What changed in this filing

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Item 1. Financial Statements

2013-12-06 compared with 2013-09-06 · 365 added, 176 removed, 321 unchanged (63% of the section changed)

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CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(in millions, except per share data)

(in millions and unaudited)

September 27 - October 27,

July 29 - September 26,

Three Months Ended

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Selling, general and administrative expenses

Merger related costs

Income from equity method investments

Operating profit

Interest expense

Loss on debt extinguishment

(Loss) income before income taxes

Income tax (benefit) expense

Net (loss) income

September 27 - October 27,

April 29 - September 26,

Six Months Ended

Cost of sales

Selling, general and administrative expenses

Merger related costs

(Income) loss from equity method investments

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Interest expense

Income before income taxes

Income tax expense

Net income per share:

Weighted average shares outstanding:

Effect of dilutive shares

Loss on debt extinguishment

(Loss) income before income taxes

Income tax (benefit) expense

Net (loss) income

See Notes to Consolidated Condensed Financial Statements

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(in millions and unaudited)

September 27 - October 27,

July 29 - September 26,

Three Months Ended

Net (loss) income

Other comprehensive income (loss), net of tax:

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Hedge accounting

Total other comprehensive loss

Total other comprehensive income

Comprehensive income

September 27 - October 27,

April 29 - September 26,

Six Months Ended

Net (loss) income

Other comprehensive income (loss), net of tax:

Foreign currency translation

Pension accounting

Hedge accounting

Total other comprehensive income (loss)

Comprehensive income

See Notes to Consolidated Condensed Financial Statements

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CONSOLIDATED CONDENSED BALANCE SHEETS

(in millions, except share data)

(in millions, except share data, and unaudited)

Current assets:

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Shareholders' equity:

Preferred stock, $1.00 par value, 1,000,000 authorized shares

Preferred stock, $1.00 par value, 1,000,000 authorized shares (Predecessor)

Common stock, no par value, 1,000 shares authorized;

1,000 issued and outstanding (Successor)

Common stock, $.50 par value, 500,000,000 authorized shares;

139,189,923 and 138,919,056 issued and outstanding

138,919,056 issued and outstanding (Predecessor)

Additional paid-in capital

Stock held in trust

Retained earnings

Accumulated other comprehensive loss

Retained (losses) earnings

Accumulated other comprehensive income (loss)

Total shareholders’ equity

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(in millions)

Three Months Ended

(in millions and unaudited)

September 27 - October 27,

April 29 - September 26,

Six Months Ended

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net cash flows from operating activities:

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(Income) loss from equity method investments

Impact of inventory fair value step-up on cost of sales

Pension expense

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Cash flows from investing activities:

Acquisition of Smithfield Foods, Inc.

Capital expenditures

Acquisitions, net of cash acquired

Net expenditures from breeding stock transactions

Business acquisitions, net of cash acquired

Net proceeds (expenditures) from breeding stock transactions

Proceeds from the sale of property, plant and equipment

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Cash flows from financing activities:

Net proceeds from equity contribution

Proceeds from the issuance of long-term debt

Principal payments on long-term debt and capital lease obligations

Net proceeds from revolving credit facilities and notes payable

Proceeds from Securitization Facility

Payments on Securitization Facility

Net (payments) proceeds from revolving credit facilities

Repurchase of common stock

Debt issuance cost and other

Net cash flows from financing activities

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Basis of Presentation

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 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.

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

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

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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 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

We present dual computations of net income per share.

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 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.

On September 26, 2013 (the Merger Date), pursuant to the Agreement and Plan of Merger dated May 28, 2013 (the Merger Agreement) with Shuanghui International Holdings Limited, a corporation formed under the laws of the Cayman Islands (Shuanghui), the Company merged with Sun Merger Sub, Inc., a Virginia corporation and wholly owned subsidiary of Shuanghui (the Merger Sub), in a transaction hereinafter referred to as the Merger.

As a result of the Merger, the Company survived as a wholly owned subsidiary of Shuanghui.

See Note 2—Merger and Acquisition for further information on the Merger.

Basis of Presentation

The Merger was accounted for as a business combination using the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification 805, Business Combinations .

Shuanghui's cost of acquiring the Company has been pushed-down to establish a new accounting basis for the Company.

Accordingly, the interim consolidated condensed financial statements are presented for two periods, Predecessor and Successor, which relate to the accounting periods preceding and succeeding the completion of the Merger.

The Predecessor and Successor periods have been separated by a vertical line on the face of the consolidated financial statements to highlight the fact that the financial information for such periods has been prepared under two different historical-cost bases of accounting.

Successor— The consolidated financial statements as of October 27, 2013 , and for the period from September 27, 2013 through October 27, 2013, include the accounts of the Company subsequent to the closing of the Merger on September 26, 2013 .

Predecessor— The consolidated condensed financial statements of the Company prior to the Merger on September 26, 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.

Recently Issued Accounting Pronouncements

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.

In July 2013, FASB issued guidance on the financial statement presentation of certain unrecognized tax benefits when a net operating loss carryforward, similar tax loss or tax credit carryforward exists.

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013.

The guidance is not currently effective for us and has not been applied in this Form 10-Q.

MERGER AND ACQUISITION

Shuanghui Merger

On May 28, 2013 , we entered into the Merger Agreement with Shuanghui and the Merger Sub.

The Merger was consummated on September 26, 2013 , and as a result, Merger Sub merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Shuanghui.

Upon completion of the Merger, Shuanghui acquired all outstanding shares of Smithfield and the Company's shareholders received $34.00 in cash (the Merger Consideration) for each share of common stock held prior to the effective time of the Merger.

Additionally, all outstanding stock-based compensation awards, both vested and unvested, were converted into the right to receive the Merger Consideration, less the exercise price of such awards, if any.

The total consideration paid in connection with the Merger was approximately $4.9 billion .

On July 31, 2013, the Merger Sub issued $500.0 million aggregate principal amount of 5.25% senior notes due August 1, 2018 and $400.0 million aggregate principal amount of 5.875% senior notes due August 1, 2021 (together, the Merger Sub Notes).

The Merger Sub incurred $20.4 million in transaction fees in connection with issuance of the Merger Sub Notes, which are being amortized over the life of the Merger Sub Notes.

As a result of the Merger and the transactions entered into in connection therewith, we have assumed the liabilities and obligations of the Merger Sub, including the Merger Sub's obligations under the Merger Sub Notes.

Proceeds from the Merger Sub Notes were held in escrow prior to the Merger Date and used in funding the Merger.

The proceeds were used to fund a portion of the total consideration paid , repay certain outstanding debt of the Company and pay certain transaction fees associated with the Merger.

Shuanghui is the majority shareholder of Henan Shuanghui Investment & Development Co., which is China's largest meat processing enterprise and China's largest publicly traded meat products company as measured by market capitalization.

Shuanghui is a pioneer in the Chinese meat processing industry with over 30 years of history.

Shuanghui's businesses include hog production, meat processing, fresh meat and packaged meats production and distribution.

The merging of Shuanghui's distribution network with our strong management team, leading brands and vertically integrated model will allow us to provide high-quality, competitively priced and safe U.S.

meat products to consumers in markets around the world.

Shuanghui's cost of acquiring the Company has been pushed-down to establish a new accounting basis for the Company.

The preliminary allocation of consideration to the assets acquired and liabilities assumed by Shuanghui in the Merger reflects preliminary fair value estimates based on management's analysis, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized.

Measurement period adjustments that the Company determines to be material will be applied retrospectively to the Merger Date.

The following is a summary of the preliminary allocation of the total purchase consideration to the estimated fair values of our assets acquired, liabilities assumed and noncontrolling interests by Shuanghui in the transaction:

(in millions)

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Property, plant and equipment

Intangible assets

Assets acquired by Shuanghui

Current portion of long-term debt and capital lease obligations

Accounts payable

Accrued expenses and other current liabilities

Long-term debt and capital lease obligations

Other liabilities

Liabilities assumed by Shuanghui

Redeemable noncontrolling interests and noncontrolling interests

Total purchase consideration

Accounts receivable and accounts payable, as well as certain other current and non-current assets and liabilities, were valued at their existing carrying values as they approximated fair value of those items at the time of the Merger, based on management's judgments and estimates.

