Virginia | 52-0845861 | |||
(State of Incorporation) | (I.R.S. Employer Identification Number) |
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | x | Smaller reporting company | o |
PAGE | ||
PART I-FINANCIAL INFORMATION | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II-OTHER INFORMATION | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
Three Months Ended | Six Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
Sales | $ | 3,492.6 | $ | 3,486.6 | $ | 6,798.9 | $ | 7,103.1 | ||||||||
Cost of sales | 3,035.6 | 3,068.1 | 5,929.5 | 6,278.5 | ||||||||||||
Gross profit | 457.0 | 418.5 | 869.4 | 824.6 | ||||||||||||
Selling, general and administrative expenses | 227.8 | 232.6 | 435.9 | 454.5 | ||||||||||||
Income from equity method investments | (7.9 | ) | (0.2 | ) | (13.7 | ) | (4.2 | ) | ||||||||
Operating profit | 237.1 | 186.1 | 447.2 | 374.3 | ||||||||||||
Interest expense | 32.8 | 31.5 | 64.8 | 66.2 | ||||||||||||
Non-operating (gain) loss | — | (0.7 | ) | — | 12.1 | |||||||||||
Income before income taxes | 204.3 | 155.3 | 382.4 | 296.0 | ||||||||||||
Income tax expense | 66.5 | 51.1 | 123.6 | 94.8 | ||||||||||||
Net income | $ | 137.8 | $ | 104.2 | $ | 258.8 | $ | 201.2 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
Net income | $ | 137.8 | $ | 104.2 | $ | 258.8 | $ | 201.2 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation | (41.7 | ) | 43.5 | (8.2 | ) | (40.8 | ) | |||||||||
Pension accounting | 1.2 | 47.0 | 2.4 | 47.7 | ||||||||||||
Hedge accounting | 12.2 | (33.3 | ) | 25.2 | (8.8 | ) | ||||||||||
Total other comprehensive income (loss) | (28.3 | ) | 57.2 | 19.4 | (1.9 | ) | ||||||||||
Comprehensive income | $ | 109.5 | $ | 161.4 | $ | 278.2 | $ | 199.3 |
July 3, 2016 | January 3, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 119.3 | $ | 704.9 | ||||
Accounts receivable, net | 828.8 | 760.0 | ||||||
Inventories | 2,212.3 | 2,099.7 | ||||||
Prepaid expenses and other current assets | 116.8 | 176.4 | ||||||
Total current assets | 3,277.2 | 3,741.0 | ||||||
Property, plant and equipment, net | 2,919.1 | 2,867.3 | ||||||
Goodwill | 1,619.4 | 1,619.5 | ||||||
Intangible assets, net | 1,362.1 | 1,365.7 | ||||||
Investments | 139.7 | 142.5 | ||||||
Other assets | 146.5 | 158.0 | ||||||
Total assets | $ | 9,464.0 | $ | 9,894.0 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt and capital lease obligations | 517.2 | 30.3 | ||||||
Accounts payable | 379.1 | 686.1 | ||||||
Accrued expenses and other current liabilities | 837.0 | 828.3 | ||||||
Total current liabilities | 1,733.3 | 1,544.7 | ||||||
Long-term debt and capital lease obligations | 1,807.0 | 2,257.9 | ||||||
Other liabilities | 1,099.5 | 1,216.5 | ||||||
Redeemable noncontrolling interests | 58.7 | 53.9 | ||||||
Commitments and contingencies | ||||||||
Equity: | ||||||||
Shareholder's equity: | ||||||||
Common stock, no par value, 1,000 shares authorized; 1,000 issued and outstanding | — | — | ||||||
Additional paid-in capital | 4,187.3 | 4,185.1 | ||||||
Retained earnings | 935.8 | 1,013.1 | ||||||
Accumulated other comprehensive loss | (358.3 | ) | (377.7 | ) | ||||
Total shareholder's equity | 4,764.8 | 4,820.5 | ||||||
Noncontrolling interests | 0.7 | 0.5 | ||||||
Total equity | 4,765.5 | 4,821.0 | ||||||
Total liabilities and equity | $ | 9,464.0 | $ | 9,894.0 |
Six Months Ended | ||||||||
July 3, 2016 | June 28, 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 258.8 | $ | 201.2 | ||||
Adjustments to reconcile net cash flows from operating activities: | ||||||||
Depreciation and amortization | 118.9 | 116.4 | ||||||
Stock-based compensation expense | 4.7 | 10.3 | ||||||
Income from equity method investments | (13.7 | ) | (4.2 | ) | ||||
Changes in operating assets and liabilities and other, net | (478.8 | ) | (264.0 | ) | ||||
Net cash flows from operating activities | (110.1 | ) | 59.7 | |||||
Cash flows from investing activities: | ||||||||
Proceeds from sale of equity interest in Campofrio Food Group | — | 354.0 | ||||||
Capital expenditures | (160.0 | ) | (145.3 | ) | ||||
Net expenditures from breeding stock transactions | (24.6 | ) | (29.7 | ) | ||||
Other | 0.7 | (21.1 | ) | |||||
Net cash flows from investing activities | (183.9 | ) | 157.9 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from the issuance of long-term debt | 30.0 | — | ||||||
Principal payments on long-term debt and capital lease obligations | (1.1 | ) | (409.3 | ) | ||||
Proceeds from Securitization Facility | 50.0 | 290.0 | ||||||
Payments on Securitization Facility | (50.0 | ) | (290.0 | ) | ||||
Net proceeds (payments) on revolving credit facilities | 14.4 | (13.3 | ) | |||||
Payment of dividends | (336.1 | ) | (30.0 | ) | ||||
Net cash flows from financing activities | (292.8 | ) | (452.6 | ) | ||||
Effect of foreign exchange rate changes on cash | 1.2 | (3.5 | ) | |||||
Net change in cash and cash equivalents | (585.6 | ) | (238.5 | ) | ||||
Cash and cash equivalents at beginning of period | 704.9 | 433.5 | ||||||
Cash and cash equivalents at end of period | $ | 119.3 | $ | 195.0 |
NOTE 1: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 2: | INVENTORIES |
July 3, 2016 | January 3, 2016 | |||||||
(in millions) | ||||||||
Fresh and packaged meats | $ | 1,056.0 | $ | 885.2 | ||||
Livestock | 900.8 | 882.3 | ||||||
Grains | 122.6 | 204.5 | ||||||
Manufacturing supplies | 85.6 | 80.3 | ||||||
Other | 47.3 | 47.4 | ||||||
Total inventories | $ | 2,212.3 | $ | 2,099.7 |
NOTE 3: | DERIVATIVE FINANCIAL INSTRUMENTS |
Assets | Liabilities | |||||||||||||||
July 3, 2016 | January 3, 2016 | July 3, 2016 | January 3, 2016 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Derivatives using the "hedge accounting" method: | ||||||||||||||||
Grain contracts | $ | 29.1 | $ | 1.1 | $ | 6.2 | $ | 32.3 | ||||||||
Livestock contracts | 9.2 | 11.3 | 24.5 | — | ||||||||||||
Interest rate swaps | — | — | 0.1 | 0.2 | ||||||||||||
Foreign exchange contracts | 0.3 | — | — | 1.2 | ||||||||||||
Total | 38.6 | 12.4 | 30.8 | 33.7 | ||||||||||||
Derivatives using the "mark-to-market" method: | ||||||||||||||||
Grain contracts | 6.1 | 4.2 | 3.5 | 1.0 | ||||||||||||
Livestock contracts | 1.4 | 8.3 | 2.8 | 0.8 | ||||||||||||
Energy contracts | 3.7 | — | 4.5 | 15.7 | ||||||||||||
Foreign exchange contracts | 0.2 | 0.4 | 0.5 | 0.3 | ||||||||||||
Total | 11.4 | 12.9 | 11.3 | 17.8 | ||||||||||||
Total fair value of derivative instruments | $ | 50.0 | $ | 25.3 | $ | 42.1 | $ | 51.5 |
July 3, 2016 | ||||||||||||||||||||
Gross Amount of Derivative Assets/ Liabilities | Netting of Derivative Assets/ Liabilities | Net Derivative Assets/Liabilities | Cash Collateral | Net Amount Presented in the Condensed Consolidated Balance Sheet | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Commodities | $ | 49.5 | $ | (40.6 | ) | $ | 8.9 | $ | 41.6 | $ | 50.5 | |||||||||
