UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q |
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
¨ | 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)
Delaware | 75-1285071 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
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.
Large Accelerated Filer | ý | Accelerated Filer | ¨ | ||
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
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý No ¨
Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of April 29, 2015, was 259,700,145.
INDEX
PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 5. | ||
Item 6. | ||
1
PART I. | FINANCIAL INFORMATION |
ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
PILGRIM’S PRIDE CORPORATION | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
March 29, 2015 | December 28, 2014 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Cash and cash equivalents | $ | 478,037 | $ | 576,143 | ||||
Trade accounts and other receivables, less allowance for doubtful accounts | 364,991 | 378,890 | ||||||
Account receivable from related parties | 4,719 | 5,250 | ||||||
Inventories | 788,722 | 790,305 | ||||||
Income taxes receivable | — | 10,288 | ||||||
Current deferred tax assets | 30,751 | 27,345 | ||||||
Prepaid expenses and other current assets | 84,997 | 95,439 | ||||||
Assets held for sale | 1,419 | 1,419 | ||||||
Total current assets | 1,753,636 | 1,885,079 | ||||||
Other long-lived assets | 31,488 | 24,406 | ||||||
Identified intangible assets, net | 25,348 | 26,783 | ||||||
Property, plant and equipment, net | 1,181,408 | 1,182,795 | ||||||
Total assets | $ | 2,991,880 | $ | 3,119,063 | ||||
Accounts payable | $ | 412,342 | $ | 399,486 | ||||
Account payable to related parties | 3,698 | 4,862 | ||||||
Accrued expenses and other current liabilities | 272,063 | 311,879 | ||||||
Income taxes payable | 41,475 | 3,068 | ||||||
Current deferred tax liabilities | 26,478 | 25,301 | ||||||
Current maturities of long-term debt | 133 | 262 | ||||||
Total current liabilities | 756,189 | 744,858 | ||||||
Long-term debt, less current maturities | 1,150,441 | 3,980 | ||||||
Deferred tax liabilities | 73,908 | 76,216 | ||||||
Other long-term liabilities | 102,275 | 97,208 | ||||||
Total liabilities | 2,082,813 | 922,262 | ||||||
Common stock | 2,597 | 2,590 | ||||||
Additional paid-in capital | 1,670,978 | 1,662,354 | ||||||
Retained earnings (accumulated deficit) | (702,763 | ) | 591,492 | |||||
Accumulated other comprehensive loss | (64,629 | ) | (62,541 | ) | ||||
Total Pilgrim’s Pride Corporation stockholders’ equity | 906,183 | 2,193,895 | ||||||
Noncontrolling interest | 2,884 | 2,906 | ||||||
Total stockholders’ equity | 909,067 | 2,196,801 | ||||||
Total liabilities and stockholders’ equity | $ | 2,991,880 | $ | 3,119,063 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
2
PILGRIM’S PRIDE CORPORATION | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(Unaudited) | ||||||||
Thirteen Weeks Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands, except per share data) | ||||||||
Net sales | $ | 2,052,919 | $ | 2,018,065 | ||||
Cost of sales | 1,675,799 | 1,802,959 | ||||||
Gross profit | 377,120 | 215,106 | ||||||
Selling, general and administrative expense | 49,507 | 45,201 | ||||||
Administrative restructuring charges | — | 1,713 | ||||||
Operating income | 327,613 | 168,192 | ||||||
Interest expense, net of capitalized interest | 4,855 | 19,473 | ||||||
Interest income | (1,490 | ) | (811 | ) | ||||
Foreign currency transaction loss | 8,974 | 337 | ||||||
Miscellaneous, net | (413 | ) | (1,006 | ) | ||||
Income before income taxes | 315,687 | 150,199 | ||||||
Income tax expense | 111,494 | 52,012 | ||||||
Net income | 204,193 | 98,187 | ||||||
Less: Net income (loss) attributable to noncontrolling interests | (22 | ) | 70 | |||||
Net income attributable to Pilgrim’s Pride Corporation | $ | 204,215 | $ | 98,117 | ||||
Weighted average shares of common stock outstanding: | ||||||||
Basic | 259,653 | 258,923 | ||||||
Effect of dilutive common stock equivalents | 276 | 523 | ||||||
Diluted | 259,929 | 259,446 | ||||||
Net income attributable to Pilgrim's Pride Corporation per share of common stock outstanding: | ||||||||
Basic | $ | 0.79 | $ | 0.38 | ||||
Diluted | $ | 0.79 | $ | 0.38 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
PILGRIM’S PRIDE CORPORATION | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||
(Unaudited) | ||||||||
Thirteen Weeks Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands) | ||||||||
Net income | $ | 204,193 | $ | 98,187 | ||||
Other comprehensive income: | ||||||||
Loss associated with available-for-sale securities, net of tax benefit (expense) of $12 and $(17), respectively | (19 | ) | (36 | ) | ||||
Loss associated with pension and other postretirement benefits, net of tax benefit of $1,255 and $3,509, respectively | (2,069 | ) | (5,786 | ) | ||||
Total other comprehensive loss, net of tax | (2,088 | ) | (5,822 | ) | ||||
Comprehensive income | 202,105 | 92,365 | ||||||
