What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2016-03-29 compared with 2015-03-25 · 329 added, 341 removed, 1377 unchanged (33% of the section changed)

2 unchanged sentences

Report of Independent Registered Public Accounting Firms on Consolidated Financial Statements

Consolidated Statements of Income - for the Year Ended December 28, 2014 (Successor), September 27, 2013 to December 29, 2013 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 and April 29, 2012 (Predecessor)

Consolidated Statements of Comprehensive Income - for the Year Ended December 28, 2014 (Successor), September 27, 2013 to December 29, 2013 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 and April 29, 2012 (Predecessor)

Consolidated Balance Sheets as of December 28, 2014 and December 29, 2013

Consolidated Statements of Cash Flows - for the Year Ended December 28, 2014 (Successor);

Consolidated Statements of Income - for the Year Ended January 3, 2016 and December 28, 2014 (Successor), September 27, 2013 to December 29, 2013 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 (Predecessor)

Consolidated Statements of Comprehensive Income - for the Year Ended January 3, 2016 and December 28, 2014 (Successor), September 27, 2013 to December 29, 2013 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 (Predecessor)

Consolidated Balance Sheets as of January 3, 2016 and December 28, 2014

Consolidated Statements of Cash Flows - for the Year Ended January 3, 2016 and December 28, 2014 (Successor);

September 27, 2013 to December 29, 2013 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 and April 29, 2012 (Predecessor)

Consolidated Statements of Shareholder's Equity - for the Year Ended December 28, 2014 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 (Predecessor)

Consolidated Statements of Shareholder's Equity - for the Year Ended January 3, 2016 and December 28, 2014 (Successor);

September 27, 2013 to December 29, 2013 (Successor);

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 and April 29, 2012 (Predecessor)

April 29, 2013 to September 26, 2013 (Predecessor) and for the Twelve Months Ended April 28, 2013 (Predecessor)

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Smithfield Foods Inc.

and subsidiaries (the "Company") as of December 28, 2014 and December 29, 2013 , and the related consolidated statements of income, comprehensive income, shareholder's equity, and cash flows for the year ended December 28, 2014 and the periods from September 27, 2013 to December 29, 2013 (Successor) and from April 29, 2013 to September 26, 2013 (Predecessor).

and subsidiaries (the "Company") as of January 3, 2016 and December 28, 2014 , and the related consolidated statements of income, comprehensive income, shareholder's equity, and cash flows for the year ended January 3, 2016 and December 28, 2014 and the periods from September 27, 2013 to December 29, 2013 (Successor) and from April 29, 2013 to September 26, 2013 (Predecessor).

Our audits also included the financial statement schedule listed in the Index at Item 15.

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In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Smithfield Foods Inc.

and subsidiaries as of December 28, 2014 and December 29, 2013, and the results of their operations and their cash flows for the year ended December 28, 2014 and the periods from September 27, 2013 to December 29, 2013 (Successor) and from April 29, 2013 to September 26, 2013 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries as of January 3, 2016 and December 28, 2014 , and the results of their operations and their cash flows for the year ended January 3, 2016 and December 28, 2014 and the periods from September 27, 2013 to December 29, 2013 (Successor) and from April 29, 2013 to September 26, 2013 (Predecessor), in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

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Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Cost of sales

14 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Other comprehensive income (loss):

Foreign currency translation:

Translation adjustment

Translation gain (loss)

Translation losses reclassified to non-operating (gain) loss

Tax benefit (expense)

1 unchanged sentence

Net actuarial gains (losses)

Prior Service Cost

Reclassification of losses into net income

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Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total shareholder's equity

8 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Cash flows from operating activities:

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Acquisition of Smithfield Foods, Inc.

Proceeds from sale of equity interest in CFG

Capital expenditures

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Net (expenditures) proceeds from breeding stock transactions

Construction of distribution center pending sale-leaseback

Proceeds from sale-leaseback of distribution center

Proceeds from sale of property, plant and equipment

1 unchanged sentence

Net cash flows from investing activities

See Notes to Consolidated Financial Statements

SMITHFIELD FOODS, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(in millions)

Twelve Months Ended

January 3, 2016

December 28, 2014

September 27 - December 29, 2013

April 29 - September 26, 2013

April 28, 2013

Cash flows from financing activities:

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Repurchase of common stock

Change in cash collateral

Payment of dividends

Debt issuance costs and other

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Noncontrolling Interests

Balance, May 1, 2011

Common stock repurchased

Issuance of common stock

Stock compensation expense

Purchase of stock for trust

Comprehensive income:

Net income (loss)

Other comprehensive income, net of tax

Balance, April 29, 2012

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Comprehensive income:

Net income (loss)

Other comprehensive loss, net of tax

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Balance, September 26, 2013

Balance, September 27, 2013

Adjustment to redeemable noncontrolling interests

Comprehensive income:

Other comprehensive income, net of tax

Balance, December 29, 2013

See Notes to Consolidated Financial Statements

8 unchanged sentences

Noncontrolling Interests

Balance, September 27, 2013

Adjustment to redeemable noncontrolling interests

Comprehensive income:

Other comprehensive income, net of tax

Balance, December 29, 2013

4 unchanged sentences

Balance, December 28, 2014

Stock compensation expense

Comprehensive income:

Net income (loss)

Other comprehensive loss, net of tax

Balance, January 3, 2016

See Notes to Consolidated Financial Statements

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

See Note 15 — 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 (Merger Sub), in a transaction hereinafter referred to as the Merger.

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The change became effective at the end of the period ended December 29, 2013.

Unless otherwise noted, all references to 2014 in this report are to the twelve months ended December 28, 2014 .

Unless otherwise noted, all references to "2015" and "2014" in this report are to the 53 week period ended January 3, 2016 and the 52 week period ended December 28, 2014 , respectively.

For comparative purposes, the Consolidated Statements of Income for the eight months ended December 29, 2013 and December 30, 2012 are presented as follows:

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Gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in selling, general and administrative expenses as incurred.

We recorded net losses on foreign currency transactions of $4.0 million in 2014, net gains of $0.2 million , $0.3 million and $1.1 million in the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively, and net losses of $7.4 million in the twelve months ended April 29, 2012 .

We recorded net losses on foreign currency transactions of $3.3 million and $4.0 million in 2015 and 2014 , respectively, and net gains of $0.2 million , $0.3 million and $1.1 million in the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

Our Polish operations have different fiscal period end dates.

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Based on our evaluation, we record reserves to reduce the related receivables to amounts we reasonably believe are collectible.

Our reserve for uncollectible accounts receivable was $7.5 million and $3.2 million as of December 28, 2014 and December 29, 2013 , respectively.

Our reserve for uncollectible accounts receivable was $6.6 million and $7.5 million as of January 3, 2016 and December 28, 2014 , respectively.

Inventories consist of the following:

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The depreciation of assets held under capital leases is included in depreciation expense.

The cost of assets held under capital leases was $28.5 million and $28.6 million at December 28, 2014 and December 29, 2013 , respectively.

The assets held under capital leases had accumulated depreciation of $1.2 million and $0.6 million at December 28, 2014 and December 29, 2013 , respectively.

The cost of assets held under capital leases was $30.0 million and $28.5 million at January 3, 2016 and December 28, 2014 , respectively.

The assets held under capital leases had accumulated depreciation of $2.4 million and $1.2 million at January 3, 2016 and December 28, 2014 , respectively.

Depreciation expense is included in either cost of sales or selling, general and administrative (SG&A) expenses, as appropriate.

Depreciation expense totaled $223.7 million , $53.7 million , $104.8 million , $235.3 million and $238.6 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Interest is capitalized on property, plant and equipment over the construction period.

Total interest capitalized was $1.1 million , $0.4 million , $0.7 million , $4.8 million and $2.8 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Depreciation expense totaled $226.8 million , $223.7 million , $53.7 million , $104.8 million and $235.3 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

During the construction period of significant assets, the associated interest costs are capitalized.

Total interest capitalized was $0.5 million , $1.1 million , $0.4 million , $0.7 million and $4.8 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

Property, plant and equipment, net, consists of the following:

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We have determined that no impairments of our intangible assets existed for any of the periods presented.

Amortization expense for intangible assets was $6.8 million , $1.7 million , $1.7 million , $3.1 million and $3.0 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

As of December 28, 2014 , the estimated amortization expense associated with our intangible assets for each of the next five years is expected to be $6.8 million .