Foreign exchange contracts | 0.5 | (0.5 | ) | — | — | — | ||||||||||||||
Total | $ | 50.0 | $ | (41.1 | ) | $ | 8.9 | $ | 41.6 | $ | 50.5 | |||||||||
Liabilities: | ||||||||||||||||||||
Commodities | 41.5 | (40.6 | ) | 0.9 | (0.5 | ) | 0.4 | |||||||||||||
Interest rate swaps | 0.1 | — | 0.1 | — | 0.1 | |||||||||||||||
Foreign exchange contracts | 0.5 | (0.5 | ) | — | — | — | ||||||||||||||
Total | $ | 42.1 | $ | (41.1 | ) | $ | 1.0 | $ | (0.5 | ) | $ | 0.5 |
January 3, 2016 | ||||||||||||||||||||
Gross Amount of Derivative Assets/ Liabilities | Netting of Derivative Assets/ Liabilities | Net Derivative Assets/Liabilities | Cash Collateral | Net Amount Presented in the Condensed Consolidated Balance Sheet | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Commodities | $ | 24.9 | $ | (14.1 | ) | $ | 10.8 | $ | 16.1 | $ | 26.9 | |||||||||
Foreign exchange contracts | 0.4 | (0.4 | ) | — | — | — | ||||||||||||||
Total | $ | 25.3 | $ | (14.5 | ) | $ | 10.8 | $ | 16.1 | $ | 26.9 | |||||||||
Liabilities: | ||||||||||||||||||||
Commodities | 49.8 | (14.1 | ) | 35.7 | (26.9 | ) | 8.8 | |||||||||||||
Interest rate swaps | 0.2 | — | 0.2 | — | 0.2 | |||||||||||||||
Foreign exchange contracts | 1.5 | (0.4 | ) | 1.1 | — | 1.1 | ||||||||||||||
Total | $ | 51.5 | $ | (14.5 | ) | $ | 37.0 | $ | (26.9 | ) | $ | 10.1 |
Minimum | Maximum | Metric | ||||||
Commodities: | ||||||||
Corn | 34,660,000 | 85,585,000 | Bushels | |||||
Soybean meal | 315,600 | 715,300 | Tons | |||||
Lean hogs | 150,040,000 | 1,500,960,000 | Pounds | |||||
Interest rate | 17,238,832 | 18,385,250 | U.S. Dollars | |||||
Foreign currency (1) | 19,352,698 | 42,931,767 | U.S. Dollars |
(1) | Amounts represent the U.S. dollar equivalent of various foreign currency contracts. |
Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion) | Gains (Losses) Reclassified from Accumulated Other Comprehensive Loss into Earnings (Effective Portion) | Gains (Losses) Recognized in Earnings on Derivative (Ineffective Portion) | ||||||||||||||||||||||
Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||
Commodity contracts: | ||||||||||||||||||||||||
Grain contracts | $ | 46.9 | $ | (2.8 | ) | $ | (7.1 | ) | $ | (20.8 | ) | $ | 3.0 | $ | (0.4 | ) | ||||||||
Lean hog contracts | (26.9 | ) | 13.3 | 6.5 | 87.0 | (0.7 | ) | 0.5 | ||||||||||||||||
Interest rate swaps | 0.1 | 0.4 | — | — | — | — | ||||||||||||||||||
Foreign exchange contracts | 0.1 | (0.6 | ) | 0.5 | (1.0 | ) | — | — | ||||||||||||||||
Total | $ | 20.2 | $ | 10.3 | $ | (0.1 | ) | $ | 65.2 | $ | 2.3 | $ | 0.1 | |||||||||||
Six Months Ended | Six Months Ended | Six Months Ended | ||||||||||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||
Commodity contracts: | ||||||||||||||||||||||||
Grain contracts | $ | 44.6 | $ | (33.8 | ) | $ | (18.8 | ) | $ | (44.6 | ) | $ | 2.7 | $ | (3.8 | ) | ||||||||
Lean hog contracts | (13.3 | ) | 145.6 | 11.2 | 170.0 | (0.1 | ) | 2.0 | ||||||||||||||||
Interest rate swaps | 0.1 | 0.3 | — | — | — | — | ||||||||||||||||||
Foreign exchange contracts | 1.6 | (2.3 | ) | 0.1 | (1.6 | ) | — | — | ||||||||||||||||
Total | $ | 33.0 | $ | 109.8 | $ | (7.5 | ) | $ | 123.8 | $ | 2.6 | $ | (1.8 | ) |
Minimum | Maximum | Metric | ||||||
Commodities: | ||||||||
Corn | 1,025,000 | 11,700,000 | Bushels |
Gains Recognized in Earnings on Derivative | Losses Recognized in Earnings on Related Hedged Item | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts | $ | 4.0 | $ | 0.2 | $ | (3.9 | ) | $ | (0.2 | ) | ||||||
Six Months Ended | Six Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts | $ | 4.4 | $ | 2.2 | $ | (4.3 | ) | $ | (2.1 | ) |
Minimum | Maximum | Metric | ||||||
Commodities: | ||||||||
Lean hogs | 200,000 | 223,240,000 | Pounds | |||||
Corn | 5,505,000 | 15,560,000 | Bushels | |||||
Soybean meal | 900 | 50,600 | Tons | |||||
Soybeans | 610,000 | 4,810,000 | Bushels | |||||
Wheat | 825,000 | 5,190,000 | Bushels | |||||
Natural gas | 7,790,000 | 10,720,000 | Million BTU | |||||
Heating oil | 840,000 | 2,100,000 | Gallons | |||||
Live cattle | 7,200,000 | 13,440,000 | Pounds | |||||
Diesel | 3,619,000 | 12,362,000 | Gallons | |||||
Crude oil | 18,000 | 36,000 | Barrels | |||||
Foreign currency (1) | 12,576,626 | 51,399,280 | U.S. Dollars |
(1) | Amounts represent the U.S. dollar equivalent of various foreign currency contracts. |
Three Months Ended | Six Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Commodity contracts | $ | 8.7 | $ | 17.2 | $ | 11.9 | $ | (11.1 | ) | |||||||
Foreign exchange contracts | 1.4 | 0.6 | 0.3 | (0.6 | ) | |||||||||||
Total | $ | 10.1 | $ | 17.8 | $ | 12.2 | $ | (11.7 | ) |
NOTE 4: | DEBT |
NOTE 5: | PENSION PLANS |
Three Months Ended | Six Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Service cost | $ | 12.8 | $ | 15.1 | $ | 25.6 | $ | 30.2 | ||||||||
Interest cost | 20.3 | 19.0 | 40.7 | 38.0 | ||||||||||||
Expected return on plan assets | (24.6 | ) | (22.1 | ) | (49.3 | ) | (44.2 | ) | ||||||||
Net amortization | 2.3 | 1.2 | 4.6 | 2.4 | ||||||||||||
Net periodic pension cost | $ | 10.8 | $ | 13.2 | $ | 21.6 | $ | 26.4 |
NOTE 6: | EQUITY |
Three Months Ended | ||||||||||||||||||||||||
July 3, 2016 | June 28, 2015 | |||||||||||||||||||||||
Before Tax | Tax | After Tax | Before Tax | Tax | After Tax | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Foreign currency translation: | ||||||||||||||||||||||||
Translation adjustment arising during the period | $ | (41.5 | ) | $ | (0.2 | ) | $ | (41.7 | ) | $ | 7.7 | $ | 0.3 | $ | 8.0 | |||||||||
Translation losses reclassified to non-operating (gain) loss | — | — | — | 54.6 | (19.1 | ) | 35.5 | |||||||||||||||||
Pension accounting: | ||||||||||||||||||||||||
Actuarial gain | — | — | — | 76.1 | (29.8 | ) | 46.3 | |||||||||||||||||
Amortization of actuarial losses and prior service credits reclassified to cost of sales | 1.2 | (0.6 | ) | 0.6 | 0.7 | (0.3 | ) | 0.4 | ||||||||||||||||
Amortization of actuarial losses and prior service credits reclassified to SG&A | 1.0 | (0.4 | ) | 0.6 | 0.5 | (0.2 | ) | 0.3 | ||||||||||||||||
Hedge accounting: | ||||||||||||||||||||||||
Gains arising during the period | 20.2 | (7.8 | ) | 12.4 | 10.3 | (4.1 | ) | 6.2 | ||||||||||||||||
Gains reclassified to sales | (7.0 | ) | 2.6 | (4.4 | ) | (87.0 | ) | 33.9 | (53.1 | ) | ||||||||||||||
Losses reclassified to cost of sales | 7.1 | (2.9 | ) | 4.2 | 20.8 | (7.9 | ) | 12.9 | ||||||||||||||||
Losses reclassified to SG&A | — | — | — | 1.0 | (0.3 | ) | 0.7 | |||||||||||||||||
Total other comprehensive income (loss) | $ | (19.0 | ) | $ | (9.3 | ) | $ | (28.3 | ) | $ | 84.7 | $ | (27.5 | ) | $ | 57.2 |
Six Months Ended | ||||||||||||||||||||||||
July 3, 2016 | June 28, 2015 | |||||||||||||||||||||||
