What changed in this filing

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Item 2. Management’s Discussion and Analysis

2013-09-06 compared with 2013-03-08 · 153 added, 295 removed, 178 unchanged (72% of the section changed)

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In the United States, we are also the leader in numerous packaged meats categories with popular brands including Farmland®, Smithfield®, Eckrich®, Armour® and John Morrell®.

We are committed to providing good food in a responsible way and maintain robust animal care, community involvement, employee safety, environmental, and food safety and quality programs.

We are committed to providing good food in a responsible way and maintaining robust animal care, community involvement, employee safety, environmental, and food safety and quality programs.

We produce and market a wide variety of fresh meat and packaged meats products both domestically and internationally.

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fresh pork and packaged meats subsidiaries :

The Smithfield Packing Company, Inc., Farmland Foods, Inc.

and John Morrell Food Group.

The Hog Production segment consists of our hog production operations located in the U.S.

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The Corporate segment provides management and administrative services to support our other segments.

Third Quarter of Fiscal 2013 Summary

Net income was $81.5 million , or $.58 per diluted share, in the third quarter of fiscal 2013 compared to net income of $79.0 million , or $.49 per diluted share, in the same quarter last year.

The following summarizes the operating results of each of our reportable segments and other significant items impacting pre-tax income for the third quarter of fiscal 2013 compared to the third quarter of fiscal 2012 :

Pork segment operating profit decreased by $16.0 million primarily as a result of lower fresh pork market prices.

Hog Production segment operating profit decreased $57.9 million primarily as a result of higher feed costs and lower hog prices.

International segment operating profit increased by $37.5 million primarily due to charges recognized by our equity method investee, Campofrío Food Group (CFG), in the prior year, of which our share was $38.7 million .

The prior year included losses on debt extinguishments of $4.6 million .

Debt Refinancing

In August 2012 (fiscal 2013), we issued $1.0 billion aggregate principal amount of ten year, 6.625% senior unsecured notes (2022 Notes) at a price equal to 99.5% of their face value.

We used the net proceeds to repurchase $694.4 million of outstanding senior notes coming due in May 2013 and July 2014.

As a result of these repurchases, we recognized losses on debt extinguishment of $120.7 million in the second quarter of fiscal 2013.

We also extended the maturity date of our $200.0 million Rabobank Term Loan from June 2016 (fiscal 2017) to May 2018 (fiscal 2019).

These activities have significantly improved our debt maturity profile, removed the early maturity trigger on our inventory-based revolving credit facility (the Inventory Revolver), and released the encumbrances on our real estate and fixed assets.

Share Repurchase Program

In June 2012 (fiscal 2013), we announced that our board of directors had approved a new share repurchase program authorizing us to buy up to $250.0 million of our common stock over the next 24 months in addition to the $250.0 million authorized during fiscal 2012 (the Share Repurchase Program).

In July 2012 (fiscal 2013), our board of directors approved an increase of $100.0 million to the authorized amount under the Share Repurchase Program.

Share repurchases may be made on the open market or in privately negotiated transactions.

The number of shares repurchased, and the timing of any buybacks, will depend on corporate cash balances, business and economic conditions, and other factors, including investment opportunities.

The program may be discontinued at any time.

Since the inception of the Share Repurchase Program in June 2011 (fiscal 2012) and through January 27, 2013 , we have repurchased 28,244,783 shares of our common stock for $575.9 million , including related commissions, at an average price of $20.38 per share.

As of January 27, 2013 , we had $24.5 million available for future repurchases under the Share Repurchase Program.

We are closely monitoring the situation with sequestration and how that may affect our plants.

All of our domestic processing facilities are under mandatory inspection by USDA-FSIS, including our pork slaughter facilities that have mandatory USDA inspectors present during all times of operation.

USDA has indicated that inspector furloughs would be concentrated in the July through September time frame and that the agency will send out furlough notices to individual inspectors at least 30 days in advance.

However, industry representatives, elected leaders and others are working to prevent furloughs from occurring.

Possible solutions include Congress striking a bargain to eliminate sequestration altogether;

the passage of more targeted exemptions designed to allow funding of FSIS inspectors from other areas of the USDA budget;

or elimination of certain cuts through the passage of another appropriations continuing resolution.

There can be no assurance that sequestration will not have a material adverse affect on our operations.

Strategy for Growth

We are focused on top and bottom line growth and transforming the Company into a more value-added consumer packaged meats company.

Our strategy includes growing our base business, further improving our cost structure and targeting branded and value-added acquisitions.

The fundamental tenets of our organic growth plan include:

Increased capital investment to upgrade facilities with new machinery and equipment to improve our competitive cost structure and achieve least cost/best in class operations.

We expect $300 million to $350 million in annual capital expenditures over the next several years to fund this investment in our business.

Continued higher investment in marketing and advertising programs to build brand equity and grow sales.

First Quarter of Fiscal 2014 Summary

Net income was $39.5 million , or $.27 per diluted share, in the first quarter of fiscal 2014 compared to net income of $61.7 million , or $.40 per diluted share, in the same quarter last year.

The following summarizes the operating results of each of our reportable segments and other significant changes impacting net income for the first quarter of fiscal 2014 compared to the first quarter of fiscal 2013 :

Pork segment operating profit decreased by $57.2 million due to higher raw material costs and weakness in certain export markets.

Hog Production segment operating profit increased by $43.4 million primarily due to 6% higher market hog prices.

International segment operating profit decreased by $13.9 million , hurt by higher feed costs in Eastern Europe and Mexico.

Corporate segment results decreased by $6.8 million primarily due to acquisition related costs and fees associated with the Shuanghui and KCS transactions, which are described below.

Definitive Merger Agreement

On May 28, 2013, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Shuanghui International Holdings Limited (Shuanghui) and Sun Merger Sub, Inc., a wholly owned subsidiary of Shuanghui (Merger Sub), pursuant to which Merger Sub will merge with and into the Company (the Merger), with the Company surviving the Merger as a wholly owned subsidiary of Shuanghui.

Shuanghui is the majority shareholder of Henan Shuanghui Investment & Development Co., which is China's largest meat processing enterprise and China's largest publicly traded meat products company as measured by market capitalization.

At the effective time of the Merger, each share of the Company's common stock issued and outstanding immediately prior to such effective time (other than shares held by the Company or its wholly owned subsidiaries, or by Shuanghui or Merger Sub) will be automatically converted into the right to receive $34.00 in cash, without interest and less any applicable withholding taxes (the Merger Consideration).

In addition, upon completion of the Merger, all then-outstanding stock-based compensation awards, whether vested or unvested, will be converted into the right to receive the Merger Consideration, less the exercise price of such awards, if any.

A special meeting of the Company's shareholders (the Special Meeting) has been scheduled for September 24, 2013 for the purpose of voting on the approval of the Merger Agreement, the related plan of merger and the Merger.

The closing of the Merger is subject to various conditions, including the condition that the Merger Agreement and the related plan of merger be approved by the affirmative vote of the holders of a majority of all of the outstanding shares of the Company's common stock entitled to vote thereon at the Special Meeting.

The closing of the Merger is also subject to certain regulatory approvals and other customary closing conditions.

Additional information about the Merger and the Merger Agreement is set forth in the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission (the SEC) on May 29, 2013 and in the Company's definitive proxy statement filed with the SEC on August 19, 2013 (the Proxy Statement) with respect to the Special Meeting.

The Merger will provide us with the opportunity to expand our offering of products to China through Shuanghui's distribution network.

Shuanghui will gain access to high-quality, competitively-priced and safe U.S.

products, as well as our best practices and operational expertise.

We do not anticipate any changes in how we do business operationally in the U.S.

and throughout the world.

The Merger would provide our shareholders with significant and immediate cash value for their investment, and would ensure that we continue to execute on our strategic priorities while maintaining our brand excellence, community involvement, and our commitment to environmental stewardship and animal welfare.

The Merger will be financed through a combination of cash provided by Shuanghui, rollover of certain existing Company debt and the proceeds of the Merger Sub Notes.

The Merger Agreement does not contain a financing condition.

The Merger is expected to close in the second half of calendar 2013.

The financing of the Merger is more fully explained under "Additional Matters Affecting Liquidity" below.

If the Merger is consummated, it is currently contemplated that the Merger will be accounted for as a business combination using the acquisition method of accounting.

As such, it is expected that our financial statements in the future will vary in important respects from our historical consolidated financial statements.

The purchase consideration is expected to be allocated to our tangible and intangible assets, liabilities and noncontrolling interests based on their respective fair values as of the date of the Merger.

Certain of these adjustments will impact future net income.

Strategies for Growth

Our strategies for growth include:

Capitalize on export opportunities.

We believe our balanced geographic footprint will position us to capitalize on growing pork consumption trends across Europe, Asia and the Americas.

We have an experienced international sales force and management team to support this growth.

Increase capital investment to upgrade facilities with new machinery and equipment to improve our competitive cost structure and achieve least cost and best in class operations.

We expect $300 million to $350 million in annual capital expenditures over the next several years to fund this investment.

Continue higher investment in marketing and advertising programs to build brand equity and grow sales.

Our plan is to increase our annual marketing and advertising expenditures by double digits for the foreseeable future.

Currently, marketing and advertising expense represents approximately 1% of packaged meats sales.

Establish a culture of innovation to build a strong product pipeline to drive packaged meats volume and margins.

Our innovation initiative will be focused in five strategic areas:

Currently, marketing and advertising expense represents approximately 2% of domestic packaged meats sales.

Build a strong product pipeline to drive packaged meats volume and margins.

We have established a culture of innovation, focusing on five strategic areas:

packaging, health and wellness, convenience, taste and pork consumer solutions.

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Both domestic and export customers are asking for differentiated products, from gestation pen pork to ractopamine-free meat, and we are uniquely positioned to fill this demand.

In addition to our organic growth strategy, we intend to apply a disciplined approach in acquiring branded and value-added companies while maintaining a conservative balance sheet.

Our strategy is to target modest-sized companies that can be easily integrated into our existing business.

We would expect to finance such acquisitions with a combination of cash generated from our existing businesses and debt.

For example, in February 2013 (fiscal 2013), we signed a non-binding letter of intent to form a 50/50 joint venture with Kansas City Sausage Company, LLC (KCS), including its sister company, Pine Ridge Farms, LLC.

This joint venture, as contemplated, will be a leading U.S.

sausage producer and sow processor.

We intend to merge KCS's low-cost, efficient operations and high-quality products with our strong brands and sales and marketing team to continue to grow our packaged meats business.

The venture will operate in Des Moines, Iowa and Kansas City, Missouri.

In Des Moines, the venture will produce premium raw materials for sausage, as well as value-added products, including boneless hams and hides.

The Kansas City plant is a modern sausage processing facility in the U.S.

and is designed for optimum efficiency to provide retail and foodservice customers with high quality products.

With our strong ongoing focus on building our packaged meats business, and with 15% of the U.S.

sow population, this joint venture is a logical fit for the Company.

It will provide a growth platform in two key packaged meats categories — breakfast sausage and dinner sausage — and will allow us to expand our product offerings to our customers.

These categories represent over $4 billion in retail and foodservice sales annually.

The transaction, as anticipated, will be funded with cash on hand and is expected to close in the fourth quarter of fiscal 2013, subject to customary closing conditions.

We expect the transaction to be immediately accretive to earnings.

Our facilities in Clinton, North Carolina and Bladen County, North Carolina are 100% ractopamine-free.

Porcine Epidemic Diarrhea Virus (PEDv)

The USDA has identified PEDv in the United States for the first time.

PEDv is an industry wide issue, but it is currently affecting primarily Midwest swine operators.

Currently, there has only been a very limited impact from the virus on the Company's hog raising operations.

Nevertheless, we are subject to risks relating to our ability to maintain animal health and control PEDv.

Therefore, we are unable to predict whether the disease will impact our operations or market prices in the future.

The commodity markets affecting our business fluctuate on a daily basis.

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The outlook statements that follow must be viewed in this context.

Pork—Our fresh pork business was solidly profitable in the third quarter of fiscal 2013.

We continue to focus on improving our product mix toward differentiated, branded and value-added products, both domestically and in the export markets.

While the fresh pork complex was weak in the latter part of the third quarter of fiscal 2013 and early stages of the fourth quarter of fiscal 2013, we see positive fundamentals looking ahead.

Lower per capita protein supplies and higher prices for competing proteins should help push pork retail prices higher in calendar 2013.

Higher costs and more stringent regulations should yield lower European Union (EU) pork production and EU exports in calendar 2013, which should further strengthen demand for U.S.

pork exports.

