What changed in this filing

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Item 1. Financial Statements

2014-11-07 compared with 2014-08-11 · 134 added, 65 removed, 418 unchanged (32% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

Cost of sales

Selling, general and administrative expenses

(Income) loss from equity method investments

Merger related costs

Income from equity method investments

Operating profit

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

Other comprehensive income (loss), net of tax:

8 unchanged sentences

(in millions, except share data)

September 28,

Current assets:

28 unchanged sentences

(in millions and unaudited)

Six Months Ended

Nine Months Ended

September 28,

September 26,

Cash flows from operating activities:

9 unchanged sentences

Proceeds from the sale of property, plant and equipment

Advance note and other

Net cash flows from investing activities

4 unchanged sentences

Payments on Securitization Facility

Net proceeds on revolving credit facilities

Net proceeds (payments) on revolving credit facilities

Net cash flows from financing activities

12 unchanged sentences

Fresh Pork, Packaged Meats, Hog Production, International and Corporate.

See Note 12—Reportable Segments for additional information about changes to our reportable segments during the current quarter.

See Note 12—Reportable Segments for additional information about changes to our reportable segments during the current year.

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.

11 unchanged sentences

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 June 29, 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 consolidated condensed balance sheets, as of September 28, 2014 and December 29, 2013 , reflect various fair value estimates and analyses resulting from applying the acquisition method of accounting as of the Merger Date, including work performed by third-party valuation specialists.

This work was finalized during the third quarter of 2014 with no material adjustments.

Change in Fiscal Year End

1 unchanged sentence

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

Therefore, the three and six months ended June 29, 2014 correspond to the second quarter and first half of 2014 and the three and six months ended June 30, 2013 represent the comparable periods for 2013.

Accordingly, the three months ended September 28, 2014 correspond to the third quarter of 2014 and the three months ended September 26, 2013 correspond to the third quarter of 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).

In July 2013, the Financial Accounting Standards Board (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.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenues from Contracts with Customers (ASU 2014-09).

In May 2014, the FASB and International Accounting Standards Board (IASB) issued Accounting Standards Update 2014-09, Revenues from Contracts with Customers (ASU 2014-09).

The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance.

The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The ASU applies to all contracts with customers, except those that are within the scope of other topics in the FASB Accounting Standards Codification.

Compared with current U.S.

GAAP, the ASU also requires significantly expanded disclosures about revenue recognition.

The new guidance is effective for fiscal year and interim periods within those years beginning after December 15, 2016 and early adoption is not permitted.

1 unchanged sentence

We are currently in the process of evaluating the potential impact of future adoption but at this time do not anticipate it will have a material impact on our consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (ASU 2014-15).

The new guidance is effective for annual reporting periods ending after December 15, 2016, and for annual and interim periods thereafter.

Early adoption is permitted.

The impact of adoption will not have a material effect on our consolidated financial statements.

Inventories consist of the following:

September 28,

(in millions)

17 unchanged sentences

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 June 29, 2014 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

As of September 28, 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 June 29, 2014 , we had credit exposure of $11.6 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 June 29, 2014 .

No significant concentrations of credit risk existed as of June 29, 2014 .

As of September 28, 2014 , we had no significant credit exposure on non-exchange traded derivative contracts.

No significant concentrations of credit risk existed as of September 28, 2014 .

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

1 unchanged sentence

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

September 28,

(in millions)

11 unchanged sentences

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.

Additionally, we have a smaller portfolio of over-the-counter 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.

1 unchanged sentence

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.

June 29, 2014

September 28, 2014

Gross Amount of Derivative Assets/ Liabilities

19 unchanged sentences

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 June 29, 2014 , we had no cash flow hedges for forecasted transactions beyond December 2015 .

As of September 28, 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.

