Country Risk Analysis

Source of net sales (in thousands) | 2012 | 2011 |

United States | $7,249,485 | $6,778,727 |

Mexico | 871,897 | 756,971 |

Total net sales | $8,121,382 | $7,535,698 |

Source of cost of sales (in thousands) | 2012 | 2011 |

United States | $6,916,874 | $6,936,970 |

Mexico | 768,676 | 738,307 |

Total net sales | $7,685,550 | $7,675,277 |

Analyze what is disclosed

With significant operations and assets located in Mexico, PPC faces country risk, which results from currency exchange rate fluctuations, foreign law and policies governance and trade barriers. PPC acknowledges a crucial risk resulting from import restrictions and trade protection regulation. PPC also specifically discloses their measures to tackle foreign exchange rate fluctuations related to Mexico operations. PPC manages foreign currency risk primarily by minimizing the net amount of Mexican pesos and using derivative financial instruments. PPC includes gains or losses from derivative financial instruments in cost of sales. In order to reduce risk from potential exchange rate fluctuations, PPC will reinvest cash flow from Mexican subsidiaries into Mexican operations rather than convert into US dollars.

Formal measurement:

In 2012, increased sales from Mexico are the consequences of increased unit sales volume and the increase in sales price. The increase in sales price is due to reduced supply, resulting from production cuts. Increased cost of sales incurred by the Mexico operations during 2012 resulted from higher feed costs and increased sales volume. Decreased overhead costs and foreign currency translation partially offset the increase. PPC does not disclose a specific measure to evaluate country risk. However, PPC does disclose foreign currency gains and losses. Foreign currency gains and losses refer to the change in U.S dollar value of the net monetary assets of Mexican subsidiaries. Foreign exchange resulted in a gain of $4.9 million in 2012. Gain in 2012 was due to...