Inventories were valued using a net realizable value approach with the exception of manufacturing supplies and other inventories, which were valued using the replacement cost approach.

Property, plant and equipment have been valued using a combination of the market approach and the indirect cost approach which is based on current replacement and/or reproduction cost of the asset as new, less depreciation attributable to physical, functional, and economic factors.

Intangible assets acquired include trademarks, customer relations assets, contractual relationships and rights with fair values of $1.3 billion , $55.0 million , $40.0 million and $3.0 million , resp ectively.

The customer relations assets, contractual relationships and rights will be amortized over useful lives of 14 y ears, 17 years and 12 yea rs, respectively.

The trademarks are not subject to amortization.

Trademarks have been valued using the relief from royalty method.

We utilized a bottoms-up approach to assess the appropriate royalty rates for trade names focused on consideration of the profitability of each trade name, the implied premium margin earned on branded versus private label sales of similar products for each trade name, market studies, and third-party comparable licensing agreements.

Customer relations assets were determined using the multi-period excess earnings methodology utilizing our forecasted metrics and/or a market participant distributor model.

Contractual relationships were valued based on the time and associated costs that would be required to recreate the existing relationships in addition to the lost profits over this time period using the avoided costs or lost profits method.

Rights were also valued using an avoided costs or lost profits method.

The benefit obligation for both our qualified and non-qualified defined benefit pension plans was remeasured as of the Merger Date with the assistance of an independent third-party actuary.

Existing long-term debt assumed in the Merger was fair valued based on quoted market prices.

Long-term debt assumed included our outstanding 6.625% senior unsecured notes due August 2022 (the 2022 Notes) and our outstanding 7.75% senior unsecured notes due July 2017 (the 2017 Notes).

Deferred income tax assets and liabilities as of the acquisition date represent the expected future tax consequences of temporary differences between the fair values of the assets acquired and the liabilities assumed as a result of the Merger and their tax basis.

Goodwill reflects the amount of the total consideration paid that exceeded the fair value of the identifiable assets acquired, liabilities assumed and noncontrolling interests.

Goodwill recognized as a result of the Merger has not been allocated to our reportable segments as of October 27, 2013 .

The amount of goodwill relating to the Merger that is expected to be deductible for tax purposes has not yet been determined.

In connection with the Merger, we incurred $20.7 million and $18.0 million of professional fees during the Successor and Predecessor periods, respectively.

These fees are recognized in merger related costs on the consolidated condensed statements of income.

In addition, the Merger Sub deferred $17.3 million of debt issuance costs for a financing arrangement.

We recognized these deferred costs in interest expense during the Successor period upon termination of the financing arrangement following the Merger.

All of these charges are reflected in the results of our Corporate segment.

The following unaudited pro forma financial data summarizes the Company's results of operations as if the Merger had occurred as of April 29, 2012 .

The pro forma data is for informational purposes only and may not necessarily reflect the actual results of operations had the Merger been consummated on April 29, 2012 .

Three Months Ended

Six Months Ended

October 27, 2013

October 28, 2012

October 27, 2013

October 28, 2012

The most significant pro forma adjustments were to reflect the impact of fair value step-ups of both assets and liabilities (e.g., inventory, property, plant and equipment, long-term debt) and fees and expenses related to the Merger noted above.

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.

In May 2013, 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).

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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.

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 industry 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.

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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

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 interest

Purchase price

The purchase price allocation includes assets acquired, excluding goodwill, of $39.2 million , liabilities assumed of $10.7 million , goodwill of $43.5 million and redeemable noncontrolling interest of $36.0 million .

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.

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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 .

If the noncontrolling interest had been redeemable as of October 27, 2013 , the redemption amount would have been $45.0 million .

Inventories consist of the following:

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We believe all of our derivative instruments represent economic hedges against changes in prices and rates, regardless of their designation for accounting purposes.

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 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.

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

As of October 27, 2013 , prepaid expenses and other current assets included $26.0 million representing cash on deposit with brokers to cover losses on our open derivative instruments.

