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BUSINESS ACQUISITION | 6 Months Ended
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Jun. 28, 2020
Business Combinations [Abstract] |
BUSINESS ACQUISITION | BUSINESS ACQUISITIONS Tulip Limited On October 15, 2019, the Company acquired 100% of the equity of Tulip Limited and its subsidiaries (together, “Tulip”) from Danish Crown AmbA for £311.3 million, or $393.3 million. The acquisition was funded with cash on hand. Tulip is a leading, integrated prepared pork supplier headquartered in Warwick, U.K. The acquisition solidifies Pilgrim's as a leading European food company, creating one of the largest integrated prepared foods businesses in the U.K. The Tulip operations are included in the Company’s U.K. and Europe reportable segment. Through June 28, 2020, all transaction costs incurred in conjunction with this acquisition totaled approximately $1.4 million. These costs were expensed as incurred and are reflected within selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. The results of operations of the acquired business since October 15, 2019 are included in the Company’s Condensed Consolidated Statements of Operations. Net sales and net income incurred by the acquired business during the three months ended June 28, 2020 totaled $336.2 million and $1.5 million, respectively. Net sales generated and net loss incurred by the acquired business during the six months ended June 28, 2020 totaled $657.3 million and $2.4 million, respectively. The assets acquired and liabilities assumed in the Tulip acquisition were measured at their fair values as of October 15, 2019 as set forth below. The excess of the fair values of the net tangible assets and identifiable intangible assets over the purchase price was recorded as gain on bargain purchase in the Company’s U.K. and Europe reportable segment. 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 Tulip are as follows (in thousands):
Cash and cash equivalents | $ | 6,854 |
Trade accounts and other receivables | 146,423 |
Inventories | 104,211 |
Prepaid expenses and other current assets | 6,579 |
Operating lease assets | 5,613 |
Property, plant and equipment | 329,711 |
Identified intangible assets | 40,418 |
Other assets | 14,647 |
Total assets acquired | 654,456 |
Accounts payable | 110,296 |
Other current liabilities | 55,830 |
Operating lease liabilities | 5,613 |
Deferred tax liabilities | 14,798 |
Pension obligations | 18,435 |
Other long-term liabilities | 1,056 |
Total liabilities assumed | 206,028 |
Total identifiable net assets | 448,428 |
Gain on bargain purchase | (55,140) |
Total consideration transferred | $ | 393,288 |
Significant assumptions used in the Company's valuation of the assets and liabilities of Tulip 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. Customer relationships. The Company valued Tulip 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 Tulip customers were estimated to grow at a rate of 2.0% annually, but we also anticipate losing existing Tulip customers at an attrition rate of 10.0%. Income taxes were estimated at 18.0% of pre-tax income in 2020 and 17.0% of pre-tax income thereafter and net cash flows attributable to our existing customers were discounted using a rate of 22.0%. The resulting customer relationships intangible asset has a fair value of $40.4 million and a useful life of 11 years. See “Note 9. Goodwill and Intangible Assets” for additional information regarding the goodwill and intangible assets recognized by the Company in the Tulip acquisition. The following unaudited pro forma information presents the combined financial results for the Company and Tulip as if the acquisition had been completed at the beginning of 2019.
| Six Months Ended |  |
| June 28, 2020 |  | June 30, 2019
| (In thousands, except per share amounts) |  |
Net sales | $ | 5,898,951 |  |  | $ | 6,246,429 |
Net income attributable to Pilgrim's | 62,425 |  |  | 253,230 |
Net income attributable to Pilgrim's per common share - diluted | 0.25 |  |  | 1.01 |
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. FAMPAT/Plan Pro On April 1, 2020, Avícola Pilgrim's Pride de Mexico S.A. de C.V. acquired 100% of the equity of FAMPAT S.A. de C.V. and Plan Pro Restaurantes S.A. de C.V. (together, “FAMPAT/Plan Pro”) for an aggregate purchase price of 70.4 million Mexican pesos, or $3.0 million. The acquisition was funded with cash on hand. Transaction costs were immaterial; these costs were expensed as incurred and are reflected within selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations. The acquired operations produce value-added products such as taquitos, enchiladas and pizza, bringing additional breadth and diversity to the Company's product portfolio. The results of operations and financial position of FAMPAT/Plan Pro have been included in the consolidated results of operations and financial position of the Company from the date of acquisition. The FAMPAT/Plan Pro operations are included in the Company’s Mexico reportable segment. The allocation of the purchase price reflects fair value using Level 3 unobservable inputs. The values recorded were determined based on a valuation using management’s estimates and assumptions.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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