What changed in this filing

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Item 1. Financial Statements

2013-09-06 compared with 2013-03-08 · 173 added, 168 removed, 324 unchanged (51% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of sales

3 unchanged sentences

Interest expense

Loss on debt extinguishment

Income before income taxes

8 unchanged sentences

Three Months Ended

Nine Months Ended

Other comprehensive income (loss):

Other comprehensive income (loss), net of tax:

Foreign currency translation

1 unchanged sentence

Hedge accounting

Total other comprehensive income (loss)

Total comprehensive income

Total other comprehensive loss

Comprehensive income

See Notes to Consolidated Condensed Financial Statements

9 unchanged sentences

Intangible assets, net

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES AND EQUITY

Current liabilities:

22 unchanged sentences

(in millions)

Nine Months Ended

Three Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Loss (gain) on sale of property, plant and equipment, including breeding stock

(Income) loss from equity method investments

5 unchanged sentences

Capital expenditures

Business acquisition, net of cash acquired

Net (expenditures) proceeds from breeding stock transactions

Acquisitions, net of cash acquired

Net expenditures from breeding stock transactions

Proceeds from the sale of property, plant and equipment

5 unchanged sentences

Repurchase of common stock

Change in cash collateral

Debt issuance costs and other

Net cash flows from financing activities

9 unchanged sentences

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

You should read these statements and notes in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended April 29, 2012 .

You should read these statements in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended April 28, 2013 .

The information reflects all normal recurring adjustments which we believe are necessary to present fairly the financial position and results of operations for all periods included.

Smithfield Foods, Inc., together with its subsidiaries (the “Company,” “we,” “us” or “our”), is the largest hog producer and pork processor in the world.

In the United States, we are also the leader in numerous packaged meats categories with popular brands including Farmland®, Smithfield®, Eckrich®, Armour® and John Morrell®.

We produce and market a wide variety of fresh meat and packaged meats products both domestically and internationally.

1 unchanged sentence

Pork, Hog Production, International and Corporate, each of which is comprised of a number of subsidiaries, joint ventures and other investments.

The three months ended January 27, 2013 correspond to the third quarter of fiscal 2013 and the three months ended January 29, 2012 correspond to the third quarter of fiscal 2012 .

The three months ended July 28, 2013 correspond to the first quarter of fiscal 2014 and the three months ended July 29, 2012 correspond to the first quarter of fiscal 2013 .

Net Income per Share

1 unchanged sentence

The basic computation is based on weighted average common shares outstanding during the period.

The diluted computation reflects the potentially dilutive effect of common stock equivalents, such as stock options and performance share units, during the period.

We excluded stock options for approximately 1.4 million and 1.4 million shares for the three months ended January 27, 2013 and January 29, 2012 , respectively, and 2.1 million and 1.7 million shares for the nine months ended January 27, 2013 and January 29, 2012 , respectively, from the diluted computation because their effect would have been anti-dilutive.

The diluted computation reflects the potentially dilutive effect of common stock equivalents, such as stock options and convertible notes, during the period.

We excluded stock options for approximately 0.5 million and 2.1 million shares for the three months ended July 28, 2013 and July 29, 2012 , respectively, from the diluted computation because their effect would have been anti-dilutive.

Recently Issued Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (FASB) issued new accounting guidance on testing indefinite-lived intangible assets for impairment.

The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount.

If it is not, no further analysis is required.

If it is, the previously prescribed test is required.

The new guidance is effective for fiscal years beginning after September 15, 2012 with early adoption permitted.

The adoption of this guidance is not expected to impact our consolidated condensed financial statements.

American Skin Food Group, LLC

In September 2012 (fiscal 2013), we acquired a 70% controlling interest in American Skin Food Group, LLC (American Skin) for $23.3 million in cash.

The purchase price is subject to post-closing adjustments for differences in American Skin's calendar 2012 earnings and working capital at closing from agreed-upon targets.

Located in Burgaw, North Carolina, American Skin manufactures and supplies pork rinds to the snack food industry.

By leveraging our coordinated sales and marketing team, we believe American Skin can expand into new markets both domestically and internationally, which could substantially increase current sales of approximately $25 million and net income of $3 million annually over the next five to seven years with minimal additional plant investment.