Amortization expense for intangible assets was $7.0 million , $6.8 million , $1.7 million , $1.7 million and $3.1 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

As of January 3, 2016 , the estimated amortization expense associated with our intangible assets for each of the next five years is expected to be $7.0 million .

See Note 5 — Investments for our policy.

Debt Issuance Costs, Premiums and Discounts

Debt issuance costs, premiums and discounts are amortized into interest expense over the terms of the related loan agreements using the effective interest method or other methods which approximate the effective interest method.

See Note 5 — Investments for our policy.

Income taxes are accounted for under the asset and liability method.

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We recognize the funded status of our defined benefit pension plans in the consolidated balance sheets.

We measure our pension and other postretirement benefit plan obligations and related plan assets as of the last day of our year.

We measure our pension and other postretirement benefit plan obligations and related plan assets as of the month-end that is closest to our year-end.

The measurement of our pension obligations and related costs is dependent on the use of assumptions and estimates.

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Promotional sponsorship costs are expensed as the promotional events occur.

Advertising costs totaled $165.8 million , $48.0 million , $63.5 million , $143.1 million and $122.9 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively, and are included in SG&A.

Advertising costs totaled $211.4 million , $165.8 million , $48.0 million , $63.5 million and $143.1 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively, and are included in SG&A.

Shipping and Handling Costs

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Research and development costs are expensed as incurred.

Research and development costs totaled $75.3 million , $23.2 million , $31.9 million , $80.9 million and $75.9 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Research and development costs totaled $78.5 million , $75.3 million , $23.2 million , $31.9 million and $80.9 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

Recent Accounting Pronouncements

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 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 (Topic 606) (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.

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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.

The guidance permits companies to either apply the requirements retrospectively to all prior periods presented, or apply the requirements in the year of adoption, through a cumulative adjustment.

The guidance is not currently effective for us and has not been applied to our financial statements.

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-K.

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 effect our consolidated financial statements.

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

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.

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 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 $11.3 million and $16.1 million are presented in long-term debt and capital lease obligations in the consolidated condensed balance sheets as of January 3, 2016 and December 28, 2014 , respectively.

In April 2015, the FASB issued ASU 2015-04, Compensation – Retirement Benefits (Topic 715) ( ASU 2015-04).

For an entity with a fiscal year-end that does not coincide with a month-end, ASU 2015-4 provides a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end.

The practical expedient must be applied consistently from year to year and applied consistently to all plans.

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.

The new guidance does not have a material impact on our consolidated financial statements.

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.

The changes resulting from the adoption of ASU 2015-07, including revising the prior year presentation, are reflected within Note 12, Fair Value Measurements .

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.

We elected to early adopt this new guidance for 2015.

The new guidance does not have a material impact on our consolidated financial statements.

In November 2015, the FASB issued Accounting Standards Update 2015-17, Income Taxes (Topic 740):

Balance Sheet Classification of Deferred Taxes (ASU 2015-17).

The standard requires that deferred income tax liabilities and assets be classified as noncurrent in the balance sheet and eliminates prior guidance which required an entity to separate deferred tax liabilities and assets into a current amount and noncurrent amount in the balance sheet based on the classification of the related asset or liability.

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

We elected to early adopt this new guidance on a prospective basis and have applied the changes to all deferred tax liabilities and assets and to the consolidated condensed balance sheet as of January 3, 2016 .

We did not retrospectively apply the changes to prior periods.

MERGER AND ACQUISITIONS

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

The consolidated balance sheets, as of December 28, 2014 and December 29, 2013 , reflect various fair value estimates and analyses, including work performed by third-party valuation specialists.

The consolidated balance sheets, as of January 3, 2016 and December 28, 2014 , reflect various fair value estimates and analyses, including work performed by third-party valuation specialists.

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

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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 interests of $36.0 million .

Our initial estimate of the fair value of the noncontrolling interests 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 interests is classified outside of equity as redeemable noncontrolling interests in the consolidated condensed balance sheet.

Our initial estimate of the fair value of the noncontrolling interests 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 holders the right to exercise a put option at any time after the seventh anniversary of the acquisition, which would obligate us to redeem their interest.

The noncontrolling interests are classified in redeemable noncontrolling interests in the consolidated condensed balance sheet.

The redemption amount is the greater of $55.0 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 interests had been redeemable as of December 28, 2014 , the redemption amount would have been $45.0 million .

We have elected to accrete changes in the redemption amount of the noncontrolling interest over the seven year period until it becomes redeemable.

If the noncontrolling interests had been redeemable as of January 3, 2016 , the redemption amount would have been $55.0 million .

American Skin Food Group, LLC

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The redemption amount is based on a fixed multiple of earnings, which is consistent with the formula utilized in determining the purchase price for our 70% interest.

DISPOSAL OF LONG-LIVED ASSETS

Portsmouth, Virginia Plant

In November 2011, we announced that we would shift the production of hot dogs and lunchmeat from The Smithfield Packing Company, Inc.'s (Smithfield Packing) Portsmouth, Virginia plant to our Kinston, North Carolina plant and permanently close the Portsmouth facility.

The Kinston facility was expanded to handle the additional production and incorporates state of the art technology and equipment, which is expected to produce significant production efficiencies and cost reductions.

The expansion of the Kinston facility and the closure of the Portsmouth facility were completed in the second half of calendar year 2013.

As a result of this decision, we performed an impairment analysis of the related assets at the Portsmouth facility in the second quarter of the twelve months ended April 29, 2012 and determined that the net cash flows expected to be generated over the anticipated remaining useful life of the plant are sufficient to recover its book value.

As such, no impairment existed.

However, we revised depreciation estimates to reflect the use of the related assets at the Portsmouth facility over their shortened useful lives.

As a result, we recognized accelerated depreciation charges of $4.4 million and $3.3 million in cost of sales during the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Also, in connection with this decision, we wrote-down inventory by $0.8 million in cost of sales and accrued $0.6 million for employee severance in SG&A in the second quarter of the twelve months ended April 29, 2012 .

All of these charges are reflected in the Packaged Meats segment.

DISPOSAL OF ASSETS

In 2015, we sold our product label printing business in Kansas City for $1.65 million cash plus contingent consideration, which we valued at $11.9 million , and recognized a gain of $12.0 million in SG&A, reflected in the Packaged Meats segment.

DERIVATIVE FINANCIAL INSTRUMENTS

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.

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.

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

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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 December 28, 2014 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

As of January 3, 2016 , 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.

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

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

As of January 3, 2016 , we had no significant credit exposure on non-exchange traded derivative contracts.

No significant concentrations of credit risk existed as of January 3, 2016 .

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 balance sheets, as appropriate.

The following tables present the fair values of our open derivative financial instruments on a gross basis:

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

(in millions)

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Livestock contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

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

We offset the fair values of derivative assets and liabilities, along with the related cash collateral, that are executed with the same counter-party under these arrangements in the consolidated balance sheet.

We offset the fair values of derivative assets and liabilities, along with the related cash collateral, that are executed with the same counterparty under these arrangements in the consolidated balance sheet.

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

December 28, 2014

January 3, 2016

Gross Amount of Derivative Assets/ Liabilities

1 unchanged sentence

Net Derivative Assets/Liabilities

Cash Collateral

Netting of Derivative Assets/Liabilities and Cash Collateral

Net Amount Presented in the Consolidated Balance Sheet

1 unchanged sentence

Foreign exchange contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

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Net Derivative Assets/Liabilities

Cash Collateral

Netting of Derivative Assets/Liabilities and Cash Collateral

Net Amount Presented in the Consolidated Balance Sheet

1 unchanged sentence

Foreign exchange contracts

Interest rate swaps

Foreign exchange contracts

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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 December 28, 2014 , we had no cash flow hedges for forecasted transactions beyond March 2016 .

As of January 3, 2016 , we had no cash flow hedges for forecasted transactions beyond November 2019 .

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 SG&A expenses 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 swaps and sales and SG&A expenses 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.

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

Loss Recognized in Earnings on Derivative (Ineffective Portion)

Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion)

Twelve Months Ended

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Twelve Months Ended

January 3, 2016

December 28, 2014

September 27 - December 29, 2013

January 3, 2016

December 28, 2014

September 27 - December 29, 2013

January 3, 2016

December 28, 2014

6 unchanged sentences

Lean hog contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

7 unchanged sentences

April 28, 2013

April 29, 2012

April 29 - September 26, 2013

April 28, 2013

April 29, 2012

April 29 - September 26, 2013

April 28, 2013

April 29, 2012

(in millions)

Commodity contracts:

1 unchanged sentence

Lean hog contracts

Interest rate contracts

Interest rate swaps

Foreign exchange contracts

1 unchanged sentence

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

During the twelve months ended April 29, 2012 , we discontinued cash flow hedge accounting on certain grain contracts as it became probable that the original forecasted transactions would not transpire.