Before Tax | Tax | After Tax | Before Tax | Tax | After Tax | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Foreign currency translation: | ||||||||||||||||||||||||
Translation adjustment arising during the period | $ | (7.8 | ) | $ | (0.4 | ) | $ | (8.2 | ) | $ | (87.3 | ) | $ | 11.0 | $ | (76.3 | ) | |||||||
Translation losses reclassified to non-operating (gain) loss | — | — | — | 54.6 | (19.1 | ) | 35.5 | |||||||||||||||||
Pension accounting: | ||||||||||||||||||||||||
Actuarial gain | — | — | — | 76.1 | (29.8 | ) | 46.3 | |||||||||||||||||
Amortization of actuarial losses and prior service credits reclassified to cost of sales | 2.4 | (1.2 | ) | 1.2 | 1.7 | (0.7 | ) | 1.0 | ||||||||||||||||
Amortization of actuarial losses and prior service credits reclassified to SG&A | 2.1 | (0.9 | ) | 1.2 | 0.7 | (0.3 | ) | 0.4 | ||||||||||||||||
Hedge accounting: | ||||||||||||||||||||||||
Gains arising during the period | 33.0 | (12.4 | ) | 20.6 | 109.8 | (43.2 | ) | 66.6 | ||||||||||||||||
Gains reclassified to sales | (11.3 | ) | 4.4 | (6.9 | ) | (170.0 | ) | 66.1 | (103.9 | ) | ||||||||||||||
Losses reclassified to cost of sales | 18.8 | (7.3 | ) | 11.5 | 44.6 | (17.3 | ) | 27.3 | ||||||||||||||||
Losses reclassified to SG&A | — | — | — | 1.6 | (0.4 | ) | 1.2 | |||||||||||||||||
Total other comprehensive income (loss) | $ | 37.2 | $ | (17.8 | ) | $ | 19.4 | $ | 31.8 | $ | (33.7 | ) | $ | (1.9 | ) |
NOTE 7: | FAIR VALUE MEASUREMENTS |
▪ | Level 1—quoted prices in active markets for identical assets or liabilities accessible by the reporting entity. |
▪ | Level 2—observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
▪ | Level 3—unobservable for an asset or liability. Unobservable inputs should only be used to the extent observable inputs are not available. |
July 3, 2016 | January 3, 2016 | |||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Derivatives: | ||||||||||||||||||||||||||||||||
Commodity contracts | $ | — | $ | 8.9 | $ | — | $ | 8.9 | $ | 10.8 | $ | — | $ | — | $ | 10.8 | ||||||||||||||||
Insurance contracts | — | 70.6 | — | 70.6 | — | 70.0 | — | 70.0 | ||||||||||||||||||||||||
Total | $ | — | $ | 79.5 | $ | — | $ | 79.5 | $ | 10.8 | $ | 70.0 | $ | — | $ | 80.8 | ||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Derivatives: | ||||||||||||||||||||||||||||||||
Commodity contracts | 0.7 | 0.2 | — | 0.9 | 18.6 | 17.1 | — | 35.7 | ||||||||||||||||||||||||
Interest rate swaps | — | 0.1 | — | 0.1 | — | 0.2 | — | 0.2 | ||||||||||||||||||||||||
Foreign exchange contracts | — | — | — | — | — | 1.1 | — | 1.1 | ||||||||||||||||||||||||
Total | $ | 0.7 | $ | 0.3 | $ | — | $ | 1.0 | $ | 18.6 | $ | 18.4 | $ | — | $ | 37.0 |
▪ | Derivatives—Derivatives classified within Level 1 are valued using quoted market prices. In some cases where quoted market prices are not available, we value the derivatives using market based pricing models that utilize the net present value of estimated future cash flows to calculate fair value, in which case the measurements are classified within Level 2. 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. |
July 3, 2016 | January 3, 2016 | |||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||||||
(in millions) | ||||||||||||||||
Long-term debt, including current portion | $ | 2,379.4 | $ | 2,299.5 | $ | 2,336.8 | $ | 2,263.7 |
NOTE 8: | CONTINGENCIES |
Three Months Ended | Six Months Ended | |||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Sales: | ||||||||||||||||
Segment sales— | ||||||||||||||||
Fresh Pork | $ | 1,352.2 | $ | 1,364.5 | $ | 2,470.4 | $ | 2,698.6 | ||||||||
Packaged Meats | 1,656.7 | 1,545.6 | 3,402.0 | 3,255.2 | ||||||||||||
Hog Production | 676.4 | 784.6 | 1,296.7 | 1,591.0 | ||||||||||||
International | 371.4 | 352.5 | 688.2 | 682.7 | ||||||||||||
Total segment sales | 4,056.7 | 4,047.2 | 7,857.3 | 8,227.5 | ||||||||||||
Intersegment sales— | ||||||||||||||||
Fresh Pork | (18.9 | ) | (14.1 | ) | (34.1 | ) | (28.8 | ) | ||||||||
Packaged Meats | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Hog Production | (534.7 | ) | (533.7 | ) | (1,002.8 | ) | (1,072.5 | ) | ||||||||
International | (10.4 | ) | (12.7 | ) | (21.4 | ) | (23.0 | ) | ||||||||
Total intersegment sales | (564.1 | ) | (560.6 | ) | (1,058.4 | ) | (1,124.4 | ) | ||||||||
Consolidated sales | $ | 3,492.6 | $ | 3,486.6 | $ | 6,798.9 | $ | 7,103.1 | ||||||||
Operating profit (loss): | ||||||||||||||||
Fresh Pork | 57.9 | (15.1 | ) | 157.8 | 18.1 | |||||||||||
Packaged Meats | 172.9 | 176.3 | 380.0 | 348.8 | ||||||||||||
Hog Production | 15.2 | 39.1 | (68.3 | ) | 32.7 | |||||||||||
International | 19.2 | 14.8 | 33.4 | 30.7 | ||||||||||||
Corporate | (28.1 | ) | (29.0 | ) | (55.7 | ) | (56.0 | ) | ||||||||
Consolidated operating profit | $ | 237.1 | $ | 186.1 | $ | 447.2 | $ | 374.3 |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
▪ | maintain and expand market share, particularly in packaged meats, |
▪ | develop and maintain strong customer relationships, |
▪ | continually innovate and differentiate our products, |
▪ | manage risk in volatile commodities markets, and |
▪ | maintain our position as a low cost producer of live hogs, fresh pork and packaged meats. |
▪ | Fresh Pork operating profit increased by $73.0 million primarily as a result of higher fresh pork market values relative to hog prices. |
▪ | Packaged Meats operating profit decreased by $3.4 million primarily as a result of lower sales volume. |
▪ | Hog Production operating results decreased by $23.9 million primarily as a result of favorable hedging results in the prior year. |
▪ | International operating profit increased by $4.4 million primarily due to improved results in our Mexican joint ventures. |
Three Months Ended | Six Months Ended | ||||||||||||||||
July 3, 2016 | June 28, 2015 | July 3, 2016 | June 28, 2015 | ||||||||||||||
(in millions) | (in millions) | ||||||||||||||||
Net income | $ | 137.8 | $ | 104.2 | $ | 258.8 | $ | 201.2 | |||||||||
Interest expense | 32.8 | 31.5 | 64.8 | 66.2 | |||||||||||||
Income tax expense | 66.5 | 51.1 | 123.6 | 94.8 | |||||||||||||
Depreciation and amortization | 60.3 | 58.4 | 118.9 | 116.4 | |||||||||||||
EBITDA | 297.4 | 245.2 | 566.1 | 478.6 | |||||||||||||
Non-operating (gain) loss | — | (0.7 | ) | — | 12.1 | ||||||||||||
Adjusted EBITDA | $ | 297.4 | $ | 244.5 | $ | 566.1 | $ | 490.7 |
• | Leveraging Smithfield's size and scope in pork industry; |
• | Maximizing our manufacturing platform and distribution system; |
• | Approaching the market more efficiently and effectively; |
• | Best utilizing management talent across company; |
• | Aligning our operations to provide better customer service; |
• | Optimizing operations in areas like brand management, manufacturing, sales, and marketing; and |
• | Strengthening marketing, brand building and innovation across all brands. |
Three Months Ended | |||||||||||
July 3, 2016 | June 28, 2015 | % Change | |||||||||
(in millions) | |||||||||||
Sales | $ | 3,492.6 | $ | 3,486.6 | — | % | |||||
Cost of sales | 3,035.6 | 3,068.1 | (1 | )% | |||||||
Gross profit | 457.0 | 418.5 | 9 | % | |||||||
Selling, general and administrative expenses | 227.8 | 232.6 | (2 | )% | |||||||
Income from equity method investments | (7.9 | ) | (0.2 | ) | NM | ||||||
Operating profit | 237.1 | 186.1 | 27 | % | |||||||
Interest expense | 32.8 | 31.5 | 4 | % | |||||||
Non-operating gain | — | (0.7 | ) | 100 | % | ||||||
Income before income taxes | 204.3 | 155.3 | 32 | % | |||||||
Income tax expense | 66.5 | 51.1 | 30 | % | |||||||
Net income | $ | 137.8 | $ | 104.2 | 32 | % | |||||
▪ | Sales remained relatively flat compared to the prior year. |
▪ | Gross profit increased primarily as a result of higher domestic meat prices and lower hog raising costs, which were partially offset by the effect of more favorable hedging results in the prior year. |
▪ | The decrease in SG&A is primarily attributed to lower marketing and advertising costs. |
▪ | Equity income increased primarily due to improved results in our Mexican joint ventures, which were attributable to lower feed costs. |
Six Months Ended | |||||||||||
July 3, 2016 | June 28, 2015 | % Change | |||||||||
(in millions) | |||||||||||
Sales | $ | 6,798.9 | $ | 7,103.1 | (4 | )% | |||||
Cost of sales | 5,929.5 | 6,278.5 | (6 | )% | |||||||
Gross profit | 869.4 | 824.6 | 5 | % | |||||||
Selling, general and administrative expenses | 435.9 | 454.5 | (4 | )% | |||||||
Income from equity method investments | (13.7 | ) | (4.2 | ) | 226 | % | |||||
Operating profit | 447.2 | 374.3 | 19 | % | |||||||
Interest expense | 64.8 | 66.2 | (2 | )% | |||||||
Non-operating loss | — | 12.1 | (100 | )% | |||||||
Income before income taxes | 382.4 | 296.0 | 29 | % | |||||||
Income tax expense | 123.6 | 94.8 | 30 | % | |||||||
Net income | $ | 258.8 | $ | 201.2 | 29 | % | |||||
▪ | Sales decreased primarily as a result of lower average selling prices of domestic fresh pork, more favorable hedging results in the prior year and lower domestic meat volume, which was partially offset by higher average selling prices of domestic packaged meats products. |
▪ | Gross profit increased primarily as a result of lower pork processing raw material costs and lower hog raising costs. |
▪ | The decrease in SG&A is primarily attributed to lower marketing and advertising costs. |
▪ | Equity income in the prior year was negatively impacted by our former investment in CFG. Equity income also increased due to improved results in our Mexican joint ventures, which were attributable to lower feed costs. |
▪ | The non-operating loss in the prior year is primarily related to a loss on debt extinguishment of $12.8 million as a result of the Tender Offer. |
Three Months Ended | |||||||||||
July 3, 2016 | June 28, 2015 | % Change | |||||||||
(in millions) | |||||||||||
Sales: | |||||||||||
Fresh Pork | $ | 1,352.2 | $ | 1,364.5 | (1 | )% | |||||
Packaged Meats | 1,656.7 | 1,545.6 | 7 | % | |||||||
Hog Production | 676.4 | 784.6 | (14 | )% | |||||||
International | 371.4 | 352.5 | 5 | % | |||||||
Total segment sales | 4,056.7 | 4,047.2 | — | % | |||||||
Intersegment sales | (564.1 | ) | (560.6 | ) | 1 | % | |||||
Consolidated sales | $ | 3,492.6 | $ | 3,486.6 | — | % | |||||
Operating profit (loss): | |||||||||||
Fresh Pork | $ | 57.9 | $ | (15.1 | ) | 483 | % | ||||
Packaged Meats | 172.9 | 176.3 | (2 | )% | |||||||
Hog Production | 15.2 | 39.1 | (61 | )% | |||||||
International | 19.2 | 14.8 | 30 | % | |||||||
Corporate | (28.1 | ) | (29.0 | ) | 3 | % | |||||
Consolidated operating profit | $ | 237.1 | $ | 186.1 | 27 | % | |||||
▪ | Sales decreased 1% primarily due to lower volume. |
▪ | Operating profit increased primarily due to higher fresh pork market values relative to hog prices. |
▪ | Hogs processed in the current quarter remained relatively unchanged from the prior year quarter. |
▪ | Sales increased 7% due to a 10% increase in average selling prices, partially offset by a 3% decline in volume. |
▪ | Operating profit remained relatively unchanged, but declined as a percentage of sales as we were not able to fully pass on a significant increase in raw material costs. |
▪ | Sales decreased 14% due primarily to more favorable hedging results in the prior year quarter and a 2% decrease in head sold. |
▪ | Operating profit decreased due to lower sales, partially offset by lower feed costs. |
▪ | Sales increased 5% primarily due to an 11% increase in volume, partially offset by the impact of foreign currency translation and lower average selling prices. The volume increase was driven largely by a 12% increase in hogs processed and a 16% increase in poultry processed. Foreign currency translation lowered sales 3%, primarily due to a stronger U.S. Dollar. |
▪ | Operating profit increased due to higher equity income from our Mexican joint ventures, primarily due to lower feed costs, which was slightly offset by lower operating profit in Europe, primarily due to higher raw material costs. |
Six Months Ended | |||||||||||
July 3, 2016 | June 28, 2015 | % Change | |||||||||
(in millions) | |||||||||||
Sales: | |||||||||||
Fresh Pork | $ | 2,470.4 | $ | 2,698.6 | (8 | )% | |||||
Packaged Meats | 3,402.0 | 3,255.2 | 5 | % | |||||||
Hog Production | 1,296.7 | 1,591.0 | (18 | )% | |||||||
International | 688.2 | 682.7 | 1 | % | |||||||
Total segment sales | 7,857.3 | 8,227.5 | (4 | )% | |||||||
Intersegment sales | (1,058.4 | ) | (1,124.4 | ) | (6 | )% | |||||
Consolidated sales | $ | 6,798.9 | $ | 7,103.1 | (4 | )% | |||||
Operating profit (loss): | |||||||||||
Fresh Pork | $ | 157.8 | $ | 18.1 | 772 | % | |||||
Packaged Meats | 380.0 | 348.8 | 9 | % | |||||||
Hog Production | (68.3 | ) | 32.7 | (309 | )% | ||||||
International | 33.4 | 30.7 | 9 | % | |||||||
Corporate | (55.7 | ) | (56.0 | ) | (1 | )% | |||||
Consolidated operating profit | $ | 447.2 | $ | 374.3 | 19 | % |
▪ | Sales decreased 8% primarily due to a 7% decrease in average selling prices and a 2% decrease in volume. |
▪ | Operating profit increased primarily due to higher fresh pork market values relative to hog prices. |
▪ | Hogs processed so far in 2016 remain relatively unchanged from the prior year. |
▪ | Sales increased 5% primarily due to an increase in average selling prices from the prior year. Current year sales volume was relatively unchanged from the prior year. |
▪ | Operating profit improved as a result of higher sales and lower advertising expenses. Operating profit margin was relatively unchanged from the prior year. |
▪ | Sales decreased 18% primarily due to more favorable hedging results in the prior year, lower domestic live hog market prices and a 2% decrease in head sold. |