Less: Comprehensive income (loss) attributable to noncontrolling interests | (22 | ) | 70 | |||||
Comprehensive income attributable to Pilgrim's Pride Corporation | $ | 202,127 | $ | 92,295 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES | |||||||||||||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||
Pilgrim’s Pride Corporation Stockholders | |||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Noncontrolling Interest | Total | ||||||||||||||||||||||
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 | |||||||||||||
Net income (loss) | — | — | — | 204,215 | — | (22 | ) | 204,193 | |||||||||||||||||||
Other comprehensive loss, net of tax | — | — | — | — | (2,088 | ) | — | (2,088 | ) | ||||||||||||||||||
Share-based compensation plans: | |||||||||||||||||||||||||||
Common stock issued under compensation plans | 671 | 7 | (7 | ) | — | — | — | — | |||||||||||||||||||
Requisite service period recognition | — | — | 797 | — | — | — | 797 | ||||||||||||||||||||
Tax benefit related to share-based compensation | — | — | 7,834 | — | — | — | 7,834 | ||||||||||||||||||||
Special cash dividend | — | — | — | (1,498,470 | ) | — | — | (1,498,470 | ) | ||||||||||||||||||
Balance at March 29, 2015 | 259,700 | $ | 2,597 | $ | 1,670,978 | $ | (702,763 | ) | $ | (64,629 | ) | $ | 2,884 | $ | 909,067 | ||||||||||||
Balance at December 29, 2013 | 259,029 | $ | 2,590 | $ | 1,653,119 | $ | (120,156 | ) | $ | (45,735 | ) | $ | 2,784 | $ | 1,492,602 | ||||||||||||
Net income | — | — | — | 98,117 | — | 70 | 98,187 | ||||||||||||||||||||
Other comprehensive loss, net of tax | (5,822 | ) | (5,822 | ) | |||||||||||||||||||||||
Share-based compensation plans: | |||||||||||||||||||||||||||
Requisite service period recognition | — | — | 1,022 | — | — | — | 1,022 | ||||||||||||||||||||
Balance at March 30, 2014 | 259,029 | $ | 2,590 | $ | 1,654,141 | $ | (22,039 | ) | $ | (51,557 | ) | $ | 2,854 | $ | 1,585,989 | ||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(Unaudited) | ||||||||
Thirteen Weeks Ended | ||||||||
March 29, 2015 | March 30, 2014 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 204,193 | $ | 98,187 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation and amortization | 36,152 | 38,260 | ||||||
Foreign currency transaction loss | 12,074 | 941 | ||||||
Accretion of bond discount | — | 114 | ||||||
Loss (gain) on property disposals | (881 | ) | 570 | |||||
Gain on investment securities | — | (53 | ) | |||||
Share-based compensation | 797 | 1,022 | ||||||
Deferred income tax benefit | (2,408 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Trade accounts and other receivables | 13,289 | 2,145 | ||||||
Inventories | (2,313 | ) | 14,310 | |||||
Prepaid expenses and other current assets | 9,294 | (11,099 | ) | |||||
Accounts payable, accrued expenses and other current liabilities | (28,702 | ) | 5,833 | |||||
Income taxes | 50,639 | 43,662 | ||||||
Long-term pension and other postretirement obligations | 1,617 | 995 | ||||||
Other operating assets and liabilities | 2,335 | 814 | ||||||
Cash provided by operating activities | 296,086 | 195,701 | ||||||
Cash flows from investing activities: | ||||||||
Acquisitions of property, plant and equipment | (32,591 | ) | (47,760 | ) | ||||
Purchases of investment securities | — | (37,000 | ) | |||||
Proceeds from sale or maturity of investment securities | — | 96,950 | ||||||
Proceeds from property disposals | 867 | 1,511 | ||||||
Cash provided by (used in) investing activities | (31,724 | ) | 13,701 | |||||
Cash flows from financing activities: | ||||||||
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 | (533,669 | ) | (204,913 | ) | ||||
Tax benefit related to share-based compensation | 7,834 | — | ||||||
Payment of capitalized loan costs | (8,862 | ) | — | |||||
Payment of special cash dividends | (1,498,470 | ) | — | |||||
Cash used in financing activities | (353,167 | ) | (204,913 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (9,301 | ) | 2,280 | |||||
Increase in cash and cash equivalents | (98,106 | ) | 6,769 | |||||
Cash and cash equivalents, beginning of period | 576,143 | 508,206 | ||||||
Cash and cash equivalents, end of period | $ | 478,037 | $ | 514,975 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Pilgrim's has approximately 34,200 employees and has the capacity to process more than 34 million birds per week for a total of more than 10 billion pounds of live chicken annually. Approximately 3,800 contract growers supply poultry for the Company's operations. As of March 29, 2015, JBS USA Holdings, Inc. (“JBS USA”), an indirect subsidiary of Brazil-based JBS S.A., beneficially owned 75.3% 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 thirteen weeks ended March 29, 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.
7
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. There is no option for early adoption. Unless the FASB defers implementation of this new standard, 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 and have not yet selected a transition approach to implement the standard.