As a result of this change, the table above for the twelve months ended April 29, 2012 includes gains of $12.0 million on grain contracts de-designated from hedging relationships that were reclassified from accumulated other comprehensive income (loss) into earnings in the twelve months ended April 29, 2012 .

As of December 28, 2014 , there were deferred net gains of $26.4 million , net of tax of $17.1 million , in accumulated other comprehensive income (loss).

We expect to reclassify $1.9 million ( $1.2 million net of tax) of the deferred net gains on closed commodity contracts into earnings in 2015 .

We are unable to estimate the unrealized gains or losses to be reclassified into earnings in 2015 related to open contracts as their values are subject to change.

As of January 3, 2016 , there were deferred net losses of $20.4 million , net of tax of $12.4 million , in accumulated other comprehensive income (loss).

We expect to reclassify $10.1 million ( $6.2 million net of tax) of the deferred net losses on closed commodity contracts into earnings in 2016 .

We are unable to estimate the amount of unrealized gains or losses to be reclassified into earnings in 2016 related to open contracts as their values are subject to change.

Fair Value Hedges

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Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

1 unchanged sentence

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Includes losses of $7.5 million in the twelve months ended April 28, 2013 and gains of $5.1 million in the twelve months ended April 29, 2012 , representing differences between the spot and futures prices for fair value hedges of hog inventory, which are recorded directly into earnings as they occur.

There were no fair value hedges of hog inventory during 2014 nor during the three months ended December 29, 2013 nor during the five months ended September 26, 2013 and, therefore, no differences between spot and futures prices were recognized in those periods.

Includes losses of $7.5 million in the twelve months ended April 28, 2013 representing differences between the spot and futures prices for fair value hedges of hog inventory, which are recorded directly into earnings as they occur.

There were no fair value hedges of hog inventory during 2015 , 2014 , the three months ended December 29, 2013 nor the five months ended September 26, 2013 and, therefore, no differences between spot and futures prices were recognized in those periods.

Gain (Loss) Recognized in Earnings on Related Hedged Item

1 unchanged sentence

Twelve Months Ended

January 3, 2016

December 28, 2014

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April 28, 2013

April 29, 2012

(in millions)

Commodity contracts

We recognized gains of $2.8 million and $4.1 million in 2014 and the five months ended September 26, 2013 , losses of $2.5 million in the twelve months ended April 28, 2013 and gains of $6.0 million in twelve months ended April 29, 2012 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

We recognized gains of $2.5 million , $2.8 million and $4.1 million in 2015 , 2014 and the five months ended September 26, 2013 and losses of $2.5 million in the twelve months ended April 28, 2013 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

Mark-to-Market Method

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Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

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Total investments

——————————————

Beginning in June 2014, our investment in CFG is through our interest in Sigma & WH Europe, as described below.

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

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Effective September 19, 2014, CFG's common stock ceased to trade on the Madrid Exchange.

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

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

In June 2015, we sold our entire equity interest in 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.

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

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Equity Investment

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

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(Income) loss from equity method investments

In December 2011, the board of CFG approved a multi-year plan to consolidate and streamline its manufacturing operations to improve operating efficiencies and increase utilization (the CFG Consolidation Plan ).

The CFG Consolidation Plan includes the disposal of certain assets, employee redundancy costs and the contribution of CFG's French cooked ham business into a newly formed joint venture.

As a result, we recorded our share of CFG's charges totaling $38.7 million in (income) loss from equity method investments within the International segment in the twelve months ended April 29, 2012.

The following summarized financial information for Sigma & WH Europe is based on its financial statements and translated into U.S.

Twelve Months Ended

December 28, 2014

April 29 - December 29, 2013

April 28, 2013

April 29, 2012

(in millions)

Income statement information:

Net income (loss)

(in millions)

Balance sheet information:

Current assets

Long-term assets

Current liabilities

Long-term liabilities

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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Customer incentives and marketing

Derivative instruments and broker deposits

Insurance reserves

Accrued interest

Derivative instruments and broker deposits

Total accrued expenses and other current liabilities

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7.75% senior unsecured notes, due July 2017, including unamortized premiums of $20.6 million and $38.1 million

5.25% senior unsecured notes, due August 2018

5.875% senior unsecured notes, due August 2021

5.25% senior unsecured notes, due August 2018, net of debt issuance costs of $5.4 million and $8.3 million

5.875% senior unsecured notes, due August 2021, net of debt issuance costs of $5.7 million and $7.6 million

Floating rate senior unsecured term loan, due May 2020

Inventory Revolver, LIBOR plus 2.75%

Securitization Facility, the lender's cost of funds of 0.30% plus 1.05%

Various, interest rates from 0.0% to 3.13%, due January 2015 through March 2019

Various, interest rates from 2.45% to 2.76%, due February 2016 through March 2019

Current portion

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The unamortized amount of transaction fees incurred in connection with the issuance of the 2022 Notes was written off when we performed the allocation of the total purchase consideration to the assets and liabilities assumed by WH Group in the Merger.

On July 31, 2013, Merger Sub issued 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.

The proceeds were used in part to repay the outstanding $200.0 million due on our Bank of America Term Loan.

See Note 2 — Merger and Acquisitions for further information on the Merger Sub Notes.

Debt Extinguishments

During the twelve months ended April 29, 2012, we redeemed the remaining $77.8 million of our 7% senior unsecured notes due August 2011.

2013 Notes and 2014 Notes

During the twelve months ended April 29, 2012, we repurchased $59.7 million of our 10% senior secured notes due July (2014 Notes) for $68.3 million and recognized losses on debt extinguishment of $11.0 million , including the write-off of related unamortized discounts and debt costs.

In conjunction with the issuance of the 2022 Notes in July 2012, we commenced a tender offer to purchase any and all of our outstanding 7.75% senior unsecured notes due May 2013 (2013 Notes) and any and all of our outstanding 2014 Notes (the July 2012 Tender Offer).

The July 2012 Tender Offer expired in August 2012.

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As a result of these repurchases, we recognized losses on debt extinguishment totaling $120.7 million in the twelve months ended April 28, 2013, including the write-off of related unamortized discounts, premiums and debt issuance costs.

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

In May 2013, we repaid the remaining outstanding principal amount on 2013 Notes totaling $55.0 million .

2017 Notes and 2022 Notes

During the three months ended December 29, 2013 , we repurchased $15.6 million and $0.4 million of our 2017 Notes and 2022 Notes, respectively, for $18.1 million and recognized losses on debt extinguishment of $1.7 million .

On July 31, 2013, Merger Sub issued the Merger Sub Notes as part of the financing for the acquisition of the Company.

The proceeds were used in part to repay the outstanding $200.0 million due on our Bank of America Term Loan.

See Note 2 — Merger and Acquisitions for further information on the Merger Sub Notes.

2017 Notes, 2018 Notes, 2021 Notes and 2022 Notes

In January 2015, we commenced a cash tender offer for our 2017 Notes, 5.25% senior unsecured notes due August 2018 (2018 Notes), 5.875% senior unsecured notes due August 2021 (2021 Notes) and 2022 Notes, subject to a maximum aggregate purchase price of 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 $258.0 million of principal.

As a result of these repurchases, we recognized losses on debt extinguishment of $12.8 million in 2015, including the write-off of related unamortized premiums and debt issuance costs.

Working Capital Facilities

As of January 3, 2016 , we had aggregate credit facilities and credit lines totaling $1.5 billion .

Our unused capacity under these credit facilities and credit lines was $1.4 billion .

These facilities and lines are generally at prevailing market rates.

We pay commitment fees on the unused portion of the facilities.

Average borrowings under credit facilities and credit lines were $80.1 million , $443.2 million , $541.7 million , $349.4 million and $105.4 million at average interest rates of 2.0% , 3.0% , 3.0% , 3.0% and 5.2% during 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

Maximum borrowings were $377.8 million , $946.7 million , $759.3 million , $719.3 million and $229.9 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

Total outstanding borrowings were $38.8 million as of January 3, 2016 and $50.1 million as of December 28, 2014 with average interest rates of 2.4% and 3.0% , respectively.