▪ | Operating results decreased primarily due to lower sales, partially offset by lower feed costs. |
▪ | Sales increased 1% despite a 6% negative foreign currency impact due to a stronger U.S. Dollar. On a constant currency basis, sales increased 7% due to an 11% increase in volume, driven largely by a 13% increase in hogs processed and a 15% increase in poultry processed, partially offset by a 3% decrease in average selling prices. |
▪ | Operating profit increased primarily due to higher equity income. Equity income in the prior year was negatively impacted by $4.9 million in losses from our former investment in CFG while results from our Mexican joint ventures improved year over year, primarily due to lower feed costs. |
July 3, 2016 | ||||||||||||||||||||
Facility | Capacity | Borrowing Base Adjustment | Outstanding Letters of Credit | Outstanding Borrowings | Amount Available | |||||||||||||||
(in millions) | ||||||||||||||||||||
Inventory Revolver | $ | 1,025.0 | $ | — | $ | — | $ | — | $ | 1,025.0 | ||||||||||
Securitization Facility | 275.0 | — | (82.6 | ) | — | 192.4 | ||||||||||||||
International facilities | 164.5 | (1.0 | ) | (0.2 | ) | (52.1 | ) | 111.2 | ||||||||||||
Total credit facilities | $ | 1,464.5 | $ | (1.0 | ) | $ | (82.8 | ) | $ | (52.1 | ) | $ | 1,328.6 |
Six Months Ended | ||||||||
July 3, 2016 | June 28, 2015 | |||||||
(in millions) | ||||||||
Net cash flows from operating activities | $ | (110.1 | ) | $ | 59.7 |
▪ | Cash received from customers decreased due to lower sales. |
▪ | Cash paid for grain and other ingredients purchased by the Hog Production segment increased approximately $22.1 million from the prior year. |
▪ | In the current year, we contributed $125.0 million to our qualified pension plans compared to $200.0 million in the prior year. |
▪ | The current year included net tax receipts of $18.0 million for domestic income taxes compared to $67.3 million paid in the prior year. |
▪ | In the current year, we received $18.8 million for the settlement of derivative contracts and for margin requirements compared to $127.0 million in the prior year. |
▪ | In the prior year we received a cash dividend of $14.3 million from one of our Mexican joint ventures. |
Six Months Ended | ||||||||
July 3, 2016 | June 28, 2015 | |||||||
(in millions) | ||||||||
Proceeds from sale of equity interest in CFG | $ | — | $ | 354.0 | ||||
Capital expenditures | (160.0 | ) | $ | (145.3 | ) | |||
Net expenditures from breeding stock transactions | (24.6 | ) | (29.7 | ) | ||||
Other | 0.7 | (21.1 | ) | |||||
Net cash flows from investing activities | $ | (183.9 | ) | $ | 157.9 |
▪ | Capital expenditures during both years primarily related to plant and hog farm improvement and expansion projects, including the replacement of gestation stalls with group pens, which is more fully explained under "Additional Matters Affecting Liquidity" below. |
▪ | In June 2015, we sold our entire equity interest in CFG for $354.0 million million in cash. |
Six Months Ended | ||||||||
July 3, 2016 | June 28, 2015 | |||||||
(in millions) | ||||||||
Proceeds from the issuance of long-term debt | $ | 30.0 | $ | — | ||||
Principal payments on long-term debt and capital lease obligations | (1.1 | ) | (409.3 | ) | ||||
Proceeds from Securitization Facility | 50.0 | 290.0 | ||||||
Payments on Securitization Facility | (50.0 | ) | (290.0 | ) | ||||
Net proceeds (payments) on revolving credit facilities | 14.4 | (13.3 | ) | |||||
Payment of dividends | (336.1 | ) | (30.0 | ) | ||||
Net cash flows from financing activities | $ | (292.8 | ) | $ | (452.6 | ) |
▪ | In the current year, we received proceeds of $30.0 million from a long-term, local currency financing in Romania. |
▪ | In the prior year, we paid $258.1 million of principal payments as a result of the Tender Offer as well as $150.0 million on our Rabobank term loan. |
▪ | Accounts payable decreased by $307.0 million mainly due to the timing of payments. |
▪ | Inventory increased by $112.6 million attributable to an increase in seasonal ham inventory as we prepare for the holiday season. |
▪ | The Company has $426.2 million of senior unsecured public notes maturing on July 1, 2017. While we may choose to use other sources of capital to fund this upcoming maturity, adequate liquidity resources are available to address this maturity in its entirety. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
July 3, 2016 | January 3, 2016 | |||||||
(in millions) | ||||||||
Grains | $ | 4.3 | $ | 18.9 | ||||
Livestock | 94.8 | 1.4 | ||||||
Energy | 6.1 | 3.3 | ||||||
Foreign currency | 4.3 | 7.4 |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit 3.1 | — | Amended and Restated Articles of Incorporation of Smithfield Foods, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2013). |
Exhibit 3.2 | — | Amended and Restated Bylaws of Smithfield Foods, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 26, 2013). |
Exhibit 10.1 | — | Amendment No. 2 to Second Amended and Restated Credit and Security Agreement, dated as of April 30, 2016, among Smithfield Receivables Funding LLC, the Company, Coöperatieve Rabobank, U.A., New York Branch, as the Administrative Agent and Letter of Credit Issuer, and the Lenders and Co-Agents from time to time party (filed herewith). |
Exhibit 31.1 | — | Certification of Kenneth M. Sullivan, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
Exhibit 31.2 | — | Certification of Glenn T. Nunziata, Executive Vice President and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
Exhibit 101 | — | The following financial statements from Smithfield Foods, Inc.'s Quarterly Report on Form 10-Q for the quarter ended July 3, 2016, formatted in XBRL: (i) Consolidated Condensed Statements of Income, (ii) Consolidated Condensed Statements of Comprehensive Income, (iii) Consolidated Condensed Balance Sheets, (iv) Consolidated Condensed Statements of Cash Flows, and (v) the Notes to Consolidated Condensed Financial Statements (filed herewith). |
Smithfield Foods, Inc. | ||
/s/ GLENN T. NUNZIATA | ||
Glenn T. Nunziata On behalf of the registrant and as Executive Vice President and Chief Financial Officer |
Address: | 3411 Silverside Rd. |
Address: | Smithfield Foods, Inc. |
Address: | Securitization - Transaction Management Rabobank International 245 Park Avenue New York, NY 10167 |
Address: | Croeselaan 18 |
1. | I have reviewed this quarterly report on Form 10-Q of Smithfield Foods, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ KENNETH M. SULLIVAN | |
Kenneth M. Sullivan | |
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Smithfield Foods, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ GLENN T. NUNZIATA | |
Glenn T. Nunziata Executive Vice President and Chief Financial Officer |
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DOCUMENT AND ENTITY INFORMATION |
6 Months Ended |
---|---|
Jul. 03, 2016
shares
| |
Entity Information [Line Items] | |
Entity Registrant Name | SMITHFIELD FOODS INC |
Entity Central Index Key | 0000091388 |
Current Fiscal Year End Date | --01-01 |
Entity Filer Category | Non-accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Jul. 03, 2016 |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | Q2 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 1,000 |
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 03, 2016 |
Jun. 28, 2015 |
Jul. 03, 2016 |
Jun. 28, 2015 |
|
Sales | $ 3,492.6 | $ 3,486.6 | $ 6,798.9 | $ 7,103.1 |
Cost of sales | 3,035.6 | 3,068.1 | 5,929.5 | 6,278.5 |
Gross profit | 457.0 | 418.5 | 869.4 | 824.6 |
Selling, general and administrative expenses | 227.8 | 232.6 | 435.9 | 454.5 |
(Income) loss from equity method investments | (7.9) | (0.2) | (13.7) | (4.2) |
Operating profit | 237.1 | 186.1 | 447.2 | 374.3 |
Interest expense | 32.8 | 31.5 | 64.8 | 66.2 |
Nonoperating income | 0.0 | (0.7) | 0.0 | 12.1 |
Income before income taxes | 204.3 | 155.3 | 382.4 | 296.0 |
Income tax (benefit) expense | 66.5 | 51.1 | 123.6 | 94.8 |
Net income | $ (137.8) | $ (104.2) | $ (258.8) | $ (201.2) |
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 03, 2016 |
Jun. 28, 2015 |
Jul. 03, 2016 |
Jun. 28, 2015 |
|
Net income | $ 137.8 | $ 104.2 | $ 258.8 | $ 201.2 |
Foreign Currency Transaction and Translation Gain (Loss) Arising During Period, Net of Tax | (41.7) | 43.5 | (8.2) | (40.8) |
Other Comprehensive (Income) Loss, Pension and Other Postretirement Benefit Plans, Adjustment, Net of Tax | 1.2 | 47.0 | 2.4 | 47.7 |
Other comprehensive income (loss), net of tax: | ||||
Hedge accounting | 12.2 | (33.3) | 25.2 | (8.8) |
Total other comprehensive income (loss) | (28.3) | 57.2 | 19.4 | (1.9) |
Comprehensive income | $ 109.5 | $ 161.4 | $ 278.2 | $ 199.3 |
CONSOLIDATED CONDENSED BALANCE SHEETS (PARENTHETICAL) (Parentheticals) - $ / shares |
Jul. 03, 2016 |
Jan. 03, 2016 |
---|---|---|
Shareholders' equity: | ||
Common stock, par value (in dollars per share) | $ 0.00 | $ 0.00 |
Common stock, authorized shares (in shares) | 1,000 | 1,000 |
Common stock, shares issued (in shares) | 1,000 | 1,000 |
Common stock, shares outstanding (in shares) | 1,000 | 1,000 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended |
---|---|
Jul. 03, 2016 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation Organization Smithfield Foods, Inc., together with its subsidiaries ("Smithfield," "the Company," "we," "us" or "our"), is the largest hog producer and pork processor in the world. We produce and market a wide variety of fresh meat and packaged meats products both domestically and internationally. We conduct our operations through five reportable segments: Fresh Pork, Packaged Meats, Hog Production, International and Corporate. Basis of Presentation The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) 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 January 3, 2016. 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. Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU applies to all contracts with customers, except those that are within the scope of other topics in the FASB Accounting Standards Codification. Compared with current GAAP, the ASU also requires significantly expanded disclosures about revenue recognition. In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14) which defers the effective date by one year to fiscal year and interim periods within those years beginning after December 15, 2017. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. The guidance is not currently effective for us and has not been applied in this Form 10-Q. 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 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. 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. 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 are currently in the process of evaluating the impact of adoption on our consolidated financial statements. In June 2016, the FASB issued Accounting Standards update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 will impact how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and 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. 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. |
INVENTORIES |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | INVENTORIES Inventories consist of the following:
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DERIVATIVE FINANCIAL INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVES FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS Our meat processing and hog production operations use various raw materials, primarily live hogs, corn and soybean meal, which are actively traded on commodity exchanges. We hedge these commodities when we determine conditions are appropriate to mitigate price risk. While this hedging may limit our ability to participate in gains from favorable commodity fluctuations, it also tends to reduce the risk of loss from adverse changes in raw material prices. We attempt to closely match the commodity contract terms with the hedged item. 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. 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. For derivatives that qualify and have been designated as hedges for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the "hedge accounting" method). For derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in current period earnings (commonly referred to as the "mark-to-market" method). We may elect either method of accounting for our derivative portfolio, assuming all the necessary requirements are met. We have in the past availed ourselves of either acceptable method and expect to do so in the future. We believe all of our derivative instruments represent economic hedges against changes in prices and rates, regardless of their designation for accounting purposes. Changes in commodity prices could have a significant impact on cash deposit requirements under our broker and counter-party agreements. 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. 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. 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. The size and mix of our derivative portfolio varies from time to time based upon our analysis of current and future market conditions. All derivative contracts are recorded in prepaid expenses and other current assets or accrued expenses and other current liabilities within the consolidated condensed balance sheets, as appropriate. The following table presents the fair values of our open derivative financial instruments on a gross basis.
The majority of our derivatives are exchange traded futures contracts held with brokers, subject to netting arrangements that are enforceable during the ordinary course of business. Additionally, we have a smaller portfolio of over-the-counter derivatives that are held by counterparties under netting arrangements found in typical master netting agreements. These agreements legally allow for net settlement in the event of bankruptcy. We offset the fair values of derivative assets and liabilities, along with the related cash collateral, that are executed with the same counterparty under these arrangements in the consolidated balance sheets. 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.
See Note 7—Fair Value Measurements for additional information about the fair value of our derivatives. Hedge Accounting Method Cash Flow Hedges 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 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. When cash flow hedge accounting is applied, derivative gains or losses are recognized as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The ineffective portion of derivative gains and losses is recognized as part of current period earnings. Derivative gains and losses, when reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean hog contracts, interest expense for interest rate contracts, and sales 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 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:
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The following table presents the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the periods indicated:
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 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. 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. Fair Value Hedges We enter into derivative instruments (primarily futures contracts) that are designed to hedge changes in the fair value of live hog inventories and firm commitments to buy grains. When fair value hedge accounting is applied, derivative gains and losses are recognized in earnings currently along with the change in fair value of the hedged item attributable to the risk being hedged. 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:
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:
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. Mark-to-Market Method Derivative instruments that are not designated as a hedge, have been de-designated from a hedging relationship, or do not meet the criteria for hedge accounting are marked-to-market with the unrealized gains and losses together with actual realized gains and losses from closed contracts being recognized in current period earnings. 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:
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The following table presents the amount of gains (losses) recognized in the consolidated condensed statements of income on derivative instruments using the "mark-to-market" method by type of derivative contract for the periods indicated:
The table above reflects gains and losses from both open and closed contracts including, among other things, gains and losses related to contracts designed to hedge price movements that occur entirely within a quarter. The table includes amounts for both realized and unrealized gains and losses. The table is not, therefore, a simple representation of unrealized gains and losses recognized in the income statement during any period presented. |
DEBT |
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Jul. 03, 2016 | |
Debt Disclosure [Abstract] | |
DEBT | DEBT 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 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. The SPV is included in our consolidated financial statements and therefore, the accounts receivable owned by it are included in our consolidated balance sheets. 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. |
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Defined Benefit Plans and Other Postretirement Benefit Plans Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS | PENSION PLANS The components of net periodic pension cost consist of:
In January 2016, we made a $125.0 million voluntary contribution to fund our qualified pension plans. |
EQUITY |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY | EQUITY Other Comprehensive Income (Loss) The following tables present changes in the accumulated balances for each component of other comprehensive income (loss) and the related effects on net income of amounts reclassified out of other comprehensive income (loss).
Dividend 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. |
FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are required to consider and reflect the assumptions of market participants in fair value calculations. These factors include nonperformance risk (the risk that an obligation will not be fulfilled) and credit risk, both of the reporting entity (for liabilities) and of the counterparty (for assets). We use, as appropriate, a market approach (generally, data from market transactions), an income approach (generally, present value techniques), and/or a cost approach (generally, replacement cost) to measure the fair value of an asset or liability. These valuation approaches incorporate inputs, such as observable, independent market data, that we believe are predicated on the assumptions market participants would use to price an asset or liability. These inputs may incorporate, as applicable, certain risks such as nonperformance risk, which includes credit risk. The FASB has established a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy gives the highest priority to quoted market prices (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of inputs used to measure fair value are as follows:
We have classified assets and liabilities measured at fair value based on the lowest level of input that is significant to the fair value measurement. For the periods presented, we had no transfers of assets or liabilities between levels within the fair value hierarchy. The timing of any such transfers would be determined at the end of each reporting period. 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:
The following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value on a recurring basis:
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition; 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. Other Financial Instruments We determine the fair value of public debt using Level 2 inputs based on quoted market prices. 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 carrying amounts of cash and cash equivalents, accounts receivable, notes payable and accounts payable approximate their fair values because of the relatively short-term maturity of these instruments. |
CONTINGENCIES |
6 Months Ended |
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Jul. 03, 2016 | |
Loss Contingency [Abstract] | |
CONTINGENCIES | CONTINGENCIES 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. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. North Carolina Nuisance Litigation 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, one complaint was severed into two separate actions, and several additional plaintiffs were joined, bringing the total number of plaintiffs to 541. On June 29, 2015, the Court granted Murphy-Brown's motion to strike certain allegations in the complaints, and plaintiffs subsequently amended all 26 complaints pursuant to the Court's order. Ten plaintiffs dismissed their claims without prejudice. Murphy-Brown filed its answers and affirmative defenses to all 26 complaints on August 31, 2015, and the parties are engaging in discovery. During discovery, several additional plaintiffs dismissed their claims. The 26 currently pending complaints include claims on behalf of 511 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 January 3, 2016. 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. Given that these matters are in the preliminary stages and given the inherent uncertainty of the outcome for these and similar potential claims, we cannot estimate the reasonably possible loss or range of loss for these loss contingencies outside the expenses we will incur to defend against these claims. We will continue to review whether an additional accrual is necessary and whether we have the ability to estimate the reasonably possible loss or range of loss for these matters. |
REPORTABLE SEGMENT |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting Disclosure [Text Block] | NOTE 9: REPORTABLE SEGMENTS Our operating segments are determined on the basis of how we internally report and evaluate financial information used to make operating decisions and assess performance. 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. Our reportable segments are Fresh Pork, Packaged Meats, Hog Production, International and Corporate. The Fresh Pork segment consists of our U.S. fresh pork operations. The Packaged Meats segment consists of our U.S. packaged meats operations. The Hog Production segment consists of our U.S. hog production operations. The International segment is comprised mainly of our meat processing and distribution operations in Poland, Romania and the United Kingdom, our interests in meat processing operations in Mexico, our hog production operations located in Poland and Romania, our interests in hog production operations in Mexico, and our former investment in Campofrío Food Group. The Corporate segment provides management and administrative services to support our other segments. The following table presents sales and operating profit (loss) by segment for the periods indicated:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended |
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Jul. 03, 2016 | |
Accounting Policies [Abstract] | |
Reportable Segments | Smithfield Foods, Inc., together with its subsidiaries ("Smithfield," "the Company," "we," "us" or "our"), is the largest hog producer and pork processor in the world. We produce and market a wide variety of fresh meat and packaged meats products both domestically and internationally. We conduct our operations through five reportable segments: Fresh Pork, Packaged Meats, Hog Production, International and Corporate. |
Business Description and Basis of Presentation [Text Block] | Basis of Presentation The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) 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 January 3, 2016. 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. |
New Accounting Pronouncements, Policy | Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU applies to all contracts with customers, except those that are within the scope of other topics in the FASB Accounting Standards Codification. Compared with current GAAP, the ASU also requires significantly expanded disclosures about revenue recognition. In August 2015, the FASB issued Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14) which defers the effective date by one year to fiscal year and interim periods within those years beginning after December 15, 2017. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. The guidance is not currently effective for us and has not been applied in this Form 10-Q. 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 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. 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. 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 are currently in the process of evaluating the impact of adoption on our consolidated financial statements. In June 2016, the FASB issued Accounting Standards update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). ASU 2016-13 will impact how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and 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. 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. |
INVENTORIES (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Inventory, Current | Inventories consist of the following:
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DERIVATIVE FINANCIAL INSTRUMENTS (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block] | The following table presents the fair values of our open derivative financial instruments on a gross basis.