2. | 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 March 29, 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 Company maintains nonqualified deferred compensation plans for executives and other highly compensated employees. Investments are maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The following items were measured at fair value on a recurring basis:
March 29, 2015 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Derivative assets - commodity futures instruments | $ | 4,338 | $ | — | $ | — | $ | 4,338 | ||||||||
Derivative assets - foreign currency instruments | 899 | — | — | 899 | ||||||||||||
Deferred compensation plan assets | 6,522 | — | — | 6,522 | ||||||||||||
Derivative liabilities - commodity futures instruments | (3,751 | ) | — | — | (3,751 | ) | ||||||||||
Derivative liabilities - commodity options instruments | (531 | ) | — | — | (531 | ) | ||||||||||
Derivative liabilities - foreign currency instruments | (240 | ) | (240 | ) | ||||||||||||
Long-term debt and other borrowing arrangements: | ||||||||||||||||
Fixed-rate senior notes payable at 5.75% | (510,000 | ) | — | — | (510,000 | ) | ||||||||||
Floating-rate term notes | (650,000 | ) | — | — | (650,000 | ) | ||||||||||
Fixed-rate capital lease obligations | — | — | (617 | ) | (617 | ) | ||||||||||
8
December 28, 2014 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Derivative assets - commodity futures instruments | $ | 8,416 | $ | — | $ | — | $ | 8,416 | ||||||||
Derivative assets - foreign currency instruments | 2,563 | — | — | 2,563 | ||||||||||||
Deferred compensation plan assets | 6,753 | — | — | 6,753 | ||||||||||||
Derivative liabilities - commodity futures instruments | (8,580 | ) | — | — | (8,580 | ) | ||||||||||
Derivative liabilities - commodity options instruments | (14,103 | ) | — | — | (14,103 | ) | ||||||||||
Long-term debt and other borrowing arrangements: | ||||||||||||||||
Fixed-rate public notes | (3,979 | ) | — | — | (3,979 | ) | ||||||||||
Fixed-rate capital lease obligations | — | — | (587 | ) | (587 | ) | ||||||||||
Thirteen Weeks Ended | |||||||
March 29, 2015 | March 30, 2014 | ||||||
Change in Value of Level 3 Liabilities: | (In thousands) | ||||||
Balance, beginning of period | $ | 587 | $ | 704 | |||
Borrowings | — | — | |||||
Payments | (36 | ) | (33 | ) | |||
Change in fair value inputs | 66 | (3 | ) | ||||
Balance, end of period | $ | 617 | $ | 668 | |||
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:
March 29, 2015 | December 28, 2014 | |||||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | Note Reference | ||||||||||||||
(In thousands) | ||||||||||||||||||
Derivative assets - commodity futures instruments | $ | 4,338 | $ | 4,338 | $ | 8,416 | $ | 8,416 | 6 | |||||||||
Derivative assets - commodity options instruments | — | — | — | — | 6 | |||||||||||||
Derivative assets - foreign currency instruments | 899 | 899 | 2,563 | 2,563 | 6 | |||||||||||||
Deferred compensation plan assets | 6,522 | 6,522 | 6,753 | 6,753 | ||||||||||||||
Derivative liabilities - commodity futures instruments | (3,751 | ) | (3,751 | ) | (8,580 | ) | (8,580 | ) | 6 | |||||||||
Derivative liabilities - commodity options instruments | (531 | ) | (531 | ) | (14,103 | ) | (14,103 | ) | 6 | |||||||||
Derivative liabilities - foreign currency instruments | (240 | ) | (240 | ) | — | — | 6 | |||||||||||
Long-term debt and other borrowing arrangements | (1,150,574 | ) | (1,160,617 | ) | (4,242 | ) | (4,566 | ) | 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 Sheet. Deferred compensation plan assets were recorded at fair value based on quoted market prices and are included in the line item Other assets in 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
9
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 March 29, 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.
3. | TRADE ACCOUNTS AND OTHER RECEIVABLES |
Trade accounts and other receivables, less allowance for doubtful accounts, consisted of the following:
March 29, 2015 | December 28, 2014 | |||||||
(In thousands) | ||||||||
Trade accounts receivable | $ | 357,101 | $ | 371,268 | ||||
Account receivable from related parties(a) | 4,719 | 5,250 | ||||||
Notes receivable - current | 1,029 | 1,088 | ||||||
Other receivables | 9,355 | 9,059 | ||||||
Receivables, gross | 372,204 | 386,665 | ||||||
Allowance for doubtful accounts | (2,494 | ) | (2,525 | ) | ||||
Receivables, net | $ | 369,710 | $ | 384,140 | ||||
(a) Additional information regarding accounts receivable from related parties is included in "Note 15. Related Party Transactions."
4. | INVENTORIES |
Inventories consisted of the following:
March 29, 2015 | December 28, 2014 | ||||||
(In thousands) | |||||||
Live chicken and hens | $ | 366,463 | $ | 363,438 | |||
Feed, eggs and other | 199,638 | 198,681 | |||||
Finished chicken products | 222,118 | 227,649 | |||||
Total chicken inventories | 788,219 | 789,768 | |||||
Commercial feed and other | 503 | 537 | |||||
Total inventories | $ | 788,722 | $ | 790,305 | |||
5. | 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:
March 29, 2015 | December 28, 2014 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Cash equivalents: | ||||||||||||||||
Fixed income securities | $ | 124,968 | $ | 124,968 | $ | 204,286 | $ | 204,286 | ||||||||
Other | 53 | 53 | 80 | 80 | ||||||||||||
10
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 weeks ended March 29, 2015 and March 30, 2014 related to the Company's available-for-sale securities totaled approximately $130,000 and $195,900, respectively. Gross realized losses recognized during the thirteen weeks ended March 29, 2015 related to the Company's available-for-sale securities totaled approximately $8,300. No gross realized losses were recognized during the thirteen weeks ended March 30, 2014. Proceeds received from the sale or maturity of available-for-sale securities during the thirteen weeks ended March 29, 2015 and March 30, 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 thirteen weeks ended March 29, 2015 and March 30, 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 thirteen weeks ended March 29, 2015 and March 30, 2014 are disclosed in “Note 12. Stockholders' Equity.”