In June 2011, we refinanced our asset-based revolving credit agreement totaling $1.0 billion that supported short-term funding needs and letters of credit (the ABL Credit Facility) into two separate facilities:

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We may request working capital loans and letters of credit under both facilities.

As a result of the refinancing, we recognized a loss on debt extinguishment of $1.2 million in the first quarter of the twelve months ended April 29, 2012 for the write-off of unamortized debt issuance costs associated with the ABL Credit Facility.

In January 2013, we partially exercised the accordion feature of our Second Amended and Restated Credit Agreement and increased the borrowing capacity of the Inventory Revolver from a total of $925.0 million to a total of $1.025 billion .

All other terms and conditions of the Inventory Revolver were unchanged, including the limitation on the actual amount of credit that is available from time to time under the Inventory Revolver as a result of borrowing base valuations of our inventory, accounts receivable and certain cash balances.

We have the right to further exercise the accordion feature and increase its total revolving commitment by an additional aggregate amount not to exceed $200.0 million, to the extent that any one or more new or existing lenders commit to being a lender for the additional amount and certain other customary conditions are met.

Availability under the Inventory Revolver is a function of the level of eligible inventories, subject to reserves.

The Inventory Revolver matures in June 2016.

The unused commitment fee and the interest rate spreads are a function of our leverage ratio (as defined in the Second Amended and Restated Credit Agreement).

As of December 28, 2014 , the unused commitment fee rate and interest rate were 0.50% and LIBOR plus 2.75% , respectively.

The Inventory Revolver includes financial covenants.

The ratio of our funded debt to capitalization (as defined in the Second Amended and Restated Credit Agreement) may not exceed 0.5 to 1.0, and our EBITDA to interest expense ratio (as defined in the Second Amended and Restated Credit Agreement) may not be less than 2.5 to 1.0.

We and our material U.S.

subsidiaries are jointly and severally liable for, as primary obligors, the obligations under the Inventory Revolver, and those obligations are secured by a first priority lien on certain personal property, including cash and cash equivalents, deposit accounts, inventory, intellectual property, and certain equity interests.

We incurred approximately $9.7 million in transaction fees in connection with the Inventory Revolver, which were being amortized over its five-year life.

The unamortized amount of transaction fees incurred in connection with the Inventory Revolver was written off when we performed the allocation of the total purchase consideration to the assets and liabilities assumed by WH Group in the Merger.

In April 2015, we entered into a new $1.025 billion asset-based revolving credit facility agreement (the Inventory Revolver Credit Agreement) which replaced the Inventory Revolver 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 $375.0 million in the future.

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 $100.0 million , a subfacility of up to $50.0 million for swingline borrowings and a subfacility of up to $150.0 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.

In December 2014, we amended our Securitization Facility and increased the borrowing capacity from a total of $275.0 million to a total of $325.0 million .

As a result of the amended agreement, our maturity date was extended from May 2016 to December 2017, the interest rate spread was decreased from 1.15% to 1.05% and the unused commitment fee decreased from 0.45% to 0.40% .

As part of the arrangement, all accounts receivable of our major Fresh Pork and Packaged Meats subsidiaries are sold to a wholly owned “bankruptcy remote” special purpose vehicle (SPV).

As part of the Securitization Facility, all accounts receivable of our major Fresh Pork and Packaged Meats subsidiaries are sold to a wholly owned “bankruptcy remote” special purpose vehicle (SPV).

The SPV pledges the receivables as security for loans and letters of credit.

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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 December 28, 2014 , th e SPV held $660.5 million of accounts receivable and we had no outstanding borrowings on the Securitization Facility.

The unused commitment fee rate and the interest rate under the Securitization Facility were 0.40% and 0.30% plus 1.05% as of December 28, 2014 , respectively.

As of January 3, 2016 , th e SPV held $626.7 million of accounts receivable and we had no outstanding borrowings on the Securitization Facility.

We incurred approximately $1.3 million in transaction fees in connection with the financing of the Securitization Facility in 2011, which were being amortized over its original three-year life.

The unamortized amount of transaction fees incurred in connection with the Securitization Facility was written off when we performed the allocation of the total purchase consideration to the assets and liabilities assumed by WH Group in the Merger.

As of December 28, 2014 , we had aggregate credit facilities and credit lines totaling $1.5 billion .

Our unused capacity under these credit facilities and credit lines was $1.3 billion .

These facilities and lines are generally at prevailing market rates.

We pay commitment fees on the unused portion of the facilities.

Average borrowings under credit facilities and credit lines were $443.2 million , $541.7 million , $349.4 million , $105.4 million and $99.8 million at average interest rates of 3.0% , 3.0% , 3.0% , 5.2% and 4.9% during 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Maximum borrowings were $946.7 million , $759.3 million , $719.3 million , $229.9 million and $245.3 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Total outstanding borrowings were $50.1 million as of December 28, 2014 and $314.1 million as of December 29, 2013 with average interest rates of 3.0% and 2.8% , respectively.

Rabobank Term Loan

In August 2012, we amended our $200.0 million term loan with Rabobank.

As a result of the amended agreement, our maturity date was extended from June 2016 to May 2018 and the interest rate increased to an annual rate equal to LIBOR plus 4%, or at our election, a base rate plus 3% .

The amended agreement contains affirmative and negative covenants that, among other things, limit or restrict our ability to create liens and encumbrances;

make acquisitions and investments;

dispose of or transfer assets;

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

in each case, subject to certain qualifications and exceptions that are generally consistent with the terms and conditions of the 2022 Notes.

In addition, the amended agreement contains a financial covenant requiring us to maintain a minimum interest coverage ratio (ratio of consolidated EBITDA to consolidated interest expense) of not less than 1.75 to 1.0 commencing with our third quarter of the twelve months ended April 28, 2013 .

In May 2015, we refinanced our $200.0 million 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 $150.0 million , with $50.0 million outstanding.

We may draw the additional $100.0 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%.

Convertible Notes

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Rental payments under operating leases are charged to expense on the straight-line basis over the period of the lease.

Rental expense under operating leases of real estate, machinery, vehicles and other equipment was $43.0 million , $11.7 million , $19.2 million , $47.1 million and $46.5 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

Future rental commitments under non-cancelable operating leases as of December 28, 2014 are as follows:

Rental expense under operating leases of real estate, machinery, vehicles and other equipment was $49.2 million , $43.0 million , $11.7 million , $19.2 million and $47.1 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

In 2015, we constructed a distribution center and sold it for $43.3 million .

Concurrent with the sale, we entered into an agreement to leaseback the property from the purchaser over a non-cancelable lease term of 20 years, with renewal options.

This lease is accounted for as an operating lease.

Future rental commitments under non-cancelable operating leases as of January 3, 2016 are as follows:

(in millions)

As of December 28, 2014 , future minimum lease payments under capital leases were approximately $25.2 million .

As of January 3, 2016 , future minimum lease payments under capital leases were approximately $25.0 million .

The present value of the future minimum lease payments was $24.5 million .

The long-term portion of capital lease obligations was $23.7 million and $24.6 million as of December 28, 2014 and December 29, 2013 , respectively, and the current portion was $1.2 million and $1.2 million as of December 28, 2014 and December 29, 2013 , respectively.

The long-term portion of capital lease obligations was $23.3 million and $23.7 million as of January 3, 2016 and December 28, 2014 , respectively, and the current portion was $1.2 million and $1.2 million as of January 3, 2016 and December 28, 2014 , respectively.

We have agreements, expiring through 2022 , to use cold storage warehouses owned by partnerships, of which we are 50% partners.

We have agreed to pay prevailing competitive rates for use of the facilities, subject to aggregate guaranteed minimum annual fees.

In 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , we paid $20.7 million , $4.5 million , $7.4 million , $16.6 million and $14.0 million , respectively, in fees for use of the facilities.

We had investments in the partnerships of $4.2 million as of December 28, 2014 and $3.0 million as of December 29, 2013 , respectively.

In 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , we paid $16.3 million , $20.7 million , $4.5 million , $7.4 million and $16.6 million , respectively, in fees for use of the facilities.

We had investments in the partnerships of $5.1 million as of January 3, 2016 and $4.2 million as of December 28, 2014 , respectively.

We have purchase commitments with certain livestock producers that obligate us to purchase all the livestock that these producers deliver.

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(in millions)

As of December 28, 2014 , we were also committed to purchase approximately $269.6 million under forward grain contracts payable in 2015 .

