What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2015-08-12 compared with 2015-04-29 · 142 added, 69 removed, 363 unchanged (37% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Cost of sales

11 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Hedge accounting

Total other comprehensive loss

Comprehensive income (loss)

Total other comprehensive income (loss)

Comprehensive income

See Notes to Consolidated Condensed Financial Statements

16 unchanged sentences

Long-term debt and capital lease obligations

Net long-term pension liability

Other liabilities

14 unchanged sentences

(in millions and unaudited)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Stock-based compensation expense

Income from equity method investments

2 unchanged sentences

Cash flows from investing activities:

Proceeds from sale of equity interest in CFG

Capital expenditures

Business acquisitions

Net proceeds (expenditures) from breeding stock transactions

Proceeds from the sale of property, plant and equipment

Advance note and other

Net cash flows from investing activities

5 unchanged sentences

Net proceeds (payments) on revolving credit facilities

Payment of dividends

Net cash flows from financing activities

17 unchanged sentences

Certain prior year amounts have been reclassified to conform to current year presentation.

The three months ended March 29, 2015 correspond to the first quarter of 2015 and the three months ended March 30, 2014 correspond to the first quarter of 2014 .

The three and six months ended June 28, 2015 correspond to the second quarter and first half of 2015 and the three and six months ended June 29, 2014 correspond to the second quarter and first half of 2014 .

Recently Issued Accounting Pronouncements

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

In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) issued Accounting Standards Update 2014-09, Revenue 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.

7 unchanged sentences

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30):

Simplifying the Presentation of Debt Issuance Cost (ASU 2015-03).

Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03).

The standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct reduction of the carrying amount of that debt liability, consistent with debt discounts.

1 unchanged sentence

We elected to early adopt this new guidance effective for the first quarter of 2015 and have applied the changes retrospectively to all periods presented.

Debt issuance costs, which we previously presented in Other assets in our Consolidated Condensed Balance Sheets, were approximately $13.8 million and $16.1 million as of March 29, 2015 and December 28, 2014, respectively.

As a result, debt issuance costs of approximately $12.9 million and $16.1 million are presented in long-term debt and capital lease obligations in the consolidated condensed balance sheets as of June 28, 2015 and December 28, 2014, respectively.

In May 2015, the FASB issued Accounting Standards Update 2015-07, Fair Value Measurement (Topic 820):

Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (ASU 2015-07).

The standard removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient.

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015 with early adoption permitted.

We elected to early adopt this new guidance for 2015.

Inventories consist of the following:

18 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 March 29, 2015 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

As of June 28, 2015 , 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 March 29, 2015 , we had no significant credit exposure on non-exchange traded derivative contracts.

No significant concentrations of credit risk existed as of March 29, 2015 .

As of June 28, 2015 , we had no significant credit exposure on non-exchange traded derivative contracts.

No significant concentrations of credit risk existed as of June 28, 2015 .

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

6 unchanged sentences

Livestock contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

10 unchanged sentences

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 29, 2015

June 28, 2015

Gross Amount of Derivative Assets/ Liabilities

2 unchanged sentences

Cash Collateral

Net Amount Presented in the Condensed Consolidated Balance Sheet

Net Amount Presented in the Consolidated Condensed Balance Sheet

(in millions)

Interest rate swaps

Foreign exchange contracts

Interest rate contracts

Foreign exchange contracts

4 unchanged sentences

Cash Collateral

Net Amount Presented in the Condensed Consolidated Balance Sheet

Net Amount Presented in the Consolidated Condensed Balance Sheet

(in millions)

Foreign exchange contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

4 unchanged sentences

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

As of March 29, 2015 , we had no cash flow hedges for forecasted transactions beyond June 2016 .

As of June 28, 2015 , we had no cash flow hedges for forecasted transactions beyond June 2016 .

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.

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.

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 sales 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 three months ended March 29, 2015 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

During the six months ended June 28, 2015 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

1,006,440,000

6 unchanged sentences

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

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

8 unchanged sentences

Lean hog contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

Six Months Ended

(in millions)

Commodity contracts:

Grain contracts

Lean hog contracts

Interest rate swaps

Foreign exchange contracts

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 March 29, 2015 , there were deferred net losses of $51.0 million , net of tax of $32.9 million , in accumulated other comprehensive income (loss).

We expect to reclassify $106.5 million ( $65.1 million net of tax) of deferred net losses on closed commodity contracts into earnings within the next twelve months.

As of June 28, 2015 , there were deferred net gains of $17.6 million , net of tax of $10.9 million , in accumulated other comprehensive income (loss).

We expect to reclassify $37.2 million ( $22.7 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.