While these are positive trends, consumers are facing higher taxes and energy costs, which could adversely impact domestic demand.

Taking all of this into account, we believe fresh pork operating margins will continue to be in the normalized range of $3 to $7 per head in the fourth quarter of fiscal 2013, as well as in fiscal 2014.

Our packaged meats business continues to post strong results.

We anticipate consistent growth, with increased market share and broader distribution of our core brands.

We expect packaged meats operating margins to be at the high end of the normalized range of $.12 to $.17 per pound with volume growth of at least 2-3% for fiscal 2013, and for this trend to continue into fiscal 2014.

Hog Production—Live hog market prices averaged $60 per hundredweight in the third quarter of fiscal 2013, 2% lower than a year ago.

As we move through the fourth quarter of fiscal 2013 and summer, hog prices should move seasonally higher from current levels.

Drought conditions last summer in the United States caused sharp increases in feed grain prices.

Consequently, raising costs averaged $68 per hundredweight in the third quarter of fiscal 2013, up 7% from the prior year.

We expect raising costs to remain at similar levels in the fourth quarter before trending downward by the second quarter of fiscal 2014.

Our grain hedges should dampen the effects of high priced grain for the balance of the fiscal year.

However, we still expect losses per head in the mid single digit range in hog production for fiscal 2013.

It is difficult to forecast hog production results for fiscal 2014 at this point, but we are actively working to mitigate commodity price risk in this segment.

International—Our International segment delivered solid operating profits of $43.7 million in the third quarter of fiscal 2013.

Our European hog production operations should continue to benefit from lower hog supplies on the continent.

Our Mexican hog production joint ventures are currently operating in a challenging production environment.

We expect minimal profitability in these operations for the balance of fiscal 2013.

Before meaningful contributions to segment profitability can be expected, additional improvements in live hog prices and/or feed grain cost will be needed.

On the meat processing side of our international business, we expect profitable results from our Polish meat operations for the balance of fiscal 2013, despite higher raw material costs.

The approval to export pork products out of Romania to EU member countries during the fourth quarter of fiscal 2012 should continue to benefit results from our Romanian meat operations.

We also expect a solid contribution from our Mexican meat operations.

Finally, in the third quarter of fiscal 2012, CFG announced a multi-year comprehensive plan to consolidate and streamline its manufacturing operations, which should improve operating results over the long-term.

In the near-term, however, we expect only modest positive contributions from CFG.

In total, we expect operating profits from this segment to be at the high end of the normalized range of $50 million to $125 million for fiscal 2013 and fiscal 2014.

The first quarter is seasonally the weakest period for fresh pork and should be the least profitable for the Company in fiscal 2014.

We will continue to execute our long-term strategic growth plan to improve earnings and migrate the Company more towards a value-added consumer packaged meats company.

We believe this plan will produce broad-based gains in volume, market share and distribution across our core brands and key product categories.

The combination of those gains, an improving product mix toward differentiated, branded and value-added products, as well as loosening export market restrictions in our fresh pork business and higher contributions from our international meat processing business, should provide significant long-term growth potential for Smithfield.

For fiscal 2014, we expect fresh pork operating profit on a per head basis to average in the low to mid-single digits.

We expect our packaged meats business to continue to post strong results in fiscal 2014 with operating margins averaging in the middle part of our newly established normalized range of $.15 to $.20 per pound.

Lower raising costs, higher hog prices and improved efficiencies and productivity in our Hog Production segment should result in operating margins in the mid-single digits on a per head basis for fiscal 2014.

In our International segment, we anticipate improvement in results for the remainder of fiscal 2014.

RESULTS OF OPERATIONS

Significant Events Affecting Results of Operations

Missouri Litigation

In the first quarter of fiscal 2012, we recognized $39.0 million in charges associated with negotiations over a global settlement for nuisance litigation in Missouri.

The charges were recognized in selling, general and administrative expenses in the Hog Production segment.

During the second quarter of fiscal 2013, the parties to the litigation reached an agreement and consummated the global settlement.

Missouri Hog Farms

In the first quarter of fiscal 2012, we made a decision to permanently idle certain farm assets in Missouri.

Depreciation estimates were revised to reflect the shortened useful lives of the assets.

As a result, we recognized accelerated depreciation charges of $0.7 million and $8.2 million in cost of sales for the three and nine months ended January 29, 2012 , respectively.

These charges are reflected in the Hog Production segment.

These assets were fully depreciated by the end of the third quarter of fiscal 2012.

CFG Consolidation Plan

In December 2011 (fiscal 2012), the board of CFG approved a multi-year plan to consolidate and streamline its manufacturing operations to improve operating efficiencies and increase utilization (the CFG Consolidation Plan).

The CFG Consolidation Plan includes the disposal of certain assets, employee redundancy costs and the contribution of CFG's French cooked ham business into a newly formed joint venture.

As a result, we recorded our share of CFG's charges totaling $38.7 million in (income) loss from equity method investments within the International segment in the third quarter of fiscal 2012.

Acquisition of Kansas City Sausage, LLC

In May 2013 (fiscal 2014), we acquired a 50% interest in Kansas City Sausage Company, LLC (KCS), for $36.0 million in cash.

Upon closing, in addition to the cash purchase price, we advanced $10.0 million to the seller in exchange for a promissory note, which is secured by the remaining membership interests in KCS held by the seller.

Additionally, we entered into a revolving loan agreement with KCS, under which we agreed to make loans from time to time up to an aggregate principal amount of $20.0 million .

The aggregate amount of any obligations incurred under the revolving loan agreement is secured by a first priority security interest in all of the assets of KCS.

KCS operates in Des Moines, Iowa and Kansas City, Missouri.

In Des Moines, KCS produces premium raw materials for sausage, as well as value-added products, including boneless hams and hides.

The Kansas City plant is a modern sausage processing facility and is designed for optimum efficiency to provide retail and foodservice customers with high quality products.

With our strong ongoing focus on building our packaged meats business, and with 15% of the U.S.

sow population, this joint venture is a logical fit for the Company.

It is expected to provide a growth platform in two key packaged meats categories — breakfast sausage and dinner sausage — and to allow us to expand our product offerings to our customers.

These categories represent over $4.0 billion in retail and foodservice sales annually.

KCS is managed by its Board of Directors, which makes decisions that most significantly impact the economic performance of KCS.