We had $40.2 million of committed funds related to approved capital expenditure projects as of December 28, 2014 .

As of January 3, 2016 , we were also committed to purchase approximately $210.5 million under forward grain contracts payable in 2016 .

We had $57.9 million of committed funds related to approved capital expenditure projects as of January 3, 2016 .

These projects are expected to be funded with cash flows from operations and/or borrowings under credit facilities.

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

These arrangements involve elements of performance and credit risk that are not included in the consolidated balance sheet as of December 28, 2014 .

These arrangements involve elements of performance and credit risk that are not included in the consolidated balance sheet as of January 3, 2016 .

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.

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 December 28, 2014 , we continued to guarantee $7.7 million of leases that were transferred to JBS S.A.

As of January 3, 2016 , we continued to guarantee $6.7 million of leases that were transferred to JBS S.A.

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

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Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

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Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Federal income taxes at statutory rate

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Effective tax rate

We had income taxes receivable of $64.4 million and $36.7 million as of December 28, 2014 and December 29, 2013 , respectively, in prepaid expenses and other current assets.

Additionally, we had current taxes payable of $1.2 million and $1.0 million as of December 28, 2014 and December 29, 2013 , respectively, in other current liabilities.

We had income taxes receivable of $87.5 million and $64.4 million as of January 3, 2016 and December 28, 2014 , respectively, in prepaid expenses and other current assets.

Additionally, we had current taxes payable of $1.2 million as of December 28, 2014 in other current liabilities.

The tax effects of temporary differences consist of the following:

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Total deferred tax liabilities

The following table presents the classification of deferred taxes in our balance sheets as of December 28, 2014 and December 29, 2013 :

The following table presents the classification of deferred taxes in our balance sheets as of January 3, 2016 and December 28, 2014 :

(in millions)

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The valuation allowance primarily relates to state credits, state net operating loss carryforwards and losses in foreign jurisdictions for which no tax benefit was recognized.

During 2015 , the valuation allowance decreased $15.7 million which is primarily due to utilization of foreign losses and valuation allowance releases included in foreign restructuring.

During 2014 , the valuation allowance decreased by $7.4 million which is primarily due to foreign valuation allowance releases and expirations.

During the three months ended December 29, 2013 , the valuation allowance increased by $ 4.6 million which is primarily the net of purchase price allocations related to the Merger and the utilization of tax losses in foreign jurisdictions.

During the five months ended September 26, 2013 , the valuation allowance decreased by $ 5.8 million resulting primarily from the utilization of tax losses in foreign jurisdictions.

The tax credits, carryforwards and net operating losses expire from 2016 to 2036.

There were foreign subsidiary net earnings that were considered permanently reinvested of $110.2 million and $17.0 million as of December 28, 2014 and December 29, 2013 , respectively.

There were foreign subsidiary net earnings that were considered permanently reinvested of $198.5 million and $110.2 million as of January 3, 2016 and December 28, 2014 , respectively.

It is not reasonably determinable as to the amount of deferred tax liability that would need to be provided if such earnings were not reinvested.

6 unchanged sentences

Lapse of statute of limitations

Balance, April 28, 2013

Balance, December 29, 2013

Additions for tax positions taken in the current year

Reduction for tax positions taken in prior years

Additions for tax positions taken in prior years

Settlements with taxing authorities

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Additions for tax positions taken in the current year

Additions for tax positions taken in prior years

Reductions for tax positions taken in prior years

Settlements with taxing authorities

Lapse of statute of limitations

Balance, December 28, 2014

Balance, January 3, 2016

We operate in multiple taxing jurisdictions, both within the U.S.

and outside of the U.S., and are subject to examination from various tax authorities.

The liability for unrecognized tax benefits included $4.9 million and $4.5 million of accrued interest as of December 28, 2014 and December 29, 2013 , respectively.

We recognized $0.3 million of net interest expense during 2014 , $0.5 million of net interest income during the eight months ended December 29, 2013 , $0.4 million of net interest expense during the twelve months ended April 28, 2013 and $3.5 million of net interest income during the twelve months ended April 29, 2012 , respectively, in income tax expense.

The liability for unrecognized tax benefits included $13.0 million as of December 28, 2014 and $13.3 million as of December 29, 2013 , that if recognized, would impact the effective tax rate.

The liability for unrecognized tax benefits included $3.2 million and $4.9 million of accrued interest as of January 3, 2016 and December 28, 2014 , respectively.

We recognized $1.0 million of net interest income during 2015 , $0.3 million of net interest expense during 2014 , $0.5 million of net interest income during the eight months ended December 29, 2013 and $0.4 million of net interest expense during the twelve months ended April 28, 2013 , respectively, in income tax expense.

The liability for unrecognized tax benefits included $10.2 million as of January 3, 2016 and $13.0 million as of December 28, 2014 , that if recognized, would impact the effective tax rate.

We are currently being audited in several tax jurisdictions and remain subject to examination until the statute of limitations expires for the respective tax jurisdiction.

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We have concluded all U.S.

federal income tax matters through the tax year ended September 26, 2013 .

We are currently under U.S federal examination for the tax years ended December 29, 2013 and December 28, 2014 .

Based upon the expiration of statutes of limitations and/or the conclusion of tax examinations in several jurisdictions as of December 28, 2014 , we believe it is reasonably possible that the total amount of previously unrecognized tax benefits may decrease by up to $3.8 million within twelve months of December 28, 2014 .

federal income tax matters through the tax year ended December 29, 2013 .

We are currently under U.S federal examination for the tax years ended December 28, 2014 and January 3, 2016 .

Based upon the expiration of statutes of limitations and/or the conclusion of tax examinations in several jurisdictions as of January 3, 2016 , we believe it is reasonably possible that the total amount of previously unrecognized tax benefits may decrease by up to $3.0 million within twelve months of January 3, 2016 .

Beginning with the three months ended December 29, 2013 , the Company, with its respective subsidiaries, is included in its U.S.

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Benefits paid (1)

Remeasurement at the Merger Date

Actuarial loss

Past service cost

Benefit obligation at end of year

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——————————————

The beginning of the year is December 30, 2013 and April 29, 2013 for the period ending December 28, 2014 and December 29, 2013 , respectively.

Benefit payments for our defined benefit pension plans during the three months ended December 29, 2013 and the five months ended September 26, 2013 were $39.4 million and $27.2 million , respectively.

Benefit payments for our qualified defined benefit pension plans during the three months ended December 29, 2013 and the five months ended September 26, 2013 were $16.1 million and $26.0 million , respectively.

Excludes the assets and related activity of our non-qualified defined benefit pension plans.

The fair value of assets related to our non-qualified plans was $107.9 million and $124.1 million as of December 28, 2014 and December 29, 2013 , respectively.

We made $6.6 million of cash contributions to our non-qualified plans in the twelve months ended December 28, 2014 .

We made no cash contributions to our non-qualified plans in the three months ended December 29, 2013 nor the five months ended September 26, 2013 .

Benefits paid for our non-qualified plans were $26.7 million , $23.3 million and $1.2 million for the twelve months ended December 28, 2014 , the three months ended December 29, 2013 and the five months ended September 26, 2013 , respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1.7 billion and $1.6 billion as of December 28, 2014 and December 29, 2013 , respectively.

The fair value of assets related to our non-qualified plans was $111.4 million and $107.9 million as of January 3, 2016 and December 28, 2014 , respectively.

We made $31.6 million and $6.6 million of cash contributions to our non-qualified plans in 2015 and 2014 , respectively.

Benefits paid for our non-qualified plans were $28.3 million and $26.7 million in 2015 and 2014 , respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1.7 billion and $1.7 billion as of January 3, 2016 and December 28, 2014 , respectively.

The accumulated benefit obligation for all of our defined benefit pension plans exceeded the fair value of plan assets for all periods presented.

1 unchanged sentence

(in millions)

Unrecognized actuarial gain (loss)

Unrecognized actuarial loss

Unrecognized prior service credit

We expect to recognize $4.7 million of the actuarial loss in net periodic pension cost in 2015 .

We expect to recognize $11.4 million of the actuarial loss and $2.2 million of the prior service credit in net periodic pension cost in 2016 .

The following table presents the components of the net periodic pension cost for the periods indicated:

1 unchanged sentence

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

5 unchanged sentences

——————————————

A settlement loss was recognized as the result of terminated vested participants in our qualified plans electing an early cash payout.

A settlement loss was recognized during 2014 as the result of terminated vested participants in our qualified plans electing an early cash payout.

The following table shows our weighted average assumptions for the periods indicated:

1 unchanged sentence

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Discount rate to determine net periodic benefit cost (1)

2 unchanged sentences

Rate of compensation increase

——————————————

We performed an interim remeasurement of our plan obligations and assets as of June 26, 2015.

The discount rate used to determine net periodic benefit cost was 4.3% for the first half of 2015 and 4.8% for the second half of 2015.

We use an independent third-party actuary to assist in the determination of assumptions used and the measurement of our pension obligation and related costs.

4 unchanged sentences

We use this resulting weighted average discount rate to determine our final discount rate.

During 2014, we used a new mortality table based on the Mercer Industry Longevity Experience Study (MILES).

The mortality table has the flexibility to consider industry specific groups, such as blue collar or white collar.

In 2014 we began to use a new mortality table that has the flexibility to consider industry specific groups, such as blue collar or white collar.

To determine the expected long-term return on plan assets, we consider the current and anticipated asset allocations, as well as historical and estimated returns on various categories of plan assets.

Long-term trends are evaluated relative to market factors such as inflation, interest rates and fiscal and monetary polices in order to assess the capital market assumptions.

Over the 5-year period ended December 28, 2014 and December 29, 2013 , the average rate of return on plan assets was approximately 9.81% and 12.11% , respectively.

Over the 5-year period ended January 3, 2016 and December 28, 2014 , the average rate of return on plan assets was approximately 6.75% and 9.81% , respectively.

Actual results that differ from our assumptions are accumulated and amortized over future periods and, therefore, affect expense in future periods.

Pension plan assets may be invested in cash and cash equivalents, equities, debt securities, insurance contracts and real estate.

Pension plan assets may be invested in cash and cash equivalents, equities, commingled funds, debt securities and alternative investments.

Our investment policy for the pension plans is to balance risk and return through a diversified portfolio of high-quality equity and fixed income securities.

2 unchanged sentences

The plans retain outside investment advisors to manage plan investments within parameters established by our plan trustees.

The following table presents the fair value of our qualified pension plan assets by major asset category as of December 28, 2014 and December 29, 2013 .

The following table presents the fair value of our qualified pension plan assets by major asset category as of January 3, 2016 and December 28, 2014 .

The allocation of our pension plan assets is based on the target range presented in the following table.

6 unchanged sentences

See Note 12 — Fair Value Measurements for additional information about the fair value of our pension assets.

We generally contribute the minimum amount required under government regulations to our qualified pension plans, plus amounts necessary to maintain an 80% funded status in order to avoid benefit restrictions under the Pension Protection Act.

We do not expect to have a funding requirement in 2016 for our qualified pension plans.

See Note 18 — Subsequent Events for additional information about contributions made subsequent to year-end.

Expected future benefit payments for our defined benefit pension plans are as follows:

20 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

1 unchanged sentence

April 28, 2013

April 29, 2012

Expiration Dates of Collective Bargaining Agreements

13 unchanged sentences

We have multiple collective bargaining agreements associated with the United Food and Commercial Workers International Union Industry Pension Fund.

These agreements are currently scheduled to expire in October 2015, May 2016, January 2018 and December 2018.

These agreements are currently scheduled to expire in May 2016, January 2018 and December 2018.

Other Employee Benefit Plans

1 unchanged sentence

Our contributions vary depending on the plan but are based primarily on each participant’s level of contribution and cannot exceed the maximum allowable for tax purposes.

Total contributions were $18.2 million , $4.1 million , $8.0 million , $15.0 million , and $13.9 million in 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , twelve months ended April 28, 2013 and twelve months ended April 29, 2012 , respectively.

Total contributions were $21.6 million , $18.2 million , $4.1 million , $8.0 million , and $15.0 million in 2015 , 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 and twelve months ended April 28, 2013 , respectively.

We also provide health care and life insurance benefits for certain retired employees.

15 unchanged sentences

Stock options granted under the WH Group Incentive Plan are subject to graded vesting over five years and were valued in five separate tranches, according to the expected life of each tranche.

We recognized $9.2 million of compensation expense for the stock options in 2014.

The related income tax benefit recognized was $3.4 million .

There was no compensation expense capitalized as part of inventory or fixed assets.

No stock options were granted in 2015.

We recognized $17.6 million and $9.2 million of compensation expense for the stock options in 2015 and 2014 , respectively.

The related income tax benefit recognized was $6.4 million and $3.4 million in 2015 and 2014 , respectively.

There was no compensation expense capitalized as part of inventory or fixed assets in 2015 nor 2014 .

The fair value of each option granted was estimated on the date of grant using a binomial option pricing model.

1 unchanged sentence

The following table summarizes the assumptions made in determining the fair value of stock options granted in 2014 (1) :

Twelve Months Ended

December 28, 2014

Expected annual volatility

6 unchanged sentences

The expected dividend yield was the same for all options granted in 2014.

The following table summarizes stock option activity under the WH Group Incentive Plan during 2014:

The following table summarizes stock option activity under the WH Group Incentive Plan as of January 3, 2016 , and changes during the year then ended:

Number of Shares

6 unchanged sentences

Outstanding as of December 28, 2014

Exercisable as of December 28, 2014

Outstanding as of January 3, 2016

Exercisable as of January 3, 2016

The weighted average grant-date fair value of options granted during 2014 was $0.42 USD ( $3.22 HKD).

As of December 28, 2014 , there was $53.7 million of total unrecognized compensation cost related to nonvested stock options granted under the WH Group Incentive Plan.

As of January 3, 2016 , there was $23.1 million of total unrecognized compensation cost related to nonvested stock options granted under the WH Group Incentive Plan.

That cost is expected to be recognized over a weighted average period of 2.4 years.

No options vested during 2014.

During the twelve months ended May 3, 2009, we adopted the 2008 Incentive Compensation Plan (the Incentive Plan), which replaced the 1998 Stock Incentive Plan and provided for the issuance of non-statutory stock options and other awards to employees, non-employee directors and consultants.

2 unchanged sentences

The Incentive Plan was discontinued as a result of the Merger.

Stock-based compensation expense was $2.0 million , $8.4 million , and $11.0 million for the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

The related income tax benefits recognized were $0.4 million , $1.8 million , and $2.4 million , for the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , respectively.

There was no compensation expense capitalized as part of inventory or fixed assets during the five months ended September 26, 2013 , twelve months ended April 28, 2013 and twelve months ended April 29, 2012 .

Stock-based compensation expense was $2.0 million and $8.4 million for the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

The related income tax benefits recognized were $0.4 million and $1.8 million for the five months ended September 26, 2013 and the twelve months ended April 28, 2013 , respectively.

There was no compensation expense capitalized as part of inventory or fixed assets during the five months ended September 26, 2013 nor the twelve months ended April 28, 2013 .

Call Spread Transactions

27 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

September 27 - December 29, 2013

(in millions)

Foreign currency translation:

Translation adjustment arising during the period

Translation loss

Translation losses reclassified to non-operating (gain) loss

Pension accounting:

Actuarial loss

Actuarial gain (loss)

Prior Service Cost

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

1 unchanged sentence

Hedge accounting:

Losses arising during the period

Gains (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 income (loss)

Twelve Months Ended

September 27 - December 29, 2013

April 29 - September 26, 2013

April 28, 2013

April 29, 2012

(in millions)

Foreign currency translation:

Translation adjustment arising during the period

Translation gain (loss)

Pension accounting:

3 unchanged sentences

Gains (losses) arising during the period

Gains (losses) reclassified to sales

Gains reclassified to cost of sales

Losses reclassified to sales

(Gains) losses reclassified to cost of sales

(Gains) losses reclassified to SG&A

Losses reclassified to interest expense

Total other comprehensive income (loss)

19 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 the Supplemental Plan, that were measured at fair value on a recurring basis as of December 28, 2014 and December 29, 2013 :

December 28, 2014

January 3, 2016

December 28, 2014

17 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.

We had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis during 2014 or the Transition Period, except for the preliminary allocation of the total purchase consideration to the estimated fair values of our assets acquired and liabilities assumed by WH Group as part of the Merger .

We had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis during 2015 nor 2014, except for the allocation of the total purchase consideration to the estimated fair values of our assets acquired and liabilities assumed by WH Group as part of the Merger .

We finalized the allocation in the third quarter of 2014 with no material adjustments.