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 three months ended March 29, 2015 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

During the six months ended June 28, 2015 , 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:

6 unchanged sentences

Commodity contracts

We recognized gains of $1.0 million and $0.1 million for the three months ended March 29, 2015 and March 30, 2014 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

Six Months Ended

(in millions)

Commodity contracts

We recognized losses of $0.1 million for the three months ended June 29, 2014 and gains of $0.9 million for the six months ended June 28, 2015 on closed commodity derivative contracts as the underlying cash transactions affected earnings.

There were no similar gains or losses recognized for the three months ended June 28, 2015 nor the six months ended June 29, 2014 .

Mark-to-Market Method

1 unchanged sentence

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 March 29, 2015 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

During the six months ended June 28, 2015 , 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

(in millions)

Commodity contracts

3 unchanged sentences

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

In June 2015, we sold our entire equity interest in Campofrío Food Group (CFG) to Alfa S.A.B.

(Alfa) for $354.0 million in cash.

As of the date of the sale, the book value of our investment in CFG was $298.7 million .

Additionally, we had $54.6 million of unrealized currency translation losses on our balance sheet related to our investment in CFG.

As a result of the sale, we recognized a pre-tax gain of $0.7 million in non-operating (gain) loss in our consolidated condensed statements of income.

Investments consist of the following:

1 unchanged sentence

(in millions)

Campofrío Food Group (CFG)

Mexican joint ventures

4 unchanged sentences

Three Months Ended

Six Months Ended

Equity Investment

(in millions)

International

4 unchanged sentences

Working Capital Facilities

As of March 29, 2015 , we had aggregate credit facilities totaling $1.5 billion , including an inventory-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $325.0 million (the Securitization Facility) and international credit facilities totaling $173.8 million .

As of March 29, 2015 , our unused capacity under these credit facilities was $1.2 billion .

As of June 28, 2015 , we had aggregate credit facilities totaling $1.5 billion , including an asset-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $325.0 million (the Securitization Facility) and international credit facilities totaling $176.0 million .

As of June 28, 2015 , our unused capacity under these credit facilities was $1.4 billion .

As part of the Securitization Facility agreement, all accounts receivable of our major Fresh Pork and Packaged Meats 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 March 29, 2015 , the SPV held $529.6 million of accounts receivable.

See Note 12—Subsequent Events for additional information related to our working capital facilities subsequent to March 29, 2015 .

As of June 28, 2015 , the SPV held $527.9 million of accounts receivable.

In April 2015, we entered into a new $1.025 billion asset-based revolving credit facility agreement (the Inventory Revolver Credit Agreement) which replaced our previous $1.025 billion senior secured revolving credit facility which would have matured in June 2016.

The Inventory Revolver Credit Agreement provides for an option, subject to obtaining additional loan commitments and certain other conditions, to increase the available commitments by up to $375 million in the future.

It also provides for a multicurrency subfacility for Canadian Dollars, Japanese Yen, Euros, British Pounds Sterling and U.S.

Dollars of up to the foreign currency equivalent of $100 million , a subfacility of up to $50 million for swingline borrowings and a subfacility of up to $150 million for issuances of letters of credit.

Availability under the Inventory Revolver Credit Agreement is based upon borrowing base valuations of our U.S.

inventory, live sows and certain accounts receivable.

The Inventory Revolver Credit Agreement is scheduled to mature on May 1, 2020.

Loans under the Inventory Revolver Credit Agreement bear interest at LIBOR plus a margin ranging from 1.75% to 2.75% per annum, or, at our election, at a base rate plus a margin ranging from 0.75% to 1.75% per annum, with either such margin varying according to the ratio of our consolidated funded debt to consolidated EBITDA.

Letters of credit issued under the Inventory Revolver Credit Agreement accrue fees at a rate equal to the applicable margin for LIBOR loans.

In addition, we are required to pay a commitment fee for the average daily unused commitments under the Inventory Revolver Credit Agreement, at rates ranging from 0.30% to 0.50% per annum depending on the ratio of our consolidated funded debt to consolidated EBITDA.

The obligations under the Inventory Revolver Credit Agreement are guaranteed by substantially all of our U.S.

subsidiaries and are secured by a first-priority lien, subject to permitted liens and exceptions for excluded assets, on substantially all of our and our subsidiary guarantors' personal property, including accounts receivable (other than those sold and financed pursuant to the Securitization Facility), inventory, cash and cash equivalents, deposit accounts, intercompany notes, intellectual property and certain capital stock and interests pledged by us and our subsidiary guarantors, and all proceeds thereof.