We have the right to nominate and elect the majority of the members of the Board of Directors of KCS, and based on the associated voting rights, we have determined that we have a controlling financial interest in KCS.

As a result, the acquisition of our interest in KCS was accounted for in the Pork segment using the acquisition method of accounting.

Currently, KCS generates approximately $200 million in sales annually.

Consolidated Results of Operations

The tables presented below compare our results of operations for the three and nine months ended January 27, 2013 and January 29, 2012 .

As used in the tables, "NM" means "not meaningful."

The tables presented below compare our results of operations for the three months ended July 28, 2013 and July 29, 2012 .

Sales and cost of sales

Three Months Ended

Nine Months Ended

(in millions)

Cost of sales

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The following items explain the significant changes in sales and gross profit:

Three Months:

Sales increased in the current year as a result of higher volumes across all segments.

The decline in gross profit margin was primarily caused by higher hog feed costs and lower fresh meat values in the U.S.

Sales in the current year were slightly higher than the prior year as higher volumes across all segments were largely offset by lower domestic fresh meat market prices and the effects of foreign currency translation.

The decline in gross profit margin was primarily caused by higher hog feed costs and lower fresh meat values in the U.S.

Sales increased significantly due to higher volumes across all segments, higher pork prices in the U.S.

and the acquisition of KCS.

The decline in gross margin was primarily caused by higher raw material costs and weakness in certain export markets.

Selling, general and administrative expenses (SG&A)

Three Months Ended

Nine Months Ended

(in millions)

Selling, general and administrative expenses

The following items explain the significant changes in SG&A:

Three Months:

Pension and other postretirement benefit expense increased $6.7 million in the current year.

Marketing and advertising spending increased significantly in the current year.

Government subsidies recognized in our Romanian operations increased $4.1 million .

The prior year included a charge of $39.0 million related to the Missouri litigation.

The prior year included $6.4 million in professional fees associated with the potential acquisition of a controlling interest in CFG.

In June 2011 (fiscal 2012), we terminated negotiations to purchase the additional interest.

Government subsidies recognized in our Romanian operations increased $4.1 million .

Pension and other postretirement benefit expense increased $20.1 million .

Marketing and advertising spending increased significantly in the current year.

The current year included $1.9 million of foreign currency gains compared to $7.3 million of foreign currency losses in the prior year.

The increase in SG&A is primarily attributable to acquisition related costs associated with the Shuanghui and KCS transactions.

(Income) loss from Equity Method Investments

Three Months Ended

Nine Months Ended

(in millions)

Mexican joint ventures

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(Income) loss from equity method investments

The following items explain the significant changes in (income) loss from equity method investments:

Three Months:

The prior year included $38.7 million of charges related to the CFG Consolidation Plan.

Results from our Mexican joint ventures were negatively impacted by higher hog feed costs, lower hog prices and lower meat sales.

The prior year included $38.7 million of charges related to the CFG Consolidation Plan.

Results from our Mexican joint ventures were negatively impacted by higher hog feed costs, lower hog prices and lower meat sales.

More favorable foreign exchange rates benefited results by $4.6 million year over year.

The decline in profitability of our Mexican joint ventures was largely driven by unfavorable foreign currency transaction losses.

Interest expense

Three Months Ended

Nine Months Ended

(in millions)

Interest expense

Interest expense decreased primarily due to the repurchase of $137.5 million of our senior unsecured and secured notes during fiscal 2012, including $22.6 million of our 10% senior secured notes due July 2014 during the third quarter of fiscal 2012.

Loss on debt extinguishment

Three Months Ended

Nine Months Ended

(in millions)

Loss on debt extinguishment

During the second quarter of fiscal 2013, we recognized a loss of $120.7 million on the repurchase of $589.4 million of our 2014 Notes and $105.0 million of our 2013 Notes.

We recognized losses of $4.6 million and $11.0 million for the three and nine months ended January 29, 2012, respectively, on the repurchase of $59.7 million of our 10% senior secured notes due July 2014.

During the first quarter of fiscal 2012, we recognized a loss on debt extinguishment of $1.2 million for the write-off of debt issuance costs associated with our former asset-based revolving credit agreement (the ABL Credit Facility).

Income tax expense

Three Months Ended

Nine Months Ended

(in millions)

Income tax expense

Effective tax rate

The year-over-year variances in the effective tax rates resulted primarily from the earnings mix between foreign and domestic operations and the passage of the American Taxpayer Relief Act of 2012 that retroactively reinstated the Research and Development, Work Opportunity and Welfare to Work tax credits.

The decline in income tax expense is attributable to the decrease in pre-tax profitability.

Segment Results

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Three Months Ended

Nine Months Ended

(in millions, unless indicated otherwise)

Fresh pork (1)

Packaged meats

Operating profit:

Operating profit (loss):

Fresh pork (1)

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Hogs processed

Average live hog prices (per hundredweight) (3)

Average domestic live hog prices (per hundredweight) (3)

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In addition to the information provided in the table above, the following items explain the significant changes in Pork segment sales and operating profit:

Three Months:

Sales in the current year were slightly higher than the prior year as higher volumes were offset by lower selling prices.

Fresh pork operating profit decreased to $7 per head from $11 per head as lower hog costs only partially offset the decline in fresh meat market prices.

Packaged meats operating profit improved over last year on higher sales volume.

Operating margin was relatively flat compared to last year at $.15 per pound as lower raw material costs were largely offset by a significant increase in marketing and advertising expense and slightly lower average sales prices.

Sales in the current year were slightly lower than the prior year as higher volumes were offset by lower selling prices.

Fresh pork operating profit decreased to $6 per head from $10 per head as lower hog costs only partially offset the decline in fresh meat market prices.

Packaged meats operating profit margin improved to $.17 per pound from $.14 per pound in spite of slightly lower average sales prices and a significant hike in marketing and advertising expense, benefiting from lower raw material costs.

Sales were positively impacted by higher slaughter volumes and weights, solid demand for pork in the U.S., which drove pork prices higher, and the acquisition of KCS.

Fresh pork operating margin decreased to a loss of $5 per head from a loss of $2 per head as sales margins were adversely impacted by weakness in certain export markets.

The first quarter is historically the most difficult time of the year for fresh pork.

Packaged meats operating margin decreased to $.16 per pound from a record $.21 per pound as a result of higher raw material costs, particularly bellies.

