What changed in this filing

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Item 1. Financial Statements

2016-04-28 compared with 2015-10-28 · 63 added, 209 removed, 351 unchanged (44% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

Cost of sales

3 unchanged sentences

Interest expense

Non-operating (gain) loss

Non-operating loss

Income before income taxes

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Hedge accounting

Total other comprehensive loss

Total other comprehensive income (loss)

Comprehensive income

3 unchanged sentences

(in millions, except share data)

September 27,

Current assets:

12 unchanged sentences

Long-term debt and capital lease obligations

Net long-term pension liability

Other liabilities

14 unchanged sentences

(in millions and unaudited)

Nine Months Ended

September 27,

September 28,

Three Months Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Stock-based compensation expense

Income from equity method investments

2 unchanged sentences

Cash flows from investing activities:

Proceeds from sale of equity interest in CFG

Capital expenditures

Business acquisitions

Net proceeds (expenditures) from breeding stock transactions

Net expenditures from breeding stock transactions

Proceeds from the sale of property, plant and equipment

5 unchanged sentences

Payments on Securitization Facility

Net payments on revolving credit facilities

Net proceeds (payments) on revolving credit facilities

Payment of dividends

15 unchanged sentences

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

You should read these statements and notes in conjunction with the audited consolidated financial statements and the related notes included in our report on Form 10-K for the twelve months ended December 28, 2014 .

The information reflects all normal recurring adjustments which we believe are necessary to present fairly the financial position and results of operations for all periods included.

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

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

The three months ended April 3, 2016 correspond to the first quarter of 2016 and the three months ended March 29, 2015 correspond to the first quarter of 2015 .

Recently Issued Accounting Pronouncements

10 unchanged sentences

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

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

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.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (ASU 2016-02).

ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet and to disclose qualitative and quantitative information about lease transactions, such as information about variable lease payments and options to renew and terminate leases.

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2018 with early adoption permitted.

We elected to early adopt this new guidance for 2015.

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

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

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

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

We are currently in the process of evaluating the impact of adoption on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards update 2016-09, Compensation - Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting (ASU 2016-09).

ASU 2016-09 addresses several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.

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

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

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

We are currently in the process of evaluating the impact of adoption on our consolidated financial statements.

Inventories consist of the following:

September 27,

(in millions)

17 unchanged sentences

Additionally, certain of our derivative contracts contain credit risk-related contingent features, which would require us to post additional cash collateral to cover net losses on open derivative instruments if our credit rating was downgraded.

As of September 27, 2015 , the net liability position of our open derivative instruments that are subject to credit risk related contingent features was not material.

As of April 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.

2 unchanged sentences

Determination of the credit quality of our counter parties is based upon a number of factors, including credit ratings and our evaluation of their financial condition.

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

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

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

No significant concentrations of credit risk existed as of April 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.

1 unchanged sentence

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

September 27,

(in millions)

16 unchanged sentences

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

September 27, 2015

April 3, 2016

Gross Amount of Derivative Assets/ Liabilities

2 unchanged sentences

Cash Collateral

Net Amount Presented in the Consolidated Condensed Balance Sheet

Net Amount Presented in the Condensed Consolidated Balance Sheet

(in millions)

Interest rate swaps

Foreign exchange contracts

Interest rate swaps

Foreign exchange contracts

December 28, 2014

January 3, 2016

Gross Amount of Derivative Assets/ Liabilities

2 unchanged sentences

Cash Collateral

Net Amount Presented in the Consolidated Condensed Balance Sheet

Net Amount Presented in the Condensed Consolidated Balance Sheet

(in millions)

7 unchanged sentences

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

As of September 27, 2015 , we had no cash flow hedges for forecasted transactions beyond December 2016 .

As of April 3, 2016 , we had no cash flow hedges for forecasted transactions beyond December 2016 .

When cash flow hedge accounting is applied, derivative gains or losses are recognized as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings.

2 unchanged sentences

Gains and losses on derivatives designed to hedge price risk associated with fresh pork sales are recorded in the Hog Production segment.

During the nine months ended September 27, 2015 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

1,006,440,000

During the three months ended April 3, 2016 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

Interest rate

5 unchanged sentences

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

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

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

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

2 unchanged sentences

Three Months Ended

September 27,

September 28,

September 27,

September 28,

September 27,

September 28,

(in millions)

6 unchanged sentences

Foreign exchange contracts

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

September 27,

September 28,

(in millions)

Commodity contracts:

Grain contracts

Lean hog contracts

Interest rate swaps

Foreign exchange contracts

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

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

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

As of April 3, 2016 , there were deferred net losses of $7.4 million , net of tax of $4.9 million , in accumulated other comprehensive income (loss).

We expect to reclassify $10.4 million ( $6.4 million net of tax) of deferred net losses on closed commodity contracts into earnings within the next twelve months.

4 unchanged sentences

The gains or losses on the derivative instruments and the offsetting losses or gains on the related hedged items are recorded in cost of sales for commodity contracts.

During the nine months ended September 27, 2015 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

During the three months ended April 3, 2016 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

The following table presents the effects on our consolidated condensed statements of income of gains and losses on derivative instruments designated in fair value hedging relationships and the related hedged items for the periods indicated:

Gains (Losses) Recognized in Earnings on Derivative

Gains (Losses) Recognized in Earnings on Related Hedged Item

Gains Recognized in Earnings on Derivative

Losses Recognized in Earnings on Related Hedged Item

Three Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

1 unchanged sentence

Commodity contracts

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

Commodity contracts

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

We recognized gains of $1.5 million and $1.0 million for the three months ended April 3, 2016 and March 29, 2015 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

Mark-to-Market Method

1 unchanged sentence

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

During the nine months ended September 27, 2015 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

During the three months ended April 3, 2016 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

Foreign currency (1)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

Commodity contracts

5 unchanged sentences

Equity Investment

September 27,

(in millions)

1 unchanged sentence

Total investments

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

(Alfa) for $354.0 million in cash.