The acquisition of American Skin was accounted for in the Pork segment using the acquisition method of accounting, which requires, among other things, that assets acquired, liabilities assumed and noncontrolling interests in the acquiree be recognized at their fair values as of the acquisition date.

The following table summarizes the fair values of the assets acquired, liabilities assumed and noncontrolling interests recognized as of the date of acquisition for American Skin:

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02).

This update does not change the current requirements for reporting net income or other comprehensive income in financial statements.

However, the update requires additional disclosures about amounts reclassified out of accumulated comprehensive income by component.

We adopted this new guidance effective for the first quarter of fiscal 2014.

The required disclosures are contained in Note 9 -Shareholders' Equity.

Kansas City Sausage Company, LLC

In May 2013 (fiscal 2014), we acquired a 50% interest in Kansas City Sausage Company, LLC (KCS) for $36.0 million in cash.

Upon closing, in addition to the cash purchase price, we advanced $10.0 million to the seller in exchange for a promissory note, which is secured by the remaining membership interests in KCS held by the seller (the Advance Note).

The Advance Note was recorded in other assets in the consolidated condensed balance sheet.

Additionally, we entered into a revolving loan agreement with KCS, under which we agreed to make loans from time to time up to an aggregate principal amount of $20.0 million .

The aggregate amount of any obligations incurred under the revolving loan agreement is secured by a first priority security interest in all of the assets of KCS.

KCS is a leading U.S.

sausage producer and sow processor with annual revenues of approximately $200 million .

The merging of KCS's low-cost, efficient operations and high-quality products with our strong brands and sales and marketing team should contribute growth in our packaged meats business.

KCS operates in Des Moines, Iowa and Kansas City, Missouri.

In Des Moines, KCS produces premium raw materials for sausage, as well as value-added products, including boneless hams and hides.

The Kansas City plant is a modern sausage processing facility and is designed for optimum efficiency to provide retail and foodservice customers with high quality products.

With our strong ongoing focus on building our packaged meats business, and with 15% of the U.S.

sow population, this joint venture is a logical fit for the Company.

It is expected to provide a growth

platform in two key packaged meats categories — breakfast sausage and dinner sausage — and to allow us to expand our product offerings to our customers.

These categories represent over $4.0 billion in retail and foodservice sales annually.

KCS is managed by its Board of Directors, which makes decisions that most significantly impact the economic performance of KCS.

We have the right to nominate and elect the majority of the members of the Board of Directors of KCS, and based on the associated voting rights, we have determined that we have a controlling financial interest in KCS.

As a result, the acquisition of our interest in KCS was accounted for in the Pork segment using the acquisition method of accounting, which requires, among other things, that assets acquired, liabilities assumed and noncontrolling interests in the acquiree be recognized at their fair values as of the acquisition date.

Our initial accounting for KCS is not yet complete as we are in the process of determining final values for the assets acquired, liabilities assumed and noncontrolling interests.

Therefore, the amounts contained in the following table, which summarizes our initial estimate of the fair values of assets acquired, liabilities assumed and noncontrolling interests recognized as of the date of acquisition for KCS, are subject to change.

(in millions)

Cash and cash equivalents

Accounts receivable, net

Property, plant and equipment, net

Intangible assets, net

Accounts receivable

Prepaid expenses and other current assets

Property, plant and equipment

Assets acquired

Accounts payable

Accrued expenses and other current liabilities

Other liabilities

Liabilities assumed

Noncontrolling interests

Noncontrolling interest

Purchase price

Intangible assets acquired include customer relationship assets, contractual rights and trademarks with fair values of $9.7 million , $2.6 million and $0.1 million , respectively.

The customer relationship assets and contractual rights will be amortized over useful lives of 15 years and 12 years , respectively.

The trademarks are not subject to amortization.

Goodwill was recognized to reflect the amount of the enterprise fair value that exceeded the fair value of the identifiable assets acquired and liabilities assumed.

The amount of goodwill that is expected to be deductible for tax purposes is $10.5 million .

The fair value of the noncontrolling interests was measured based on market multiples for similar public companies and consideration of the terms of the acquisition, which provide the noncontrolling interest holders the right to exercise a put option, which would obligate us to redeem their interests.

The redemption amount is based on a fixed multiple of earnings, which is consistent with the formula utilized in determining the purchase price for our 70% interest.