Hog Production Segment

Three Months Ended

Nine Months Ended

(in millions, unless indicated otherwise)

Operating (loss) profit

Average live hog prices (per hundredweight) (1)

Operating profit

Average domestic live hog prices (per hundredweight) (1)

Raising costs (per hundredweight) (2)

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Includes the effects of grain derivative contracts designated in hedging relationships.

Does not include the effects of grain derivative contracts that are not designated in hedging relationships for accounting purposes.

In addition to the information provided in the table above, the following items explain the significant changes in Hog Production segment sales and operating profit:

Three Months:

Sales in the current year increased as higher hog weights and increased volume were partially offset by lower sales prices.

The increase in head sold resulted from the repopulation of farms that had been depopulated a year ago as part of our hog production cost savings initiative.

Operating profit was negatively impacted by higher raising costs as a result of higher priced feed, and lower hog market prices.

Sales in the current year were consistent with the prior year as higher hog weights and increased volume were offset by lower sales prices.

Operating profit was negatively impacted by higher hog supplies, resulting in a 7% decrease in live hog prices, and increased raising costs, primarily as a result of higher priced feed.

Operating profit in the prior year included a charge of $39.0 million related to the Missouri litigation.

Fiscal 2013 operating profit includes gains of $66.3 million compared to $33.4 million in fiscal 2012 on derivative contracts that are not reflected in the average live hog prices and raising costs presented in the table above;

primarily lean hog derivative contracts, and grain derivative contracts that are not designated in hedging relationships for accounting purposes.

Fiscal 2012 operating profit includes accelerated depreciation charges of $8.2 million as a result of our decision to permanently idle certain farm assets in Missouri.

Sales and operating profit were positively impacted by higher sales volumes and higher live hog market prices.

Sales and operating profit were positively impacted by higher sales premiums for ractopamine-free hogs and improvements in productivity resulting from the cost savings initiative.

Raising costs increased as a result of higher priced feed.

International Segment

Three Months Ended

Nine Months Ended

(in millions, unless indicated otherwise)

(in millions)

United Kingdom

Operating profit (loss):

United Kingdom

Average unit selling price (3)

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Includes our equity method investments in Mexico and the results from our investment in CFG.

Includes the results from our equity method investments in Mexico and our investment in CFG.

Percentages computed based on local currency amounts.

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In addition to the information provided in the table above, the following items explain the significant changes in International segment sales and operating profit:

Three Months:

Sales volumes in our Polish operations increased as the number of hogs processed increased 25% .

Unit sales prices in our Polish operations increased in several key product categories;

however, higher volumes of lower value by-products that resulted from more processed hogs effectively diminished the overall average unit selling price in the current year.

Operating profit in our Polish operations declined slightly as lower sales prices and higher raising costs resulting from higher priced feed more than offset the increase in sales volume.

Sales and operating profit in our Romainian operations improved on significantly higher average unit selling prices, which benefited from the approval to export pork products to European Union member countries beginning in the fourth quarter of fiscal 2012.

Operating profit also improved as a result of a $4.1 million increase in government farm subsidies received.

Prior year operating profit included $38.7 million of charges related to the CFG Consolidation Plan.

The effect of foreign currency translation decreased sales $125.1 million , or 11% .

The effect of foreign currency translation negatively impacted operating profit by $10.4 million .

Sales and operating profit benefited from significantly higher volumes in our Polish operations due to a 21% increase in the number of hogs processed.

Unit sales prices in our Polish operations increased in several key product categories;

however, higher volumes of lower value by-products that resulted from more processed hogs effectively diminished the overall average unit selling price in the current year.

Sales and operating profit in our Romainian operations improved on significantly higher average unit selling prices and volume, which benefited from the approval to export pork products to European Union member countries beginning in the fourth quarter of fiscal 2012.

Sales and hog slaughter volumes benefited from an expansion in our hog production operations in the second quarter of fiscal 2012.

Operating profit also improved as a result of a $4.1 million increase in government farm subsidies received.

Prior year operating profit included $38.7 million of charges related to the CFG Consolidation Plan.

Sales volumes in our Polish operations increased primarily due to a 19% increase in hogs processed.

Higher volumes of lower value by-products that resulted from more processed hogs effectively diminished the overall average unit selling price in the current year.

Higher hog raising costs negatively impacted operating profit in Poland.

Sales and operating profit in Romania benefitted from significantly higher sales prices, but profitability declined as a result of substantially higher hog feed costs.

Results from our Mexican joint ventures decreased by $2.6 million primarily due to unfavorable foreign currency transaction losses.

Corporate Segment

Three Months Ended

Nine Months Ended

(in millions)

Operating loss

The following items explain significant changes in the Corporate segments' operating loss:

Three Months:

The current year included $3.8 million of gains on the cash surrender value of company owned life insurance policies compared to $1.6 million of gains in the prior year.

The prior year included $6.4 million in professional fees associated with the potential acquisition of a controlling interest in CFG.

In June 2011 (fiscal 2012), we terminated negotiations to purchase the additional interest.

The current year included $4.2 million of gains on the cash surrender value of life insurance policies compared to $1.9 million of losses in the prior year.

Operating results in the corporate segment declined primarily due to acquisition related expenses incurred in connection with the Shuanghui and KCS transactions.

LIQUIDITY AND CAPITAL RESOURCES

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We believe that our current liquidity position is strong and that our cash flows from operations and availability under our credit facilities will be sufficient to meet our working capital needs and financial obligations for at least the next twelve months.

As of January 27, 2013 , our liquidity position was $1.2 billion , comprised of $1.1 billion in availability under our credit facilities and $138.6 million in cash and cash equivalents.

In August 2012 (fiscal 2013), we issued $1.0 billion aggregate principal amount of ten year, 6.625% senior unsecured notes at a price equal to 99.5% of their face value.

We used $804.9 million of the $981.2 million in net proceeds from the debt offering to repurchase the remaining $589.4 million of our 10% senior secured notes due July 2014 (2014 Notes) and $105.0 million of our 7.75% senior unsecured notes due May 2013 (2013 Notes).

As a result of these repurchases, we recognized losses on debt extinguishment of $120.7 million in the second quarter of fiscal 2013, including the write-off of related unamortized discounts, premiums, and debt issuance costs.

We also extended the maturity date of our $200.0 million Rabobank Term Loan from June 2016 (fiscal 2017) to May 2018 (fiscal 2019).

These activities have significantly improved our debt maturity profile, removed the early maturity trigger on the Inventory Revolver, and released the encumbrances on our real estate and fixed assets.

