,451 |
| | 534,355 |
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Less: Comprehensive income (loss) attributable to noncontrolling interests | | 33 |
| | (181 | ) | | 146 |
| | (26 | ) |
Comprehensive income attributable to Pilgrim's Pride Corporation | | $ | 126,898 |
| | $ | 255,348 |
| | $ | 579,305 |
| | $ | 534,381 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
(Unaudited) |
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| | Pilgrim’s Pride Corporation Stockholders | | | | |
| | Common Stock | | Treasury Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total |
| | Shares | | Amount | | Shares | | Amount | |
| | (In thousands) |
Balance at December 28, 2014 | | 259,029 |
| | $ | 2,590 |
| | — |
| | $ | — |
| | $ | 1,662,354 |
| | $ | 591,492 |
| | $ | (62,541 | ) | | $ | 2,906 |
| | $ | 2,196,801 |
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Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 582,766 |
| | — |
| | 146 |
| | 582,912 |
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Other comprehensive loss, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,461 | ) | | — |
| | (3,461 | ) |
Share-based compensation plans: | | | | | | | | | | | | | | | | | | |
Common stock issued under compensation plans | | 671 |
| | 7 |
| | — |
| | — |
| | (7 | ) | | — |
| | — |
| | — |
| | — |
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Common stock forfeited under compensation plans | | (15 | ) | | — |
| | — |
| | — |
| | (85 | ) | | — |
| | — |
| | — |
| | (85 | ) |
Requisite service period recognition | | — |
| | — |
| | — |
| | — |
| | 2,217 |
| | — |
| | — |
| | — |
| | 2,217 |
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Tax benefit related to share-based compensation | | — |
| | — |
| | — |
| | — |
| | 7,834 |
| | — |
| | — |
| | — |
| | 7,834 |
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Treasury stock purchases | | — |
| | — |
| | (1,915 | ) | | (45,080 | ) | | — |
| | — |
| | — |
| | — |
| | (45,080 | ) |
Special cash dividend | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,498,470 | ) | | — |
| | — |
| | (1,498,470 | ) |
Other | | — |
| | — |
| | — |
| | — |
| | 188 |
| | (188 | ) | | — |
| | — |
| | — |
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Balance at September 27, 2015 | | 259,685 |
| | $ | 2,597 |
| | (1,915 | ) | | $ | (45,080 | ) | | $ | 1,672,501 |
| | $ | (324,400 | ) | | $ | (66,002 | ) | | $ | 3,052 |
| | $ | 1,242,668 |
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Balance at December 29, 2013 | | 259,029 |
| | $ | 2,590 |
| | — |
| | $ | — |
| | $ | 1,653,119 |
| | $ | (120,156 | ) | | $ | (45,735 | ) | | $ | 2,784 |
| | $ | 1,492,602 |
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Net income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | 544,461 |
| | — |
| | (26 | ) | | 544,435 |
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Other comprehensive loss, net of tax | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (10,080 | ) | | — |
| | (10,080 | ) |
Issuance of subsidiary common stock | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 332 |
| | 332 |
|
Share-based compensation plans: | | | | | | | | | | | | | | | | | | |
Requisite service period recognition | | — |
| | — |
| | — |
| | — |
| | 3,504 |
| | — |
| | — |
| | — |
| | 3,504 |
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Balance at September 28, 2014 | | 259,029 |
| | $ | 2,590 |
| | — |
| | $ | — |
| | $ | 1,656,623 |
| | $ | 424,305 |
| | $ | (55,815 | ) | | $ | 3,090 |
| | $ | 2,030,793 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) |
|
| | Thirty-Nine Weeks Ended |
| | September 27, 2015 | | September 28, 2014 |
| | (In thousands) |
Cash flows from operating activities: | | | | |
Net income | | $ | 582,912 |
| | $ | 544,435 |
|
Adjustments to reconcile net income to cash provided by operating activities: | | | | |
Depreciation and amortization | | 116,485 |
| | 112,740 |
|
Foreign currency transaction gain | | — |
| | 8,585 |
|
Accretion of bond discount | | — |
| | 342 |
|
Asset impairment | | 4,813 |
| | — |
|
Gain on property disposals | | (9,817 | ) | | (1,112 | ) |
Gain on investment securities | | — |
| | (49 | ) |
Share-based compensation | | 2,132 |
| | 3,504 |
|
Deferred income tax benefit | | (7,214 | ) | | (79,619 | ) |
Changes in operating assets and liabilities: | | | | |
Trade accounts and other receivables | | 40,694 |
| | (35,785 | ) |
Inventories | | 17,162 |
| | (10,339 | ) |
Prepaid expenses and other current assets | | (1,415 | ) | | (16,694 | ) |
Accounts payable, accrued expenses and other current liabilities | | 92,159 |
| | 36,686 |
|
Income taxes | | 17,836 |
| | 239,944 |
|
Long-term pension and other postretirement obligations | | (2,668 | ) | | (1,764 | ) |
Other operating assets and liabilities | | 3,235 |
| | 1,534 |
|
Cash provided by operating activities | | 856,314 |
| | 802,408 |
|
Cash flows from investing activities: | | | | |
Acquisitions of property, plant and equipment | | (129,848 | ) | | (131,349 | ) |
Purchase of acquired business, net of cash acquired | | (373,532 | ) | | — |
|
Purchases of investment securities | | — |
| | (55,100 | ) |
Proceeds from sale or maturity of investment securities | | — |
| | 152,050 |
|
Proceeds from property disposals | | 13,553 |
| | 8,422 |
|
Cash used in investing activities | | (489,827 | ) | | (25,977 | ) |
Cash flows from financing activities: | | | | |
Proceeds from note payable to bank | | 5,869 |
| | — |
|
Proceeds from revolving line of credit and long-term borrowings | | 1,680,000 |
| | — |
|
Payments on revolving line of credit, long-term borrowings and capital lease obligations | | (683,742 | ) | | (410,199 | ) |
Tax benefit related to share-based compensation | | 7,834 |
| | — |
|
Sale of subsidiary common stock | | — |
| | 332 |
|
Payment of capitalized loan costs | | (12,322 | ) | | — |
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Purchase of treasury stock | | (45,080 | ) | | — |
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Payment of special cash dividends | | (1,498,470 | ) | | — |
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Cash used in financing activities | | (545,911 | ) | | (409,867 | ) |
Effect of exchange rate changes on cash and cash equivalents | | — |
| | (6,173 | ) |
Increase (decrease) in cash and cash equivalents | | (179,424 | ) | | 360,391 |
|
Cash and cash equivalents, beginning of period | | 576,143 |
| | 508,206 |
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Cash and cash equivalents, end of period | | $ | 396,719 |
| | $ | 868,597 |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Business
Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), Mexico and Puerto Rico. Pilgrim's products are sold to foodservice, retail and frozen entrée customers. The Company's primary distribution is through retailers, foodservice distributors and restaurants throughout the United States and Puerto Rico and in the northern and central regions of Mexico. Additionally, the Company exports chicken products to approximately 95 countries. Pilgrim's fresh chicken products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company's prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 12 U.S. states, Puerto Rico and Mexico. As of September 27, 2015, Pilgrim's had approximately 39,200 employees and the capacity to process more than 37 million birds per week for a total of more than 11 billion pounds of live chicken annually. Approximately 3,900 contract growers supply poultry for the Company's operations. As of September 27, 2015, JBS USA Holdings, Inc. (“JBS USA”), an indirect subsidiary of Brazil-based JBS S.A., beneficially owned 75.8% of the Company's outstanding common stock.
Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments unless otherwise disclosed) considered necessary for a fair presentation have been included. Operating results for the thirty-nine weeks ended September 27, 2015 are not necessarily indicative of the results that may be expected for the year ending December 27, 2015. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 28, 2014.
Pilgrim’s operates on a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. The reader should assume any reference we make to a particular year (for example, 2015) in the notes to these Condensed Consolidated Financial Statements applies to our fiscal year and not the calendar year.
The Condensed Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation.
The Company measures the financial statements of its Mexico subsidiaries as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than non-monetary assets, of the Mexico subsidiaries at current exchange rates. We remeasure non-monetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. We remeasure income and expenses at average exchange rates in effect during the period. Currency exchange gains or losses are included in the line item Foreign currency transaction loss in the Condensed Consolidated Statements of Income.
Reportable Segment
We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale.
Revenue Recognition
We recognize revenue when all of the following circumstances are satisfied: (i) persuasive evidence of an arrangement exists, (ii) price is fixed or determinable, (iii) collectability is reasonably assured and (iv) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. Revenue is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give rise to the revision become known.
Book Overdraft
The majority of the Company's disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Condensed Consolidated Statements of Cash Flows.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue recognition, which provides for a single five-step model to be applied to all revenue contracts with customers. The new standard also requires additional financial statement disclosures that will enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows relating to customer contracts. Companies have an option to use either a retrospective approach or cumulative effect adjustment approach to implement the standard. In June 2015, the FASB agreed to defer by one year the mandatory effective date of this standard, but will also provide entities the option to adopt the new guidance as of the original effective date. The provisions of the new guidance will be effective as of the beginning of our 2018 fiscal year, but we have the option to adopt the guidance as early as the beginning of our 2017 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements and have not yet selected either a transition approach to implement the standard or an adoption date.
In April 2015, the FASB issued new presentation guidance for debt issuance costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items The provisions of the new guidance will be effective as of the beginning of our 2016 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.
In July 2015, the FASB issued new accounting guidance on the subsequent measurement of inventory, which, in an effort to simplify unnecessarily complicated accounting guidance that can result in several potential outcomes, requires an entity to measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Current accounting guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The provisions of the new guidance will be effective as of the beginning of our 2017 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.
In September 2015, the FASB issued new accounting and presentation guidance for adjustments to provisional amounts recognized in business combinations, which, in an effort to reduce the cost and complexity of financial reporting, requires an acquiring entity in a business combination to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustment amounts are determined. The guidance also requires an acquiring entity in a business combination to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The provisions of the new guidance will be effective as of the beginning of our 2016 fiscal year. We are currently evaluating the impact of the new guidance on our financial statements.
On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries, 100% of the equity of Provemex Holding LLC and its subsidiaries (together, "Tyson Mexico") from Tyson Foods, Inc. and certain of its subsidiaries for cash. Tyson Mexico is a vertically integrated poultry business based in Gomez Palacio, Durango, Mexico. The acquired business has a production capacity of three million birds per week in its three plants and employs more than 5,400 people in its plants, offices and seven distribution centers. The acquisition further strengthens the Company's strategic position in the Mexico chicken market. The Company expects to maintain these operations working to capacity with the existing workforce. The Company plans to keep all current labor contracts in place.
The following table summarizes the consideration paid for Tyson Mexico (in thousands):
|
| | | |
Negotiated sales price | $ | 400,000 |
|
Working capital adjustment | (20,933 | ) |
Final purchase price | $ | 379,067 |
|
The results of operations of the acquired business since June 29, 2015 are included in the Company’s Condensed Consolidated Statements of Operations. Net sales generated by the acquired business from the acquisition date through September 27, 2015 totaled $128.9 million. The acquired business incurred a net loss from the acquisition date through September 27, 2015 totaling $2.9 million.
The assets acquired and liabilities assumed in the Tyson Mexico acquisition have been measured at their fair values at June 29, 2015 as set forth below. The excess of the purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the acquisition as well the assembled workforce. These benefits include complementary product offerings, an enhanced footprint in Mexico and attractive synergy opportunities and value creation. The Company does not have tax basis in the goodwill, and therefore, the goodwill is not deductible for tax purposes. The preliminary fair values recorded were determined based upon a preliminary valuation and the estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). The primary areas of acquisition accounting that are not yet finalized relate to the preliminary valuation, amounts for income taxes including deferred tax accounts, uncertain tax positions and net operating loss carryforwards inclusive of associated limitations and valuation allowances, certain legal matters and residual goodwill.
The preliminary fair values recorded for the assets acquired and liabilities assumed for Tyson Mexico are as follows (in thousands):
|
| | | |
Cash and cash equivalents | $ | 5,535 |
|
Trade accounts and other receivables | 24,173 |
|
Inventories | 68,130 |
|
Prepaid expenses and other current assets | 7,661 |
|
Property, plant and equipment | 157,752 |
|
Identifiable intangible assets | 9,700 |
|
Other long-lived assets | 199 |
|
Total assets acquired | 273,150 |
|
Accounts payable | 21,550 |
|
Other current liabilities | 9,504 |
|
Long-term deferred tax liabilities | 32,305 |
|
Other long-term liabilities | 5,155 |
|
Total liabilities assumed | 68,514 |
|
Total identifiable net assets | 204,636 |
|
Goodwill | 174,431 |
|
Total net assets | $ | 379,067 |
|
The Company has evaluated and continues to evaluate pre-acquisition contingencies relating to Tyson Mexico that existed as of the acquisition date. Based on the evaluation to date, the Company has preliminarily determined that certain pre-acquisition contingencies are probable in nature and estimable as of the acquisition date. Accordingly, the Company has preliminarily recorded its best estimates for these contingencies as part of the preliminary valuation of the assets and liabilities acquired for Tyson Mexico. The Company continues to gather information relating to all pre-acquisition contingencies that it has assumed from Tyson Mexico. Any changes to the pre-acquisition contingency amounts recorded during the measurement period will be included in the final valuation and related amounts recognized. Subsequent to the end of the measurement period any adjustments to pre-acquisition contingency amounts will be reflected in the Company's results of operations.
