What changed in this filing

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Item 1. Financial Statements

2016-10-26 compared with 2016-08-16 · 84 added, 45 removed, 395 unchanged (25% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

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

Six Months Ended

Nine Months Ended

September 27,

Other comprehensive income (loss), net of tax:

38 unchanged sentences

(in millions and unaudited)

Six Months Ended

Nine Months Ended

September 27,

Cash flows from operating activities:

35 unchanged sentences

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.

The three and six months ended July 3, 2016 correspond to the second quarter and first half of 2016 , respectively, and the three and six months ended June 28, 2015 correspond to the second quarter and first half of 2015 , respectively.

The three and nine months ended October 2, 2016 correspond to the third quarter of 2016 , and the three and nine months ended September 27, 2015 correspond to the third quarter of 2015 .

Recently Issued Accounting Pronouncements

13 unchanged sentences

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

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

We are currently in the process of evaluating the impact of adoption on our consolidated financial statements, however, the primary effect will be to record assets and obligations for current operating leases.

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

2 unchanged sentences

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.

The guidance is not currently

effective for us and has not been applied in this Form 10-Q.

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

4 unchanged sentences

requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 with early adoption permitted beginning in Q1 of 2019.

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

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2019 with early adoption permitted beginning in the first quarter of 2019.

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

In August 2016, the FASB issued Accounting Standards update 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15) .

ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows.

The ASU provides additional clarification guidance on the classification of certain cash receipts and payments in the statement of cash flows.

The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017 with early adoption permitted.

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 effect on the presentation of our consolidated statements of cash flow.

Inventories consist of the following:

9 unchanged sentences

We also periodically enter into interest rate swaps to hedge exposure to changes in interest rates on certain financial instruments and foreign exchange forward contracts to hedge certain exposures to fluctuating foreign currency rates.

We record all derivatives in the balance sheet as either assets or liabilities at fair value.

We record all derivatives as either assets or liabilities at fair value in the balance sheet, with the exception of normal purchase and normal sale contracts that are expected to result in physical delivery.

Accounting for changes in the fair value of a derivative depends on whether it qualifies and has been designated as part of a hedging relationship.

6 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 July 3, 2016 , the net liability position of our open derivative instruments that are subject to credit risk-related contingent features was not material.

As of October 2, 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.

Although our counter parties primarily consist of financial institutions that are investment grade, there is still a possibility that one or more of these companies could default.

However, a majority of our financial instruments are exchange traded futures

contracts held with brokers and counter parties with whom we maintain margin accounts that are settled on a daily basis, thereby limiting our credit exposure to non-exchange traded derivatives.

However, a majority of our financial instruments are exchange traded futures contracts held with brokers and counter parties with whom we maintain margin accounts that are settled on a daily basis, thereby limiting our credit exposure to non-exchange traded derivatives.

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 July 3, 2016 , we had gross credit exposure of $15.7 million and $8.6 million after netting agreements on non-exchange traded derivative contracts.

As of October 2, 2016 , we had gross credit exposure of $27.6 million on non exchange-traded derivative contracts.

After taking into account the effect of netting arrangements, we had credit exposure of $6.8 million on non-exchange traded derivative contracts.

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

19 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.

October 2, 2016

Gross Amount of Derivative Assets/ Liabilities

22 unchanged sentences

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

As of July 3, 2016 , we had no commodity-related cash flow hedges for forecasted transactions beyond April 2017 .

As of October 2, 2016 , we had no commodity-related cash flow hedges for forecasted transactions beyond December 2018 .

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

2 unchanged sentences

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

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

During the nine months ended October 2, 2016 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

1,515,800,000

11 unchanged sentences

Three Months Ended

September 27,

(in millions)

6 unchanged sentences

Foreign exchange contracts

Six Months Ended

Nine Months Ended

September 27,

(in millions)

8 unchanged sentences

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

As of July 3, 2016 , there were deferred net losses of $4.8 million , net of tax of $2.9 million , in accumulated other comprehensive income (loss).

We expect to reclassify $5.5 million ( $3.4 million net of tax) of deferred net losses on closed commodity contracts into earnings within the next twelve months.

As of October 2, 2016 , there were deferred gains of $66.2 million , net of tax of $41.8 million , in accumulated other comprehensive income.

We expect to reclassify $17.1 million ( $10.4 million net of tax) of deferred gains on closed commodity contracts into earnings within the next twelve months.

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

3 unchanged sentences

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

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

During the nine months ended October 2, 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:

3 unchanged sentences

Three Months Ended

September 27,

(in millions)

1 unchanged sentence

Commodity contracts

Six Months Ended

Nine Months Ended

September 27,

(in millions)

1 unchanged sentence

Commodity contracts

We recognized gains of $0.9 million for the three months ended July 3, 2016 and gains of $2.4 million and $0.9 million for the six months ended July 3, 2016 and June 28, 2015 , respectively, on closed commodity derivative contracts as the underlying cash transactions affected earnings.

We recognized gains of $1.0 million for the three months ended October 2, 2016 and gains of $3.4 million and $1.4 million for the nine months ended October 2, 2016 and September 27, 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 six months ended July 3, 2016 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

During the nine months ended October 2, 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

Six Months Ended

Nine Months Ended

September 27,

(in millions)

6 unchanged sentences

Working Capital Facilities

As of July 3, 2016 , we had aggregate credit facilities totaling approximately $1.5 billion , including an inventory-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $275.0 million (the Securitization Facility) and international credit facilities totaling $164.5 million .

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

As of October 2, 2016 , we had aggregate credit facilities totaling approximately $1.5 billion , including an inventory-based revolving credit facility totaling $1.025 billion (the Inventory Revolver), an accounts receivable securitization facility totaling $275.0 million (the Securitization Facility) and international credit facilities totaling $169.5 million .

As of October 2, 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 July 3, 2016 , the SPV held $533.2 million of accounts receivable.

As of October 2, 2016 , the SPV held $503.9 million of accounts receivable.

PENSION PLANS

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

(in millions)

4 unchanged sentences

Net periodic pension cost

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

In 2016, we have made $225.0 million in voluntary contributions to fund our qualified pension plans.

Other Comprehensive Income (Loss)

1 unchanged sentence

Three Months Ended

June 28, 2015

October 2, 2016

September 27, 2015

(in millions)

1 unchanged sentence

Translation adjustment arising during the period

Translation losses reclassified to non-operating (gain) loss

Pension accounting:

3 unchanged sentences

Hedge accounting:

Gains arising during the period

Gains (losses) arising during the period

Gains reclassified to sales

Losses reclassified to cost of sales

Losses (gains) reclassified to cost of sales

Losses reclassified to SG&A

Losses reclassified to interest expense

Total other comprehensive income (loss)

Six Months Ended

June 28, 2015

Nine Months Ended

October 2, 2016

September 27, 2015

(in millions)

1 unchanged sentence

Translation adjustment arising during the period

Translation losses reclassified to non-operating (gain) loss

Translation losses reclassified to non-operating loss

Pension accounting:

7 unchanged sentences

Losses reclassified to SG&A

Losses reclassified to interest expense

Total other comprehensive income (loss)

We paid dividends totaling $336.1 million for the six months ended July 3, 2016 to our parent company, recorded as a reduction to retained earnings.

We paid dividends totaling $375.9 million for the nine months ended October 2, 2016 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 July 3, 2016 and January 3, 2016 :

October 2, 2016

January 3, 2016

2 unchanged sentences

Commodity contracts

Foreign exchange contracts

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.

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.

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

1 unchanged sentence

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

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

During the nine months ended October 2, 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 July 3, 2016 and January 3, 2016 .

The following table presents the fair value and carrying value of long-term debt, including the current portion of long-term debt as of October 2, 2016 and January 3, 2016 .

October 2, 2016

January 3, 2016

42 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 27,

(in millions)

16 unchanged sentences

Consolidated operating profit

SUBSEQUENT EVENT

On September 21, 2016, we issued a notice to our bondholders to call $250.0 million principal of our bonds maturing August 1, 2018, at 101%.

The redemption of the bonds on October 21, 2016, together with the premium and accrued, but unpaid interest, was funded entirely with cash.

Accordingly, this debt has been reclassified as a current liability as of October 2, 2016.

We expect to recognize a loss on debt extinguishment of $4.6 million in the fourth quarter of 2016 as a result of the redemption.

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