6. | 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 a net gain of $23.4 million and a net loss of $8.0 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended March 29, 2015 and March 30, 2014, respectively. Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:
March 29, 2015 | December 28, 2014 | ||||||
(Fair values in thousands) | |||||||
Fair values: | |||||||
Commodity derivative assets | $ | 4,338 | $ | 8,416 | |||
Commodity derivative liabilities | (4,282 | ) | (22,683 | ) | |||
Cash collateral posted with brokers | 19,448 | 25,205 | |||||
Foreign currency derivative assets | 899 | 2,563 | |||||
Foreign currency derivative liabilities | (240 | ) | — | ||||
Derivatives coverage(a): | |||||||
Corn | 1.7 | % | (8.2 | )% | |||
Soybean meal | (10.1 | )% | (16.1 | )% | |||
Period through which stated percent of needs are covered: | |||||||
Corn | December 2016 | September 2016 | |||||
Soybean meal | December 2015 | July 2015 | |||||
(a) | Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date. |
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7. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment (“PP&E”), net consisted of the following:
March 29, 2015 | December 28, 2014 | ||||||
(In thousands) | |||||||
Land | $ | 66,959 | $ | 66,798 | |||
Buildings | 1,090,989 | 1,086,690 | |||||
Machinery and equipment | 1,576,161 | 1,537,241 | |||||
Autos and trucks | 51,338 | 52,639 | |||||
Construction-in-progress | 117,229 | 129,701 | |||||
PP&E, gross | 2,902,676 | 2,873,069 | |||||
Accumulated depreciation | (1,721,268 | ) | (1,690,274 | ) | |||
PP&E, net | $ | 1,181,408 | $ | 1,182,795 | |||
The Company recognized depreciation expense of $34.0 million and $33.2 million during the thirteen weeks ended March 29, 2015 and March 30, 2014, respectively.
During the thirteen weeks ended March 29, 2015, we spent $32.6 million on capital projects and transferred $45.2 million of completed projects from construction-in-progress to depreciable assets.
During the thirteen weeks ended March 29, 2015, the Company sold miscellaneous equipment for cash of $0.9 million and recognized a net gain of $0.9 million. During the thirteen weeks ended March 30, 2014, the Company sold certain PP&E for cash of $1.5 million and recognized net losses on these sales of $0.6 million. PP&E sold in 2014 included a warehouse and a fertilizer building with miscellaneous fixtures and equipment in Texas.
Management has committed to the sale of certain properties and related assets, including, but not limited to, 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 March 29, 2015 and December 28, 2014, the Company reported properties and related assets totaling $1.4 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 amount of each asset group was recoverable over the remaining life of the primary asset in that 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 March 29, 2015, the carrying amount of these idled assets was $66.6 million based on depreciable value of $178.7 million and accumulated depreciation of $112.1 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 thirteen weeks ended March 29, 2015 that required the Company to test its long-lived assets held and used for recoverability.
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8. | CURRENT LIABILITIES |
Current liabilities, other than income taxes and current maturities of long-term debt, consisted of the following components:
March 29, 2015 | December 28, 2014 | ||||||
(In thousands) | |||||||
Accounts payable: | |||||||
Trade accounts | $ | 367,117 | $ | 347,107 | |||
Book overdrafts | 41,091 | 47,320 | |||||
Other payables | 4,134 | 5,059 | |||||
Total accounts payable | 412,342 | 399,486 | |||||
Accounts payable to related parties(a) | 3,698 | 4,862 | |||||
Accrued expenses and other current liabilities: | |||||||
Compensation and benefits | 94,042 | 123,495 | |||||
Interest and debt-related fees | 2,313 | 780 | |||||
Insurance and self-insured claims | 92,936 | 85,240 | |||||
Derivative liabilities: | |||||||
Futures | 3,751 | 8,580 | |||||
Options | 531 | 14,103 | |||||
Foreign currency | 240 | — | |||||
Other accrued expenses | 78,250 | 79,681 | |||||
Total accrued expenses and other current liabilities | 272,063 | 311,879 | |||||
$ | 688,103 | $ | 716,227 | ||||
(a) Additional information regarding accounts payable from related parties is included in "Note 15. Related Party Transactions."
9. | LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS |
Long-term debt and other borrowing arrangements consisted of the following components:
Maturity | March 29, 2015 | December 28, 2014 | |||||||
(In thousands) | |||||||||
Senior notes payable at 5.75% | 2025 | $ | 500,000 | $ | — | ||||
U.S. Credit Facility (defined below): | |||||||||
Term note payable at 1.676% | 2020 | 650,000 | — | ||||||
Revolving note payable | 2020 | — | — | ||||||
Mexico Credit Facility (defined below) with notes payable at TIIE Rate plus 1.05% | 2017 | — | — | ||||||
JBS USA Holdings, Inc. Subordinated Loan Facility | 2015 | — | — | ||||||
Other | Various | 574 | 4,242 | ||||||
Long-term debt | 1,150,574 | 4,242 | |||||||
Less: Current maturities of long-term debt | (133 | ) | (262 | ) | |||||
Long-term debt, less current maturities | $ | 1,150,441 | $ | 3,980 | |||||
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.