1 unchanged sentence

Pension Plan Assets

The following table summarizes our qualified pension plan assets measured at fair value on a recurring basis (at least annually) as of December 28, 2014 and December 29, 2013 :

December 28, 2014

The following table summarizes our qualified pension plan assets measured at fair value on a recurring basis (at least annually) as of January 3, 2016 and December 28, 2014 :

January 3, 2016

December 28, 2014

10 unchanged sentences

International common stock

Mutual funds:

Commingled funds:

International (1)

Domestic small cap (1)

Commingled funds:

Asset-backed securities (1)

2 unchanged sentences

Government debt securities (1)

Fixed Income:

Corporate debt securities

Government debt securities

Alternative investments:

5 unchanged sentences

Total plan assets

——————————————

(1) Assets that are measured at fair value using net asset value per share as a practical expedient and have not been categorized in the fair value hierarchy.

The following are descriptions of the valuation methodologies and key inputs used to measure pension plan assets recorded at fair value:

1 unchanged sentence

Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value.

Actively traded money market funds are measured at their NAV, which approximates fair value, and classified as Level 1.

The fair value of certain money market funds for which quoted prices are available but traded less frequently have been classified as Level 2.

Equity securities— When available, the fair value of equity securities are based on quoted prices in active markets and classified as Level 1.

Actively traded money market funds are classified as Level 1 and included in cash and cash equivalents.

Equity securities— The fair value of equity securities are based on quoted prices in active markets and classified as Level 1.

Level 1 financial instruments include highly liquid instruments with quoted prices, such as equities and mutual funds traded in active markets.

If quoted prices are not available, fair values are obtained from pricing services, broker quotes or other model-based valuation techniques with observable inputs and classified as Level 2.

The nature of these equity securities include securities for which quoted prices are available but traded less frequently, securities whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data and securities that are valued using other financial instruments, the parameters of which can be directly observed.

Level 2 equity securities include preferred stock and mutual funds not actively traded.

Fixed income— The fair values of fixed income instruments are obtained from pricing services, broker quotes or other model-based valuation techniques with observable inputs and classified as Level 2.

Commingled Funds— The fair value of commingled funds are measured using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy.

The net asset value per share is based on the fair value of the underlying assets owned by the funds, minus its liabilities then divided by the total number of shares outstanding.

Underlying assets of commingled funds primarily consist of liquid equity and fixed income securities with quoted prices in active markets.

Fixed income— When available, the fair value of fixed income securities are based on quoted prices in active markets and classified as Level 1.

Level 1 financial instruments include highly liquid instruments with quoted prices, such as equities and mutual funds traded in active markets.

If quoted prices are not available, fair values of fixed income instruments are obtained from pricing services, broker quotes or other model-based valuation techniques with observable inputs and classified as Level 2.

The nature of these fixed income instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data and securities that are valued using other financial instruments, the parameters of which can be directly observed.

Level 2 fixed income instruments include mutual funds, asset-backed securities, corporate debt securities, emerging market securities and government debt securities.

Alternative Investments— The fair values of alternative investments are obtained from pricing services, broker quotes or other model-based valuation techniques with observable inputs and classified as Level 2.

The nature of these alternative investments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value has been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data and securities that are valued using other financial instruments, the parameters of which can be directly observed.

Level 2 alternative investments include diversified investment funds, domestic options contracts and futures contracts.

Limited partnerships— The valuation of limited partnership investments requires the use of significant unobservable inputs due to the absence of quoted market prices, inherent lack of liquidity and long-term nature of such assets and are classified as Level 3.

These investments are initially valued at cost with quarterly valuations performed utilizing available market data to determine the fair value of these investments.

Such market data consists primarily of the observations of trading multiples of public companies considered comparable to the investments with adjustments for investment-specific issues, the lack of liquidity and other items.

Level 2 fixed income instruments include corporate debt securities.

Alternative Investments— The fair value of alternative investments are measured using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy.

The net asset value per share is based on the fair value of the underlying assets owned by the alternative investment funds, minus its liabilities then divided by the total number of shares outstanding.

Limited partnerships— The fair value of limited partnerships are measured using the net asset value practical expedient and have not been categorized in the fair value hierarchy.

The net asset value is based on the fair value of the underlying assets owned by the partnership, minus its liabilities then multiplied by the ownership percentage of the pension plans.

Insurance contracts— The valuation of these guaranteed annuity insurance contracts is primarily based on quoted prices in active markets with adjustments for unobservable inputs caused by the unique nature of applying investment earnings as part of the participation guarantee.

Due to these unobservable inputs and the long-term nature of these investments, the contracts are classified as Level 3.

The following table summarizes the changes in our Level 3 pension plan assets for the twelve months ended December 28, 2014 and the eight months ended December 29, 2013 :

The following table summarizes the changes in our Level 3 pension plan assets for the twelve months ended January 3, 2016 and December 28, 2014 :

Insurance Contracts

Limited Partnerships

(in millions)

Balance, April 28, 2013

Balance, December 29, 2013

Actual return on plan assets:

7 unchanged sentences

Purchases, sales and settlements, net

Balance, December 28, 2014

Balance, January 3, 2016

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 December 28, 2014 and December 29, 2013 :

December 28, 2014

The following table presents the fair value and carrying value of total debt as of January 3, 2016 and December 28, 2014 :

January 3, 2016

December 28, 2014

4 unchanged sentences

RELATED PARTY TRANSACTIONS

The following table presents amounts owed from and to related parties as of December 28, 2014 and December 29, 2013 :

The following table presents amounts owed from and to related parties as of January 3, 2016 and December 28, 2014 :

(in millions)

3 unchanged sentences

Total payables to related parties

Sales on the consolidated statements of income during 2014 and the three months ended December 29, 2013 include $183.2 million and $10.2 million , respectively, of sales to other subsidiaries of WH Group.

One of our vice presidents of our Hog Production segment holds an ownership interests in JCT LLC (JCT).

We had sales of $315.6 million , $183.2 million and $10.2 million , during 2015 , 2014 and the three months ended December 29, 2013 , respectively, to other subsidiaries of WH Group.

One of our vice presidents of our Hog Production segment holds an ownership interest in JCT LLC (JCT).

JCT owns certain farms that produce hogs under contract with the Hog Production segment.

During 2014 , the eight months ended December 29, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , we paid $1.7 million , $1.4 million , $6.2 million and $7.9 million , respectively, to JCT for the production of hogs.

During the eight months ended December 29, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , we received $0.2 million , $2.6 million and $3.1 million , respectively, from JCT for reimbursement of associated farm and other support costs.

We received no amounts from JCT during 2014 for reimbursement of associated farm and other support costs.

During 2015 , 2014 , the eight months ended December 29, 2013 and the twelve months ended April 28, 2013 , we paid $1.9 million , $1.7 million , $1.4 million and $6.2 million , respectively, to JCT for the production of hogs.

During 2015 , the eight months ended December 29, 2013 and the twelve months ended April 28, 2013 , we received $0.1 million , $0.2 million and $2.6 million , respectively, from JCT for reimbursement of associated farm and other support costs.

We did not receive any reimbursement of associated farm or other support costs from JCT during 2014 .

Also, multiple other vice presidents of the Hog Production segment hold ownership interests in Seacoast, LLC, Advantage Farms, LLC, Old Oak Farms LLC, Pork Partners, Inc.

1 unchanged sentence

These companies produce and raise hogs for us under contractual arrangements that are consistent with third party grower contracts.

During 2014 , the eight months ended December 29, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , we paid service fees of $2.8 million , $1.1 million , $1.5 million and $1.7 million , respectively, to these companies.

In 2014 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , we received $0.1 million , $0.2 million and $0.4 million , respectively, from these companies for reimbursement of associated farm and other support costs.

We received no amounts from these companies during the eight months ended December 29, 2013 for reimbursement of associated farm and other support costs.

During 2015 , 2014 , the eight months ended December 29, 2013 and the twelve months ended April 28, 2013 , we paid service fees of $2.4 million , $2.8 million , $1.1 million and $1.5 million , respectively, to these companies.

In 2015 , 2014 and the twelve months ended April 28, 2013 , we received $0.1 million , $0.1 million and $0.2 million , respectively, from these companies for reimbursement of associated farm and other support costs.

We did not receive any reimbursement of associated farm or other support costs during the eight months ended December 29, 2013 .

Wendell Murphy, a former director of the Company, and his immediate family members hold ownership interests in multiple farms that conduct business with us.

These farms either produce hogs for us or produce and sell feed ingredients to us.

In the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 , we paid $51.6 million and $52.2 million , respectively, to these entities for hogs, feed ingredients and reimbursement of associated farm and other support costs.

In the twelve months ended April 28, 2013 , we paid $51.6 million to these entities for hogs, feed ingredients and reimbursement of associated farm and other support costs.

As a result of the Merger, Mr.

7 unchanged sentences

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 owed subsidiary, Murphy-Brown alleging causes of actions for nuisance and related claims.

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.

1 unchanged sentence

The complaints stemmed from the nuisance cases previously filed in the Superior Court of Wake County.

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

The 26 currently pending complaints were filed on behalf of 541 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, as well as unspecified injunctive and equitable relief.

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

On February 23, 2015, all 25 complaints were amended, one complaint was severed into two separate actions, and several additional plaintiffs were joined, bringing the total number of plaintiffs to 541.

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

Ten plaintiffs dismissed their claims without prejudice.

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

During discovery, several additional plaintiffs dismissed their claims.

The 26 currently pending complaints include claims on behalf of 516 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.

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

8 unchanged sentences

For external reporting purposes, we aggregate operating segments which have similar economic characteristics, products, production processes, types or classes of customers and distribution methods into reportable segments based on a combination of factors, including products produced and geographic areas of operations.

Prior to the second quarter of 2014, we conducted our operations through four reportable segments:

Pork, Hog Production, International and Corporate.

Over the past several years, the Pork segment has undergone significant structural change and consolidation.

In the second quarter of 2014, two of the largest Pork segment operating companies, The Smithfield Packing Company, Inc.

and Farmland Foods, Inc., merged to form Smithfield Farmland Corp (Smithfield Farmland).

With this merger, only two large operating companies remain;

Smithfield Farmland, which produces both fresh pork and packaged meats, and John Morrell Food Group, which is predominately a packaged meats company.

Based on the evolution of the Pork segment over the past several years and the recent merger of Smithfield Farmland, the former Pork segment has been reorganized from an independent operating company structure to a product division structure to more closely align with the way in which the chief operating decision maker (CODM) views the business, assesses segment performance and allocates resources.

Therefore, the former Pork segment now consists of two reportable segments;

the Fresh Pork segment and the Packaged Meats segment.

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

Our reportable segments are:

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

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

During all periods presented, our CODM has been the President and Chief Executive Officer of the Company.

During all periods presented, our Chief Operating Decision Maker (CODM) has been the Chief Executive Officer of the Company.

Fresh Pork Segment

19 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Internal hog sales

2 unchanged sentences

——————————————

Consists primarily of grains, feed and gains (losses) on derivatives.

Consists primarily of grains.

International Segment

The International segment includes 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 includes 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.

Our international meat processing operations produce a wide variety of fresh pork, poultry and packaged meats products, including cooked hams, sausages, hot dogs, bacon and canned meats.

The International segment processed 4.3 million hogs and sold 489.3 million pounds and 533.7 million pounds of packaged meats and fresh pork, respectively, during 2014.

The International segment processed 4.6 million hogs and sold 463.2 million pounds and 826.7 million pounds of packaged meats and fresh meats, respectively, during 2015 .

The following table shows the percentages of International segment revenues derived from packaged meats, fresh meats and hog production for the periods indicated:

1 unchanged sentence

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Packaged meats

13 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

September 27 - December 29, 2013

(in millions)

36 unchanged sentences

In WH Group's segment reporting the Fresh Pork segment includes transfers of fresh pork to the Packaged Meats segment as sales.

As such, Fresh Pork segment information reported by WH Group includes an additional $2.4 billion and $601.7 million of sales for the twelve months ended December 28, 2014 and the three months ended December 29, 2013 , respectively.

As such, Fresh Pork segment information reported by WH Group includes an additional $1.9 billion , $2.4 billion and $0.6 billion of sales for 2015 , 2014 and the three months ended December 29, 2013 , respectively.

Twelve Months Ended

September 27 - December 29, 2013

April 29 - September 26, 2013

April 28, 2013

April 29, 2012

(in millions)

47 unchanged sentences

$1.2 billion of trademarks related to our domestic brands are owned by certain holding companies included within Corporate.

Additionally, $660.5 million and $539.0 million of accounts receivable were held by the SPV and included within Corporate as of December 28, 2014 and December 29, 2013 , respectively (see Note 7 — Debt for further information).

Additionally, $626.7 million and $660.5 million of accounts receivable were held by the SPV and included within Corporate as of January 3, 2016 and December 28, 2014 , respectively (see Note 7 — Debt for further information).

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

8 unchanged sentences

The following table shows the change in the carrying amount of goodwill by reportable segment for the periods noted:

International

Hog Production

(in millions)

Balance, April 28, 2013

Acquisition (2)

Other goodwill adjustments (3)

Balance, September 26, 2013

——————————————

Predecessor goodwill was allocated to the Pork segment.

Upon changing our segments in 2014, to segregate the Fresh Pork and Packaged Meats components into separate reportable segments, we did not reallocate historical goodwill balances to the new segments as it was not practicable to do so.

See Note 2 — Merger and Acquisitions for discussion of acquisition.

Other goodwill adjustments primarily include the effects of foreign currency translation.

Packaged Meats

2 unchanged sentences

(in millions)

Balance, September 27, 2013

Balance, December 29, 2013

2 unchanged sentences

Balance, December 28, 2014

Other goodwill adjustments (2)

Balance, January 3, 2016

——————————————

2 unchanged sentences

Other goodwill adjustments primarily include the effects of foreign currency translation and an immaterial business acquisition during the second quarter of 2014.

The following table presents our consolidated sales attributed to operations by geographic area for 2014 , the three months ended December 29, 2013 , the five months ended September 26, 2013 , the twelve months ended April 28, 2013 and the twelve months ended April 29, 2012 :

The following table presents our consolidated sales attributed to operations by geographic area for the periods noted:

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

(in millions)

International

The following table presents our long-lived assets attributed to operations by geographic area as of December 28, 2014 and December 29, 2013 :

The following table presents our long-lived assets attributed to operations by geographic area as of January 3, 2016 and December 28, 2014 :

(in millions)

5 unchanged sentences

Twelve Months Ended

January 3, 2016

December 28, 2014

2 unchanged sentences

April 28, 2013

April 29, 2012

Supplemental disclosures of cash flow information:

5 unchanged sentences

Operating profit

Net income (1)

Operating profit

——————————————

2013 represents the twelve months ended December 29, 2013 .

The following significant infrequent or unusual items impacted our quarterly results in the twelve months ended December 29, 2013 .

There were no significant infrequent or unusual items that impacted our quarterly results in 2014.

Operating profit in the third and fourth quarters included professional fees related to the Merger of $18.0 million and $23.9 million , respectively.

Gross profit in the fourth quarter included $45.4 million of non-cash costs related to the fair value step-up of inventories due to the Merger.

Net income in the first quarter included loss on debt extinguishment of $12.8 million .

SUBSEQUENT EVENTS

2015 Tender Offer

In January 2015, we commenced a cash tender offer for our 2017, 2018, 2021 and 2022 Notes, subject to a maximum aggregate purchase price of up to $275 million (2015 Tender Offer).

The 2015 Tender Offer expired in February 2015.

As a result of the 2015 Tender Offer, we paid $275 million to repurchase $258 million of principal.

As a result of these repurchases, we will recognize losses on debt extinguishment of approximately $12 million in the first quarter of 2015, including the write-off of related unamortized premiums and debt issuance costs.

In January 2016, we made a $125.0 million voluntary contribution to fund our qualified pension plans.

In March 2016, we paid a $73.6 million dividend to our parent company, recorded as a reduction to retained earnings.

SMITHFIELD FOODS, INC.

8 unchanged sentences

Reserve for uncollectible accounts receivable:

Twelve months ended January 3, 2016

Twelve months ended December 28, 2014

2 unchanged sentences

Twelve months ended April 28, 2013

Twelve months ended April 29, 2012

Lower of cost or market allowance:

Twelve months ended January 3, 2016

Twelve months ended December 28, 2014

2 unchanged sentences

Twelve months ended April 28, 2013

Twelve months ended April 29, 2012

Deferred tax valuation allowance:

Twelve months ended January 3, 2016

Twelve months ended December 28, 2014

2 unchanged sentences

Twelve months ended April 28, 2013

Twelve months ended April 29, 2012

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2 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-K

Item 8. Financial Statements and Supplementary Data