INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income (loss) before income taxes by jurisdiction is as follows:

	Year Ended
	December 31, 2023		December 25, 2022		December 26, 2021
	(In thousands)
U.S.	$	26,887	$	928,709	$	(141,940)
Foreign	338,335		96,764		234,330
Total	$	365,222	$	1,025,473	$	92,390

The components of income tax expense (benefit) are set forth below:

	Year Ended
	December 31, 2023		December 25, 2022		December 26, 2021
	(In thousands)
Current:
Federal	$	(19,727)	$	169,660	$	22,591
Foreign	59,326		52,995		115,772
State and other	(3,369)		34,985		9,150
Total current	36,230		257,640		147,513
Deferred:
Federal	12,783		14,654		(52,147)
Foreign	(10,573)		5,694		(16,225)
State and other	4,465		947		(18,019)
Total deferred	6,675		21,295		(86,391)
Total	$	42,905	$	278,935	$	61,122

The effective tax rate for 2023 was 11.7% compared to 27.2% for 2022 and 66.2% for 2021.

The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:

	Year Ended
	December 31, 2023		December 25, 2022		December 26, 2021
Federal income tax rate	21.0	%	21.0	%	21.0	%
State tax rate, net	0.6		3.2		(4.5)
Mexico tax audit	—		3.8		—
Intercompany financing	(5.7)		(1.9)		(14.1)
Permanent items	(0.9)		(0.9)		1.7
Difference in U.S. statutory tax rate and foreign country effective tax rate	5.2		1.2		22.3
Rate change	(0.7)		(0.9)		26.6
Foreign currency translation	(7.4)		(0.9)		10.6
Tax credits	(3.0)		(0.4)		(4.1)
Change in reserve for unrecognized tax benefits	—		(0.4)		7.3
Change in valuation allowance	6.9		2.8		(0.2)
Return to provision	(4.1)		—		—
Other	(0.2)		0.6		(0.4)
Total	11.7	%	27.2	%	66.2	%

Included in the return to provision is a decrease of (4.2)% in the effective tax rate related to a return to provision amount from the 2020 federal income tax return due to deconsolidation. The amount was recorded during the year ended December 31, 2023. Included in the Mexico tax audit is an increase of 3.8% in the effective tax rate related to the Mexican tax authority’s claim that Avícola Pilgrim’s Pride de Mexico, S.A. de C.V. (“Avícola”) should have considered dividends paid out of its subsidiaries as partially taxable in tax years 2009 and 2010. The amount was recorded during the year ended December 25, 2022. Included in the change in reserve for unrecognized tax benefits is an increase of 7.0% in the effective tax rate related

to interest deductions in the U.K. for tax years 2017 through 2021. The amount was recorded during the year ended December 25, 2021.

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 31, 2023		December 25, 2022
	(In thousands)
Deferred tax liabilities:
PP&E and identified intangible assets	$	519,458	$	547,113
Inventories	99,144		99,889
Incentive compensation	8,984		11,138
Operating lease assets	81,942		76,914
Other	2,534		7,867
Total deferred tax liabilities	712,062		742,921
Deferred tax assets:
U.S. net operating losses	24,902		12,297
Foreign net operating losses	55,583		53,801
Credit carry forwards	23,985		18,102
Allowance for credit losses	5,167		9,197
Accrued liabilities	81,156		127,714
Workers’ compensation	5,361		4,192
Pension and other postretirement benefits	—		3,351
Operating lease liabilities	80,823		76,914
Advance payments	22,774		68,361
Interest expense limitations	93,685		37,353
Other	26,428		33,785
Total deferred tax assets	419,864		445,067
Valuation allowance	(88,460)		(64,361)
Net deferred tax assets	331,404		380,706
Net deferred tax liabilities	$	380,658	$	362,215

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 December 31, 2023, the Company believes it has sufficient positive evidence to conclude that realization of its federal, state and foreign net deferred tax assets are more likely than not to be realized. As of December 31, 2023, the Company’s valuation allowance is $88.5 million, of which $11.0 million relates to our U.K. and Europe operations, $0.1 million relates to our Mexico operations, $53.0 million relates to Onix Investments UK Limited, Sandstone Holdings Sàrl and Arkose Investments ULC, indirect subsidiaries of Pilgrim’s, $11.8 million relates to our Puerto Rico operations, $11.8 million relates to U.S. foreign tax credits and $0.8 million relates to state net operating losses.

	Beginning Balance		Additions		Deductions		Ending Balance
	(In thousands)
Valuation allowance:
2023	$	64,361	$	25,296	$	(1,197)	$	88,460
2022	24,261		43,188		(3,088)		64,361
2021	33,678		—		(9,417)		24,261

As of December 31, 2023, the Company had state net operating loss carry forwards of approximately $104.8 million that begin to expire in 2024. The Company also had Mexico net operating loss carry forwards as of December 31, 2023 of approximately $4.3 million that begin to expire in 2028. The Company also had U.K. net operating loss carry forwards as of December 31, 2023 of approximately $202.6 million that may be carried forward indefinitely.

As of December 31, 2023, the Company had approximately $5.8 million of state tax credit carry forwards that begin to expire in 2024.

For the years ended December 31, 2023 and December 25, 2022, there is a tax effect of $(2.1) million and $(2.5) million, respectively, reflected in other comprehensive loss.

For the years ended December 31, 2023 and December 25, 2022, there are immaterial tax effects reflected in income tax expense due to excess tax benefits and shortfalls related to stock-based compensation. See “Note 1. Business and Summary of Significant Accounting Policies” for additional information.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	December 31, 2023		December 25, 2022
	(In thousands)
Unrecognized tax benefits, beginning of year	$	27,585	$	20,242
Increase as a result of tax positions taken during prior years	17,415		13,950
Decrease for lapse in statute of limitations	(7,201)		(6,473)
Decrease for tax positions of prior years	(234)		(134)
Unrecognized tax benefits, end of year	$	37,565	$	27,585

Included in unrecognized tax benefits of $37.6 million as of December 31, 2023, was $18.0 million of tax benefits that, if recognized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 31, 2023, the Company had recorded a liability of $5.9 million for interest and penalties. During 2023, accrued interest and penalty amounts related to uncertain tax positions increased by $2.7 million.

The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and several foreign locations including Mexico, the U.K., the Republic of Ireland, and continental Europe. With few exceptions, the Company is no longer subject to examinations by taxing authorities for years prior to 2019 in U.S. federal, state and local jurisdictions, for years prior to 2010 in Mexico, and for years prior to 2017 in the U.K.

The Company has a tax sharing agreement with JBS USA Holdings effective for tax years beginning 2010. $1.4 million net tax receivable was accrued in 2023 as a capital contribution and an account receivable from a related party in our Consolidated Balance Sheet. The 2023 tax sharing accrual is related to true-ups of prior year tax sharing accruals. No tax sharing receivable or payable is accrued for the 2023 tax year.