Due to the potential post-closing purchase price adjustments noted above, the amounts recognized for goodwill, including the related tax deductible portion, and noncontrolling interests are subject to change.

Our initial estimate of the fair value of the noncontrolling interest was measured based on market multiples for similar companies in our industry and consideration of the terms of the acquisition, which provide the noncontrolling interest holder the right to exercise a put option at any time after the fifth anniversary of the acquisition, which would obligate us to redeem their interest.

The noncontrolling interest is classified outside of equity as redeemable noncontrolling interests in the consolidated condensed balance sheet.

The redemption amount is the greater of $45.0 million or the result of a computed amount based on a fixed multiple of earnings.

We have elected to accrete changes in the redemption amount of the noncontrolling interest over the five year period until it becomes redeemable.

If the noncontrolling interest had been redeemable as of July 28, 2013 , the redemption amount would have been $45.0 million .

Inventories consist of the following:

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We do not offset the fair value of derivative instruments with cash collateral held with or received from the same counterparty under a master netting arrangement.

As of January 27, 2013 , prepaid expenses and other current assets included $20.2 million representing cash on deposit with brokers to cover losses on our open derivative instruments and accrued expenses and other current liabilities included $0.9 million representing cash deposits received from brokers to cover gains on our open derivative instruments.

As of July 28, 2013 , prepaid expenses and other current assets included $80.7 million representing cash on deposit with brokers to cover losses on our open derivative instruments.

As of July 28, 2013 , we had no cash on hand to cover gains on our open derivative instruments.

Changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counterparty agreements.

Additionally, certain of our derivative contracts contain credit risk-related contingent features, which would require us to post additional cash collateral to cover net losses on open derivative instruments if our credit rating was downgraded.

As of January 27, 2013 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

As of July 28, 2013 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

We are exposed to losses in the event of nonperformance or nonpayment by counterparties under financial instruments.

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Determination of the credit quality of our counterparties is based upon a number of factors, including credit ratings and our evaluation of their financial condition.

As of January 27, 2013 , we had credit exposure of $23.4 million on non-exchange traded derivative contracts, excluding the effects of netting arrangements.

As a result of netting arrangements, our credit exposure was reduced to $2.5 million as of January 27, 2013 .

No significant concentrations of credit risk existed as of January 27, 2013 .

As of July 28, 2013 , we had credit exposure of $8.1 million on non-exchange traded derivative contracts, excluding the effects of netting arrangements.

As a result of netting arrangements, we had no credit exposure as of July 28, 2013 .

No significant concentrations of credit risk existed as of July 28, 2013 .

The size and mix of our derivative portfolio varies from time to time based upon our analysis of current and future market conditions.

15 unchanged sentences

Cash Flow Hedges

We enter into derivative instruments, such as futures, swaps and options contracts, to manage our exposure to the variability in expected future cash flows attributable to commodity price risk associated with the forecasted sale of live hogs and fresh pork, and the forecasted purchase of corn, wheat and soybean meal.

In addition, we enter into interest rate swaps to manage our exposure to changes in interest rates associated with our variable interest rate debt, and we enter into foreign exchange contracts to manage our exposure to the variability in expected future cash flows attributable to changes in foreign exchange rates associated with the forecasted purchase or sale of assets denominated in foreign currencies.

As of January 27, 2013 , we had no cash flow hedges for forecasted transactions beyond April 2014 .

In addition, we enter into foreign exchange contracts to manage our exposure to the variability in expected future cash flows attributable to changes in foreign exchange rates associated with the forecasted purchase or sale of assets denominated in foreign currencies.

As of July 28, 2013 , we had no cash flow hedges for forecasted transactions beyond April 2014 .

When cash flow hedge accounting is applied, derivative gains or losses are recognized as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

Derivative gains and losses, when reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean hog contracts, interest expense for interest rate contracts and selling, general and administrative expenses for foreign exchange contracts.

Derivative gains and losses, when reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean hog contracts and selling, general and administrative expenses (SG&A) for foreign exchange contracts.

Gains and losses on derivatives designed to hedge price risk associated with fresh pork sales are recorded in the Hog Production segment.

