What changed in this filing

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Item 1. Financial Statements

2014-05-14 compared with 2013-12-06 · 151 added, 391 removed, 295 unchanged (65% of the section changed)

3 unchanged sentences

(in millions and unaudited)

September 27 - October 27,

July 29 - September 26,

Three Months Ended

1 unchanged sentence

Selling, general and administrative expenses

Merger related costs

Income from equity method investments

1 unchanged sentence

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

Operating profit

Interest expense

Loss on debt extinguishment

(Loss) income before income taxes

Non operating income

Income before income taxes

Income tax (benefit) expense

Net (loss) income

See Notes to Consolidated Condensed Financial Statements

2 unchanged sentences

(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:

Foreign currency translation

Pension accounting

Hedge accounting

Total other comprehensive income

Comprehensive income

September 27 - October 27,

April 29 - September 26,

Six Months Ended

Net (loss) income

March 30, 2014

March 31, 2013

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Hedge accounting

Total other comprehensive income (loss)

Comprehensive income

Total other comprehensive loss

Comprehensive loss

See Notes to Consolidated Condensed Financial Statements

1 unchanged sentence

CONSOLIDATED CONDENSED BALANCE SHEETS

(in millions, except share data, and unaudited)

(in millions, except share data)

Current assets:

15 unchanged sentences

Commitments and contingencies

Shareholders' equity:

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

Shareholder's equity:

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;

138,919,056 issued and outstanding (Predecessor)

1,000 issued and outstanding

Additional paid-in capital

Stock held in trust

Retained (losses) earnings

Retained earnings

Accumulated other comprehensive income (loss)

Total shareholders’ equity

Total shareholder's equity

Noncontrolling interests

4 unchanged sentences

(in millions and unaudited)

September 27 - October 27,

April 29 - September 26,

Six Months Ended

Three Months Ended

March 30, 2014

March 31, 2013

Cash flows from operating activities:

Net (loss) income

Adjustments to reconcile net cash flows from operating activities:

Depreciation and amortization

(Income) loss from equity method investments

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

Pension expense

Pension contributions

Income from equity method investments

Changes in operating assets and liabilities and other, net

1 unchanged sentence

Cash flows from investing activities:

Acquisition of Smithfield Foods, Inc.

Capital expenditures

Business acquisitions, net of cash acquired

Net proceeds (expenditures) from breeding stock transactions

2 unchanged sentences

Cash flows from financing activities:

Net proceeds from equity contribution

Proceeds from the issuance of long-term debt

2 unchanged sentences

Payments on Securitization Facility

Net (payments) proceeds from revolving credit facilities

Repurchase of common stock

Debt issuance cost and other

Net proceeds (payments) on revolving credit facilities

Net cash flows from financing activities

12 unchanged sentences

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

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.

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

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 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 .

You should read these statements in conjunction with the audited consolidated financial statements and the related notes included in our Transition Report on Form 10-K for the eight months ended December 29, 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 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.

The Merger was accounted for as a business combination using the acquisition method of accounting.

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

Unless the context otherwise requires, all references to "Successor" refer to Smithfield Foods, Inc.

and all its subsidiaries for the period subsequent to the Merger.

All references to “Predecessor” refer to Smithfield Foods, Inc.

and all its subsidiaries for all periods prior to the Merger.

Purchase price allocations resulting from the Merger affect the comparability of results of operations for the Successor and Predecessor periods.

The consolidated condensed balance sheets, as of March 30, 2014 and December 29, 2013 , reflect various preliminary fair value estimates and analyses resulting from applying the acquisition method of accounting as of the Merger Date, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized.

The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the Merger Date during the measurement period.

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, 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 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.

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.

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.

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 October 27, 2013 , the redemption amount would have been $45.0 million .

Change in Fiscal Year End

On January 16, 2014, the Company elected to change its fiscal year end from the 52 or 53 week period which previously ended on the Sunday nearest April 30 to the 52 or 53 week period which ends on the Sunday nearest December 31.

The change in fiscal year was made effective as of December 29, 2013.

Therefore, the three months ended March 30, 2014 correspond to the first quarter of 2014 and the three months ended March 31, 2013 represents the comparable period for 2013.

Recently Issued Accounting Pronouncements

In July 2013, the FASB issued Accounting Standards Update 2013-11, Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss or a Tax Credit Carryforward Exists (ASU 2013-11).