The Company performed a preliminary valuation of the assets and liabilities of Tyson Mexico at June 29, 2015. Significant assumptions used in the preliminary valuation and the bases for their determination are summarized as follows:
| |
• | Property, plant and equipment, net. Property, plant and equipment at fair value gave consideration to the highest and best use of the assets. The valuation of the Company's real property improvements and the majority of its personal property |
was based on the cost approach. The valuation of the Company's land, as if vacant, and certain personal property assets was based on the market or sales comparison approach.
| |
• | Indefinite-lived trade names. The Company valued two indefinite-lived trade names using the income approach, specifically the relief from royalty method. Under this method, the asset value of each trade name was determined by estimating the hypothetical royalties that would have to be paid if it was not owned. Royalty rates were selected based on consideration of several factors, including (i) prior transactions involving Tyson Mexico trade names, (ii) incomes derived from license agreements on comparable trade names within the food and non-alcoholic beverages industry and (iii) the relative profitability and perceived contribution of each trade name. Royalty rates used in the determination of the fair values of the two trade names ranged from 4.0% to 5.0% of expected net sales related to the respective trade names and trade name maintenance costs were estimated as 1.4% of the royalty saved. The Company anticipates using both trade names for an indefinite period as demonstrated by the sustained use of each subject trade name. In estimating the fair value of the trade names, net sales related to the respective trade names were estimated to grow at a rate of 3.5% to 4.0% annually with a terminal year growth rate of 3.8%. Income taxes were estimated at 30.0% of pre-tax income, a tax amortization benefit was estimated considering a rate of 15.0% and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of 12.0%. Trade names were valued at $9.7 million under this approach. |
The following unaudited pro forma information presents the combined financial results for the Company and Tyson Mexico as if the acquisition had been completed at the beginning of the Company's prior year, December 30, 2013.
|
| | | | | | | | | | | |
| Thirteen Weeks Ended September 28, 2014 | | Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 |
| (In thousands, except per share amounts) |
Net sales | $ | 2,437,628 |
| | $ | 6,532,971 |
| | $ | 6,969,493 |
|
Net income attributable to Pilgrim's Pride Corporation | 269,884 |
| | 603,533 |
| | 546,949 |
|
Net income attributable to Pilgrim's Pride Corporation per common share - diluted | 1.04 |
| | 2.32 |
| | 2.10 |
|
The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company's results of operations would have been had it completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.
| |
3. | FAIR VALUE MEASUREMENTS |
Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:
|
| | |
Level 1 | | Unadjusted quoted prices in active markets for identical assets or liabilities; |
| |
Level 2 | | Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
| |
Level 3 | | Unobservable inputs, such as discounted cash flow models or valuations. |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety.
As of September 27, 2015 and December 28, 2014, the Company held certain items that were required to be measured at fair value on a recurring basis. These included derivative assets and liabilities and deferred compensation plan assets. Derivative assets and liabilities consist of long and short positions on exchange-traded commodity futures instruments. The following items were measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | | |
| | September 27, 2015 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | (In thousands) |
Derivative assets - commodity futures instruments | | $ | 4,825 |
| | $ | — |
| | $ | — |
| | $ | 4,825 |
|
Derivative assets - commodity options instruments | | 115 |
| | — |
| | — |
| | 115 |
|
Derivative assets - foreign currency instruments | | 1,611 |
| | — |
| | — |
| | 1,611 |
|
Derivative liabilities - commodity futures instruments | | (6,372 | ) | | — |
| | — |
| | (6,372 | ) |
Derivative liabilities - commodity options instruments | | (4,965 | ) | | — |
| | — |
| | (4,965 | ) |
Fixed-rate senior notes payable at 5.75% | | (495,940 | ) | | — |
| | — |
| | (495,940 | ) |
The valuation of financial assets and liabilities classified in Level 1 is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of financial assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. The valuation of financial assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations.
In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed. The carrying amounts and estimated fair values of financial assets and liabilities recorded in the Condensed Consolidated Balance Sheets consisted of the following:
|
| | | | | | | | | | | | | | | | | | |
| | September 27, 2015 | | December 28, 2014 | | |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Note Reference |
| | | | (In thousands) | | | | |
Derivative assets - commodity futures instruments | | $ | 4,825 |
| | $ | 4,825 |
| | $ | 8,416 |
| | $ | 8,416 |
| | 6 |
Derivative assets - commodity options instruments | | 115 |
| | 115 |
| | — |
| | — |
| | 6 |
Derivative assets - foreign currency instruments | | 1,611 |
| | 1,611 |
| | 2,563 |
| | 2,563 |
| | 6 |
Derivative liabilities - commodity futures instruments | | (6,372 | ) | | (6,372 | ) | | (8,580 | ) | | (8,580 | ) | | 6 |
Derivative liabilities - commodity options instruments | | (4,965 | ) | | (4,965 | ) | | (14,103 | ) | | (14,103 | ) | | 6 |
Fixed-rate senior notes payable | | (500,000 | ) | | (495,940 | ) | | (3,633 | ) | | (3,979 | ) | | 9 |
Derivative assets were recorded at fair value based on quoted market prices and are included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet. The fair values of the Company’s long-term debt and other borrowing arrangements were estimated by calculating the net present value of future payments for each debt obligation or borrowing by: (i) using a risk-free rate applicable for an instrument with a life similar to the remaining life of each debt obligation or borrowing plus the current estimated credit risk spread for the Company or (ii) using the quoted market price at September 27, 2015 or December 28, 2014, as applicable.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S. GAAP. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported.
| |
4. | TRADE ACCOUNTS AND OTHER RECEIVABLES |
Trade accounts and other receivables, less allowance for doubtful accounts, consisted of the following:
|
| | | | | | | | |
| | September 27, 2015 | | December 28, 2014 |
| | (In thousands) |
Trade accounts receivable | | $ | 356,686 |
| | $ | 371,268 |
|
Notes receivable - current | | 910 |
| | 1,088 |
|
Other receivables | | 16,583 |
| | 9,059 |
|
Receivables, gross | | 374,179 |
| | 381,415 |
|
Allowance for doubtful accounts | | (4,498 | ) | | (2,525 | ) |
Receivables, net | | $ | 369,681 |
| | $ | 378,890 |
|
| | | | |
Account receivable from related parties(a) | | $ | 2,581 |
| | $ | 5,250 |
|
(a) Additional information regarding accounts receivable from related parties is included in "Note 15. Related Party Transactions."
Inventories consisted of the following:
|
| | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| (In thousands) |
Live chicken and hens | $ | 395,860 |
| | $ | 363,438 |
|
Feed, eggs and other | 216,034 |
| | 198,681 |
|
Finished chicken products | 225,735 |
| | 227,649 |
|
Total chicken inventories | 837,629 |
| | 789,768 |
|
Commercial feed and other | 3,644 |
| | 537 |
|
Total inventories | $ | 841,273 |
| | $ | 790,305 |
|
| |
6. | INVESTMENTS IN SECURITIES |
We recognize investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security's length to maturity. Additionally, those securities identified by management at the time of purchase for funding operations in less than one year are classified as current.
The following table summarizes our investments in available-for-sale securities:
|
| | | | | | | | | | | | | | | | |
| | September 27, 2015 | | December 28, 2014 |
| | Amortized Cost | | Fair Value | | Amortized Cost | | Fair Value |
| | (In thousands) |
Cash equivalents: | | | | | | | | |
Fixed income securities | | $ | 262,738 |
| | $ | 262,738 |
| | $ | 204,286 |
| | $ | 204,286 |
|
Other | | 51 |
| | 51 |
| | 80 |
| | 80 |
|
All of the securities classified as cash and cash equivalents above mature within 90 days. The specific identification method is used to determine the cost of each security sold and each amount reclassified out of accumulated other comprehensive loss to earnings. Gross realized gains recognized during the thirteen and thirty-nine weeks ended September 27, 2015 and the thirteen and thirty-nine weeks ended September 28, 2014 related to the Company's available-for-sale securities totaled approximately $193,200, $390,400, $51,900 and $310,000, respectively. Gross realized losses recognized during the thirteen and thirty-nine weeks ended September 27, 2015 and the thirteen and thirty-nine weeks ended September 28, 2014 related to the Company's available-for-sale securities totaled approximately $5,400, $25,400, $7,700 and $8,100, respectively. Proceeds received from the sale or maturity of available-for-sale securities during the thirty-nine weeks ended September 27, 2015 and September 28, 2014 are disclosed in the Condensed Consolidated Statements of Cash Flows. Net unrealized holding gains and losses on the
Company's available-for-sale securities recognized during the thirty-nine weeks ended September 27, 2015 and September 28, 2014 that have been included in accumulated other comprehensive loss and the net amount of gains and losses reclassified out of accumulated other comprehensive loss to earnings during the thirty-nine weeks ended September 27, 2015 and September 28, 2014 are disclosed in “Note 13. Stockholders' Equity.”
| |
7. | DERIVATIVE FINANCIAL INSTRUMENTS |
The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for approximately the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate.
The Company has operations in Mexico and, therefore, has exposure to translational foreign exchange risk when the financial results of those operations are translated to U.S. dollars. Generally, the Company purchases derivative financial instruments such as foreign currency forward contracts to manage this translational foreign exchange risk.
The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements. Our counterparties require that we post cash collateral for changes in the net fair value of the derivative contracts.
We have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase transaction exposures as cash flow hedges. Therefore, we recognized changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to these derivative financial instruments are included in the line item Cost of sales in the Condensed Consolidated Statements of Income. The Company recognized net gains of $2.7 million and net gains of $28.0 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended September 27, 2015 and September 28, 2014. We also recognized net gains of $31.7 million and net gains of $14.0 million related to changes in the fair value of its derivative financial instruments during the thirty-nine weeks ended September 27, 2015 and September 28, 2014, respectively. Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:
|
| | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| (Fair values in thousands) |
Fair values: | | | |
Commodity derivative assets | $ | 4,940 |
| | $ | 8,416 |
|
Commodity derivative liabilities | (11,337 | ) | | (22,683 | ) |
Cash collateral posted with brokers | 26,275 |
| | 25,205 |
|
Foreign currency derivative assets | 1,611 |
| | 2,563 |
|
Derivatives coverage(a): | | | |
Corn | 3.4 | % | | (8.2 | )% |
Soybean meal | 4.9 | % | | (16.1 | )% |
Period through which stated percent of needs are covered: | | | |
Corn | March 2017 |
| | September 2016 |
|
Soybean meal | December 2016 |
| | July 2015 |
|
| |
(a) | Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date. |
| |
8. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment (“PP&E”), net consisted of the following:
|
| | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| (In thousands) |
Land | $ | 103,772 |
| | $ | 66,798 |
|
Buildings | 1,123,176 |
| | 1,086,690 |
|
Machinery and equipment | 1,640,364 |
| | 1,537,241 |
|
Autos and trucks | 53,913 |
| | 52,639 |
|
Construction-in-progress | 158,621 |
| | 129,701 |
|
PP&E, gross | 3,079,846 |
| | 2,873,069 |
|
Accumulated depreciation | (1,732,607 | ) | | (1,690,274 | ) |
PP&E, net | $ | 1,347,239 |
| | $ | 1,182,795 |
|
The Company recognized depreciation expense of $38.8 million and $33.9 million during the thirteen weeks ended September 27, 2015 and September 28, 2014, respectively. The Company recognized depreciation expense of $109.4 million and $101.1 million during the thirty-nine weeks ended September 27, 2015 and September 28, 2014, respectively.
During the thirty-nine weeks ended September 27, 2015, we spent $129.8 million on capital projects and transferred $101.5 million of completed projects from construction-in-progress to depreciable assets. Capital expenditures were primarily incurred during the thirty-nine weeks ended September 27, 2015 to improve efficiencies and reduce costs in the U.S. and to expand capacity in Mexico.
During the thirteen and thirty-nine weeks ended September 27, 2015, the Company sold certain PP&E for cash of $11.4 million and $13.6 million, respectively, and recognized net gains on these sales of $8.5 million and $9.8 million, respectively. PP&E sold in 2015 included broiler farms in Mexico, a rendering plant in Arkansas and miscellaneous equipment. During the thirteen and thirty-nine weeks ended September 28, 2014, the Company sold certain PP&E for cash of $4.1 million and $8.4 million and recognized a net loss of $26,700 and a net gain of $1.1 million, respectively. PP&E sold in 2014 included a warehouse, a commercial building and a vehicle maintenance center in Texas, an office building in Mexico City, a processing plant in Franconia, Pennsylvania, and miscellaneous equipment.
Management has committed to the sale of certain properties and related assets, including, but not limited to, a processing complex in Texas, a processing plant in Louisiana and other miscellaneous assets, which no longer fit into the operating plans of the Company. The Company is actively marketing these properties and related assets for immediate sale and believes a sale of each property can be consummated within the next 12 months. At September 27, 2015 and December 28, 2014, the Company reported properties and related assets totaling $6.6 million and $1.4 million, respectively, in the line item Assets held for sale on its Condensed Consolidated Balance Sheets. The Company tested the recoverability of its assets held for sale and determined that the aggregate carrying amounts of the Texas processing complex asset group and the Louisiana processing plant asset group were recoverable over the remaining life of the respective primary asset in each asset group.
The Company has closed or idled various processing complexes, processing plants, hatcheries, broiler farms, and feed mills throughout the U.S. Neither the Board of Directors nor JBS USA has determined if it would be in the best interest of the Company to divest any of these idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. At September 27, 2015, the carrying amount of these idled assets was $52.7 million based on depreciable value of $149.9 million and accumulated depreciation of $97.2 million.
The Company last tested the recoverability of its long-lived assets held and used in December 2014. At that time, the Company determined that the carrying amount of its long-lived assets held and used was recoverable over the remaining life of the primary asset in the group and that long-lived assets held and used passed the Step 1 recoverability test under ASC 360-10-35, Impairment or Disposal of Long-Lived Assets. There were no indicators present during the thirty-nine weeks ended September 27, 2015 that required the Company to test its long-lived assets held and used for recoverability.
Current liabilities, other than current notes payable to banks, income taxes and current maturities of long-term debt, consisted of the following components:
|
| | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| (In thousands) |
Accounts payable: | | | |
Trade accounts | $ | 480,155 |
| | $ | 347,107 |
|
Book overdrafts | 37,811 |
| | 47,320 |
|
Other payables | 6,059 |
| | 5,059 |
|
Total accounts payable | 524,025 |
| | 399,486 |
|
Accounts payable to related parties(a) | 10,402 |
| | 4,862 |
|
Accrued expenses and other current liabilities: | | | |
Compensation and benefits | 98,888 |
| | 123,495 |
|
Interest and debt-related fees | 1,714 |
| | 780 |
|
Insurance and self-insured claims | 88,639 |
| | 85,240 |
|
Derivative liabilities: | | | |
Futures | 6,372 |
| | 8,580 |
|
Options | 4,965 |
| | 14,103 |
|
Other accrued expenses | 103,881 |
| | 79,681 |
|
Total accrued expenses and other current liabilities | 304,459 |
| | 311,879 |
|
| $ | 838,886 |
| | $ | 716,227 |
|
(a) Additional information regarding accounts payable from related parties is included in "Note 15. Related Party Transactions."
| |
10. | LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS |
Long-term debt and other borrowing arrangements, including current notes payable to banks, consisted of the following components:
|
| | | | | | | | | |
| Maturity | | September 27, 2015 | | December 28, 2014 |
| | | (In thousands) |
Long-term debt and other long-term borrowing arrangements: | | | | | |
Senior notes payable at 5.75% | 2025 | | $ | 500,000 |
| | $ | — |
|
U.S. Credit Facility (defined below): | | | | | |
Term note payable at 1.45% | 2020 | | 500,000 |
| | — |
|
Revolving note payable | 2020 | | — |
| | — |
|
JBS USA Holdings, Inc. Subordinated Loan Facility | 2015 | | — |
| | — |
|
Other | Various | | 500 |
| | 4,242 |
|
Long-term debt | | | 1,000,500 |
| | 4,242 |
|
Less: Current maturities of long-term debt | | | (102 | ) | | (262 | ) |
Long-term debt, less current maturities | | | $ | 1,000,398 |
| | $ | 3,980 |
|
| | | | | |
Current notes payable to banks | | | | | |
Mexico Credit Facility (defined below) with notes payable at TIIE Rate plus 1.05% | 2016 | | $ | 5,869 |
| | $ | — |
|
Senior Notes
On March 11, 2015, the Company completed a sale of $500.0 million aggregate principal amount of its 5.75% senior notes due 2025 (the “Senior Notes”). The Company used the net proceeds from the sale of the Senior Notes to repay $350.0 million
and $150.0 million of the term loan indebtedness under the the U.S. Credit Facility (defined below) on March 12, 2015 and April 22, 2015, respectively. The Notes were sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.
The Senior Notes are governed by, and were issued pursuant to, an indenture dated as of March 11, 2015 by and among the Company, its guarantor subsidiary and Wells Fargo Bank, National Association, as trustee (the “Indenture”). The Indenture provides, among other things, that the Senior Notes bear interest at a rate of 5.75% per annum from the date of issuance until maturity, payable semi-annually in cash in arrears, beginning on September 15, 2015. The Senior Notes are guaranteed on a senior unsecured basis by the Company's guarantor subsidiary. In addition, any of the Company’s other existing or future domestic restricted subsidiaries that incur or guarantee any other indebtedness (with limited exceptions) must also guarantee the Senior Notes. The Senior Notes and related guarantees are unsecured senior obligations of the Company and its guarantor subsidiary and rank equally with all of the Company’s and its guarantor subsidiary's other unsubordinated indebtedness. The Senior Notes and the Indenture also contain customary covenants and events of default, including failure to pay principal or interest on the Senior Notes when due, among others.
U.S. Credit Facility
On February 11, 2015, the Company and its subsidiaries, To-Ricos, Ltd. and To-Ricos Distribution, Ltd., entered into a Second Amended and Restated Credit Agreement (the “U.S. Credit Facility”) with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branch (“Rabobank”), as administrative agent, and the other lenders party thereto. The U.S. Credit Facility provides for a revolving loan commitment of up to $700.0 million and a term loan commitment of up to $1.0 billion (the “Term Loans”). The U.S. Credit Facility also includes an accordion feature that allows us, at any time, to increase the aggregate revolving loan and term loan commitments by up to an additional $1.0 billion, subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase.
The revolving loan commitment under the U.S. Credit Facility matures on February 10, 2020. All principal on the Term Loans is due at maturity on February 10, 2020. Because the Company prepaid $350.0 million of the Term Loans with proceeds from the Senior Notes, the Company is not required to pay quarterly installments. Covenants in the U.S. Credit Facility also require the Company to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. The Company had Term Loans outstanding totaling $500.0 million as of September 27, 2015.
The U.S. Credit Facility includes a $75.0 million sub-limit for swingline loans and a $125.0 million sub-limit for letters of credit. Outstanding borrowings under the revolving loan commitment and the Term Loans bear interest at a per annum rate equal to (i) in the case of LIBOR loans, LIBOR plus 1.50% through September 27, 2015 and, based on our net senior secured leverage ratio, between LIBOR plus 1.25% and LIBOR plus 2.75% and (ii) in the case of alternate base rate loans, the base rate plus 0.50% through September 27, 2015 and, based on our net senior secured leverage ratio, between the base rate plus 0.25% and base rate plus 1.75% thereafter.
Actual borrowings by the Company under the revolving loan commitment of the U.S. Credit Facility are subject to a borrowing base, which is a formula based on certain eligible inventory, eligible receivables and restricted cash under the control of Rabobank, in its capacity as administrative agent. The borrowing base formula will be reduced by the sum of (i) inventory reserves, (ii) rent and collateral access reserves, and (iii) any amount more than 15 days past due that is owed by the Company or its subsidiaries to any person on account of the purchase price of agricultural products or services (including poultry and livestock) if that person is entitled to any grower's or producer's lien or other security arrangement. As of September 27, 2015, the applicable borrowing base was $700.0 million and the amount available for borrowing under the revolving loan commitment was $679.9 million. The Company had letters of credit of $20.1 million and no outstanding borrowings under the revolving loan commitment as of September 27, 2015.
The U.S. Credit Facility contains financial covenants and various other covenants that may adversely affect the Company's ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS USA and the Company's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of the Company's assets. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The U.S. Credit Facility also provides that the Company may not incur capital expenditures in excess of $500.0 million in any fiscal year. The Company is currently in compliance with the covenants under the U.S. Credit Facility.
All obligations under the U.S. Credit Facility will continue to be unconditionally guaranteed by certain of the Company's subsidiaries and will continue to be secured by a first priority lien on (i) the domestic (including Puerto Rico) accounts and inventory of the Company and its subsidiaries, (ii) 100% of the equity interests in the Company's domestic subsidiaries and 65% of the
equity interests in the Company's direct foreign subsidiaries and (iii) substantially all of the assets of the Company and the guarantors under the U.S. Credit Facility.
Subordinated Loan Agreement
On June 23, 2011, the Company entered into a Subordinated Loan Agreement with JBS USA (the “Subordinated Loan Agreement”). Pursuant to the terms of the Subordinated Loan Agreement, the Company agreed to reimburse JBS USA up to $56.5 million for draws upon any letters of credit issued for JBS USA's account that support certain obligations of the Company or its subsidiaries. JBS USA agreed to arrange for letters of credit to be issued on its account in the amount of $56.5 million to an insurance company serving the Company in order to allow that insurance company to return cash it held as collateral against potential workers compensation, auto and general liability claims. In return for providing this letter of credit, the Company has agreed to reimburse JBS USA for the letter of credit cost the Company would otherwise incur under its U.S. Credit Facility (as defined below). In the thirteen and thirty-nine weeks ended September 27, 2015, the Company reimbursed JBS USA $0.3 million and $0.7 million, respectively, for letter of credit costs. As of September 27, 2015, the Company has accrued an obligation of $0.1 million to reimburse JBS USA for letter of credit costs incurred on its behalf. There remains no other commitment of JBS USA to make advances under the Subordinated Loan Agreement.
Mexico Credit Facility
On July 23, 2014, certain of our Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility is Mex$560.0 million. Outstanding borrowings under the Mexico Credit Facility will accrue interest at a rate equal to the Interbank Equilibrium Interest Rate plus 1.05%. The Mexico Credit Facility will mature on July 23, 2017. As of September 27, 2015, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $33.0 million, and there were $5.9 million outstanding borrowings due January 2016 under the Mexico Credit Facility that bear interest at a per annum rate of 4.33%.
The Company recorded income tax expense of $313.8 million, a 35.0% effective tax rate, for the thirty-nine weeks ended September 27, 2015 compared to income tax expense of $284.9 million, a 34.4% effective tax rate, for the thirty-nine weeks ended September 28, 2014. The income tax expense recognized for the thirty-nine weeks ended September 27, 2015 and September 28, 2014, respectively, was primarily the result of the tax expense recorded on the Company's year-to-date income.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment. As of September 27, 2015, the Company did not believe it had sufficient positive evidence to conclude that realization of its federal capital loss carry forwards and a portion of its foreign net deferred tax assets are more likely than not to be realized.
For the thirty-nine weeks ended September 27, 2015 and September 28, 2014, there is tax effect of $2.1 million and $6.1 million, respectively, reflected in other comprehensive income.
For the thirty-nine weeks ended September 27, 2015, there is tax effect of $7.8 million reflected in additional paid-in-capital due to excess tax benefits related to compensation on dividend equivalent rights and vested stock awards. For the thirty-nine weeks ended September 28, 2014, there is no tax effect reflected in additional paid-in-capital due to excess compensation.
With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by taxing authorities for years prior to 2009 and is no longer subject to Mexico income tax examinations by taxing authorities for years prior to 2009.
The United States Fifth Circuit Court of Appeals rendered judgment in favor of the Company regarding the IRS' amended proof of claim relating to the tax year ended June 26, 2004 for Gold Kist Inc. (“Gold Kist”). See “Note 16. Commitments and Contingencies” for additional information.
| |
12. | PENSION AND OTHER POSTRETIREMENT BENEFITS |
The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance
plan and defined contribution retirement savings plans. Expenses recognized under all of these retirement plans totaled $2.3 million, $1.5 million, $8.4 million and $4.3 million in the thirteen weeks ended September 27, 2015 and September 28, 2014 and the thirty-nine weeks ended September 27, 2015 and September 28, 2014, respectively.
Defined Benefit Plans Obligations and Assets
The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Condensed Consolidated Balance Sheets for these defined benefit plans were as follows:
|
| | | | | | | | | | | | | | | |
| Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Change in projected benefit obligation: | (In thousands) |
Projected benefit obligation, beginning of period | $ | 190,401 |
| | $ | 1,657 |
| | $ | 170,030 |
| | $ | 1,705 |
|
Interest cost | 5,815 |
| | 50 |
| | 6,078 |
| | 60 |
|
Actuarial losses (gains) | 981 |
| | (11 | ) | | 14,908 |
| | 76 |
|
Benefits paid | (4,622 | ) | | (96 | ) | | (8,636 | ) | | (111 | ) |
Curtailments and settlements | (14,265 | ) | | — |
| | — |
| | — |
|
Projected benefit obligation, end of period | $ | 178,310 |
| | $ | 1,600 |
| | $ | 182,380 |
| | $ | 1,730 |
|
|
| | | | | | | | | | | | | | | |
| Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Change in plan assets: | (In thousands) |
Fair value of plan assets, beginning of period | $ | 113,552 |
| | $ | — |
| | $ | 108,496 |
| | $ | — |
|
Actual return on plan assets | (3,822 | ) | | — |
| | 3,549 |
| | — |
|
Contributions by employer | 7,603 |
| | 96 |
| | 11,492 |
| | 111 |
|
Benefits paid | (4,622 | ) | | (96 | ) | | (8,636 | ) | | (111 | ) |
Curtailments and settlements | (14,265 | ) | | — |
| | — |
| | — |
|
Fair value of plan assets, end of period | $ | 98,446 |
| | $ | — |
| | $ | 114,901 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Funded status: | (In thousands) |
Unfunded benefit obligation, end of period | $ | (79,864 | ) | | $ | (1,600 | ) | | $ | (76,849 | ) | | $ | (1,657 | ) |
|
| | | | | | | | | | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Amounts recognized in the Condensed Consolidated Balance Sheets at end of period: | (In thousands) |
Current liability | $ | (9,358 | ) | | $ | (129 | ) | | $ | (9,373 | ) | | $ | (129 | ) |
Long-term liability | (70,506 | ) | | (1,471 | ) | | (67,476 | ) | | (1,528 | ) |
Recognized liability | $ | (79,864 | ) | | $ | (1,600 | ) | | $ | (76,849 | ) | | $ | (1,657 | ) |
|
| | | | | | | | | | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Amounts recognized in accumulated other comprehensive loss at end of period: | (In thousands) |
Net actuarial loss (gain) | $ | 49,558 |
| | $ | (138 | ) | | $ | 43,907 |
| | $ | (127 | ) |
The accumulated benefit obligation for our defined benefit pension plans was $178.3 million and $190.0 million at September 27, 2015 and December 28, 2014, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at September 27, 2015 and December 28, 2014, respectively.
Net Periodic Benefit Costs
Net defined benefit pension and other postretirement costs included the following components:
|
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended September 27, 2015 | | Thirteen Weeks Ended September 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| (In thousands) |
Interest cost | $ | 1,938 |
| | $ | 16 |
| | $ | 2,026 |
| | $ | 20 |
|
Estimated return on plan assets | (1,671 | ) | | — |
| | (1,593 | ) | | — |
|
Settlement loss | 357 |
| | — |
| | — |
| | — |
|
Amortization of net loss | 179 |
| | — |
| | 14 |
| | — |
|
Net costs | $ | 803 |
| | $ | 16 |
| | $ | 447 |
| | $ | 20 |
|
|
| | | | | | | | | | | | | | | |
| Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| (In thousands) |
Interest cost | $ | 5,815 |
| | $ | 50 |
| | $ | 6,078 |
| | $ | 60 |
|
Estimated return on plan assets | (5,013 | ) | | — |
| | (4,780 | ) | | — |
|
Settlement loss | 3,629 |
| | — |
| | — |
| | — |
|
Amortization of net loss | 536 |
| | — |
| | 42 |
| | — |
|
Net costs | $ | 4,967 |
| | $ | 50 |
| | $ | 1,340 |
| | $ | 60 |
|
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
|
| | | | | | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Assumptions used to measure benefit obligation at end of period: | | | | | | | |
Discount rate | 4.45 | % | | 4.45 | % | | 4.22 | % | | 4.22 | % |
|
| | | | | | | | | | | |
| Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
Assumptions used to measure net pension and other postretirement cost: | | | | | | | |
Discount rate | 4.22 | % | | 4.22 | % | | 4.95 | % | | 4.95 | % |
Expected return on plan assets | 6.00 | % | | NA |
| | 6.00 | % | | NA |
|
Discount rates were determined based on current investment yields on high-quality corporate long-term bonds. The expected rate of return on plan assets was determined based on the current interest rate environment and historical market premiums relative to the fixed income rates of equities and other asset classes. We also take into consideration anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.
Plan Assets
The following table reflects the pension plans’ actual asset allocations:
|
| | | | | |
| September 27, 2015 | | December 28, 2014 |
Cash and cash equivalents | — | % | | — | % |
Pooled separate accounts(a): | | | |
Equity securities | 6 | % | | 6 | % |
Fixed income securities | 7 | % | | 6 | % |
Common collective trust funds(a): | | | |
Equity securities | 56 | % | | 60 | % |
Fixed income securities | 31 | % | | 28 | % |
Total assets | 100 | % | | 100 | % |
| |
(a) | Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the SEC. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments. |
Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the pooled separate accounts is 50% in each of fixed income securities and equity securities and the target asset allocation for the investment of pension assets in the common collective trust funds is 30% in fixed income securities and 70% in equity securities. The plans only invest in fixed income and equity instruments for which there is a ready public market. We develop our expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which our plans invest.
The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of September 27, 2015 and December 28, 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 27, 2015 | | December 28, 2014 |
| Level 1(a) | | Level 2(b) | | Level 3(c) | | Total | | Level 1(a) | | Level 2(b) | | Level 3(c) | | Total |
| (In thousands) |
Cash and cash equivalents | $ | 157 |
| | $ | — |
| | $ | — |
| | $ | 157 |
| | $ | 33 |
| | $ | — |
| | $ | — |
| | $ | 33 |
|
Pooled separate accounts: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — |
| | 3,745 |
| | — |
| | 3,745 |
| | — |
| | 4,147 |
| | — |
| | 4,147 |
|
Small/Mid U.S. equity funds(e) | — |
| | 933 |
| | — |
| | 933 |
| | — |
| | 1,062 |
| | — |
| | 1,062 |
|
International equity funds(f) | — |
| | 1,481 |
| | — |
| | 1,481 |
| | — |
| | 1,719 |
| | — |
| | 1,719 |
|
Fixed income funds(g) | — |
| | 6,687 |
| | — |
| | 6,687 |
| | — |
| | 6,609 |
| | — |
| | 6,609 |
|
Common collective trusts funds: | | | | | | | | | | | | | | | |
Large U.S. equity funds(d) | — |
| | 23,116 |
| | — |
| | 23,116 |
| | — |
| | 29,964 |
| | — |
| | 29,964 |
|
Small U.S. equity funds(e) | — |
| | 16,273 |
| | — |
| | 16,273 |
| | — |
| | 18,411 |
| | — |
| | 18,411 |
|
International equity funds(f) | — |
| | 15,856 |
| | — |
| | 15,856 |
| | — |
| | 19,730 |
| | — |
| | 19,730 |
|
Fixed income funds(g) | — |
| | 30,198 |
| | — |
| | 30,198 |
| | — |
| | 31,877 |
| | — |
| | 31,877 |
|
Total assets | $ | 157 |
| | $ | 98,289 |
| | $ | — |
| | $ | 98,446 |
| | $ | 33 |
| | $ | 113,519 |
| | $ | — |
| | $ | 113,552 |
|
| |
(a) | Unadjusted quoted prices in active markets for identical assets are used to determine fair value. |
| |
(b) | Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value. |
| |
(c) | Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value. |
| |
(d) | This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods. |
| |
(e) | This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns. |
| |
(f) | This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S. |
| |
(g) | This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). It may also include real estate investment options that directly own property. These investment options typically carry more risk than short-term fixed income investment options (including, for real estate investment options, liquidity risk), but less overall risk than equities. |
The valuation of plan assets in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include equity and fixed income securities funds.
Benefit Payments
The following table reflects the benefits as of September 27, 2015 expected to be paid through 2024 from our pension and other postretirement plans. Because our pension plans are primarily funded plans, the anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. Because our other postretirement plans are unfunded, the anticipated benefits with respect to these plans will come from our own assets.
|
| | | | | | | |
| Pension Benefits | | Other Benefits |
| (In thousands) |
2015 (remaining) | $ | 3,365 |
| | $ | 32 |
|
2016 | 12,937 |
| | 130 |
|
2017 | 12,502 |
| | 130 |
|
2018 | 11,769 |
| | 130 |
|
2019 | 11,278 |
| | 130 |
|
2020-2024 | 52,157 |
| | 627 |
|
Total | $ | 104,008 |
| | $ | 1,179 |
|
We anticipate contributing $1.8 million, as required by funding regulations or laws, to our pension plans during the remainder of 2015. We do not anticipate making further contributions to our other postretirement plans during the remainder of 2015.
Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss
The amounts in accumulated other comprehensive loss that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:
|
| | | | | | | | | | | | | | | |
| Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 |
| Pension Benefits | | Other Benefits | | Pension Benefits | | Other Benefits |
| (In thousands) |
Net actuarial loss (gain), beginning of period | $ | 43,907 |
| | $ | (127 | ) | | $ | 16,957 |
| | $ | (126 | ) |
Amortization | (536 | ) | | — |
| | (42 | ) | | — |
|
Curtailment and settlement adjustments | (3,629 | ) | | — |
| | — |
| | — |
|
Actuarial loss (gain) | 981 |
| | (11 | ) | | 14,908 |
| | 76 |
|
Asset loss (gain) | 8,835 |
| | — |
| | 1,232 |
| | — |
|
Net actuarial loss (gain), end of period | $ | 49,558 |
| | $ | (138 | ) | | $ | 33,055 |
| | $ | (50 | ) |
The Company expects to recognize in net pension cost throughout the remainder of 2015 an actuarial loss of $0.2 million that was recorded in accumulated other comprehensive loss at September 27, 2015.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.
Accumulated Other Comprehensive Loss
The following tables provide information regarding the changes in accumulated other comprehensive loss:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirty-Nine Weeks Ended September 27, 2015(a) | | Thirty-Nine Weeks Ended September 28, 2014(a) |
| Losses Related to Pension and Other Postretirement Benefits | | Unrealized Holding Gains on Available-for-Sale Securities | | Total | | Losses Related to Pension and Other Postretirement Benefits | | Unrealized Holding Gains on Available-for-Sale Securities | | Total |
| (In thousands) |
Balance, beginning of period | $ | (62,572 | ) | | $ | 31 |
| | $ | (62,541 | ) | | $ | (45,797 | ) | | $ | 62 |
| | $ | (45,735 | ) |
Other comprehensive income (loss) before reclassifications | (3,845 | ) | | 133 |
| | (3,712 | ) | | (10,094 | ) | | 169 |
| | (9,925 | ) |
Amounts reclassified from accumulated other comprehensive loss to net income | 334 |
| | (83 | ) | | 251 |
| | 26 |
| | (181 | ) | | (155 | ) |
Net current period other comprehensive income (loss) | (3,511 | ) | | 50 |
| | (3,461 | ) | | (10,068 | ) | | (12 | ) | | (10,080 | ) |
Balance, end of period | $ | (66,083 | ) | | $ | 81 |
| | $ | (66,002 | ) | | $ | (55,865 | ) | | $ | 50 |
| | $ | (55,815 | ) |
| |
(a) | All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss. |
|
| | | | | | | | | | |
| | Amount Reclassified from Accumulated Other Comprehensive Loss(a) | | |
Details about Accumulated Other Comprehensive Loss Components | | Thirty-Nine Weeks Ended September 27, 2015 | | Thirty-Nine Weeks Ended September 28, 2014 | | Affected Line Item in the Condensed Consolidated Statements of Operations |
| | (In thousands) | | |
Realized gain on sale of securities | | $ | 133 |
| | $ | 290 |
| | Selling, general and administrative expense |
Amortization of defined benefit pension and other postretirement plan actuarial losses: | | | | | | |
Union employees pension plan(b)(d) | | (19 | ) | | — |
| | Cost of sales |
Legacy Gold Kist plans(c)(d) | | (161 | ) | | — |
| | Cost of sales |
Legacy Gold Kist plans(c)(d) | | (356 | ) | | (42 | ) | | Selling, general and administrative expense |
Total before tax | | (403 | ) | | 248 |
| | |
Tax benefit (expense) | | 152 |
| | (93 | ) | | |
Total reclassification for the period | | $ | (251 | ) | | 155 |
| | |
| |
(a) | Amounts in parentheses represent debits to results of operations. |
| |
(b) | The Company sponsors the Pilgrim's Pride Retirement Plan for Union Employees, a qualified defined benefit pension plan covering certain locations or work groups with collective bargaining agreements. |
| |
(c) | The Company sponsors the Pilgrim's Pride Plan for Legacy Gold Kist Employees, a qualified defined benefit pension plan covering certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007, the Former Gold Kist Inc. Supplemental Executive Retirement Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist executives, the Former Gold Kist Inc. Directors' Emeriti Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist directors, and the Gold Kist Inc. Retiree Life Insurance Plan, a defined benefit postretirement life insurance plan covering certain retired Gold Kist employees. |
| |
(d) | These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See “Note 12. Pension and Other Postretirement Benefits” to the Condensed Consolidated Financial Statements. |
Treasury Stock
On July 28, 2015, the Company's Board of Directors approved a $150.0 million share repurchase authorization. The Company plans to repurchase shares through various means, which may include but are not limited to open market purchases, privately negotiated transactions, the use of derivative instruments and/or accelerated share repurchase programs. The share repurchase program expires on July 27, 2016. The extent to which the Company repurchases its shares and the timing of such repurchases will vary and depend upon market conditions and other corporate considerations, as determined by the Company’s management team. The Company reserves the right to limit or terminate the repurchase program at any time without notice. As
of September 27, 2015, the Company had repurchased 1,914,977 shares under this program with a market value of approximately $45.1 million. The Company accounted for the shares repurchased using the cost method.
Special Cash Dividend
On February 17, 2015, the Company paid a special cash dividend from retained earnings of approximately $1.5 billion, or $5.77 per share, to stockholders of record as of January 30, 2015. The Company used proceeds from the U.S. Credit Facility, along with cash on hand, to fund the special cash dividend.
Restrictions on Dividends
Both the U.S. Credit Facility and the Indenture governing the Senior Notes restrict, but do not prohibit, the Company from declaring dividends.
| |
14. | INCENTIVE COMPENSATION |
The Company sponsors a short-term incentive plan that provides the grant of either cash or share-based bonus awards payable upon achievement of specified performance goals (the “STIP”). Full-time, salaried exempt employees of the Company and its affiliates who are selected by the administering committee are eligible to participate in the STIP. The Company has accrued $19.4 million in costs related to the STIP at September 27, 2015 related to cash bonus awards that could potentially be awarded during the remainder of 2015 and 2016.
The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and cash-based awards to the Company's officers and other employees, members of the Board of Directors and any consultants (the “LTIP”). The equity-based awards that may be granted under the LTIP include “incentive stock options,” within the meaning of the Internal Revenue Code, nonqualified stock options, stock appreciation rights, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). At September 27, 2015, we have reserved approximately 5.1 million shares of common stock for future issuance under the LTIP.