What changed in this filing

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Item 1. Financial Statements

2015-10-28 compared with 2015-08-12 · 116 added, 61 removed, 444 unchanged (29% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

Cost of sales

11 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Hedge accounting

Total other comprehensive income (loss)

Total other comprehensive loss

Comprehensive income

3 unchanged sentences

(in millions, except share data)

September 27,

Current assets:

29 unchanged sentences

(in millions and unaudited)

Six Months Ended

Nine Months Ended

September 27,

September 28,

Cash flows from operating activities:

17 unchanged sentences

Payments on Securitization Facility

Net proceeds (payments) on revolving credit facilities

Net payments on revolving credit facilities

Payment of dividends

18 unchanged sentences

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

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 .

The three months ended September 27, 2015 correspond to the third quarter of 2015 and the three months ended September 28, 2014 correspond to the third quarter 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, 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.

3 unchanged sentences

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.

In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606):

Deferral of the Effective Date (ASU 2015-14) which defers the effective date by one year to fiscal year and interim periods within those years beginning after December 15, 2017.

Early adoption is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods.

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

5 unchanged sentences

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.

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.

As a result, debt issuance costs of approximately $12.1 million and $16.1 million are presented in long-term debt and capital lease obligations in the consolidated condensed balance sheets as of September 27, 2015 and December 28, 2014, respectively.

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

3 unchanged sentences

We elected to early adopt this new guidance for 2015.

In July 2015, the FASB issued Accounting Standards Update 2015-11, Inventory (Topic 330):

Simplifying the Measurement of Inventory (ASU 2015-11).

Topic 330 currently requires an entity to measure inventory at the lower of cost or market, with market value represented by replacement cost, net realizable value or net realizable value less a normal profit margin.

ASU 2015-11 requires an entity to measure inventory at the lower of cost or net realizable value.

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016 with early adoption permitted.

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

We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

Inventories consist of the following:

September 27,

(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 28, 2015 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

As of September 27, 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 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 .

As of September 27, 2015 , we had no significant credit exposure on non-exchange traded derivative contracts.

No significant concentrations of credit risk existed as of September 27, 2015 .

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 27,

(in millions)

16 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.

June 28, 2015

September 27, 2015

Gross Amount of Derivative Assets/ Liabilities

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

As of September 27, 2015 , we had no cash flow hedges for forecasted transactions beyond December 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.

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 28, 2015 , 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 27, 2015 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

1,006,440,000

11 unchanged sentences

Three Months Ended

September 27,

September 28,

September 27,

September 28,

September 27,

September 28,

(in millions)

6 unchanged sentences

Foreign exchange contracts

Six Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

September 27,

September 28,

(in millions)

8 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 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.

As of September 27, 2015 , there were deferred net losses of $10.0 million , net of tax of $6.5 million , in accumulated other comprehensive income (loss).

We expect to reclassify $4.4 million ( $2.7 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 28, 2015 , 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 27, 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:

3 unchanged sentences

Three Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

1 unchanged sentence

Commodity contracts

Six Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

1 unchanged sentence

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 .

We recognized gains of $0.5 million and $0.7 million for the three months ended September 27, 2015 and September 28, 2014 , respectively, and gains of $1.4 million and $0.7 million for the nine months ended September 27, 2015 and September 28, 2014 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

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 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:

During the nine months ended September 27, 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

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

5 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:

Equity Investment

September 27,

(in millions)

1 unchanged sentence

Total investments

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.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Equity Investment

September 27,

September 28,

September 27,

September 28,

(in millions)

6 unchanged sentences

Working Capital Facilities

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 of September 27, 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 $175.2 million .

As of September 27, 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 June 28, 2015 , the SPV held $527.9 million of accounts receivable.

As of September 27, 2015 , the SPV held $503.2 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.

It also includes 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.

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

As of September 27, 2015 , we continued to guarantee $6.9 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

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

10 unchanged sentences

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.

Net periodic pension cost is expected to be $8.5 million for the remainder of 2015.

Other Comprehensive Income (Loss)

1 unchanged sentence

Three Months Ended

June 28, 2015

June 29, 2014

September 27, 2015

September 28, 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

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

Hedge accounting:

Gains (losses) arising during the period

Losses arising during the period

(Gains) losses reclassified to sales

1 unchanged sentence

(Gains) losses reclassified to SG&A

Total other comprehensive income

Six Months Ended

June 28, 2015

June 29, 2014

Total other comprehensive loss

Nine Months Ended

September 27, 2015

September 28, 2014

(in millions)

11 unchanged sentences

(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.

Total other comprehensive loss

We paid a $30.0 million dividend during the second quarter of 2015 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 June 28, 2015 and December 28, 2014 :

June 28, 2015

September 27, 2015

December 28, 2014

18 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 28, 2015 , 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 27, 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 June 28, 2015 and December 28, 2014 .

June 28, 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 September 27, 2015 and December 28, 2014 .

September 27, 2015

December 28, 2014

13 unchanged sentences

On February 23, 2015, all 25 complaints were amended and one complaint was severed into two separate actions.

On July 31, 2015, plaintiffs again amended all 26 complaints.

Ten plaintiffs dismissed their claims without prejudice.

The 26 currently pending complaints were filed on behalf of 531 plaintiffs and relate to approximately 14 company-owned and 75 contract farms.

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.

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.

Murphy-Brown filed its answers and affirmative defenses to all 26 complaints on August 31, 2015, and the parties are engaging in discovery.

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

19 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

17 unchanged sentences

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