During the nine months ended January 27, 2013 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

During the three months ended July 28, 2013 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

Foreign currency (1)

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Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion)

Gains (Losses) Recognized in Earnings on Derivative (Ineffective Portion)

Gains Recognized in Earnings on Derivative (Ineffective Portion)

Three Months Ended

8 unchanged sentences

Foreign exchange contracts

Nine Months Ended

(in millions)

Commodity contracts:

Grain contracts

Lean hog contracts

Interest rate contracts

Foreign exchange contracts

For the fiscal periods presented, foreign exchange contracts were determined to be highly effective.

We have excluded from the assessment of effectiveness differences between spot and forward rates, which we have determined to be immaterial.

During the first quarter of fiscal 2012, we discontinued cash flow hedge accounting on a number of grain contracts as it became probable that the original forecasted transactions would not transpire.

As a result of this change, the table above for the nine months ended January 29, 2012 includes gains of $12.0 million on grain contracts de-designated from hedging relationships that were reclassified from accumulated other comprehensive loss into earnings in the first quarter of fiscal 2012.

As of January 27, 2013 , there were deferred net gains of $41.9 million , net of tax of $26.3 million , in accumulated other comprehensive loss.

We expect to reclassify $43.2 million ( $26.4 million net of tax) of deferred net gains on closed commodity contracts into earnings within the next twelve months.

We are unable to estimate the gains or losses to be reclassified into earnings within the next twelve months related to open contracts as their values are subject to change.

As of July 28, 2013 , there were deferred net losses of $44.8 million , net of tax of $28.2 million , in accumulated other comprehensive loss.

We expect to reclassify $2.2 million ( $1.3 million net of tax) of deferred net losses on closed commodity contracts into earnings within the next twelve months.

We are unable to estimate the amount of unrealized gains or losses to be reclassified into earnings within the next twelve months related to open contracts as their values are subject to change.

Fair Value Hedges

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The gains or losses on the derivative instruments and the offsetting losses or gains on the related hedged items are recorded in cost of sales for commodity contracts.

During the nine months ended January 27, 2013 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

During the three months ended July 28, 2013 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

The following table presents the effects on our consolidated condensed statements of income of gains and losses on derivative instruments designated in fair value hedging relationships and the related hedged items for the fiscal periods indicated:

6 unchanged sentences

Commodity contracts

Nine Months Ended

(in millions)

Commodity contracts

We recognized losses of $6.9 million and $0.2 million for the three months ended January 27, 2013 and January 29, 2012 , respectively, and losses of $2.4 million and gains of $4.5 million for the nine months ended January 27, 2013 and January 29, 2012 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

We recognized gains of $2.1 million and $3.4 million for the three months ended July 28, 2013 and July 29, 2012 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

For fair value hedges of inventory, we elect to exclude from the assessment of effectiveness differences between the spot and futures prices.

These differences are recorded directly into earnings as they occur.

These differences resulted in gains of $0.3 million for the three months ended January 29, 2012 , and losses of $7.5 million and gains of $6.0 million for the nine months ended January 27, 2013 and January 29, 2012 , respectively.

These differences resulted in losses of $6.3 million for the three months ended July 29, 2012 .

There were no fair value hedges of inventory in the first quarter of fiscal 2014, and therefore no differences between spot and futures prices were recognized for the three months ended July 28, 2013 .

Mark-to-Market Method

Derivative instruments that are not designated as a hedge, have been de-designated from a hedging relationship, or do not meet the criteria for hedge accounting are marked-to-market with the unrealized gains and losses together with actual realized gains and losses from closed contracts being recognized in current period earnings.

Under the mark-to-market method, gains and losses are recorded in cost of sales for commodity contracts, and selling, general and administrative expenses for foreign exchange contracts.

During the nine months ended January 27, 2013 , the range of notional volumes associated with open derivative instruments using the “mark-to-market” method was as follows:

Under the mark-to-market method, gains and losses are recorded in cost of sales for commodity contracts, and SG&A for foreign exchange contracts.

During the three months ended July 28, 2013 , the range of notional volumes associated with open derivative instruments using the “mark-to-market” method was as follows:

Foreign currency (1)

4 unchanged sentences

Three Months Ended

Nine Months Ended

(in millions)

Commodity contracts

9 unchanged sentences

Total investments

We record our share of earnings and losses from our equity method investments in (income) loss from equity method investments.

Some of these results are reported on a one-month lag which, in our opinion, does not materially impact our consolidated condensed financial statements.

Each quarter, we review the carrying value of our investments and consider whether indicators of impairment exist.

1 unchanged sentence

If an impairment indicator exists, we must evaluate the fair value of our investment to determine if a loss in value, which is other than temporary, has occurred.

We are required to recognize a loss in value of our investment if that loss is considered to be other than temporary.

As of January 27, 2013 , we held 37,811,302 shares of CFG common stock.

If we consider any such decline to be other than temporary (based on various factors, including historical financial results, product development activities and the overall health of the affiliate’s industry), then a write-down of the investment to its estimated fair value would be recorded.

We have determined that no write-down was necessary for all periods presented.

As of July 28, 2013 , we held 37,811,302 shares of CFG common stock.

Shares of CFG are publicly traded on the Bolsa de Madrid Exchange (Madrid Exchange).

As the table below shows, the carrying value of our investment in CFG was above the quoted market price on the Madrid Exchange as of January 27, 2013 , indicating a possible impairment of our investment in CFG.

As the table below shows, the carrying value of our investment in CFG was above the quoted market price on the Madrid Exchange as of July 28, 2013 , indicating a possible impairment of our investment in CFG.

However, we do not believe the quoted share price on the Madrid Exchange is, by itself, reflective of the fair value of our investment in CFG for the following reasons:

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We are CFG's largest shareholder, with a 37% stake.

The average daily trading volume during the last 21 months represents less than three hundredths of one percent of the total outstanding shares.

The average daily trading volume during last 27 months represents less than three hundredths of one percent of the total outstanding shares.

The lack of an active market can cause significant fluctuations and volatility in the stock price that are not commensurate with fundamental changes in the underlying business and the fair value of our holding in CFG.

Shares trading on the Madrid Exchange have ranged from a high of €9.28 ( $13.74 ) to a low of €4.12 ( $5.39 ) per share during the last 27 months, with upward and downward fluctuations in between.

The table below shows CFG's intra-day high share price and Smithfield's carrying value, expressed in euro per share, on various dates relevant to our disclosures during the last 21 months.

The table below shows CFG's intra-day high share price and Smithfield's carrying value, expressed in euro per share, on various dates relevant to our disclosures.

Carrying Value

1 unchanged sentence

April 29, 2012 (1)

October 28, 2012 (1)

January 27, 2013 (1)

April 28, 2013 (1)

July 28, 2013 (1) (2)

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Share prices on quarter end date reflect the last trading day in the quarter.

During the first quarter of fiscal 2014, CFG's share price traded as high as €5.88 per share (May 30, 2013).

As noted above, we do not consider the share price on the Madrid Exchange, by itself, to be determinative of fair value.

In assessing the fair value of our investment, we considered a variety of information, including an independent third party valuation report, which incorporates generally accepted valuation techniques, CFG's history of positive cash flows, expectations about the future cash flows of CFG, market multiples for comparable businesses, and an influence premium applied to the market price of CFG's shares on the Madrid Exchange to adjust for our contractual right to two board seats and our ability to exert significant influence over the operational and strategic decisions of the company.

Based on an evaluation of all these factors, we concluded the fair value of our investment in CFG as of January 27, 2013 , exceeded its carrying amount.

However, our estimate of fair value has declined by approximately 10% to 20% over the last 21 months, significantly eroding the gap between fair value and carrying value.

Based on an evaluation of all these factors, we concluded the fair value of our investment in CFG as of July 28, 2013 , exceeded its carrying amount.

However, our estimate of fair value has declined over the last 27 months, significantly eroding the gap between fair value and carrying value.

The fair value decline is primarily attributable to persistent recessionary conditions in Western Europe, which have dampened CFG's current operating performance.

In addition, rising interest rates associated with European sovereign debt crises have forced discount rates higher, diminishing the values calculated using our discounted cash flow techniques.

Finally, CFG's share price on the Madrid Exchange has declined and, notwithstanding our reservations about the Madrid Exchange price, we nonetheless utilize it as a component of our valuation work and believe such declines must be considered as part of our fair value estimate.

While we do not believe our investment is impaired as of January 27, 2013 , the confluence of these and other factors has decreased our estimate of CFG's fair value and increased the risk of impairment.