As of October 27, 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 counter-party 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 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.

Although our counterparties primarily consist of financial institutions that are investment grade, there is still a possibility that one or more of these companies could default.

However, a majority of our financial instruments are exchange traded futures contracts held with brokers and counterparties with whom we maintain margin accounts that are settled on a daily basis, thereby limiting our credit exposure to non-exchange traded derivatives.

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 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 .

As of October 27, 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 counter-parties under financial instruments.

Although our counter-parties primarily consist of financial institutions that are investment grade, there is still a possibility that one or more of these companies could default.

However, a majority of our financial instruments are exchange traded futures contracts held with brokers and counter-parties with whom we maintain margin accounts that are settled on a daily basis, thereby limiting our credit exposure to non-exchange traded derivatives.

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

As of October 27, 2013 , we had credit exposure of $2.0 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 October 27, 2013 .

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

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

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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 .

As of October 27, 2013 , we had no cash flow hedges for forecasted transactions beyond December 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.

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

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:

During the six months ended October 27, 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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dollar equivalent of various foreign currency contracts.

The following table presents the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the fiscal periods indicated:

The following tables present the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the fiscal periods indicated:

Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion)

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

Gains Recognized in Earnings on Derivative (Ineffective Portion)

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

September 27 - October 27,

July 29 - September 26,

Three Months Ended

September 27 - October 27,

July 29 - September 26,

Three Months Ended

September 27 - October 27,

July 29 - September 26,

Three Months Ended

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Foreign exchange contracts

September 27 - October 27,

April 29 - September 26,

Six Months Ended

September 27 - October 27,

April 29 - September 26,

Six Months Ended

September 27 - October 27,

April 29 - September 26,

Six Months Ended

(in millions)

Commodity contracts:

Grain contracts

Lean hog 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.

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.

As of October 27, 2013 , there were deferred net losses of $4.4 million , net of tax of $2.9 million , in accumulated other comprehensive income (loss).

We expect to reclassify $1.6 million ( $1.0 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 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.

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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 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:

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

The following tables present 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:

Gains (Losses) Recognized in Earnings on Derivative

Gains (Losses) Recognized in Earnings on Related Hedged Item

September 27 - October 27,

July 29 - September 26,

Three Months Ended

September 27 - October 27,

July 29 - September 26,

Three Months Ended

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Commodity contracts

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.

September 27 - October 27,

April 29 - September 26,

Six Months Ended

September 27 - October 27,

April 29 - September 26,

Six Months Ended

(in millions)

Commodity contracts

In connection with the Merger, we closed all commodity derivative contracts on September 26, 2013.

As a result, we did not recognize gain or losses during the Successor period September 27 - October 27, 2013 on closed commodity derivative contracts.

We recognized gains of $2.0 million during the Predecessor period July 29 - September 26, 2013 and $1.1 million for the three months ended October 28, 2012 on closed commodity derivative contracts as the underlying cash transactions affected earnings.

We recognized gains of $4.1 million during the Predecessor period April 29 - September 26, 2013, and $4.5 million for the six months ended October 28, 2012 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 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 .

These differences resulted in losses of $1.2 million for the three months ended October 28, 2012 and losses of $7.5 million for the six months ended October 28, 2012 .

There were no fair value hedges of inventory during the six months ended October 27, 2013 , and therefore no differences between spot and futures prices were recognized during the Successor period ended October 27, 2013 nor during the Predecessor period April 29 - September 26, 2013.

Mark-to-Market Method

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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:

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

Foreign currency (1)

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dollar equivalent of various foreign currency contracts.

The following table presents the amount of gains and losses recognized in the consolidated condensed statements of income on derivative instruments using the “mark-to-market” method by type of derivative contract for the fiscal periods indicated:

The following tables present the amount of gains and losses recognized in the consolidated condensed statements of income on derivative instruments using the “mark-to-market” method by type of derivative contract for the fiscal periods indicated:

September 27 - October 27,

July 29 - September 26,

Three Months Ended

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Foreign exchange contracts

The table above reflects gains and losses from both open and closed contracts including, among other things, gains and losses related to contracts designed to hedge price movements that occur entirely within a quarter.

The table includes amounts for both realized and unrealized gains and losses.

The table is not, therefore, a simple representation of unrealized gains and losses recognized in the income statement during any period presented.

September 27 - October 27,

April 29 - September 26,

Six Months Ended

(in millions)

Commodity contracts

Foreign exchange contracts

The tables above reflect gains and losses from both open and closed contracts including, among other things, gains and losses related to contracts designed to hedge price movements that occur entirely within a quarter.

The tables include amounts for both realized and unrealized gains and losses.

The tables are not, therefore, simple representations of unrealized gains and losses recognized in the income statement during any period presented.

Investments consist of the following:

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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.

Examples of impairment indicators include a history or expectation of future operating losses and declines in a quoted share price, among other factors.

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.

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.

As of October 27, 2013, we held 37.8 million 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 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:

The minority shares traded on the Madrid Exchange confer no special rights or privileges to buyers.

In contrast, the shares comprising our 37% stake in CFG contractually entitle us to two seats on CFG's 9 -person board of directors, giving us the ability to exert significant influence over the strategic and operational decisions of our investee.

The stock is very thinly traded.

Our investment in CFG contractually entitles us to two seats on CFG's 9-person board of directors, giving us the ability to exert significant influence over the strategic and operational decisions of our investee.

The stock is very thinly traded on the Madrid Exchange.

CFG is a closely held company, with the three largest shareholders owning approximately 74% of the outstanding shares.

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

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.

Carrying Value

February 17, 2012

April 29, 2012 (1)

April 28, 2013 (1)

July 28, 2013 (1) (2)

——————————————

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 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, 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.

Specifically, if the most sensitive factors affecting our fair value calculations (i.e., estimates of future cash flows, interest rates and share price) continue to deteriorate, it is reasonably possible that our estimate of fair value could fall below carrying value.

If that occurs, and we determine that the decline is other than temporary, we would record a charge to income for the difference between the estimate of fair value and the carrying amount of our investment.

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

As discussed in Note 2—Merger and Acquisition, we performed a preliminary allocation of the total purchase consideration from the Merger between the assets acquired and liabilities assumed by Shuanghui, including our investments.

In assessing the fair value of our investment in CFG, we considered a variety of information, including 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.

In November 2013, Mexican processed meats producer Sigma Alimentos (Sigma) announced its intention to tender for all of CFG’s outstanding shares at a bid price of €6.80 per share (the Bid Price).

As part of the announcement, Sigma publicly acknowledged that it has obtained commitments to purchase approximately 44.5% of CFG's outstanding shares at the Bid Price.

The Bid Price offered by Sigma was also considered in our fair value assessment discussed above.

We, along with Shuanghui, are currently weighing our options and no decision has been made regarding Sigma’s offer.

(Income) loss from equity method investments consists of the following:

September 27 - October 27,

July 29 - September 26,

Three Months Ended

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All other equity method investments

Income from equity method investments

September 27 - October 27,

April 29 - September 26,

Six Months Ended

Equity Investment

(in millions)

International

Mexican joint ventures

International

All other equity method investments

(Income) loss from equity method investments

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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.

Long-term debt consists of the following:

(in millions)

6.625% senior unsecured notes, due August 2022, including unamortized premiums of $22.0 million (Successor) and unamortized discounts of $4.7 million (Predecessor)

7.75% senior unsecured notes, due July 2017, including unamortized premiums of $56.8 million (Successor)

5.25% senior unsecured notes, due August 2018

5.875% senior unsecured notes, due August 2021

7.75% senior unsecured notes, due May 2013

4% senior unsecured Convertible Notes, due June 2013, including unamortized discounts of $4.1 million

Floating rate senior unsecured term loan, due May 2018

Floating rate senior unsecured term loan, due February 2014

Inventory Revolver, LIBOR plus 3.25%

Securitization Facility, the lender's cost of funds of 0.23% plus 1.15%

Various, interest rates from 0.0% to 5.20%, due February 2014 through June 2017

Current portion

Total long-term debt

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).

In September 2013, we repaid our $200.0 million floating rate unsecured term loan due in February 2014.

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

In July 2013, 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.

On July 31, 2013, Merger Sub issued $500.0 million aggregate principal amount of 5.25% senior notes due August 1, 2018 and $400.0 million aggregate principal amount of 5.875% senior notes due August 1, 2021 (together, the Merger Sub Notes) as part of the financing for the acquisition of the Company.

Upon the consummation of the Merger and release of the proceeds from escrow, the Merger Sub Notes became unsecured obligations of the Company ranking equally in right of payment with all of our existing and future senior unsecured indebtedness.

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 of October 27, 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 $144.8 million .

As of October 27, 2013 , our unused capacity under these credit facilities and credit lines was $667.6 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).

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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 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 of October 27, 2013 , the SPV held $534.6 million of accounts receivable.

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

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

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

As of October 27, 2013 , we continued to guarantee $9.7 million o f leases that were transferred to JBS S.A.

in connection with the sale of Smithfield Beef, Inc.

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

Our effective tax rate was 24% for the Successor period, (36)% for the Predecessor period from July 29 - September 26, 2013 and 32% for the three months ended October 28, 2012 , respectively.

Our effective tax rate was 20% for the Predecessor period from April 29 - September 26, 2013 and 31% for the six months ended October 28, 2012 , respectively.

Taxable income relative to permanent items and the mix of income between jurisdictions for the Successor period impacted the effective tax rate.

The Predecessor periods are also impacted by income relative to permanent items for the period, the mix of income between jurisdictions, and state income tax credits.

Beginning with the Successor period, the Company, with its respective subsidiaries, is included in its U.S.

parent company’s consolidated federal income tax group and consolidated income tax return.

The members of the consolidated group have elected to allocate income taxes among the members of the group by the separate return method, under which the parent company credits the subsidiary for income tax reductions resulting from the subsidiary’s inclusion in the consolidated return, or the parent company charges the subsidiary for its allocated share of the consolidated income tax liability.

PENSION PLANS

The components of net periodic pension cost consist of:

September 27 - October 27,

July 29 - September 26,

Three Months Ended

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Net periodic pension cost

SHAREHOLDERS’ EQUITY

September 27 - October 27,

April 29 - September 26,

Six Months Ended

(in millions)

Interest cost

Expected return on plan assets

Net amortization

Net periodic pension cost

As a result of the Merger, all outstanding common stock of the Company during the Predecessor period was acquired by Shuanghui and retired.

See Note 2—Merger and Acquisition for further information on the Merger.

As a result of the Merger, all of the outstanding shares of Merger Sub were converted into 1,000 shares of common stock of the Company, no par value, and such shares are owned by a wholly-owned subsidiary of Shuanghui.

There are no other shares of stock outstanding in the Company.

Stock Options and 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.

At October 27, 2013 , the Company has no outstanding stock option awards or performance share units and no new equity plans have been approved by the Board of Directors.

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).

The following tables present 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).

September 27 - October 27,

July 29 - September 26,

Three Months Ended

July 28, 2013

July 29, 2012

October 28, 2012

(in millions)

10 unchanged sentences

Total other comprehensive income (loss)

September 27 - October 27,

April 29 - September 26,

Six Months Ended

October 28, 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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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 July 28, 2013 and April 28, 2013 :

July 28, 2013

October 27, 2013

April 28, 2013

3 unchanged sentences

Foreign exchange contracts

Bond securities

Certificate of deposit

Open-ended mutual funds

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

Bond securities —B ond securities are valued at quoted market prices and are classified within Level 1.

Certificate of deposit —The certificate of deposit is a bank deposit valued at cost, which approximates fair value due to the short-term maturity of the instrument, and is classified within Level 1.

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.

3 unchanged sentences

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 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.

We had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis during the Successor and Predecessor periods presented.

Other Financial Instruments

1 unchanged sentence

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 July 28, 2013 and April 28, 2013 .

July 28, 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 October 27, 2013 and April 28, 2013 .

October 27, 2013

April 28, 2013

10 unchanged sentences

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.