2 unchanged sentences

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 June 29, 2014 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

During the nine months ended September 28, 2014 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

1,847,680,000

10 unchanged sentences

Three Months Ended

September 28,

September 26,

September 28,

September 26,

September 28,

September 26,

(in millions)

5 unchanged sentences

Foreign exchange contracts

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

September 28,

September 26,

(in millions)

7 unchanged sentences

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

As of June 29, 2014 , there were deferred net losses of $103.7 million , net of tax of $66.1 million , in accumulated other comprehensive income (loss).

We expect to reclassify $10.3 million ( $6.3 million net of tax) of deferred net gains on closed commodity contracts into earnings within the next twelve months.

As of September 28, 2014 , there were deferred net losses of $99.0 million , net of tax of $62.9 million , in accumulated other comprehensive income (loss).

We expect to reclassify $28.7 million ( $17.5 million net of tax) of deferred net losses on closed commodity contracts into earnings within the next twelve months.

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

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 June 29, 2014 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

During the nine months ended September 28, 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:

3 unchanged sentences

Three Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

1 unchanged sentence

Commodity contracts

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

1 unchanged sentence

Commodity contracts

We recognized losses of $0.1 million and gains of $1.5 million for the three months ended June 29, 2014 and June 30, 2013 , respectively, and losses of $0.9 million for the six months ended June 30, 2013 , on closed commodity derivative contracts as the underlying cash transactions affected earnings.

There were no similar gains or losses recognized for the six months ended June 29, 2014.

We recognized gains of $0.7 million and $2.9 million for the three months ended September 28, 2014 and September 26, 2013 , respectively, and gains of $0.7 million and $2.0 million for the nine months ended September 28, 2014 and September 26, 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 either sales or cost of sales for commodity contracts, and SG&A for foreign exchange contracts.

During the six months ended June 29, 2014 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

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

During the nine months ended September 28, 2014 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

Foreign currency (1)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

Commodity contracts (sales)

Commodity contracts (cost of sales)

Commodity contracts

Foreign exchange contracts

4 unchanged sentences

Equity Investment

September 28,

(in millions)

13 unchanged sentences

At the formation of Sigma & WH Europe, both the Company and Sigma contributed all of our shares of CFG to Sigma & WH Europe.

As of June 29, 2014, Sigma & WH Europe owned 98% of the outstanding shares of CFG.

As of September 28, 2014 , Sigma & WH Europe owned 98% of the outstanding shares of CFG.

The Tender Offer and the shareholder agreement with Sigma had no impact on the book value of our investment in CFG.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Equity Investment

September 28,

September 26,

September 28,

September 26,

(in millions)

4 unchanged sentences

All other equity method investments

(Income) loss from equity method investments

Income from equity method investments

——————————————

3 unchanged sentences

Working Capital Facilities

As of June 29, 2014 , we had aggregate credit facilities 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 $140.8 million .

As of June 29, 2014 , our unused capacity under these credit facilities was $930.0 million .

As of September 28, 2014 , we had aggregate credit facilities 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 $120.4 million .

As of September 28, 2014 , our unused capacity under these credit facilities was $953.8 million .

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

2 unchanged sentences

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

As of June 29, 2014 , the SPV held $567.3 million of accounts receivable.

As of September 28, 2014 , the SPV held $566.9 million of accounts receivable.

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

2 unchanged sentences

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

As of June 29, 2014 , we continued to guarantee $8.9 million of leases that were transferred to JBS S.A.

As of September 28, 2014 , we continued to guarantee $8.0 million of leases that were transferred to JBS S.A.

in connection with the sale of Smithfield Beef, Inc which closed in October 2008.

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 35% and 28% for the three months ended June 29, 2014 and June 30, 2013 , respectively, and 34% and 17% for the six months ended June 29, 2014 and June 30, 2013 , respectively.

For the three and six months ended June 29, 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 three and six months ended June 30, 2013 were 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.

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

Our effective tax rate was 26% and 21% for the three months ended September 28, 2014 and September 26, 2013 , respectively, and 31% and 19% for the nine months ended September 28, 2014 and September 26, 2013 , respectively.

For the three and nine months ended September 28, 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 three and nine months ended September 26, 2013 were 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 subsidiaries, is included in its U.S.

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

7 unchanged sentences

Three Months Ended

June 29, 2014

June 30, 2013

September 28, 2014

September 26, 2013

(in millions)

2 unchanged sentences

Pension accounting:

Actuarial loss

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

4 unchanged sentences

Gains reclassified to cost of sales

Gains reclassified to SG&A

(Gains) losses reclassified to SG&A

Total other comprehensive income (loss)

Six Months Ended

June 29, 2014

June 30, 2013

Nine Months Ended

September 28, 2014

September 26, 2013

(in millions)

31 unchanged sentences

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 June 29, 2014 and December 29, 2013 :

June 29, 2014

September 28, 2014

December 29, 2013

16 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 six months ended June 29, 2014 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

During the nine months ended September 28, 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 June 29, 2014 and December 29, 2013 .

June 29, 2014

The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of September 28, 2014 and December 29, 2013 .

September 28, 2014

December 29, 2013

10 unchanged sentences

North Carolina Nuisance Litigation

As previously disclosed in our Transition Report on Form 10-K for the eight months ended December 29, 2013 and Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2014, 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.

As previously disclosed in our Transition Report on Form 10-K for the eight months ended December 29, 2013 and our Quarterly Reports on Form 10-Q for the quarterly periods ended March 30, 2014 and June 29, 2014, 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 were dismissed without prejudice in September and October 2014.

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.

In August, September and October 2014, 25 complaints were filed in the Eastern District of North Carolina by 515 individual plaintiffs against our wholly owned subsidiary, Murphy-Brown, alleging causes of action for nuisance and related claims.

The complaints relate to operations on approximately 10 company-owned and 56 contract farms.

All 25 complaints include causes of action for temporary nuisance and negligence and seek recovery of an unspecified amount of compensatory, special and punitive damages, as well as unspecified injunctive and equitable relief.

A single complaint also includes a cause of action for trespass.

Murphy-Brown is in the process of responding to the complaints in all 25 cases.

All 25 complaints stem from the nuisance cases previously filed in the Superior Court of Wake County;

approximately 263 of the 515 plaintiffs had claims pending in those cases.

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

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.

2 unchanged sentences

However, legal expenses incurred in our and our subsidiaries’ defense of these claims and any payments made to plaintiffs through unfavorable verdicts or otherwise will negatively impact our cash flows and our liquidity position.

Given that this matter is in its very preliminary stages and given the inherent uncertainty of the outcome for these and similar potential claims, we cannot estimate the reasonably possible loss or range of loss for these loss contingencies outside the expenses we will incur to defend against these claims.

Given that these matters are in the very preliminary stages and given the inherent uncertainty of the outcome for these and similar potential claims, we cannot estimate the reasonably possible loss or range of loss for these loss contingencies outside the expenses we will incur to defend against these claims.

We will continue to review whether an additional accrual is necessary and whether we have the ability to estimate the reasonably possible loss or range of loss for these matters.

13 unchanged sentences

As such, beginning with the second quarter of 2014, our reportable segments are:

Fresh Pork, Packaged Meats, Hog Production,

International and Corporate.

Fresh Pork, Packaged Meats, Hog Production, International and Corporate.

The changes to our reportable segments have been applied retrospectively for all periods presented.

9 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

16 unchanged sentences

Consolidated operating profit

In connection with the Merger and the resulting new accounting basis, we recognized $1.7 billion of goodwill, which reflects the amount of the total consideration paid by WH Group that exceeded the fair value of the identifiable assets acquired, liabilities assumed and noncontrolling interests, including the impact of immaterial measurement period adjustments.

The following represents our allocation of goodwill to our reportable segments as of the Merger Date:

Packaged Meats

International

Hog Production

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