Item 4. Controls and Procedures
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed, under the supervision and with the participation of management, including the Chief Executive Officer (“CEO ” ) and the Chief Financial Officer (“CFO ” ), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act ” )). Based on that evaluation, the CEO and CFO have concluded that, solely due to the material weakness in our internal control over financial reporting previously disclosed in our Amended Annual Report on Form 10-K/A as of October 3, 2020, our disclosure controls and procedures were not effective as of October 3, 2020 or as of April 3, 2021.
Previously Reported Material Weakness in Internal Control Over Financial Reporting
A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
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We did not design and maintain effective controls over the existence of live cattle inventory. Specifically, we did not design and maintain effective controls to verify the existence of Company inventory in the custody of third-party live cattle suppliers and appropriately perform the live cattle inventory reconciliation and review at the designed level of precision. These deficiencies resulted in a revision related to the overstatement of inventory by approximately $285 million and $179 million as of October 3, 2020 and September 28, 2019, respectively, which also had the effect of understating selling, general and administrative expenses by approximately $106 million, $57 million and $63 million for the years ended October 3, 2020, September 28, 2019 and September 29, 2018, respectively. Additionally, these deficiencies could result in a misstatement of the above-referenced account balances or disclosures that would result in a material misstatement to the annual or interim consolidated statements that would not be prevented or detected.
Remediation Plan
As part of our commitment to strengthening our internal control over financial reporting, we have implemented remedial actions under the oversight of the Audit Committee of our Board of Directors to address these deficiencies, including:
• Implementing a control requiring inspection and physical verification of live cattle on third-party feedyards; and
• Training on the execution of the Company’s key control regarding the reconciliation and review of live cattle inventory, including sufficient review based on defined thresholds.
The previously disclosed material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Based on the implementation of these remedial actions, we will continue to monitor and test controls for effectiveness through the remainder of fiscal 2021. We will continue to monitor the design and effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.
Changes in Internal Control Over Financial Reporting
During fiscal 2019, we implemented the primary phase of a new Enterprise Resource Planning system (“ERP”). The implementation will continue in additional phases through fiscal 2021. We concluded, as part of our evaluation, that the implementation of the ERP has not materially affected our internal control over financial reporting.
Other than the remediation efforts noted above, in the second quarter ended April 3, 2021, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
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