The Inventory Revolver Credit Agreement contains affirmative and negative covenants that, among other things, limit or restrict our ability and the ability of our subsidiaries to create liens and encumbrances;

make capital expenditures;

make acquisitions and investments;

dispose of or transfer assets;

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

in each case, subject to certain qualifications and exceptions.

In addition, the Inventory Revolver Credit Agreement contains financial covenants requiring us to maintain a total consolidated leverage ratio (ratio of consolidated funded debt to consolidated capitalization) of, subject to certain exceptions, not more than 0.50 to 1.0, a minimum interest coverage ratio (ratio of consolidated EBITDA to consolidated interest expense) of not less than 2.50 to 1.0 and limitations on capital expenditures.

The Inventory Revolver Credit Agreement also includes usual and customary events of default for facilities of this nature, and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the facility may be accelerated, the lenders’ commitments may be terminated and the lenders may foreclose upon the collateral.

In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the facility will automatically become due and payable and the lenders’ commitments will automatically terminate.

Rabobank Term Loan

In May 2015, we refinanced the Rabobank Term Loan and extended its maturity date from May 1, 2018 to May 1, 2020.

After the refinancing, the total capacity of the Rabobank term loan was $150 million , with $50 million outstanding.

We may draw the additional $100 million until April 15, 2016.

We may elect to prepay the loan at any time, subject to the payment of certain prepayment fees in respect of any voluntary prepayment prior to April 15, 2017 and other customary breakage costs.

Interest accrues, at our option, at LIBOR plus 3.25% .

In January 2015, we commenced a cash tender offer for our 7.75% senior unsecured notes due July 2017, 5.25% senior unsecured notes due August 2018, 5.875% senior unsecured notes due August 2021 and 6.625% senior unsecured notes due August 2022, subject to a maximum aggregate purchase price up to $275.0 million (2015 Tender Offer).

The 2015 Tender Offer expired in February 2015.

As a result of the 2015 Tender Offer, we paid $275.0 million to repurchase $258.1 million of principal and recognized losses on debt extinguishment of $12.8 million , including the write-off of related unamortized premiums and debt issuance costs.

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

As a result of the 2015 Tender Offer, we paid $275.0 million to repurchase $258.1 million of principal and recognized losses on debt extinguishment of $12.8 million in non-operating (gain) loss in the consolidated condensed income statement, including the write-off of related unamortized premiums and debt issuance costs.

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

These arrangements involve elements of performance and credit risk that are not included in the consolidated condensed balance sheets.

We could become liable in connection with these obligations depending on the performance of the guaranteed party or the occurrence of future events that we are unable to predict.

We could become liable in connection with these obligations depending on the performance of the primary obligor or the occurrence of future events that we are unable to predict.

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 March 29, 2015 , we continued to guarantee $7.4 million of leases that were transferred to JBS S.A.

As of June 28, 2015 , we continued to guarantee $7.2 million of leases that were transferred to JBS S.A.

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

3 unchanged sentences

Three Months Ended

Six Months Ended

(in millions)

Interest cost

2 unchanged sentences

Net periodic pension cost

Remeasurement of Qualified Pension Plans

In June 2015, we made a $200.0 million voluntary contribution to fund our qualified pension plans.

We also elected to perform an interim remeasurement of our plan obligations and assets as of June 26, 2015.

The discount rate used to determine the pension obligation was 4.8% .

All other actuarial assumptions used for the remeasurement were consistent with those used at the end of 2014.

The remeasurement resulted in a decrease to the pension obligation of $76.1 million with a corresponding decrease to accumulated other comprehensive loss, net of tax.

Net periodic pension cost is expected to be $17.1 million for the second half of 2015.

Other Comprehensive Income (Loss)

1 unchanged sentence

Three Months Ended

March 29, 2015

March 30, 2014

June 28, 2015

June 29, 2014

(in millions)

1 unchanged sentence

Translation adjustment arising during the period

Translation losses reclassified to non-operating (gain) loss

Pension accounting:

Actuarial gain

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

3 unchanged sentences

(Gains) losses reclassified to sales

Losses reclassified to cost of sales

(Gains) losses reclassified to cost of sales

(Gains) losses reclassified to SG&A

Total other comprehensive loss

Total other comprehensive income

Six Months Ended

June 28, 2015

June 29, 2014

(in millions)

Foreign currency translation:

Translation adjustment arising during the period

Translation losses reclassified to non-operating (gain) loss

Pension accounting:

Actuarial gain

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) losses reclassified to sales

(Gains) losses reclassified to cost of sales

(Gains) losses reclassified to SG&A

Total other comprehensive income (loss)

We paid a $30.0 million dividend during the current quarter to our parent company, recorded as a reduction to retained earnings.

FAIR VALUE MEASUREMENTS

18 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 financial assets and liabilities, including assets held in a rabbi trust used to fund our non-qualified defined benefit plan, that were measured at fair value on a recurring basis as of March 29, 2015 and December 28, 2014 :

March 29, 2015

June 28, 2015

December 28, 2014

2 unchanged sentences

Commodity contracts

Interest rate swaps

Foreign exchange contracts

13 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 March 29, 2015 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

During the six months ended June 28, 2015 , 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 March 29, 2015 and December 28, 2014 .

March 29, 2015

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 28, 2015 and December 28, 2014 .

June 28, 2015

December 28, 2014

15 unchanged sentences

All 26 complaints include causes of action for temporary nuisance and negligence and seek recovery of an unspecified amount of compensatory, special and punitive damages.

Murphy-Brown is in the process of responding to the complaints in all 26 cases.

On June 29, 2015, the Court granted Murphy-Brown's motion to strike certain allegations in the complaints, and plaintiffs are in the process of amending all 26 complaints pursuant to the Court's order.

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

15 unchanged sentences

hog production operations.

The International segment is comprised mainly of our meat processing and distribution operations in Poland, Romania and the United Kingdom, our interests in meat processing operations, mainly in Western Europe and Mexico, our hog production operations located in Poland and Romania and our interests in hog production operations in Mexico.

The International segment is comprised mainly of our meat processing and distribution operations in Poland, Romania and the United Kingdom, our interests in meat processing operations in Mexico, our hog production operations located in Poland and Romania, our interests in hog production operations in Mexico, and our former investment in CFG.

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

1 unchanged sentence

Three Months Ended

Six Months Ended

(in millions)

Segment sales—

4 unchanged sentences

Intersegment sales—

Packaged Meats

Hog Production

7 unchanged sentences

Consolidated operating profit

SUBESEQUENT EVENTS

Debt Refinancing

In April 2015, we entered into a new $1.025 billion asset-based revolving credit facility agreement (the Inventory Revolver Credit Agreement) which replaced our previous $1.025 billion U.S.

senior secured revolving credit facility which would have matured in June 2016.

The Inventory Revolver Credit Agreement provides for an option, subject to obtaining additional loan commitments and certain other conditions, to increase the available U.S.

Dollar commitments by up to $375 million in the future.

It also provides for a foreign currency subfacility for Canadian Dollars, Japanese Yen, Euros and British Pounds Sterling of up to the foreign currency equivalent of $100 million, a subfacility of up to $50 million for swingline borrowings and a subfacility of up to $150 million for issuances of letters of credit.

Availability under the Inventory Revolver Credit Agreement will be based upon borrowing base valuations of the Company's domestic inventory, live sows and certain accounts receivable.

The Inventory Revolver Credit Agreement is scheduled to mature on May 1, 2020.

Loans under the Inventory Revolver Credit Agreement bear interest at LIBOR plus a margin ranging from 1.75% to 2.75% per annum, or, at the election of the Company, at a base rate plus a margin ranging from 0.75% to 1.75% per annum, with either such margin varying according to the ratio of the Company's consolidated funded debt to consolidated EBITDA.

Letters of credit issued under the Inventory Revolver Credit Agreement accrue fees at a rate equal to the applicable margin for LIBOR loans.

In addition, the Company is required to pay a commitment fee for the average daily unused commitments under the Inventory Revolver Credit Agreement, at rates ranging from 0.30% to 0.50% per annum depending on the ratio of the Company's consolidated funded debt to consolidated EBITDA.

The obligations under the Inventory Revolver Credit Agreement are guaranteed by substantially all domestic subsidiaries of the Company and are secured by a first-priority lien, subject to permitted liens and exceptions for excluded assets, on substantially all of the Company's and the subsidiary guarantors' accounts receivable (other than those sold and financed pursuant to the Securitization Facility), inventory, other personal property relating to such inventory and accounts receivable and all proceeds therefrom, cash and cash equivalents, deposit accounts, intercompany notes, intellectual property and certain capital stock and interests pledged by the Company and the subsidiary guarantors.

The Inventory Revolver Credit Agreement contains affirmative and negative covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to create liens and encumbrances;

make capital expenditures, make acquisitions and investments;

dispose of or transfer assets;

and pay dividends or make other payments in respect of the Company's capital stock;

in each case, subject to certain qualifications and exceptions.

In addition, the Inventory Revolver Credit Agreement contains financial covenants requiring the Company to maintain a total consolidated leverage ratio (ratio of consolidated funded debt to consolidated capitalization) of, subject to certain exceptions, not more than 0.50 to 1.0, a minimum interest coverage ratio (ratio of consolidated EBITDA to consolidated interest expense) of not less than 2.50 to 1.0 and limitations on capital expenditures.

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