Subsequent to the end of the third quarter of fiscal 2013, we partially exercised the accordion feature of our Second Amended and Restated Credit Agreement and increased the borrowing capacity of the Inventory Revolver from a total of $925.0 million to a total of $1.025 billion .

All other terms and conditions of the Inventory Revolver remain unchanged, including the limitation on the actual amount of credit that is available from time to time under the Inventory Revolver as a result of borrowing base valuations of our inventory, accounts receivable and certain cash balances.

We also executed a new $200.0 million term loan with a scheduled maturity date of February 4, 2014 (the Bank of America Term Loan).

The Bank of America Term Loan bears interest at a rate of LIBOR plus 3.25% per annum or, at our election, a base rate plus 2.25% per annum.

These two financing activities increased our liquidity and provided capital funding at a lower interest rate, which will assist us in retiring upcoming debt maturities in the first quarter of fiscal 2014.

As of July 28, 2013 , our liquidity position was approximately $1.0 billion , comprised of $823.2 million in availability under our credit facilities and $192.8 million in cash and cash equivalents.

Sources of Liquidity

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Because of the rapid turnover rate, we consider our meat inventories and accounts receivable highly liquid and readily convertible into cash.

In addition, although inventory turnover in the Hog Production segment is slower, mature hogs are readily convertible into cash.

The Hog Production segment also has rapid turnover of accounts receivable.

Although inventory turnover in the Hog Production segment is slower, mature hogs are readily convertible into cash.

Borrowings under our credit facilities are used, in part, to finance increases in the levels of inventories and accounts receivable resulting from seasonal and other market-related fluctuations in raw material costs.

Credit Facilities

January 27, 2013

Borrowing Base Adjustment

July 28, 2013

Outstanding Letters of Credit

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Amount Available

(in millions)

Inventory Revolver

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Total credit facilities

We have a shelf registration statement filed with the Securities and Exchange Commission to register sales of debt, stock and other securities from time to time.

We would use the net proceeds from the possible sale of these securities for repayment of existing debt or general corporate purposes.

Operating Activities

Nine Months Ended

Three Months Ended

(in millions)

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The following items explain the significant changes in cash flows from operating activities:

Cash paid for grain and other feed ingredients purchased by the Hog Production segment increased approximately $197 million .

Cash received from customers was lower due to the timing of cash receipts.

In the current year, we paid cash to settle the Missouri litigation.

Net cash payments related to domestic income taxes decreased $168.9 million due to a significant refund in the current year.

We contributed $8.6 million to our qualified and non-qualified pension plans in fiscal 2013 compared to $132.1 million , including a $100.0 million voluntary contribution, in fiscal 2012.

Cash paid to outside hog suppliers was lower due to a 7% decrease in average domestic live hog prices.

Cash received for the settlement of derivative contracts and for margin requirements decreased $32.2 million in fiscal 2013.

Cash paid for domestic grain and other feed ingredients increased approximately $117 million .

In fiscal 2014, we paid $5.4 million for the settlement of derivative contracts and for margin requirements compared to $67.9 million received in fiscal 2013.

Cash paid to outside hog suppliers increased approximately $33 million due to a 6% increase in domestic live hog market prices.

Cash received from customers increased significantly due to increased sales.

Investing Activities

Nine Months Ended

Three Months Ended

(in millions)

Capital expenditures

Business acquisition, net of cash acquired

Net (expenditures) proceeds from breeding stock transactions

Acquisitions, net of cash acquired

Net expenditures from breeding stock transactions

Proceeds from the sale of property, plant and equipment

Net cash flows from investing activities

The following items explain the significant investing activities for the nine months ended January 27, 2013 and January 29, 2012 :

The following items explain the significant investing activities for the three months ended July 28, 2013 and July 29, 2012 :

Capital expenditures primarily related to plant and hog farm improvement projects, including the replacement of gestation stalls with group pens, which is more fully explained under "Additional Matters Affecting Liquidity" below.

We paid $32.8 million , net of cash acquired, for a 50% interest in KCS.

We advanced $10.0 million to the seller of KCS in exchange for a promissory note, which is secured by the remaining membership interests in KCS held by the seller.

Capital expenditures included $21.3 million related to our Kinston, North Carolina plant expansion project.

The remaining capital expenditures primarily related to plant and hog farm improvement projects, including the replacement of gestation stalls with group pens, which is more fully explained under "Additional Matters Affecting Liquidity" below.

In October 2012 (fiscal 2013), we paid $23.1 million , net of cash acquired, for a 70% interest in American Skin Food Group, LLC.

Capital expenditures primarily related to our plan to improve the cost structure and profitability of our domestic hog production operations, our Kinston, North Carolina plant expansion project and the replacement of gestation stalls with group pens, which is more fully explained under "Additional Matters Affecting Liquidity" below.

The remaining capital expenditures primarily related to plant and hog farm improvement projects.

Financing Activities

Nine Months Ended

Three Months Ended

(in millions)

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Principal payments on long-term debt and capital lease obligations

Net proceeds on revolving credit facilities and notes payable

Net proceeds from revolving credit facilities and notes payable

Repurchase of common stock

Change in cash collateral

Debt issuance costs and other

Net cash flows from financing activities

The following items explain the significant financing activities for the nine months ended January 27, 2013 and January 29, 2012 :

In August 2012 (fiscal 2013), we issued $1.0 billion of our 2022 Notes at a price equal to 99.5% of their face value.

We used $804.9 million of the $981.2 million in net proceeds from the debt offering to repurchase the remaining $589.4 million of our 2014 Notes and $105.0 million of our 2013 Notes.

We received net proceeds of $72.1 million from draws on credit facilities, including $30.0 million from the Securitization Facility.

We repurchased 19,068,079 shares of our common stock for $386.4 million as part of the Share Repurchase Program.

We incurred $18.0 million in transaction fees in connection with the issuance of the 2022 Notes, which are being amortized over their ten -year life.

We redeemed the remaining $77.8 million of our 7% senior unsecured notes due August 2011 and repurchased $59.7 million of our 2014 Notes.

We received $18.4 million from draws on credit facilities in the International segment.

We repurchased 5,515,377 shares of our common stock for $110.6 million as part of the Share Repurchase Program.

We received $20.0 million of cash previously held in a deposit account to serve as collateral for overdrafts on certain of our bank accounts and $3.9 million of cash from the counterparty of an interest rate swap contract.

We paid $11.0 million of debt issuance costs in connection with the refinancing of the ABL Credit Facility in the first quarter of fiscal 2012.

Financial Position

Our balance sheet as of January 27, 2013 , as compared to April 29, 2012 , was impacted by the following significant changes:

Inventories increased $318.3 million mainly due to a larger hog population and increased grain and feed inventories in storage for future use.

Also, higher grain prices contributed to higher inventory values.

Accrued expenses and other current liabilities decreased by $104.9 million due to the settlement of the Missouri litigation, timing related to accruals for annual variable compensation and lower margin deposits held by us related to our open derivative positions.

The following items explain the significant financing activities for the three months ended July 28, 2013 and July 29, 2012 :

In July 2013 , we repaid the outstanding principal balance on our 4% senior unsecured convertible notes totaling $400.0 million .

In May 2013 , we repaid the remaining outstanding principal amount on our 7.75% senior unsecured notes totaling $55.0 million .

We drew $275.0 million on our Inventory Revolver and $170.0 million on our Securitization Facility to repay the aforementioned notes and for working capital needs.

We repurchased 7,421,231 shares of our common stock for $145.3 million as part of the Share Repurchase Program, which is more fully explained under "Additional Matters Affecting Liquidity."

Interest Rate Spread

Although we had no borrowings on the Inventory Revolver as of January 27, 2013 , the applicable interest rate would have been LIBOR plus 3.0% .

As of January 27, 2013 , we had $30.0 million of borrowings outstanding on the Securitization Facility with an interest rate equal to 0.3% plus 1.75% .

Interest rates for both the Inventory Revolver and the Securitization Facility are based on pricing-level grids in the respective agreements and determined by our Funded Debt to EBITDA ratio (as defined in the Second Amended and Restated Credit Agreement).

As of July 28, 2013 , the interest rates on borrowings under the Inventory Revolver and the Securitization Facility were LIBOR plus 3.25% and the lender's cost of funds of 0.22% plus 1.15% , respectively.

The Inventory Revolver interest rate spread is based on a pricing-level grid in the agreement and determined by our Funded Debt to EBITDA ratio (as defined in the Second Amended and Restated Credit Agreement, dated as of June 9, 2011, among the Company, specified subsidiaries of the Company, Rabobank Nederland, New York Branch, as Administrative Agent, specified lenders, and the other specified agents and arrangers, as amended).

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

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

We (together with our joint venture partners) guarantee debt borrowed by Agroindustrial del Noroeste (Norson), an unconsolidated joint venture, of up to $87.0 million , of which $57.5 million was outstanding as of January 27, 2013 .

The covenants in the guarantee relating to Norson’s debt incorporate our covenants under the Inventory Revolver.

In addition, we continue to guarantee $10.5 million of leases that were transferred to JBS S.A.

As of July 28, 2013 , we continued to guarantee $9.9 million of leases that were transferred to JBS S.A.

in connection with the sale of Smithfield Beef, Inc.

Some of these lease guarantees may be released in the near future and others may remain in place until the leases expire through February 2022.

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

Additional Matters Affecting Liquidity

Capital Projects

As of January 27, 2013 , we anticipate capital expenditures of $80 million to $100 million for the remainder of fiscal 2013, including approximately $17 million related to our Kinston, North Carolina plant expansion project.

We anticipate annual capital expenditures in the range of $300 million to $350 million over the next several years to upgrade facilities with new machinery and equipment in order to improve our competitive cost structure and achieve least cost and best in class operations.

These capital expenditures are expected to be funded with cash flows from operations and/or borrowings under credit facilities.

Share Repurchase Program

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Share repurchases may be made on the open market, or in privately negotiated transactions.

The number of shares repurchased, and the timing of any buybacks, depend on corporate cash balances, business and economic conditions, and other factors, including investment opportunities.

The number of shares repurchased, and the timing of any buybacks, will depend on corporate cash balances, business and economic conditions, and other factors, including investment opportunities.

The program may be discontinued at any time.

As of January 27, 2013 , we had $24.5 million available for future repurchases under the Share Repurchase Program.

The Merger Agreement generally prohibits the Company from repurchasing any of its shares prior to completion of the Merger.

Since the inception of the Share Repurchase Program in June 2011 (fiscal 2012) and through July 28, 2013 , we have repurchased 28,244,783 shares of our common stock for $575.9 million , including related fees.

As of July 28, 2013 , we had approximately 24.5 million available for future repurchases under the Share Repurchase Program.

In January 2007 (fiscal 2007), we announced a voluntary, ten-year program to phase out individual gestation stalls at our Company-owned sow farms and replace the gestation stalls with group pens.

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We will continue the conversion as planned with the objective of completing conversions for all sows on Company-owned farms by the end of 2017.

Definitive Merger Agreement

The Merger Agreement contains certain termination rights for the Company and Shuanghui.

Upon termination of the Merger Agreement under specified customary circumstances, the Company will be required to pay Shuanghui a termination fee.

If the Merger Agreement is terminated in connection with the Company entering into an alternative acquisition agreement in respect of a superior proposal or making a change of recommendation, or in certain other customary circumstances, the termination fee payable by the Company to Shuanghui will be $175.0 million .

The Merger Agreement also provides that Shuanghui will be required to pay the Company a reverse termination fee of $275.0 million (which is not exclusive in the case of a willful breach by Shuanghui) if the Merger Agreement is terminated under certain circumstances in connection with a willful breach by Shuanghui, termination primarily caused by the failure to obtain required U.S.

or foreign antitrust or other regulatory approvals (other than the Committee on Foreign Investment in the United States), or termination as a result of the failure by Shuanghui to receive the proceeds of its committed debt financing and consummate the Merger.

On July 31, 2013, Merger Sub issued $500.0 million aggregate principal amount of 5.25% senior notes due August 1, 2018 and $400.0 million aggregate principal amount of 5.875% senior notes due August 1, 2021 (together, the Merger Sub Notes) as part of the financing for the acquisition of the Company.

Upon the consummation of the Merger and release of the proceeds from escrow, the Merger Sub Notes will become unsecured obligations of the Company ranking equally in right of payment with all of our existing and future senior unsecured indebtedness.

As a result, our cash interest payments are expected to increase significantly in future periods.

Risk Management Activities

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Conversely, when the value of our open derivative contracts increases, our brokers may be required to deliver margin deposits to us for a portion of the increase.