This update does not have a significant impact on our consolidated condensed balance sheet.

Inventories consist of the following:

4 unchanged sentences

DERIVATIVE FINANCIAL INSTRUMENTS

Our meat processing and hog production operations use various raw materials, primarily live hogs, corn and soybean meal, which are actively traded on commodity exchanges.

Our meat processing and hog production operations use various raw materials, primarily live hogs, corn, soybean meal and wheat, which are actively traded on commodity exchanges.

We hedge these commodities when we determine conditions are appropriate to mitigate price risk.

9 unchanged sentences

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 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 October 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 March 30, 2014 , 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.

2 unchanged sentences

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 .

As of March 30, 2014 , we had credit exposure of $10.1 million on non-exchange traded derivative contracts, excluding the effects of netting arrangements.

As a result of netting arrangements, we had no significant credit exposure as of March 30, 2014 .

No significant concentrations of credit risk existed as of March 30, 2014 .

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

All derivative contracts are recorded in prepaid expenses and other current assets or accrued expenses and other current liabilities within the consolidated condensed balance sheets, as appropriate.

The following table presents the fair values of our open derivative financial instruments in the consolidated condensed balance sheets on a gross basis.

The following table presents the fair values of our open derivative financial instruments on a gross basis.

(in millions)

10 unchanged sentences

Total fair value of derivative instruments

The majority of our derivatives are exchange traded futures contracts held with brokers, subject to netting arrangements that are enforceable during the ordinary course of business.

Additionally, we have a smaller portfolio of over-the-counter (OTC) derivatives that are held by counterparties under netting arrangements found in typical master netting agreements.

These agreements legally allow for net settlement in the event of bankruptcy.

We offset the fair values of derivative assets and liabilities that are executed with the same counterparty under a master netting arrangement in the consolidated balance sheet.

We do not offset the related cash collateral held with or received from the same counterparty with the fair value of the net derivative position.

As of March 30, 2014 , prepaid expenses and other current assets included $334.2 million representing cash on deposit with brokers to cover losses on our open derivative instruments and for initial margin requirements.

The following tables reconcile the gross amounts of derivative assets and liabilities to the net amounts presented in our consolidated condensed balance sheets, and the related effects of cash collateral under netting arrangements that provide a legal right of offset of assets and liabilities.

March 30, 2014

Gross Amount of Derivative Assets/ Liabilities

Netting of Derivative Assets/ Liabilities

Net Amount Presented in the Condensed Consolidated Balance Sheet

Cash Collateral Pledged (1)

(in millions)

Foreign exchange contracts

December 29, 2013

Gross Amount of Derivative Assets/ Liabilities

Netting of Derivative Assets/ Liabilities

Net Amount Presented in the Condensed Consolidated Balance Sheet

Cash Collateral Pledged (1)

(in millions)

Foreign exchange contracts

——————————————

Cash collateral pledged represents the cash on deposit with brokers and is included in prepaid expenses and other current assets on the consolidated balance sheets.

Cash on deposit is the initial margin deposited with the broker plus the cash margin to cover gains and losses on our open positions.

The cash collateral presented in the table is limited to amounts available to offset our open net derivative positions under master netting arrangements, and therefore does not reflect the Company's total amount received or pledged.

For example, initial margin deposited with our brokers would not be included in the table to the extent it exceeds the net loss position on our open derivative instruments.

See Note 10—Fair Value Measurements for additional information about the fair value of our derivatives.

Hedge Accounting Method

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 and soybean meal.

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 October 27, 2013 , we had no cash flow hedges for forecasted transactions beyond December 2014 .

As of March 30, 2014 , we had no cash flow hedges for forecasted transactions beyond December 2015 .

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 and selling, general and administrative expenses (SG&A) for foreign exchange contracts.

The ineffective portion of derivative gains and losses is recognized as part of current period 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 (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 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:

During the three months ended March 30, 2014 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

1,847,680,000

Foreign currency (1)

2 unchanged sentences

dollar equivalent of various foreign currency contracts.

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:

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 periods indicated:

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

1 unchanged sentence

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

(in millions)

Commodity contracts:

Grain contracts

Lean hog contracts

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

March 30, 2014

March 31, 2013

March 30, 2014

March 31, 2013

March 30, 2014

March 31, 2013

(in millions)

5 unchanged sentences

Foreign exchange contracts

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

For the 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 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.

