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BUSINESS ACQUISITIONS | 12 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
BUSINESS ACQUISITIONS | BUSINESS ACQUISITIONS Moy Park On September 8, 2017, the Company purchased 100% of the issued and outstanding shares of Moy Park from JBS S.A. for cash of $301.3 million and a note payable to the seller in the amount of £562.5 million. Moy Park is one of the top-ten food companies in the U.K., Northern Ireland's largest private sector business and one of Europe's leading poultry producers. With 4 fresh processing plants, 10 prepared foods cook plants, 3 feed mills, 7 hatcheries and 1 rendering facility in Northern Ireland, the U.K., France, and The Netherlands, Moy Park processes 6.0 million birds per seven-day work week, in addition to producing around 456.0 million pounds of prepared foods per year. Its product portfolio comprises fresh and added-value poultry, ready-to-eat meals, breaded and multi-protein frozen foods, vegetarian foods and desserts, supplied to major food retailers and restaurant chains in Europe (including the U.K.). Moy Park has approximately 10,200 employees as of December 31, 2017. The Moy Park operations comprise our U.K. and Europe segment. The acquisition was treated as a common-control transaction under U.S. GAAP. A common-control transaction is a transfer of net assets or an exchange of equity interests between entities under the control of the same parent. The accounting and reporting for a transaction between entities under common control is not to be considered a business combination under U.S. GAAP. Since there is no change in control over the net assets from the parent’s perspective, there is no change in basis in the assets or liabilities. Therefore, Pilgrim's, as the receiving entity, recognized the assets and liabilities received at their historical carrying amounts, as reflected in the parent’s financial statements. The difference between the proceeds transferred and the carrying amounts of the net assets on the date of the acquisition is recognized in equity. Transaction costs incurred in conjunction with the acquisition were approximately $19.6 million. These costs were expensed as incurred. Beginning September 8, 2017, the results of operations and financial position of Moy Park have been included in the consolidated results of operations and financial position of the Company. The results of operations and financial position of Moy Park have been combined with the results of operations and financial position of Pilgrim's from September 30, 2015, the common control date, through September 7, 2017. The following table summarizes the results of operations of Moy Park since the September 30, 2015 common-control date:
| Net Sales |  | Net Income
| (In thousands)
September 8, 2017 through December 31, 2017 | $ | 722,387 |  |  | $ | 34,039 |
December 26, 2016 through September 7, 2017 | 1,273,932 |  |  | 23,486 |
2016 | 1,947,441 |  |  | 40,388 |
2015 | 572,568 |  |  | 17,010 |
GNP On January 6, 2017, the Company acquired 100% of the membership interests of JFC LLC and its subsidiaries (together, “GNP”) from Maschhoff Family Foods, LLC for $350.0 million, subject to customary working capital adjustments. The purchase was funded through cash on hand and borrowings under the U.S. Credit Agreement. GNP is a vertically integrated poultry business based in St. Cloud, Minnesota. The acquired business has a production capacity of 2.1 million birds per five-day work week in its two plants and currently employs approximately 1,500 people. This acquisition further strengthens the Company’s strategic position in the U.S. chicken market. The GNP operations are included in our U.S. segment. The following table summarizes the consideration paid for GNP (in thousands)
Negotiated sales price | $ | 350,000 |
Working capital adjustment | 7,252 |
Preliminary purchase price | $ | 357,252 |
Transaction costs incurred in conjunction with the purchase were approximately $0.6 million. These costs were expensed as incurred. The results of operations of the acquired business since January 6, 2017 are included in the Company’s Consolidated and Combined Statements of Income. Net sales and net income generated by the acquired business during the year ended December 31, 2017 totaled $433.9 million and $30.4 million, respectively. The assets acquired and liabilities assumed in the GNP acquisition were measured at their fair values at January 6, 2017 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 (i) complementary product offerings, (ii) an enhanced footprint in the U.S., (iii) shared knowledge of innovative technologies such as gas stunning, aeroscalding and automated deboning, (iv) enhanced position in the fast-growing antibiotic-free and certified organic chicken segments due to the addition of GNP’s portfolio of Just BARE® Certified Organic and Natural/American Humane CertifiedTM/No-Antibiotics-Ever product lines and (v) attractive cost-reduction synergy opportunities and value creation. The Company has tax basis in the goodwill, and therefore, the goodwill is deductible for tax purposes. The fair values recorded were determined based upon upon various external and internal valuations.. The fair values recorded for the assets acquired and liabilities assumed for GNP are as follows (in thousands):
Cash and cash equivalents | $ | 10 |
Trade accounts and other receivables | 18,453 |
Inventories | 56,459 |
Prepaid expenses and other current assets | 3,414 |
Property, plant and equipment | 144,138 |
Identifiable intangible assets | 131,120 |
Other long-lived assets | 829 |
Total assets acquired | 354,423 |
Accounts payable | 23,848 |
Other current liabilities | 11,866 |
Other long-term liabilities | 3,393 |
Total liabilities assumed | 39,107 |
Total identifiable net assets | 315,316 |
Goodwill | 41,936 |
Total net assets | $ | 357,252 |
The Company recognized certain identifiable intangible assets as of January 6, 2017 due to this acquisition. The following table presents the fair values and useful lives, where applicable, of these assets:
| Fair Value |  | Useful Life
| (In thousands) |  | (In years)
Customer relationships | $ | 92,900 |  |  | 13.0
Trade names | 38,200 |  |  | 20.0
Non-compete agreement | 20 |  |  | 3.0
Total fair value | $ | 131,120 |  |  |
Weighted average useful life |  |  | 15.2
The Company performed a valuation of the assets and liabilities of GNP as of January 6, 2017. Significant assumptions used in the 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.