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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. (together, the “To-Ricos Borrowers”), 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 at least $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 11, 2020. Because the Company prepaid $350.0 million of the term loan indebtedness 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 $650.0 million as of March 29, 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 March 29, 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 March 29, 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 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. Revolving loan availability under the borrowing base also will be limited to an aggregate of $25.0 million with respect to the To-Ricos Borrowers. As of March 29, 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 March 29, 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.
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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 weeks ended March 29, 2015, the Company reimbursed JBS USA $0.2 million for letter of credit costs. As of March 29, 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, Avícola and certain Mexican subsidiaries entered into an unsecured credit agreement (the “Mexico Credit Facility”) with BBVA Bancomer, S.A. Institución de Banca Multiple, Grupo Financiero BBVA Bancomer, as lender. The loan commitment under the Mexico Credit Facility is 560.0 million Mexican pesos. Outstanding borrowings under the Mexico Credit Facility will accrue interest at a rate equal to the TIIE rate plus 1.05%. The Mexico Credit Facility will mature on July 23, 2017. As of March 29, 2015, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $36.8 million, and there were no outstanding borrowings under the Mexico Credit Facility.
10. | INCOME TAXES |
The Company recorded income tax expense of $111.5 million, a 35.3% effective tax rate, for the thirteen weeks ended March 29, 2015 compared to income tax expense of $52.0 million, a 34.6% effective tax rate, for the thirteen weeks ended March 30, 2014. The income tax expense recognized for the thirteen weeks ended March 29, 2015 and March 30, 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 March 29, 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 thirteen weeks ended March 29, 2015 and March 30, 2014, there is tax effect of $1.3 million and $3.5 million, respectively, reflected in other comprehensive income.
For the thirteen weeks ended March 29, 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 thirteen weeks ended March 30, 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 Company is challenging the IRS' amended proof of claim relating to the tax year ended June 26, 2004 for Gold Kist Inc. (“Gold Kist”). See “Note 15. Commitments and Contingencies” for additional information.
11. | 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 $4.5 million and $1.4 million in the thirteen weeks ended March 29, 2015 and March 30, 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:
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Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 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 | 1,938 | 17 | 2,026 | 20 | |||||||||||
Actuarial losses (gains) | 6,915 | 38 | 9,017 | 52 | |||||||||||
Benefits paid | (1,479 | ) | (32 | ) | (3,603 | ) | (37 | ) | |||||||
Curtailments and settlements | (11,945 | ) | — | — | — | ||||||||||
Projected benefit obligation, end of period | $ | 185,830 | $ | 1,680 | $ | 177,470 | $ | 1,740 | |||||||
Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 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 | 2,061 | — | 1,353 | — | |||||||||||
Contributions by employer | 1,881 | 32 | 1,529 | 37 | |||||||||||
Benefits paid | (1,479 | ) | (32 | ) | (3,603 | ) | (37 | ) | |||||||
Curtailments and settlements | (11,945 | ) | — | — | — | ||||||||||
Fair value of plan assets, end of period | $ | 104,070 | $ | — | $ | 107,775 | $ | — | |||||||
March 29, 2015 | December 28, 2014 | ||||||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | ||||||||||||
Funded status: | (In thousands) | ||||||||||||||
Unfunded benefit obligation, end of period | $ | (81,760 | ) | $ | (1,680 | ) | $ | (76,849 | ) | $ | (1,657 | ) | |||
March 29, 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 | $ | (9,368 | ) | $ | (129 | ) | $ | (9,373 | ) | $ | (129 | ) | |||
Long-term liability | (72,392 | ) | (1,551 | ) | (67,476 | ) | (1,528 | ) | |||||||
Recognized liability | $ | (81,760 | ) | $ | (1,680 | ) | $ | (76,849 | ) | $ | (1,657 | ) | |||
March 29, 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) | $ | 47,191 | $ | (88 | ) | $ | 43,907 | $ | (127 | ) | |||||
The accumulated benefit obligation for our defined benefit pension plans was $185.8 million and $190.0 million at March 29, 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 March 29, 2015 and December 28, 2014, respectively.
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Net Periodic Benefit Cost (Income)
Net defined benefit pension and other postretirement costs included the following components:
Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 2014 | ||||||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | ||||||||||||
(In thousands) | |||||||||||||||
Interest cost | $ | 1,938 | $ | 17 | $ | 2,026 | $ | 20 | |||||||
Estimated return on plan assets | (1,671 | ) | — | (1,593 | ) | — | |||||||||
Settlement loss | 3,062 | — | — | — | |||||||||||
Amortization of net loss | 179 | — | 14 | — | |||||||||||
Net costs | $ | 3,508 | $ | 17 | $ | 447 | $ | 20 | |||||||
Economic Assumptions
The weighted average assumptions used in determining pension and other postretirement plan information were as follows:
March 29, 2015 | December 28, 2014 | ||||||||||
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | ||||||||
Assumptions used to measure benefit obligation at end of period: | |||||||||||
Discount rate | 3.97 | % | 3.97 | % | 4.22 | % | 4.22 | % | |||
Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 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:
March 29, 2015 | December 28, 2014 | ||||
Cash and cash equivalents | — | % | — | % | |
Pooled separate accounts(a): | |||||
Equity securities | 7 | % | 6 | % | |
Fixed income securities | 6 | % | 6 | % | |
Common collective trust funds(a): | |||||
Equity securities | 57 | % | 60 | % | |
Fixed income securities | 30 | % | 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. |
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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 March 29, 2015 and December 28, 2014:
March 29, 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 | $ | 60 | $ | — | $ | — | $ | 60 | $ | 33 | $ | — | $ | — | $ | 33 | |||||||||||||||
Pooled separate accounts: | |||||||||||||||||||||||||||||||
Large U.S. equity funds(d) | — | 4,125 | — | 4,125 | — | 4,147 | — | 4,147 | |||||||||||||||||||||||
Small/Mid U.S. equity funds(e) | — | 1,101 | — | 1,101 | — | 1,062 | — | 1,062 | |||||||||||||||||||||||
International equity funds(f) | — | 1,746 | — | 1,746 | — | 1,719 | — | 1,719 | |||||||||||||||||||||||
Fixed income funds(g) | — | 6,619 | — | 6,619 | — | 6,609 | — | 6,609 | |||||||||||||||||||||||
Common collective trusts funds: | |||||||||||||||||||||||||||||||
Large U.S. equity funds(d) | — | 26,731 | — | 26,731 | — | 29,964 | — | 29,964 | |||||||||||||||||||||||
Small U.S. equity funds(e) | — | 15,530 | — | 15,530 | — | 18,411 | — | 18,411 | |||||||||||||||||||||||
International equity funds(f) | — | 17,075 | — | 17,075 | — | 19,730 | — | 19,730 | |||||||||||||||||||||||
Fixed income funds(g) | — | 31,083 | — | 31,083 | — | 31,877 | — | 31,877 | |||||||||||||||||||||||
Total assets | $ | 60 | $ | 104,010 | $ | — | $ | 104,070 | $ | 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.
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Benefit Payments
The following table reflects the benefits as of March 29, 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) | $ | 10,094 | $ | 96 | |||
2016 | 12,937 | 130 | |||||
2017 | 12,502 | 130 | |||||
2018 | 11,769 | 130 | |||||
2019 | 11,278 | 130 | |||||
2020-2024 | 52,157 | 627 | |||||
Total | $ | 110,737 | $ | 1,243 | |||
We anticipate contributing $7.5 million and $0.1 million, as required by funding regulations or laws, to our pension and other postretirement plans, respectively, during the remainder of 2015.
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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:
Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 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 | (179 | ) | — | (14 | ) | — | |||||||||
Curtailment and settlement adjustments | (3,062 | ) | — | — | — | ||||||||||
Actuarial loss | 6,914 | 39 | 9,017 | 52 | |||||||||||
Asset loss (gain) | (389 | ) | — | 241 | — | ||||||||||
Net actuarial loss (gain), end of period | $ | 47,191 | $ | (88 | ) | $ | 26,201 | $ | (74 | ) | |||||
The Company expects to recognize in net pension cost throughout the remainder of 2015 an actuarial loss of $0.5 million that was recorded in accumulated other comprehensive loss at March 29, 2015.
Remeasurement
The Company remeasures both plan assets and obligations on a quarterly basis.
12. | STOCKHOLDERS' EQUITY |
Accumulated Other Comprehensive Loss
The following tables provide information regarding the changes in accumulated other comprehensive loss:
Thirteen Weeks Ended March 29, 2015(a) | Thirteen Weeks Ended March 30, 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 | (2,180 | ) | 32 | (2,148 | ) | (5,795 | ) | (11 | ) | (5,806 | ) | ||||||||||||
Amounts reclassified from accumulated other comprehensive loss to net income | 111 | (51 | ) | 60 | 9 | (25 | ) | (16 | ) | ||||||||||||||
Net current period other comprehensive loss | (2,069 | ) | (19 | ) | (2,088 | ) | (5,786 | ) | (36 | ) | (5,822 | ) | |||||||||||
Balance, end of period | $ | (64,641 | ) | $ | 12 | $ | (64,629 | ) | $ | (51,583 | ) | $ | 26 | $ | (51,557 | ) | |||||||
(a) | All amounts are net of tax. Amounts in parentheses indicate debits to accumulated other comprehensive loss. |
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Amount Reclassified from Accumulated Other Comprehensive Loss(a) | ||||||||||
Details about Accumulated Other Comprehensive Loss Components | Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 2014 | Affected Line Item in the Condensed Consolidated Statements of Operations | |||||||
(In thousands) | ||||||||||
Realized gain on sale of securities | $ | 82 | $ | 40 | Selling, general and administrative expense | |||||
Amortization of defined benefit pension and other postretirement plan actuarial losses: | ||||||||||
Union employees pension plan(b)(d) | (6 | ) | — | Cost of sales | ||||||
Legacy Gold Kist plans(c)(d) | (173 | ) | (14 | ) | Selling, general and administrative expense | |||||
Total before tax | (97 | ) | 26 | |||||||
Tax benefit (expense) | 37 | (10 | ) | |||||||
Total reclassification for the period | $ | (60 | ) | 16 | ||||||
(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 11. Pension and Other Postretirement Benefits” to the Condensed Consolidated Financial Statements. |
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.