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Offsetting Assets [Table Text Block] | 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.
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Schedule of Notional Amounts of Outstanding Derivative Positions [Table Text Block] | 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:
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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:
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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:
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Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance [Table Text Block] | The following table presents the amount of gains (losses) recognized in the consolidated condensed statements of income on derivative instruments using the "mark-to-market" method by type of derivative contract for the periods indicated:
The table above reflects gains and losses from both open and closed contracts including, among other things, gains and losses related to contracts designed to hedge price movements that occur entirely within a quarter. The table includes amounts for both realized and unrealized gains and losses. The table is not, therefore, a simple representation of unrealized gains and losses recognized in the income statement during any period presented. The following table presents the effects on our consolidated condensed financial statements of pre-tax gains and losses on derivative instruments designated in cash flow hedging relationships for the periods indicated:
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. 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:
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. |
EQUITY Other Comprehensive Income (Loss) (Tables) |
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Reclassification out of Accumulated Other Comprehensive Income [Table Text Block] | The following tables present changes in the accumulated balances for each component of other comprehensive income (loss) and the related effects on net income of amounts reclassified out of other comprehensive income (loss).
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FAIR VALUE MEASUREMENTS (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] | 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:
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Fair Value and Carrying Value of Debt [Table Text Block] | 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.
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REPORTABLE SEGMENT (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment [Table Text Block] | The following table presents sales and operating profit (loss) by segment for the periods indicated:
|
INVENTORIES (Details) - USD ($) $ in Millions |
Jul. 03, 2016 |
Jan. 03, 2016 |
---|---|---|
Inventory [Line Items] | ||
Livestock | $ 900.8 | $ 882.3 |
Fresh and packaged meats | 1,056.0 | 885.2 |
Grains | 122.6 | 204.5 |
Manufacturing supplies | 85.6 | 80.3 |
Other | 47.3 | 47.4 |
Inventories | $ 2,212.3 | $ 2,099.7 |
DERIVATIVE FINANCIAL INSTRUMENTS Narrative (Details) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended |
---|---|---|
Jul. 03, 2016 |
Jul. 02, 2017 |
|
Derivative [Line Items] | ||
Accumulated Other Comprehensive Income (Loss), Cumulative Changes in Net Gain (Loss) from Cash Flow Hedges, Effect Net of Tax | $ 4.8 | |
Tax On Deferred Gains (Losses) in Accumulated Other Comprehensive Income (Loss) | 2.9 | |
Gains (Losses) Recognized on Closed Commodity Derivative Contracts As the Underlying Cash Transactions Affected Earnings | 0.9 | |
Credit Derivative, Maximum Exposure, Undiscounted | 15.7 | |
Derivative Assets (Liabilities), at Fair Value, Net | $ 8.6 | |
Scenario, Forecast | Commodity Contract | ||
Derivative [Line Items] | ||
Cash Flow Hedge Gain (Loss) to be Reclassified within Twelve Months | $ 5.5 | |
Cash Flow Hedge Gain (Loss) to be Reclassified within Twelve Months, Net of Tax | $ 3.4 |
DERIVATIVE FINANCIAL INSTRUMENTS Gains (Losses) Recognized in Earnings on Fair Value Hedges (Details) - Commodity Contract - Cost of Sales - Fair Value Hedging - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 03, 2016 |
Jun. 28, 2015 |
Jul. 03, 2016 |
Jun. 28, 2015 |
|
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Change in Unrealized Gain (Loss) on Fair Value Hedging Instruments | $ 4.0 | $ 0.2 | $ 4.4 | $ 2.2 |
Change in Unrealized Gain (Loss) on Hedged Item in Fair Value Hedge | $ (3.9) | $ (0.2) | $ (4.3) | $ (2.1) |
DERIVATIVE FINANCIAL INSTRUMENTS Gains (Losses) Recognized in Earnings on Mark-to-Market Contracts (Details) - Not Designated as Hedging Instrument [Member] - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 03, 2016 |
Jun. 28, 2015 |
Jul. 03, 2016 |
Jun. 28, 2015 |
|
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Derivative Instruments, Gain (Loss) Recognized in Income, Net | $ 10.1 | $ 17.8 | $ 12.2 | $ (11.7) |
Commodity Contract | Sales | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Derivative Instruments, Gain (Loss) Recognized in Income, Net | 8.7 | 17.2 | 11.9 | (11.1) |
Foreign Exchange Contract | Operating Expense | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Derivative Instruments, Gain (Loss) Recognized in Income, Net | $ 1.4 | $ 0.6 | $ 0.3 | $ (0.6) |
PENSION PLANS (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 03, 2016 |
Jun. 28, 2015 |
Jul. 03, 2016 |
Jun. 28, 2015 |
|
Defined Benefit Plan Disclosure [Line Items] | ||||
Pension Contributions | $ 125.0 | |||
Defined Benefit Plan, Net Periodic Benefit Cost [Abstract] | ||||
Service cost | $ 12.8 | $ 15.1 | 25.6 | $ 30.2 |
Interest cost | 20.3 | 19.0 | 40.7 | 38.0 |
Expected return on plan assets | (24.6) | (22.1) | (49.3) | (44.2) |
Net amortization | 2.3 | 1.2 | 4.6 | 2.4 |
Pension expense | $ 10.8 | $ 13.2 | $ 21.6 | $ 26.4 |
PENSION PLANS Pension plan narrative (Details) $ in Millions |
6 Months Ended |
---|---|
Jul. 03, 2016
USD ($)
| |
Pension Plan Disclosure [Abstract] | |
Pension Contributions | $ 125.0 |
EQUITY Equity narrative (Details) $ in Millions |
3 Months Ended |
---|---|
Jul. 03, 2016
USD ($)
| |
Equity Narrative [Abstract] | |
Dividends | $ 336.1 |
FAIR VALUE MEASUREMENTS Fair Value and Carrying Value of Debt (Details) - USD ($) $ in Millions |
Jul. 03, 2016 |
Jan. 03, 2016 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Long-term Debt, Fair Value | $ 2,379.4 | $ 2,336.8 |
Long-term Debt | $ 2,299.5 | $ 2,263.7 |
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