• | Trade names. The Company valued two 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 GNP trade names, (ii) incomes derived from license agreements on comparable trade names within the food industry and (iii) the relative profitability and perceived contribution of each trade name. The royalty rate used in the determination of the fair values of the two trade names was 2.0% of expected net sales related to the respective trade names. 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 2.5%. Income taxes were estimated at 39.3% of pre-tax income, a tax amortization benefit factor was estimated at 1.2098 and the hypothetical savings generated by avoiding royalty costs were discounted using a rate of 13.8%.
• | Customer relationships. The Company valued GNP customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset was determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the fair value of the customer relationships, net sales related to existing GNP customers were estimated to grow at a rate of 2.5% annually, but we also anticipate losing existing GNP customers at an attrition rate of 4.0%. Income taxes were estimated at 39.3% of pre-tax income, a tax amortization benefit factor was estimated at 1.2098 and net cash flows attributable to our existing customers were discounted using a rate of 13.8%.
See “Note 8. Goodwill and Identified Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the GNP acquisition. Tyson Mexico On June 29, 2015, the Company acquired, indirectly through certain of its Mexican subsidiaries, 100% of the equity of Provemex Holdings, 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 Gómez Palacio, Durango, Mexico. The acquired business has a production capacity of 2.9 million birds per five-day work week in its three plants and currently employs more than 4,400 people in its plants, offices and five distribution centers. This acquisition further strengthened the Company’s strategic position in the Mexico chicken market. 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 Consolidated and Combined Statements of Income. Net sales generated by the acquired business during 2017 and 2016 totaled $141.4 million and $250.6 million, respectively. The significant decrease in net sales during 2017 as compared to 2016 primarily resulted from a shift in sales activity from the acquired business to the Company’s legacy business operating in Mexico. The acquired business generated net income of $6.3 million during 2017 and incurred a net loss of $13.7 million during 2016. The assets acquired and liabilities assumed in the Tyson Mexico acquisition were 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 fair values recorded were determined based upon various external and internal valuations. The 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 | 209,139 |
Identifiable intangible assets | 26,411 |
Other long-lived assets | 199 |
Total assets acquired | 341,248 |
Accounts payable | 21,550 |
Other current liabilities | 8,707 |
Long-term deferred tax liabilities | 52,376 |
Other long-term liabilities | 5,155 |
Total liabilities assumed | 87,788 |
Total identifiable net assets | 253,460 |
Goodwill | 125,607 |
Total net assets | $ | 379,067 |
The Company performed a valuation of the assets and liabilities of Tyson Mexico at June 29, 2015. Significant assumptions used in the 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%. The two trade names were valued at $9.7 million under this approach.
• | Customer relationships. The Company valued Tyson Mexico’s customer relationships using the income approach, specifically the multi-period excess earnings model. Under this model, the fair value of the customer relationships asset is determined by estimating the net cash inflows from the relationships discounted to present value. In estimating the fair value of the customer relationships, net sales related to our existing customers were estimated to grow at a rate of 4.0% annually, but we also anticipate losing existing customers at an attrition rate of 7.9%. Income taxes were estimated at 30.0% of pre-tax income, a tax amortization benefit was estimated considering a rate of 23.4% and net cash flows attributable to our existing customers were discounted using a rate of 13.5%. Customer relationships were valued at $16.7 million under this approach.
The Company recognized the following change in goodwill related to this acquisition during 2016 (in thousands):
Goodwill, beginning of period | $ | 156,565 |
Additional fair value attributed to acquired property, plant and equipment | (51,387 | )
Deferred tax impact related to additional fair value attributed to acquired property, plant and equipment | 15,416 |
Deferred tax impact related to customer relationship intangibles | 5,013 |
Goodwill, end of period | $ | 125,607 |
Unaudited Pro Forma Financial Information The following unaudited pro forma information presents the combined financial results for the Company, Moy Park, GNP and Tyson Mexico as if all the acquisitions had been completed at the beginning of 2015.
| 2017 |  | 2016 |  | 2015
| (In thousands, except per share amounts)
Net sales | $ | 10,773,662 |  |  | $ | 10,311,325 |  |  | $ | 11,157,328 |
Net income attributable to Pilgrim's Pride Corporation | 664,776 |  |  | 401,630 |  |  | 631,800 |
Net income attributable to Pilgrim's Pride Corporation per common share - diluted | 2.67 |  |  | 1.58 |  |  | 2.44 |
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 acquisitions 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 acquisitions.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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