In addition, CFG's share price on the Madrid Exchange has declined and, notwithstanding our reservations about the Madrid Exchange price, we nonetheless utilize it as a component of our valuation work and believe such declines must be considered as part of our fair value estimate.

While we do not believe our investment is impaired as of July 28, 2013 , the confluence of these and other factors has decreased our estimate of CFG's fair value and increased the risk of impairment.

If the trends contributing to our lower estimate of CFG's fair value continue, the investment would become impaired.

3 unchanged sentences

Three Months Ended

Nine Months Ended

Equity Investment

(in millions)

International

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GAAP adjustments and thus, there may be differences between the amounts we report for CFG and the amounts reported by CFG.

In December 2011 (fiscal 2012), the board of CFG approved a multi-year plan to consolidate and streamline its manufacturing operations to improve operating efficiencies and increase utilization (the CFG Consolidation Plan).

The CFG Consolidation Plan includes the disposal of certain assets, employee redundancy costs and the contribution of CFG's French cooked ham business into a newly formed joint venture.

As a result, we recorded our share of CFG's charges totaling $38.7 million in (income) loss from equity method investments within the International segment in the third quarter of fiscal 2012.

As of January 27, 2013 , the current portion of long-term debt and capital lease obligations included our outstanding 7.75% senior unsecured notes due May 2013 (2013 Notes) totaling $55.0 million and our outstanding 4% senior unsecured convertible notes due June 2013 (Convertible Notes) totaling $390.0 million , net of unamortized discounts of $10.0 million , which were reclassified from long-term debt and capital lease obligations in the first quarter of fiscal 2013.

Debt Refinancing

In July 2012 (fiscal 2013), we initiated an underwritten public offering to issue $1.0 billion aggregate principal amount of 6.625% senior unsecured notes due August 2022 (2022 Notes).

We received net proceeds of $981.2 million , after underwriting discounts and commissions and offering expenses, upon settlement of the 2022 Notes in August 2012 (fiscal 2013).

We incurred $18.0 million in transaction fees in connection with issuance of the 2022 Notes, which are being amortized over the ten -year life of the notes.

In conjunction with the issuance of the 2022 Notes, we commenced a tender offer to purchase any and all of our 2013 Notes and any and all of our outstanding 10% senior secured notes due July 2014 (2014 Notes) (the July 2012 Tender Offer).

The July 2012 Tender Offer expired in August 2012.

As a result of the July 2012 Tender Offer, we paid $649.4 million to repurchase 2013 Notes and 2014 Notes with face values of $105.0 million and $456.6 million , respectively.

Also in August 2012, we exercised the redemption feature available under our 2014 Notes and paid $155.5 million to repurchase the remaining $132.8 million of our 2014 Notes.

Net proceeds from the issuance of the 2022 Notes were used to make all of the repurchases of the 2013 Notes and 2014 Notes.

As a result of these repurchases, we recognized losses on debt extinguishment of $120.7 million in the second quarter of fiscal 2013, including the write-off of related unamortized discounts, premiums and debt issuance costs.

Debt Retirement

In May 2013 (fiscal 2014), we repaid the remaining outstanding principal amount on our 7.75% senior unsecured notes totaling $55.0 million .

In July 2013 (fiscal 2014), we repaid the outstanding principal amount on our 4% senior unsecured convertible notes totaling $400.0 million (Convertible Notes).

As part of the settlement of the Convertible Notes, we delivered 3,894,476 shares of our common stock to the holders of the notes.

Simultaneously, we exercised our call option to acquire shares of our common stock, which we entered into in connection with the original issuance of the Convertible Notes, and received 3,894,510 shares from the counterparties.

As a result, we retired 34 net shares of our common stock upon the settlement of the Convertible Notes.

Working Capital Facilities

As of January 27, 2013 , we had aggregate credit facilities totaling $1.3 billion , including an inventory-based revolving credit facility totaling $925.0 million (the Inventory Revolver), an accounts receivable securitization facility totaling $275.0 million (the Securitization Facility) and international credit facilities totaling $147.6 million .

Our unused capacity under these credit facilities was $1.1 billion .

See Note 14 —Subsequent Events for additional discussion of our working capital facilities.

As of July 28, 2013 , we had aggregate credit facilities and credit lines totaling $1.4 billion , including an inventory-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $275.0 million (the Securitization Facility) and international credit facilities totaling $143.4 million .

As of July 28, 2013 , our unused capacity under these credit facilities and credit lines was $823.2 million .

As part of the Securitization Facility agreement, all accounts receivable of our major Pork segment subsidiaries are sold to a wholly owned “bankruptcy remote” special purpose vehicle (SPV).

2 unchanged sentences

However, the accounts receivable owned by the SPV are separate and distinct from our other assets and are not available to our other creditors should we become insolvent.

As of January 27, 2013 , the SPV held $440.4 million of accounts receivable and we had $30.0 million in outstanding borrowings on the Securitization Facility.

In August 2012 (fiscal 2013), we amended our $200.0 million term loan (the Rabobank Term Loan).

As a result of the amended agreement, our maturity date was extended from June 2016 (fiscal 2017) to May 2018 (fiscal 2019) and the interest rate increased to an annual rate equal to LIBOR plus 4%, or at our election, a base rate plus 3% .

The amended agreement contains affirmative and negative covenants that, among other things, limit or restrict our ability to create liens and encumbrances;

make acquisitions and investments;

dispose of or transfer assets;

pay dividends or make other payments in respect of our stock;

in each case, subject to certain qualifications and exceptions that are generally consistent with the terms and conditions of the 2022 Notes.

In addition, the amended agreement contains a financial covenant requiring us to maintain a minimum interest coverage ratio (ratio of consolidated EBITDA to consolidated interest expense) of not less than 1.75 to 1.0 commencing with our third quarter of fiscal 2013 .

See Note 14 —Subsequent Events for additional discussion of our term loans.

As of July 28, 2013 , the SPV held $500.5 million of accounts receivable and we had $170.0 million in outstanding borrowings on the Securitization Facility.

As part of our business, we are a party to various financial guarantees and other commitments as described below.

2 unchanged sentences

If we consider it probable that we will become responsible for an obligation, we will record the liability on our consolidated balance sheet.

We (together with our joint venture partners) guarantee debt borrowed by Agroindustrial del Noroeste (Norson), an unconsolidated joint venture, of up to $87.0 million , of which $57.5 million was outstanding as of January 27, 2013 .

The covenants in the guarantee relating to Norson’s debt incorporate our covenants under the Inventory Revolver.

In addition, we continue to guarantee $10.5 million of leases that were transferred to JBS S.A.

As of July 28, 2013 , we continued to guarantee $9.9 million of leases that were transferred to JBS S.A.

in connection with the sale of Smithfield Beef, Inc.

Some of these lease guarantees may be released in the near future and others may remain in place until the leases expire through February 2022.

Our effective tax rate was 15% and 36% for the three months ended January 27, 2013 and January 29, 2012 , respectively, and 23% and 33% for the nine months ended January 27, 2013 and January 29, 2012 , respectively.

The year-over-year variances in the effective tax rates resulted primarily from the earnings mix between foreign and domestic operations and the passage of the American Taxpayer Relief Act of 2012 that retroactively reinstated the Research and Development, Work Opportunity and Welfare to Work tax credits.

This guaranty may remain in place until the leases expire through February 2022.

PENSION PLANS

1 unchanged sentence

Three Months Ended

Nine Months Ended

(in millions)

Interest cost

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SHAREHOLDERS’ EQUITY

Share Repurchase Program

In June 2012 (fiscal 2013), we announced that our board of directors had approved a new share repurchase program authorizing us to buy up to $250.0 million of our common stock over the next 24 months in addition to the $250.0 million authorized during fiscal 2012 (Share Repurchase Program).

In July 2012 (fiscal 2013), our board of directors approved an increase of $100.0 million to the authorized amount under the Share Repurchase Program.

Share repurchases may be made on the open market or in privately negotiated transactions.

The number of shares repurchased, and the timing of any buybacks, will depend on corporate cash balances, business and economic conditions, and other factors, including investment opportunities.

The program may be discontinued at any time.

During the nine months ended January 27, 2013 , we repurchased 19,068,079 shares of our common stock for $386.4 million , including related fees.

The price of the repurchased shares has been allocated among common stock, additional paid-in capital and retained earnings in our consolidated condensed balance sheet in accordance with applicable accounting guidance.

In November 2012 (fiscal 2013), we repurchased 7,000,000 shares of our common stock from COFCO Corporation, China's largest national agricultural trading and processing company, for $147.8 million .

These shares were repurchased as part of the Share Repurchase Program.

Since the inception of the Share Repurchase Program in June 2011 (fiscal 2012) and through January 27, 2013 , we have repurchased 28,244,783 shares of our common stock for $575.9 million , including related commissions, at an average price of $20.38 .

Stock Options and Performance Share Units

During the nine months ended January 27, 2013 , we issued 98,942 shares of common stock upon the exercise of stock options and 324,475 shares of common stock for vested performance share units.

During the three months ended July 28, 2013 , we issued 83,503 shares of common stock upon the exercise of stock options and 187,398 shares of common stock for vested performance share units.

In fiscal 2013 , we issued 253,018 shares of common stock upon exercise of stock options and 325,975 shares of common stock for vested performance share units.

Other Comprehensive Income (Loss)

The following table presents changes in the accumulated balances for each component of other comprehensive income (loss) and the related effects on net income of amounts reclassified out of other comprehensive income (loss).

Three Months Ended

July 28, 2013

July 29, 2012

(in millions)

Foreign currency translation:

Translation adjustment arising during the period

Pension accounting:

Amortization of actuarial losses and prior service credits reclassified to cost of sales

Amortization of actuarial losses and prior service credits reclassified to SG&A

Hedge accounting:

Gains (losses) arising during the period

Gains reclassified to sales

Gains reclassified to cost of sales

Losses reclassified to SG&A

Total other comprehensive income (loss)

FAIR VALUE MEASUREMENTS

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We have classified assets and liabilities measured at fair value based on the lowest level of input that is significant to the fair value measurement.

For the periods presented, we had no transfers of assets or liabilities between levels within the fair value hierarchy.

The timing of any such transfers would be determined at the end of each reporting period.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables set forth, by level within the fair value hierarchy, our non-pension financial assets and liabilities that were measured at fair value on a recurring basis as of January 27, 2013 and April 29, 2012 :

January 27, 2013

July 28, 2013

April 28, 2013

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In some cases where quoted market prices are not available, we value the derivatives using pricing models based on the net present value of estimated future cash flows to calculate fair value, in which case the measurements are classified within Level 2.

These valuation models make use of market-based observable inputs, including market prices and rates, yield curves, credit curves, and measures of volatility.

Open-ended mutual funds —Open-ended mutual funds are valued at their net asset value (NAV), which approximates fair value, and classified within Level 1.

These valuation models make use of market-based observable inputs, including exchange prices and rates, yield curves, credit curves, and measures of volatility.

Open-ended mutual funds —Open-ended mutual funds are valued at their net asset value (NAV), which approximates fair value, and classified as Level 1.

Insurance contracts— Insurance contracts are valued at their cash surrender value using the daily asset unit value (AUV) which is based on the quoted market price of the underlying securities and classified within Level 2.

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that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.

During the nine months ended January 27, 2013 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

During the three months ended July 28, 2013 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

Other Financial Instruments

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The carrying amount of all other debt approximates fair value as those instruments are based on variable interest rates.

The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of January 27, 2013 and April 29, 2012 .

January 27, 2013

The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of July 28, 2013 and April 28, 2013 .

July 28, 2013

April 28, 2013

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Long-term debt, including current portion

The carrying amounts of cash and cash equivalents, accounts receivable, notes payable and accounts payable approximate their fair values because of the relatively short-term maturity of these instruments.

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values because of the relatively short-term maturity of these instruments.

CONTINGENCIES

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In addition, individuals may initiate litigation against us.

W e have no material contingencies or uncertainties that could be expected to affect the fairness of presentation of our consolidated condensed financial statements as of January 27, 2013 .

There have been no significant developments regarding litigation disclosed in Note 16 of our Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended April 29, 2012 and our Quarterly Reports on Form 10-Q for the quarterly periods ended July 29, 2012 and October 28, 2012, nor have any significant new matters arisen during the three months ended January 27, 2013 .

North Carolina Nuisance Litigation

On July 30, 2013, five complaints were filed in the Superior Court of Wake County, North Carolina by 135 individual plaintiffs against Smithfield, our wholly owned subsidiary, Murphy-Brown, and various individuals and entities who are alleged to own or operate farms under contract with Murphy-Brown.

Alderman, et al.