13. | 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 $8.6 million in costs related to the STIP at March 29, 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 March 29, 2015, we have reserved approximately 5.0 million shares of common stock for future issuance under the LTIP.
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The following awards were outstanding during the thirteen weeks ended March 29, 2015:
Award Type | Benefit Plan | Awards Granted | Grant Date | Grant Date Fair Value per Award(a) | Vesting Condition | Vesting Date | Vesting Date Fair Value per Award(a) | Estimated Forfeiture Rate | Awards Forfeited to Date | Settlement Method | |||||||||||||||||
RSU | LTIP | 608,561 | 02/04/2013 | $ | 8.89 | Service | 12/31/2014 | $ | 32.79 | 9.66 | % | 144,382 | Stock | ||||||||||||||
RSA | LTIP | 15,000 | 02/25/2013 | 8.72 | Service | 02/24/2015 | 27.55 | — | % | — | Stock | ||||||||||||||||
RSA | LTIP | 15,000 | 02/25/2013 | 8.72 | Service | 02/24/2016 | — | % | — | Stock | |||||||||||||||||
RSU | LTIP | 206,933 | 02/26/2013 | 8.62 | Service | 12/31/2014 | 32.79 | — | % | — | Stock | ||||||||||||||||
RSU | LTIP | 462,518 | 02/19/2014 | 16.70 | Service | 12/31/2016 | 13.49 | % | 13,301 | Stock | |||||||||||||||||
RSU | LTIP | 269,662 | 03/03/2014 | 17.18 | Performance / Service | 12/31/2017 | 12.34 | % | — | Stock | |||||||||||||||||
RSU | LTIP | 158,226 | 02/26/2015 | 27.51 | Performance / Service | 12/31/2018 | (b) | — | Stock | ||||||||||||||||||
(a) | The fair value of each RSA and RSU granted or vested represents the closing price of the Company's common stock on the respective grant date or vesting date. |
(b) | The estimated forfeiture rate for these awards will be set if or when performance conditions associated with the awards are satisfied. |
Compensation costs and the income tax benefit recognized for our share-based compensation arrangements are included below:
Thirteen Weeks Ended | |||||||
March 29, 2015 | March 30, 2014 | ||||||
(In thousands) | |||||||
Share-based compensation cost: | |||||||
Cost of sales | $ | 113 | $ | 19 | |||
Selling, general and administrative expense | 684 | 1,003 | |||||
Total | $ | 797 | $ | 1,022 | |||
Income tax benefit | $ | 243 | $ | 275 | |||
The Company’s RSA and RSU activity is included below:
Thirteen Weeks Ended March 29, 2015 | Thirteen Weeks Ended March 30, 2014 | ||||||||||||
Number | Weighted Average Grant Date Fair Value | Number | Weighted Average Grant Date Fair Value | ||||||||||
(In thousands, except weighted average fair values) | |||||||||||||
RSAs: | |||||||||||||
Outstanding at beginning of period | 30 | $ | 8.72 | 203 | $ | 6.59 | |||||||
Vested | (15 | ) | 8.72 | (100 | ) | 7.10 | |||||||
Outstanding at end of period | 15 | $ | 8.72 | 103 | $ | 6.09 | |||||||
RSUs: | |||||||||||||
Outstanding at beginning of period | 1,120 | $ | 11.97 | 729 | $ | 8.81 | |||||||
Granted | 428 | 21.00 | 462 | 16.70 | |||||||||
Vested | (671 | ) | 8.81 | — | — | ||||||||
Forfeited | — | — | (24 | ) | 8.89 | ||||||||
Outstanding at end of period | 877 | $ | 18.80 | 1,167 | $ | 11.93 | |||||||
The total fair value of awards vested during the thirteen weeks ended March 29, 2015 and March 30, 2014 was $22.4 million and $1.6 million, respectively.
At March 29, 2015, the total unrecognized compensation cost related to all nonvested awards was $13.0 million. That cost is expected to be recognized over a weighted average period of 2.75 years.
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Historically, we have issued new shares to satisfy award conversions.
14. | RELATED PARTY TRANSACTIONS |
Pilgrim's has been and, in some cases, continues to be a party to certain transactions with affiliated persons and our current and former directors and executive officers. Company management has analyzed the terms of all contracts executed with related parties and believes that they are substantially similar to, and contain terms no less favorable to us than, those obtainable from unaffiliated parties.
On December 28, 2009, JBS USA became the holder of the majority of the common stock of the Company. As of March 29, 2015, JBS USA beneficially owned 75.3% of the total outstanding shares of our common stock.