As of March 30, 2014 , there were deferred net losses of $134.1 million , net of tax of $85.4 million , in accumulated other comprehensive income (loss).

We expect to reclassify $6.2 million ( $3.8 million net of tax) of the 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.

3 unchanged sentences

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 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:

During the three months ended March 30, 2014 , 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 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

(in millions)

Commodity contracts

September 27 - October 27,

April 29 - September 26,

Six Months Ended

September 27 - October 27,

April 29 - September 26,

Six Months Ended

March 30, 2014

March 31, 2013

March 30, 2014

March 31, 2013

(in millions)

1 unchanged sentence

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 $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.

We recognized gains of $0.1 million during the three months ended March 30, 2014 and losses of $(2.4) million during the three months ended March 31, 2013 on closed commodity derivative contracts as the underlying cash transactions affected earnings.

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 SG&A for foreign exchange contracts.

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:

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

During the three months ended March 30, 2014 , the range of notional volumes associated with open derivative instruments using the “mark-to-market” method was as follows:

Foreign currency (1)

2 unchanged sentences

dollar equivalent of various foreign currency contracts.

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,

The following table presents the amount of gains (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 periods indicated:

Three Months Ended

(in millions)

Commodity contracts

Foreign exchange contracts

September 27 - October 27,

April 29 - September 26,

Six Months Ended

March 30, 2014

March 31, 2013

(in millions)

Commodity contracts

Commodity contracts (cost of sales)

Commodity contracts (sales)

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.

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.

Investments consist of the following:

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Total investments

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

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

As of October 27, 2013, we held 37.8 million shares of CFG common stock.

As of March 30, 2014 , we held 37.8 million shares of CFG common stock.

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

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.

Our investment in CFG contractually entitles us to two seats on CFG's 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.

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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).

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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,

In December 2013, we announced our intention to join Sigma in its tender offer by retaining our 37% interest in CFG.

As a result of our agreement with Sigma, the Bid Price was increased to €6.90 per share.

Income from equity method investments consists of the following:

Three Months Ended

Equity Investment

March 30, 2014

March 31, 2013

(in millions)

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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 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 counter-parties.

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 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 of March 30, 2014 , 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 $141.3 million .

As of March 30, 2014 , our unused capacity under these credit facilities and credit lines was $735.5 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 October 27, 2013 , the SPV held $534.6 million of accounts receivable.

As of March 30, 2014 , the SPV hel d $572.8 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 October 27, 2013 , we continued to guarantee $9.7 million o f leases that were transferred to JBS S.A.

As of March 30, 2014 , we continued to guarantee $9.2 million of 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.

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 33% and (14)% for the three months ended March 30, 2014 and March 31, 2013 , respectively.

For the period ended March 30, 2014, taxable income relative to permanent items, the mix of income between jurisdictions, and the expiration of certain federal tax credits as of December 31, 2013 impacted the effective tax rate.

The period ended March 31, 2013 was impacted by income relative to permanent items, the mix of income between jurisdictions, state income tax credits and federal legislation during that period that reinstated certain federal tax credits retroactively to January 1, 2012.

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

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The components of net periodic pension cost consist of:

September 27 - October 27,

July 29 - September 26,

Three Months Ended

(in millions)

Interest cost

Expected return on plan assets

Net amortization

Net periodic pension cost

September 27 - October 27,

April 29 - September 26,

Six Months Ended

March 30, 2014

March 31, 2013

(in millions)

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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

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 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,

Other Comprehensive 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

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)

September 27 - October 27,

April 29 - September 26,

Six Months Ended

October 28, 2012

March 30, 2014

March 31, 2013

(in millions)

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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)

Losses arising during the period

(Gains) losses reclassified to sales

(Gains) losses reclassified to cost of sales

Gains reclassified to SG&A

Total other comprehensive loss

FAIR VALUE MEASUREMENTS

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We use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques), and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability.

These valuation approaches incorporate inputs, such as observable, independent market data, that management believes are predicated on the assumptions market participants would use to price an asset or liability.

These inputs may incorporate, as applicable, certain risks such as nonperformance risk and credit risk.

These valuation approaches incorporate inputs, such as observable, independent market data, that we believe are predicated on the assumptions market participants would use to price an asset or liability.

These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk.

The FASB has established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.

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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 October 27, 2013 and April 28, 2013 :

October 27, 2013

April 28, 2013

March 30, 2014

December 29, 2013

(in millions)

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Bond securities

Certificate of deposit

Open-ended mutual funds

Insurance contracts

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Derivatives— Derivatives classified within Level 1 are valued using quoted market prices.

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 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.

In some cases where quoted market prices are not available, we value the derivatives using market based pricing models that utilize 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 exchange traded prices and rates, yield curves, credit curves, and measures of volatility.

Bond securities —Bond securities are valued at quoted market prices and are classified within 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.

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.

During the three months ended March 30, 2014 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

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 October 27, 2013 and April 28, 2013 .

October 27, 2013

April 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 March 30, 2014 and December 29, 2013 .

March 30, 2014

December 29, 2013

Carrying Value

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Long-term debt, including current portion

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.

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.

CONTINGENCIES

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North Carolina Nuisance Litigation

In July, August and September 2013, 25 complaints were filed in the Superior Court of Wake County, North Carolina by 479 individual plaintiffs against Smithfield and our wholly owned subsidiary, Murphy-Brown.

The complaints relate to operations on approximately 11 company-owned and 79 contract farms.

All 25 complaints include causes of action for temporary nuisance, negligence, and negligent entrustment and seek recovery of an unspecified amount of compensatory and punitive damages, attorneys’ fees, costs and pre- and post-judgment interest.

Smithfield and Murphy-Brown have filed Motions for Change of Venue, to Dismiss Plaintiffs’ Negligent Entrustment Claim, and for a More Definite Statement in all 25 cases.

All 25 complaints stem from requests for pre-litigation mediation of farm nuisance disputes filed in early July 2013 in Wake County, North Carolina.

Plaintiffs’ counsel have filed pre-litigation mediation notices on behalf of approximately 334 additional claimants who have not filed complaints.

Approximately 224 additional potential claimants have threatened to bring claims but not initiated any formal legal process.

As previously disclosed in our Transition Report on Form 10-K for the eight months ended December 29, 2013, in July, August and September 2013, 25 complaints were filed in the Superior Court of Wake County, North Carolina by 479 individual plaintiffs against Smithfield and our wholly owned subsidiary, Murphy-Brown, alleging causes of action for nuisance and related claims.

All 25 complaints stem from previously disclosed requests for pre-litigation mediation of farm nuisance disputes filed in Wake County, North Carolina in early July 2013.

On April 15, 2014, an additional request for pre-litigation mediation of farm nuisance dispute was filed against the Company and Murphy-Brown in Duplin County, North Carolina on behalf of 35 claimants, at least some of whom appear to be claimants in the Wake County proceedings.

The Company believes that the claims are unfounded and intends to defend the suits vigorously.

Our policy for establishing accruals and disclosures for contingent liabilities is contained in Note 1-Summary of Significant Accounting Policies in our Annual Report on Form 10-K for the fiscal year ended April 28, 2013.

Our policy for establishing accruals and disclosures for contingent liabilities is contained in Note 1—Summary of Significant Accounting Policies in our Transition Report on Form 10-K for the eight months ended December 29, 2013.

We established a reserve estimating our expenses to defend against these and similar potential claims on the opening balance sheet.

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Our reportable segments are:

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

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

The Pork segment consists mainly of our three wholly owned U.S.

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The Corporate segment provides management and administrative services to support our other segments.

The following tables present sales and operating profit (loss) by segment for the fiscal periods indicated:

September 27 - October 27,

July 29 - September 26,

The following table presents sales and operating profit (loss) by segment for the periods indicated:

Three Months Ended

(in millions)

Segment sales—

Hog Production

International

Total segment sales

Intersegment sales—

Hog Production

International

Total intersegment sales

Consolidated sales

Operating profit:

Hog Production

International

Consolidated operating profit

September 27 - October 27,

April 29 - September 26,

Six Months Ended

March 30, 2014

March 31, 2013

(in millions)

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Consolidated operating profit

The following table presents total assets by segment for the fiscal periods indicated:

Successor (1)

(in millions)

Hog Production

International

Consolidated total assets

——————————————

The amounts presented are based on the preliminary allocation of consideration to the assets acquired and liabilities assumed by Shuanghui in the Merger and reflect 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.

See Note 2—Merger and Acquisition for further discussion.

As noted in Note 2—Merger and Acquisition, goodwill recognized as a result of the Merger has not been allocated to our reportable segments as of October 27, 2013 .

We have chosen to present goodwill unallocated as of April 28, 2013 so that the two periods are comparable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements