BUSINESS ACQUISITION

3 Months Ended

Mar. 26, 2017

Business Combinations [Abstract]

BUSINESS ACQUISITION

BUSINESS ACQUISITION

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 cash. GNP is a vertically integrated poultry business based in Saint Cloud, Minnesota. The acquired business has a production capacity of 2.1 million birds per five-day work week in its three plants and employs approximately 1,700 people.

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

The preliminary purchase price includes $2.5 million due to PPC from Maschhoff Family Foods, LLC for working capital adjustments.

Transaction costs incurred in conjunction with the purchase were approximately $0.3 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 Condensed Consolidated Statements of Operations. Net sales generated by the acquired business during the thirteen weeks ended March 26, 2017 totaled $97.8 million. The acquired business generated net income during the thirteen weeks ended March 26, 2017 totaling $4.6 million.

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 Certified^TM/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 preliminary fair values recorded were determined based upon a preliminary valuation. The estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). The primary areas of acquisition accounting that are not yet finalized relate to the preliminary valuation and residual goodwill.

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	135,259
Identifiable intangible assets	85,610
Other long-lived assets	829
Total assets acquired	300,034
Accounts payable	23,848
Other current liabilities	12,712
Long-term deferred tax liabilities	—
Other long-term liabilities	3,393
Total liabilities assumed	39,953
Total identifiable net assets	260,081
Goodwill	97,171
Total net assets	$	357,252

The Company recognized certain identifiable intangible assets during the thirteen weeks ended March 26, 2017 due to this acquisition. The following table presents the fair values (in thousands) and useful lives (in years), where applicable, of these assets:

	Fair Value		Useful Life
Assets subject to amortization:
Customer relationships	$	16,360	10.0
Non-compete agreement	510		3.0
Total fair value	16,870
Weighted average useful life			9.8
Assets not subject to amortization:
Trade names	68,740
Total fair value	$	85,610

The Company recognized the following change in goodwill due to this acquisition during the thirteen weeks ended March 26, 2017 (in thousands):

Balance, beginning of period	$	125,607
Preliminary purchase price attributed to goodwill	97,171
Balance, end of period	$	222,778

The following unaudited pro forma information presents the combined financial results for the Company and GNP as if the acquisition had been completed at the beginning of the Company’s prior year, December 28, 2015.

	Thirteen Weeks Ended March 26, 2017		Thirteen Weeks Ended March 27, 2016
	(In thousands, except per share amount)
Net sales	$	2,026,290	$	2,069,103
Net income attributable to Pilgrim's Pride Corporation	92,599		116,096
Net income attributable to Pilgrim's Pride Corporation per common share - diluted	0.37		0.46

The above unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what the Company’s results of operations would have been had it completed the acquisition on the date assumed, nor is it necessarily indicative of the results that may be expected in future periods. Pro forma adjustments exclude cost savings from any synergies resulting from the acquisition.