Thirteen Weeks Ended | |||||||
March 29, 2015 | March 30, 2014 | ||||||
(In thousands) | |||||||
JBS USA: | |||||||
Letter of credit fees(a) | $ | 317 | $ | 335 | |||
JBS USA, LLC: | |||||||
Purchases from JBS USA, LLC(b) | 27,580 | 24,989 | |||||
Expenditures paid by JBS USA, LLC on behalf of Pilgrim’s Pride Corporation(c) | 8,580 | 12,458 | |||||
Sales to JBS USA, LLC(b) | 6,868 | 15,355 | |||||
Expenditures paid by Pilgrim’s Pride Corporation on behalf of JBS USA, LLC(c) | 1,715 | 533 | |||||
JBS Chile Ltda.: | |||||||
Sales to JBS Chile Ltda. | 165 | — | |||||
(a) | Beginning on October 26, 2011, JBS USA arranged for letters of credit to be issued on its account in the amount of $56.5 million to an insurance company on our behalf in order to allow that insurance company to return cash it held as collateral against potential liability claims. We agreed to reimburse JBS USA up to $56.5 million for potential draws upon these letters of credit. We reimburse JBS USA $0.3 million for the letter of credit costs we would have otherwise incurred under our credit facilities. During 2015, we have paid JBS USA $1.0 million for letter of credit costs. As of March 29, 2015, the Company has accrued an obligation of $0.1 million to reimburse JBS USA for letter of credit costs incurred on its behalf. |
(b) | We routinely execute transactions to both purchase products from JBS USA, LLC and sell products to them. As of March 29, 2015 and December 28, 2014, the outstanding payable to JBS USA, LLC was $3.7 million and $4.8 million, respectively. As of March 29, 2015 and December 28, 2014, the outstanding receivable from JBS USA, LLC was $4.7 million and $1.4 million, respectively. As of March 29, 2015, approximately $5.2 million of goods from JBS USA, LLC were in transit and not reflected on our Condensed Consolidated Balance Sheet. |
(c) | On January 19, 2010, the Company entered into an agreement with JBS USA, LLC in order to allocate costs associated with JBS USA, LLC's procurement of SAP licenses and maintenance services for its combined companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA, LLC in proportion to the percentage of licenses used by each company. The agreement expires on the date of expiration, or earlier termination, of the underlying SAP license agreement. On January 1, 2014, the Company also entered into an agreement with JBS USA, LLC in order to allocate the costs of supporting the business operations by one consolidated corporate team, which have historically been supported by their respective corporate teams. Expenditures paid by JBS USA, LLC on behalf of the Company will be reimbursed by the Company and expenditures paid by the Company on behalf of JBS USA, LLC will be reimbursed by JBS USA, LLC. This agreement expires on December 31, 2016. |
15. | COMMITMENTS AND CONTINGENCIES |
We are a party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. Among other considerations, we have not recorded a liability for any of these indemnities as based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on our financial condition, results of operations and cash flows.
The Company is subject to various legal proceedings and claims which arise in the ordinary course of business. In the Company’s opinion, it has made appropriate and adequate accruals for claims where necessary; however, the ultimate liability for these matters is uncertain, and if significantly different than the amounts accrued, the ultimate outcome could have a material effect on the financial condition or results of operations of the Company. For a discussion of the material legal proceedings and claims, see Part II, Item 1. “Legal Proceedings.” Below is a summary of some of these material proceedings and claims. The Company believes it has substantial defenses to the claims made and intends to vigorously defend these cases.
On December 1, 2008, Pilgrim’s and six of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Northern District of Texas, Fort Worth Division (“Bankruptcy Court”). The cases were jointly administered under Case No. 08-45664. The Company emerged from Chapter 11 on December 28, 2009. The Company is the named defendant in several pre-petition lawsuits that, as of March 29, 2015, have not been resolved.
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Tax Claims and Proceedings
The United States Department of Treasury, IRS filed an amended proof of claim in the Bankruptcy Court pursuant to which the IRS asserted claims that total $74.7 million. We entered into two Stipulations with the IRS on December 12, 2012 that accounted for approximately $29.3 million of the amended proof of claim and should result in no additional tax due.
In connection with the remaining claim for approximately $45.4 million included in the amended proof of claim, we filed a petition in Tax Court on May 26, 2010 in response to a Notice of Deficiency that was issued to the Company as the successor in interest to Gold Kist. The Notice of Deficiency and the Tax Court proceeding relate to a loss that Gold Kist claimed for its tax year ended June 26, 2004. On December 11, 2013, the Tax Court issued its opinion in the Tax Court case holding the loss that Gold Kist claimed for its tax year ended June 26, 2004 is capital in nature. On January 10, 2014, the Company filed both a Motion for Reconsideration and a Motion for Full Tax Court review of both its Motion for Reconsideration and any order issued in response to such motion. On March 10, 2014, the Tax Court denied both the Motion for Reconsideration and the Motion for Full Tax Court review. On April 14, 2014, the Company appealed the findings of fact and conclusions of law and decision concerning the post-judgment motions to the United States Fifth Circuit Court of Appeals (the “Fifth Circuit”). The Company filed an opening brief with the Fifth Circuit on June 30, 2014. The IRS filed a response brief with the Fifth Circuit on August 15, 2014. The Company then filed their reply brief with the Fifth Circuit on September 2, 2014. Oral argument before the Fifth Circuit occurred during the week beginning January 5, 2015. On February 25, 2015, the Fifth Circuit issued its opinion, which reversed the Tax Court’s judgment and rendered judgment in favor of the Company. The IRS has until May 26, 2015 to petition for a writ of certiorari to the Supreme Court of the United States (the “U.S. Supreme Court”).
Upon the initial filing of the Gold Kist tax return for the year ended June 26, 2004, the Company assessed the likelihood that the position related to the proceeding would be sustained upon examination and determined that it met the recognition threshold and the full amount of benefit was recognized. We continue to believe the position is more likely than not of being sustained. If adversely determined, the outcome could have a material effect on the Company's operating results and financial position.
Grower Claims and Proceedings