During the nine months ended January 27, 2013 , margin deposits ranged from $(67.9) million to $30.5 million (negative amounts representing margin deposits we received from our brokers).

The average daily amount we held on deposit from our brokers during the nine months ended January 27, 2013 was $16.7 million .

As of January 27, 2013 , the net amount we held on deposit from our brokers was $19.3 million .

During the three months ended July 28, 2013 , margin deposits posted by us ranged from $29.6 million to $80.7 million .

The average daily amount on deposit with brokers during the three months ended July 28, 2013 was $54.8 million .

As of July 28, 2013 , the net amount on deposit with brokers was $80.7 million .

The effects, positive or negative, on liquidity resulting from our risk management activities tend to be mitigated by offsetting changes in cash prices in our core business.

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These offsetting changes do not always occur, however, in the same amounts or in the same period, with lag times of as much as twelve months.

Missouri Litigation

During the second quarter of fiscal 2013, the parties to certain nuisance litigation in Missouri reached an agreement and consummated a global settlement that resolved substantially all of the litigation.

The global settlement was not materially different than the accrual we maintained for the settled litigation and, therefore, did not materially affect our profits or losses in the second quarter of fiscal 2013.

Payments made by us under the global settlement and payments we received from the insurance carriers are included in our cash flows from operations for the nine months ended January 27, 2013 .

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Actual results could differ from those estimates.

The following describes updates to our critical accounting policies and estimates, which are more fully described in “Item 7.

There have been no significant updates to our critical accounting policies and estimates described in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended April 28, 2013 .

Impairment Considerations of Equity Method Investments

We review the carrying value of our equity method investments and consider whether indicators of impairment exist.

Examples of impairment indicators include a history of operating losses or an expectation of future operating losses, and declines in a quoted share price, among other factors.

If an impairment indicator exists, we must evaluate the fair value of our investment to determine if a loss in value, which is other than temporary, has occurred.

We are required to recognize a loss in value of our investment if that loss is considered to be other than temporary.

As of January 27, 2013 , the carrying value of our investment in CFG exceeded the quoted market price on the Bolsa de Madrid Exchange (Madrid Exchange), indicating a possible impairment of our investment.

However, CFG's share price is just one of several factors we consider in evaluating the fair value of our investment in CFG.

In assessing the fair value of our investment, we considered a variety of information, including an independent third party valuation report, which incorporates generally accepted valuation techniques, CFG's history of positive cash flows, expectations about the future cash flows of CFG, market multiples for comparable businesses, and an influence premium applied to the market price of CFG's shares on the Madrid Exchange to adjust for our contractual right to two board seats and our ability to exert significant influence over the operational and strategic decisions of the company.

Based on an evaluation of all these factors, we concluded the fair value of our investment in CFG as of January 27, 2013 , exceeded its carrying amount.

However, our estimate of fair value has declined by approximately 10% to 20% over the last 21 months, significantly eroding the gap between fair value and carrying value.

The fair value decline is primarily attributable to persistent recessionary conditions in Western Europe, which have dampened CFG's current operating performance.

In addition, rising interest rates associated with European sovereign debt crises have forced discount rates higher, diminishing the values calculated using our discounted cash flow techniques.

Finally, CFG's share price on the Madrid Exchange has declined and, notwithstanding our reservations about the Madrid Exchange price, we nonetheless utilize it as a component of our valuation work and believe such declines must be considered as part of our fair value estimate.

While we do not believe our investment is impaired as of January 27, 2013 , the confluence of these and other factors has decreased our estimate of CFG's fair value and increased the risk of impairment.

If the trends contributing to our lower estimate of CFG's fair value continue, the investment would become impaired.

Specifically, if the most sensitive factors affecting our fair value calculations (i.e., estimates of future cash flows, interest rates and share price) continue to deteriorate, it is reasonably possible that our estimate of fair value could fall below carrying value.

If that occurs, and we determine that the decline is other than temporary, we would record a charge to income for the difference between the estimate of fair value and the carrying amount of our investment.

FORWARD-LOOKING STATEMENTS

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The forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts.

Our forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the statements.

These risks and uncertainties include the availability and prices of live hogs, feed ingredients (including corn), raw materials, fuel and supplies, food safety, livestock disease, live hog production costs, product pricing, the competitive environment and related market conditions, risks associated with our indebtedness, including cost increases due to rising interest rates or changes in debt ratings or outlook, hedging risk, adverse weather conditions, operating efficiencies, changes in foreign currency exchange rates, access to capital, the cost of compliance with and changes to regulations and laws, including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws, adverse results from litigation, actions of domestic and foreign governments, labor relations issues, credit exposure to large customers, the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, our ability to effectively restructure portions of our operations and achieve cost savings from such restructurings and other risks and uncertainties described under "Item 1A.

Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended April 29, 2012 .

Our forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements.

These risks and uncertainties include, but are not limited to:

the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, the failure to receive, on a timely basis or otherwise, approval of the Merger proposal by the Company's shareholders or the approval of government or regulatory agencies with regard to the Merger, the failure of one or more conditions to the closing of the Merger Agreement to be satisfied, the failure of Shuanghui to obtain the necessary financing in connection with the Merger Agreement, the amount of the costs, fees, expenses and charges related to the Merger Agreement or Merger, risks arising from the Merger's diversion of management's attention from our ongoing business operations, risks that our stock price may decline significantly if the Merger is not completed, the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners pending the completion of the Merger, the availability and prices of live hogs, feed ingredients (including corn), raw materials, fuel and supplies, food safety, livestock disease, live hog production costs, product pricing, the competitive environment and related market conditions, risks associated with our indebtedness, including cost increases due to rising interest rates or changes in debt ratings or outlook, hedging risk, adverse weather conditions, operating efficiencies, changes in foreign currency exchange rates, access to capital, the cost of compliance with and changes to regulations and laws, including changes in accounting standards, tax laws, environmental laws, agricultural laws and occupational, health and safety laws, adverse results from litigation, actions of domestic and foreign governments, labor relations issues, credit exposure to large customers, the ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, and other risks and uncertainties described under Part I, Item 1A.

“Risk Factors” in Smithfield's Annual Report on Form 10-K for the fiscal year ended April 28, 2013 .

Readers are cautioned not to place undue reliance on forward-looking statements because actual results may differ materially from those expressed in, or implied by, the statements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis