What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2015-04-29 compared with 2014-11-07 · 88 added, 208 removed, 344 unchanged (46% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

Cost of sales

Selling, general and administrative expenses

Merger related costs

Income from equity method investments

1 unchanged sentence

Interest expense

Non-operating gain

Non-operating (gain) loss

Income before income taxes

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

Other comprehensive income (loss), net of tax:

2 unchanged sentences

Hedge accounting

Total other comprehensive income (loss)

Total other comprehensive loss

Comprehensive income (loss)

3 unchanged sentences

(in millions, except share data)

September 28,

Current assets:

20 unchanged sentences

Retained earnings

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Total shareholder's equity

5 unchanged sentences

(in millions and unaudited)

Nine Months Ended

September 28,

September 26,

Three Months Ended

Cash flows from operating activities:

6 unchanged sentences

Capital expenditures

Business acquisitions

Net proceeds (expenditures) from breeding stock transactions

22 unchanged sentences

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

See Note 12—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 (the Merger Sub), in a transaction hereinafter referred to as the Merger.

As a result of the Merger, the Company survived as a wholly owned subsidiary of WH Group.

Basis of Presentation

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 Transition Report on Form 10-K for the eight months ended December 29, 2013 .

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.

The Merger was accounted for as a business combination using the acquisition method of accounting.

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

Unless the context otherwise requires, all references to " Successor " refer to Smithfield Foods, Inc.

and all its subsidiaries for the period subsequent to the Merger.

All references to “ Predecessor ” refer to Smithfield Foods, Inc.

and all its subsidiaries for all periods prior to the Merger.

Purchase price allocations resulting from the Merger affect the comparability of results of operations for the Successor and Predecessor periods.

The consolidated condensed balance sheets, as of September 28, 2014 and December 29, 2013 , reflect various fair value estimates and analyses resulting from applying the acquisition method of accounting as of the Merger Date, including work performed by third-party valuation specialists.

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

Change in Fiscal Year End

On January 16, 2014, the Company elected to change its fiscal year end from the 52 or 53 week period which previously ended on the Sunday nearest April 30 to the 52 or 53 week period which ends on the Sunday nearest December 31.

The change in fiscal year was made effective as of December 29, 2013 .

Accordingly, the three months ended September 28, 2014 correspond to the third quarter of 2014 and the three months ended September 26, 2013 correspond to the third quarter of 2013.

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

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

Recently Issued 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, Revenues from Contracts with Customers (ASU 2014-09).

The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance.

6 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 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 have a material effect 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 Cost (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.

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

Inventories consist of the following:

September 28,

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

We are exposed to losses in the event of nonperformance or nonpayment by counter parties under financial instruments.

2 unchanged sentences

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

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

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

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

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

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 28,

(in millions)

3 unchanged sentences

Livestock contracts

Interest rate contracts

Foreign exchange contracts

10 unchanged sentences

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

September 28, 2014

March 29, 2015

Gross Amount of Derivative Assets/ Liabilities

5 unchanged sentences

Foreign exchange contracts

Interest rate contracts

Foreign exchange contracts

2 unchanged sentences

Netting of Derivative Assets/ Liabilities

Net Amount Presented in the Condensed Consolidated Balance Sheet

Net Derivative Assets/Liabilities

Cash Collateral

Net Amount Presented in the Condensed Consolidated Balance Sheet

(in millions)

Foreign exchange contracts

Interest rate contracts

Foreign exchange contracts

3 unchanged sentences

We enter into derivative instruments, such as futures, swaps and options contracts, to manage our exposure to the variability in expected future cash flows attributable to commodity price risk associated with the forecasted sale of live hogs and fresh pork, and the forecasted purchase of corn, wheat and soybean meal.

In addition, 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 28, 2014 , we had no cash flow hedges for forecasted transactions beyond December 2015 .

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

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

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 loses is recognized as part of current period earnings.

The ineffective portion of derivative gains and losses is recognized as part of current period earnings.

Derivative gains and losses, when reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean hog contracts, interest expense for interest rate contracts and selling, general and administrative expenses (SG&A) for foreign exchange contracts.

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 28, 2014 , the range of notional volumes associated with open derivative instruments designated in cash flow hedging relationships was as follows:

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

1,006,440,000

Interest rate

Foreign currency (1)

9 unchanged sentences

Three Months Ended

September 28,

September 26,

September 28,

September 26,

September 28,

September 26,

(in millions)

4 unchanged sentences

Lean hog contracts

Foreign exchange contracts

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

September 28,

September 26,

(in millions)

Commodity contracts:

Grain contracts

Lean hog contracts

Interest rate contracts

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.

As of September 28, 2014 , there were deferred net losses of $99.0 million , net of tax of $62.9 million , in accumulated other comprehensive income (loss).

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

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

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 28, 2014 , the range of notional volumes associated with open derivative instruments designated in fair value hedging relationships was as follows:

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

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 Recognized in Earnings on Derivative

Losses Recognized in Earnings on Related Hedged Item

Gains (Losses) Recognized in Earnings on Derivative

Gains (Losses) Recognized in Earnings on Related Hedged Item

Three Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

1 unchanged sentence

Commodity contracts

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

Commodity contracts

We recognized gains of $0.7 million and $2.9 million for the three months ended September 28, 2014 and September 26, 2013 , respectively, and gains of $0.7 million and $2.0 million for the nine months ended September 28, 2014 and September 26, 2013 , on closed commodity derivative contracts as the underlying cash transactions affected earnings.

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

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 28, 2014 , the range of notional volumes associated with open derivative instruments using the "mark-to-market" method was as follows:

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

Foreign currency (1)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

Commodity contracts

5 unchanged sentences

Equity Investment

September 28,

(in millions)

2 unchanged sentences

Total investments

——————————————

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

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

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

Some of these results are reported on a one-month lag which, in our opinion, does not materially impact our consolidated condensed financial statements.

In November 2013, Mexican processed meats producer Sigma Alimentos, S.A.

(Sigma) announced its intention to tender for all of CFG’s outstanding shares (the Tender Offer) at a bid price of €6.80 per share (the Bid Price).

In December 2013, we announced our intention to participate in the Tender Offer by retaining our 37% interest in CFG.

As a result, the Bid Price was increased to €6.90 per share.

In June 2014, we finalized our shareholder agreement with Sigma creating a new entity called Sigma & WH Food Europe, S.L.

(Sigma & WH Europe) to hold all shares of CFG owned by Sigma and the Company.

At the formation of Sigma & WH Europe, both the Company and Sigma contributed all of our shares of CFG to Sigma & WH Europe.

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

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

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

Three Months Ended

Nine Months Ended

Equity Investment

September 28,

September 26,

September 28,

September 26,

(in millions)

International

3 unchanged sentences

Income from equity method investments

——————————————

CFG prepares its financial statements in accordance with International Financial Reporting Standards.

Our share of CFG’s results reflects U.S.

GAAP adjustments and thus, there may be differences between the amounts we report for CFG and the amounts reported by CFG.

Working Capital Facilities

As of September 28, 2014 , we had aggregate credit facilities totaling $1.4 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 $120.4 million .

As of September 28, 2014 , our unused capacity under these credit facilities was $953.8 million .

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

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

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

As 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).

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

1 unchanged sentence

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 28, 2014 , the SPV held $566.9 million of accounts receivable.

As of March 29, 2015 , the SPV held $529.6 million of accounts receivable.

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

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

The 2015 Tender Offer expired in February 2015.

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

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

2 unchanged sentences

If we consider it probable that we will become responsible for an obligation, we will record the liability on our consolidated balance sheet.

As of September 28, 2014 , we continued to guarantee $8.0 million of leases that were transferred to JBS S.A.

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

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

This guaranty may remain in place until the leases expire through February 2022.

Our effective tax rate was 26% and 21% for the three months ended September 28, 2014 and September 26, 2013 , respectively, and 31% and 19% for the nine months ended September 28, 2014 and September 26, 2013 , respectively.

For the three and nine months ended September 28, 2014 , taxable income relative to permanent items, the mix of income between jurisdictions, and the expiration of certain federal tax credits as of December 31, 2013 impacted the effective tax rate.

The three and nine months ended September 26, 2013 were impacted by income relative to permanent items, the mix of income between jurisdictions, state income tax credits and federal legislation during that period that reinstated certain federal tax credits retroactively to January 1, 2012.

Beginning with the Successor period, the Company, with its subsidiaries, is included in its U.S.

parent company’s consolidated federal income tax group and consolidated income tax return.

The members of the consolidated group have elected to allocate income taxes among the members of the group by the separate return method, under which the parent company credits the subsidiary for income tax reductions resulting from the subsidiary’s inclusion in the consolidated return, or the parent company charges the subsidiary for its allocated share of the consolidated income tax liability.

PENSION PLANS

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

Interest cost

5 unchanged sentences

Three Months Ended

September 28, 2014

September 26, 2013

(in millions)

Foreign currency translation:

Translation adjustment arising during the period

Pension accounting:

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

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

Hedge accounting:

Losses arising during the period

Losses reclassified to sales

Gains reclassified to cost of sales

(Gains) losses reclassified to SG&A

Total other comprehensive income (loss)

Nine Months Ended

September 28, 2014

September 26, 2013

March 29, 2015

March 30, 2014

(in millions)

2 unchanged sentences

Pension accounting:

Actuarial loss

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 reclassified to cost of sales

Gains reclassified to SG&A

Losses reclassified to cost of sales

(Gains) losses reclassified to SG&A

Total other comprehensive 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 non-pension financial assets and liabilities that were measured at fair value on a recurring basis as of September 28, 2014 and December 29, 2013 :

September 28, 2014

The following tables set forth, by level within the fair value hierarchy, our financial assets and liabilities, including assets held in a rabbi trust used to fund our non-qualified defined benefit plan, that were measured at fair value on a recurring basis as of March 29, 2015 and December 28, 2014 :

March 29, 2015

December 28, 2014

6 unchanged sentences

Commodity contracts

Interest rate swaps

Foreign exchange contracts

8 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 28, 2014 , we had no significant assets or liabilities that were measured and recorded at fair value on a nonrecurring basis.

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

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 28, 2014 and December 29, 2013 .

September 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 March 29, 2015 and December 28, 2014 .

March 29, 2015

December 28, 2014

5 unchanged sentences

CONTINGENCIES

Like other participants in the industry, we are subject to various laws and regulations administered by federal, state and other government entities, including the United States Environmental Protection Agency (EPA) and corresponding state agencies, as well as the United States Department of Agriculture, the Grain Inspection, Packers and Stockyard Administration, the United States Food and Drug Administration, the United States Occupational Safety and Health Administration, the Commodities and Futures Trading Commission and similar agencies in foreign countries.

Like other participants in our industry, we are subject to various laws and regulations administered by federal, state and other government entities, including the United States Environmental Protection Agency (EPA) and corresponding state agencies, as well as the United States Department of Agriculture, the Grain Inspection, Packers and Stockyard Administration, the United States Food and Drug Administration, the United States Occupational Safety and Health Administration, the Commodities and Futures Trading Commission and similar agencies in foreign countries.

We from time to time receive notices and inquiries from regulatory authorities and others asserting that we are not in compliance with such laws and regulations.

2 unchanged sentences

North Carolina Nuisance Litigation

As previously disclosed in our Transition Report on Form 10-K for the eight months ended December 29, 2013 and our Quarterly Reports on Form 10-Q for the quarterly periods ended March 30, 2014 and June 29, 2014, 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.

On April 15, 2014, an additional request for pre-litigation mediation of farm nuisance dispute was filed against the Company and Murphy-Brown, in Duplin County, North Carolina on behalf of 35 claimants, at least some of whom appear to be claimants in the Wake County proceedings.

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

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 relate to operations on approximately 10 company-owned and 56 contract farms.

All 25 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.

A single complaint also includes a cause of action for trespass.

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.

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.

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

All 25 complaints stem from the nuisance cases previously filed in the Superior Court of Wake County;

approximately 263 of the 515 plaintiffs had claims pending in those cases.

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

Our policy for establishing accruals and disclosures for contingent liabilities is contained in Note 1—Summary of Significant Accounting Policies in our Transition Report on Form 10-K for the eight months ended December 29, 2013.

We established a reserve estimating our expenses to defend against these and similar potential claims on the opening balance sheet upon the Merger.

Consequently, expenses and other liabilities associated with these claims for subsequent periods will not affect our profits or losses unless our reserve proves to be insufficient or excessive.

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.

Consequently, future expenses associated with these claims will not affect our profits or losses unless our reserve proves to be insufficient or excessive.

However, legal expenses incurred in our and our subsidiaries’ defense of these claims and any payments made to plaintiffs through unfavorable verdicts or otherwise will negatively impact our cash flows and our liquidity position.

4 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 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:

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

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

Our reportable segments are Fresh Pork, Packaged Meats, Hog Production, International and Corporate.

The Fresh Pork segment consists of our U.S.

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 28,

September 26,

September 28,

September 26,

(in millions)

Segment sales—

4 unchanged sentences

Intersegment sales—

Packaged Meats

Hog Production

7 unchanged sentences

Consolidated operating profit

In connection with the Merger and the resulting new accounting basis, we recognized $1.7 billion of goodwill, which reflects the amount of the total consideration paid by WH Group that exceeded the fair value of the identifiable assets acquired, liabilities assumed and noncontrolling interests, including the impact of immaterial measurement period adjustments.

The following represents our allocation of goodwill to our reportable segments as of the Merger Date:

Packaged Meats

International

Hog Production

SUBESEQUENT EVENTS

Debt Refinancing

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

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

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

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

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

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

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

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

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

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

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

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

make capital expenditures, make acquisitions and investments;

dispose of or transfer assets;

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

in each case, subject to certain qualifications and exceptions.

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

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.

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