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

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

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

Equity Investment

September 27,

September 28,

September 27,

September 28,

(in millions)

International

Mexican joint ventures

International

Campofrío Food Group (CFG)

International

All other equity method investments

1 unchanged sentence

Working Capital Facilities

As of September 27, 2015 , we had aggregate credit facilities totaling $1.5 billion , including an asset-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $325.0 million (the Securitization Facility) and international credit facilities totaling $175.2 million .

As of September 27, 2015 , our unused capacity under these credit facilities was $1.4 billion .

As of April 3, 2016 , we had aggregate credit facilities totaling $1.5 billion , including an inventory-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $325.0 million (the Securitization Facility) and international credit facilities totaling $176.1 million .

As of April 3, 2016 , our unused capacity under these credit facilities was $1.3 billion .

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

2 unchanged sentences

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

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

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

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

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

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

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

inventory, live sows and certain accounts receivable.

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

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

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

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

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

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

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

make capital expenditures;

make acquisitions and investments;

dispose of or transfer assets;

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

in each case, subject to certain qualifications and exceptions.

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

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

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

Rabobank Term Loan

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

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

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

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

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

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

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

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

As of April 3, 2016 , the SPV held $495.1 million of accounts receivable.

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 condensed balance sheets.

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

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 September 27, 2015 , we continued to guarantee $6.9 million of leases that were transferred to JBS S.A.

As of April 3, 2016 , we continued to guarantee $6.4 million of leases that were transferred to JBS S.A.

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

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

Interest cost

2 unchanged sentences

Net periodic pension cost

Remeasurement of Qualified Pension Plans

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

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

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

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

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

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

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

Other Comprehensive Income (Loss)

1 unchanged sentence

Three Months Ended

September 27, 2015

September 28, 2014

(in millions)

Foreign currency translation:

Translation adjustment arising during the period

Hedge accounting:

Losses arising during the period

(Gains) losses reclassified to sales

(Gains) losses reclassified to cost of sales

(Gains) losses reclassified to SG&A

Total other comprehensive loss

Nine Months Ended

September 27, 2015

September 28, 2014

April 3, 2016

March 29, 2015

(in millions)

1 unchanged sentence

Translation adjustment arising during the period

Translation losses reclassified to non-operating (gain) loss

Pension accounting:

Actuarial gain

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

1 unchanged sentence

Hedge accounting:

Gains (losses) arising during the period

(Gains) losses reclassified to sales

(Gains) losses reclassified to cost of sales

(Gains) losses reclassified to SG&A

Total other comprehensive loss

We paid a $30.0 million dividend during the second quarter of 2015 to our parent company, recorded as a reduction to retained earnings.

Gains arising during the period

Gains reclassified to sales

Losses reclassified to cost of sales

Total other comprehensive income (loss)

We paid a $73.6 million dividend during the current quarter to our parent company, recorded as a reduction to retained earnings.

FAIR VALUE MEASUREMENTS

18 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables set forth, by level within the fair value hierarchy, our financial assets and liabilities, including assets held in a rabbi trust used to fund our non-qualified defined benefit plan, that were measured at fair value on a recurring basis as of September 27, 2015 and December 28, 2014 :

September 27, 2015

December 28, 2014

April 3, 2016

January 3, 2016

(in millions)

1 unchanged sentence

Commodity contracts

Interest rate swaps

Foreign exchange contracts

Bond securities

Insurance contracts

6 unchanged sentences

These valuation models make use of market-based observable inputs, including exchange traded prices and rates, yield curves, credit curves, and measures of volatility.

Bond securities —Bond securities are valued at quoted market prices and are classified within Level 1.

Insurance contracts— Insurance contracts are valued at their cash surrender value using the daily asset unit value (AUV) which is based on the quoted market price of the underlying securities and classified within Level 2.

2 unchanged sentences

that is, the assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.

During the nine months ended September 27, 2015 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

During the three months ended April 3, 2016 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

Other Financial Instruments

1 unchanged sentence

The carrying amount of all other debt approximates fair value as those instruments are based on variable interest rates.

The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of September 27, 2015 and December 28, 2014 .

September 27, 2015

December 28, 2014

The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of April 3, 2016 and January 3, 2016 .

April 3, 2016

January 3, 2016

Carrying Value

9 unchanged sentences

North Carolina Nuisance Litigation

As previously disclosed in our Report on Form 10-K for the twelve months ended December 28, 2014, in August, September and October 2014, 25 complaints were filed in the Eastern District of North Carolina by 515 individual plaintiffs against our wholly owned subsidiary, Murphy-Brown, alleging causes of action for nuisance and related claims.

As previously disclosed in our Report on Form 10-K for the twelve months ended January 3, 2016, 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.

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

The complaints 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.

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

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.

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

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

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.

Our policy for establishing accruals and disclosures for contingent liabilities is contained in Note 1—Summary of Significant Accounting Policies in our report on Form 10-K for the twelve months ended December 28, 2014.

We established a reserve for our estimated expenses to defend against these and similar potential claims in 2013.

17 unchanged sentences

Three Months Ended

Nine Months Ended

September 27,

September 28,

September 27,

September 28,

(in millions)

Segment sales—

4 unchanged sentences

Intersegment sales—

Packaged Meats

Hog Production

8 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements