<DOCUMENT>
<TYPE>424B3
<SEQUENCE>1
<FILENAME>d424b3.txt
<DESCRIPTION>FORM 424B3
<TEXT>
<PAGE>

                                               Filed pursuant to Rule 424 (b)(3)
                                                      Registration No. 333-74306


PROSPECTUS


                            Smithfield Foods, Inc.


             OFFER TO EXCHANGE UP TO $300,000,000 OF ITS 8% SENIOR
         NOTES, SERIES B, DUE 2009 FOR ANY AND ALL OF ITS OUTSTANDING
               $300,000,000 8% SENIOR NOTES, SERIES A, DUE 2009


                      ___________________________________

THE EXCHANGE OFFER

 . We will exchange all senior notes that are validly tendered and not validly
  withdrawn for an equal principal amount of exchange notes that are freely
  tradable.

 . You may withdraw tenders of senior notes at any time prior to the expiration
  of the exchange offer.

 . The exchange offer expires at 5:00 p.m., New York City time, on January 8,
  2002. We do not currently intend to extend the expiration date.

THE EXCHANGE NOTES

 . The terms of the exchange notes to be issued in the exchange offer are
  substantially identical to the senior notes, except that the exchange notes
  will be freely tradable.

 . The exchange notes will mature on October 15, 2009.

 . Interest on the exchange notes will be payable semi-annually on April 15 and
  October 15 of each year, commencing on April 15, 2002.


     YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.


     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

               The date of this Prospectus is December 10, 2001
<PAGE>

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                Page
                                                ----
<S>                                             <C>
Special Note Regarding Forward-
 Looking Statements...........................     i
Where You Can Find More
 Information..................................     i
Incorporation of Certain
 Documents By Reference.......................    ii
Summary.......................................     1
Risk Factors..................................    14
Use of Proceeds...............................    21
Ratio of Earnings to Fixed
 Charges......................................    21
Capitalization................................    22
Selected Historical Consolidated
 Financial Data...............................    23
Management's Discussion and
 Analysis of Financial Condition
 and Results of Operations....................    25
Description of Other
 Indebtedness.................................    34
Business......................................    40
Management....................................    55
Principal Shareholders........................    56
Related Party Transactions....................    57
The Exchange Offer............................    60
Description of Notes..........................    76
Plan of Distribution..........................   119
Legal Matters.................................   120
Independent Public
 Accountants..................................   120
Index to Financial Statements.................   F-1
</TABLE>


               SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This prospectus contains "forward-looking" statements within the meaning
of the federal securities laws. 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. Forward-looking
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 ability to make effective
acquisitions and successfully integrate newly acquired businesses into existing
operations, the availability and prices of live hogs, raw materials and
supplies, livestock disease, live hog production costs, product pricing, the
competitive environment and related market conditions, operating efficiencies,
access to capital, the cost of compliance with environmental and health
standards, adverse results from on-going litigation and actions of domestic and
foreign governments and other risks and uncertainties described under "Risk
Factors" or in other documents we file with the Securities and Exchange
Commission and incorporate by reference into this prospectus.


                      WHERE YOU CAN FIND MORE INFORMATION

     We are subject to the informational reporting requirements of the Exchange
Act, and, in accordance with the Exchange Act, we file reports, proxy statements
and other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room

                                       i
<PAGE>

1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the SEC's Regional Offices in New York (233 Broadway, New York, New York 10279),
and Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661). Copies of these materials may be obtained from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. In addition, the SEC
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC.


                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

     The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you be
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and later information that we file with
the SEC will automatically update or supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, as amended, after
the date of this prospectus and prior to the termination of the exchange offer:

  .   Annual Report on Form 10-K for the fiscal year ended April 29, 2001;

  .   Quarterly Report on Form 10-Q and 10-Q/A for the 13 weeks ended July 29,
      2001; and

  .   Current Report on Form 8-K filed October 19, 2001.

     You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Corporate Secretary, Smithfield Foods,
Inc., 200 Commerce Street, Smithfield, Virginia 23430, telephone number (757)
365-3000.

                                       ii
<PAGE>

                                    SUMMARY

  The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in, or
incorporated by reference into, this prospectus. All references to fiscal year
in this prospectus refer to the fiscal year ending on the Sunday closest to
April 30 of each year (e.g., "fiscal year 2001" is the fiscal year ending on
April 29, 2001).

                                  THE COMPANY

  We are the largest hog producer and pork processor in the world. We conduct
our business through two groups, the Meat Processing Group and the Hog
Production Group, each comprised of a number of subsidiaries.

  Our Meat Processing Group produces both fresh pork and a full complement of
processed meats including ham, bacon, sausage, hot dogs and luncheon meats. We
have operations in the United States, Canada, Poland, France and Mexico.
Approximately 21% of our annual sales are generated from operations outside of
the United States, of which sales from Canada account for approximately 60% of
these international sales. Our products are marketed nationwide under numerous
brand names including Smithfield Premium, John Morrell, Gwaltney, Patrick
Cudahy, Kretschmar, Rath, Valleydale, Ember Farms, Lykes, Great, Esskay and
Smithfield Lean Generation Pork. In addition, we manufacture products under
private labels for the retail and foodservice trade.

  Our Hog Production Group raises approximately 12 million hogs annually,
representing approximately 12% of the U.S. hog production market and three times
the production of our nearest competitor. Our hog production operations are
primarily based in the southeastern and midwestern United States. We transfer a
majority of the hogs we produce to our own processing facilities and sell the
remainder under long-term contracts to other processors.

  We consider our Meat Processing Group and Hog Production Group to be
countercyclical to each other. Generally, pork processors make more money when
hog prices are low and processing margins decline when hog prices are high. We
believe the combination of the operations of these two industry segments offers
a competitive advantage and, over time, should achieve more stable results than
those of less vertically integrated competitors.

  For the 52 week period ended July 29, 2001, we had sales of $6.1 billion and
EBITDA (as defined in this prospectus) of $525.0 million. Over the last 10
fiscal years, sales and EBITDA have grown at a compound annual growth rate of
21% and 29%, respectively, due to a combination of internal growth and strategic
acquisitions.

Business Strategy

  Our business is based on four basic strategies:

  .  Vertical Integration. We, principally through the acquisitions of Carroll's
     Foods of Virginia, Inc. and Murphy Farms in fiscal years 1999 and 2000,
     have increased our vertical integration into hog production from 8% to 60%.
     We produce hogs through a

                                       1
<PAGE>

     combination of company-owned and contract production operations in addition
     to long-term partnerships and strategic alliances. We believe that vertical
     integration provides a number of competitive advantages, including
     substantial economies of scale from high volume hog production, increased
     control over raw material quality and consistency, and operational,
     logistical and transportation efficiencies due to the close proximity of
     our hog production operations to our processing facilities. We intend to
     position ourselves to maximize the benefits of vertical integration.

  .  Advanced Genetics. Since May 1991, we have made extensive use of our
     exclusive United States franchise rights from the National Pig Development
     Company, or NPD, relating to genetic lines of specialized breeding stock.
     These hogs are among the leanest hogs commercially available, and enable us
     to market highly differentiated pork products. Since introducing a herd of
     2,000 sows in 1990, we have increased the number of NPD sows to 385,000, or
     approximately 55% of our total sow inventory. Over the next five years we
     intend to further expand production of NPD sows. We believe that the
     leanness and increased meat yields of these hogs will continue to increase
     the overall quality and consistency of our fresh pork and processed meats.

  .  Strategic Acquisitions. Over the last decade, we have made several
     significant acquisitions that have increased production capacity, provided
     vertical integration, expanded our geographic reach into new markets, both
     domestically and internationally, and created a portfolio of highly
     recognized regional brands. Recently, we have taken steps to expand our
     business into beef processing. To that end, we recently acquired Moyer
     Packing Company, the ninth largest U.S. beef processor, providing us with
     the opportunity to expand our geographic reach into the northeastern United
     States and offer a broader range of complementary products. In addition,
     during the second quarter of our current fiscal year, we completed the
     acquisition of Packerland Holdings, Inc., the fifth largest U.S., beef
     processor with its principal operations in the northern Midwest and the
     Southwest. During the quarter we also completed the acquisition of
     Stadler's Country Hams, Inc., a producer of country hams, and a 75%
     interest in RMH Foods, Inc., a company specializing in pre-cooked pork and
     beef entrees under the Quick-n-Easy/TM/ brand. On November 1, 2001, we
     announced an agreement in principle to acquire beef packer American Foods
     Group, Inc., the nation's tenth largest beef packer. Going forward, we will
     continue to look to grow through strategic acquisitions both domestically
     and internationally.

  .  Value-Added and Branded Products. We believe that significant earnings
     growth will occur through focused efforts to market value-added and branded
     products. In this regard, we have embarked on a strategy of increasing
     brand awareness by marketing branded fresh pork and further processed fresh
     pork cuts into value-added and case-ready products for sale to retailers
     and consumers. In addition, we introduced a new line of fresh pork products
     under the Smithfield Lean Generation Pork brand name approximately six
     years ago. These products, using only raw materials from the NPD hog, are
     marketed nationwide to selected retailers and institutional food customers.
     Since their introduction, sales of Smithfield Lean Generation Pork products
     have grown to more than 100 million pounds annually. The success of this
     and other branded pork programs provides us with increased name recognition
     among retailers and consumers, which we believe facilitates our sale of
     other processed meat products such as ham, bacon, sausage and hot dogs.

                                       2
<PAGE>

                              RECENT DEVELOPMENTS

     On November 20, 2001, we announced that our net income rose 36% to $60.5
million, or $.56 per diluted share, for the second quarter ended October 28,
2001 compared with $44.6 million, or $.40 per diluted share, for the comparable
prior year period.

     Net income for the first six months of fiscal 2002 totaled $117.4 million,
or $1.10 per diluted share compared to $89.1 million, or $.81 per diluted share
in the first half of fiscal 2001. Results in the current year included two
unusual items, the net result of which added $1.2 million after-tax to net
income, or $.01 per diluted share.  In the first quarter, we reported a gain on
the sale of IBP stock of $4.2 million after tax, or $.04 per diluted share,
largely offset by a loss of $3.0 million, after-tax, or $.03 per diluted share,
incurred as a result of a fire at a Circle Four farm in Utah.

     At the beginning of the current fiscal year, we adopted Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS 142).  In accordance with the provisions of SFAS 142, we discontinued the
periodic amortization of goodwill but are now required to annually review
recorded goodwill for potential impairment.  Had SFAS 142 been effective in the
previous fiscal year, net income and fully diluted earnings per share would have
been $46.7 million, or $.42 per diluted share, and $93.4 million, or $.85 per
diluted share, for the second quarter and six month periods in the prior year
respectively.

     During the second quarter our vertical integration strategy produced strong
earnings gains in both our Meat Processing Group and Hog Production Group.  The
Meat Processing Group operating profits increased 20% to $38.8 million from
$32.4 million while the Hog Production Group operating profits grew 36% to $99.0
million from $72.7 million.  Last year's Hog Production Group results included a
pretax gain of $7.0 million for insurance settlements for losses incurred at hog
production facilities related to Hurricane Floyd.

     Sales rose 17% in the quarter to $1.7 billion from $1.4 billion a year ago,
reflecting higher pricing in the Meat Processing Group and sales of recently
acquired companies.  The Meat Processing Group achieved higher margins as a
result of a favorable fresh meat environment, strong domestic demand and higher
Japanese exports.  Volumes in the Meat Processing Group, excluding by-products,
increased 10% with total fresh pork and processed meat volumes up two percent
and fresh beef volumes of the recently acquired Moyer Packing Company adding
eight percent.  In addition to the added processed meats volumes of acquired
businesses, our base processed meats business improved on retail distribution
gains in the quarter.

     Sales of newly-acquired companies contributed to first half sales growth of
16% to $3.3 billion from $2.9 billion.  In the first half of fiscal 2002, the
Meat Processing Group posted operating earnings of $38.3 million versus $24.6
million in the prior year, a 56% increase.  The Hog Production Group operating
earnings grew 19% in the first six months to $218.7 million from $183.9 million
a year ago.  International operations continued to improve and, overall, were
profitable versus a loss in the first half of last year.

  On November 1, 2001, we announced an agreement in principle to acquire
American Foods Group, Inc., the nation's tenth largest beef processor.  For the
fiscal year ended June 30, 2001, American Foods had sales of $581 million.  It
has a daily processing capacity of 1,900

                                       3
<PAGE>

head and recently built two new case-ready production facilities in Cincinnati,
Ohio and Green Bay, Wisconsin. Its headquarters are in Green Bay, near our
recently acquired Packerland facility.

  Terms of the agreement in principle call for us to acquire 100% of the
outstanding shares of American Foods in exchange for cash and the assumption of
debt. We expect to complete the transaction during the third quarter of fiscal
2002, though a definitive agreement has not yet been reached and is subject to
due diligence.

  On October 25, 2001, we completed the acquisition of Packerland Holdings,
Inc., the fifth largest beef processor in the United States. For the fiscal year
ended December 30, 2000, Packerland had $1.4 billion in net sales.

  We acquired 100% of the outstanding capital shares of Packerland in exchange
for approximately 6.3 million shares of our common stock and the assumption of
approximately $118 million in debt and other liabilities.

  Based in Green Bay, Wisconsin, Packerland currently has a daily processing
capacity of 6,150 head and represents approximately 5% of U.S. beef industry
capacity. Packerland is one of the premier Holstein steer and cow operations in
the U.S. Richard Vesta, president and chief executive officer of Packerland with
30 years of industry experience, will be continuing in that capacity under our
ownership. Packerland has 4,000 employees and plants in Green Bay, Wisconsin;
Plainwell, Michigan; Tolleson, Arizona and Gering, Nebraska.

  Also during the second quarter of our current fiscal year we completed the
acquisition of Stadler's Country Hams, Inc. and a 75% interest in RMH Foods,
Inc. Stadler's is a producer of country hams based in Elon College, North
Carolina. RMH Foods, based in Morton, Illinois, specializes in pre-cooked pork
and beef entrees under the Quick-n-Easy(TM) brand. These acquisitions were
valued at $20 million in the aggregate.

  On August 29, 2001, our shareholders approved an amendment to our articles of
incorporation to provide for an increase in the authorized shares of common
stock to 200 million from 100 million at our annual meeting of shareholders.
Upon the approval of the increase in authorized shares, our board of directors
declared a two-for-one stock split in the form of a 100% stock dividend on our
common stock. The stock dividend was distributed on September 14, 2001 to the
record holders of our stock on September 6, 2001. All share and per share
information in this prospectus has been restated to reflect the stock dividend.

  On August 8, 2001, we offered to acquire all of the common shares of Schneider
Corporation, a food processing company headquartered in Kitchener, Ontario, that
we did not already own for approximately 2.8 million shares of our common stock.
At that time, we already owned approximately 63% of the outstanding shares of
Schneider. As a result of the offer, we came to own approximately 99% of the
outstanding shares of Schneider.  In early November 2001, we completed our
acquisition and now own 100% of the Schneider shares.

  On July 30, 2001, we completed the acquisition of The Smithfield Companies,
Inc. for approximately $18 million. The Smithfield Companies, Inc.,
headquartered in Portsmouth, Virginia, is a producer of hams and other specialty
food products with annual sales of approximately $20 million.

                                       4
<PAGE>

  On October 17, 2001, our board of directors approved some changes in our
management, including the promotion of C. Larry Pope to the office of President
and Chief Operating Officer. Joseph W. Luter, III remains our Chairman of the
Board and Chief Executive Officer. See "Management" for additional
information.

                                       5
<PAGE>

                               THE EXCHANGE OFFER

  On October 23, 2001, we completed the private offering of the senior notes.
References to notes in this prospectus are references to both the senior notes
and the exchange notes.

  We entered into an exchange and registration rights agreement with the initial
purchasers in the private offering in which we agreed to deliver to you this
prospectus and we agreed to complete the exchange offer within 180 days after
the date of original issuance of the senior notes. In the exchange offer, you
are entitled to exchange your senior notes for exchange notes which are
identical in all material respects to the senior notes except that:

  .  the exchange notes have been registered under the Securities Act of 1993,
     as amended;

  .  the exchange notes are not entitled to registration rights under the
     registration rights agreement; and

  .  certain contingent interest rate provisions are no longer applicable.

The Exchange Offer............    We are offering to exchange up to $300,000,000
                                  aggregate principal amount of our 8% Senior
                                  Notes, Series B, due 2009 (which we call the
                                  exchange notes) for a like aggregate principal
                                  amount of our outstanding 8% Senior Notes,
                                  Series A, due 2009 (which we call the senior
                                  notes). Senior notes may only be exchanged in
                                  integral multiples of $1,000.

Resales.......................    Based on an interpretation by the staff of the
                                  SEC set forth in no-action letters issued to
                                  third parties, we believe that the exchange
                                  notes issued pursuant to the exchange offer in
                                  exchange for senior notes may be offered for
                                  resale, resold and otherwise transferred by
                                  you (unless you are an "affiliate" of ours
                                  within the meaning of Rule 405 under the
                                  Securities Act) without compliance with the
                                  registration and prospectus delivery
                                  provisions of the Securities Act, provided
                                  that you are acquiring the exchange notes in
                                  the ordinary course of your business and that
                                  you have not engaged in, do not intend to
                                  engage in, and have no arrangement or
                                  understanding with any person to participate
                                  in, a distribution of the exchange notes.

                                  Each participating broker-dealer that receives
                                  exchange notes for its own account pursuant to
                                  the exchange offer in exchange for senior
                                  notes that were acquired as a result of
                                  market-making or other trading activity must
                                  acknowledge that it will deliver a prospectus
                                  in connection with any resale of the exchange
                                  notes. See "Plan of Distribution."

                                  Any holder of senior notes who:

                                  .  is an affiliate of ours;
                                  .  does not acquire exchange notes in the
                                     ordinary course of

                                       6
<PAGE>

                                     its business; or
                                  .  tenders in the exchange offer with the
                                     intention to participate, or for the
                                     purpose of participating, in a distribution
                                     of exchange notes

                                  cannot rely on the position of the staff of
                                  the SEC enunciated in the no-action letters
                                  and, in the absence of an exemption, must
                                  comply with the registration and prospectus
                                  delivery requirements of the Securities Act in
                                  connection with the resale of the exchange
                                  notes.

Expiration Date; Withdrawal of
Tenders.........................  The exchange offer will expire at 5:00 p.m.,
                                  New York City time, on January 8, 2002, or
                                  such later date and time to which we extend
                                  the expiration date. A tender of senior notes
                                  pursuant to the exchange offer may be
                                  withdrawn at any time prior to the expiration
                                  date. Any senior notes not accepted for
                                  exchange for any reason will be returned
                                  without expense to the tendering holder
                                  promptly after the expiration or termination
                                  of the exchange offer.

Procedures for Tendering
Senior Notes....................  If you wish to accept the exchange offer, you
                                  must complete, sign and date the accompanying
                                  letter of transmittal, or a facsimile of the
                                  letter of transmittal, according to the
                                  instructions contained in this prospectus and
                                  the letter of transmittal. You must also mail
                                  or otherwise deliver the letter of
                                  transmittal, or a facsimile of the letter of
                                  transmittal, together with the senior notes
                                  and any other required documents, to the
                                  exchange agent at the address set forth on the
                                  cover page of the letter of transmittal. If
                                  you hold senior notes through The Depository
                                  Trust Company, DTC, and wish to participate in
                                  the exchange offer, you must comply with the
                                  Automated Tender Offer Program procedures of
                                  DTC, by which you will agree to be bound by
                                  the letter of transmittal. By signing, or
                                  agreeing to be bound by, the letter of
                                  transmittal, you will represent to us that,
                                  among other things:

                                  .  any exchange notes that you receive will be
                                     acquired in the ordinary course of your
                                     business;
                                  .  you have no arrangement or understanding
                                     with any person or entity to participate in
                                     a distribution of the exchange notes;
                                  .  if you are a broker-dealer that will
                                     receive exchange notes for your own account
                                     in  exchange for senior notes that were
                                     acquired as a result of market-making
                                     activities, that you will deliver a
                                     prospectus, as required by law, in
                                     connection with any resale of such exchange
                                     notes; and
                                  .  you are not an "affiliate," as defined in
                                     Rule 405 of the

                                       7
<PAGE>

                                     Securities Act, of ours or, if you are an
                                     affiliate, you will comply with any
                                     applicable registration and prospectus
                                     delivery requirements of the Securities
                                     Act.

Special Procedures for
Beneficial Owners...............  If you are a beneficial owner of senior notes
                                  which are not registered in your name, and you
                                  wish to tender such senior notes in the
                                  exchange offer, you should contact the
                                  registered holder promptly and instruct such
                                  registered holder to tender on your behalf. If
                                  you wish to tender on your own behalf, you
                                  must, prior to completing and executing the
                                  letter of transmittal and delivering your
                                  senior notes, either make appropriate
                                  arrangements to register ownership of the
                                  senior notes in your name or obtain a properly
                                  completed bond power from the registered
                                  holder.

Guaranteed Delivery
Procedures......................  If you wish to tender your senior notes and
                                  your senior notes are not immediately
                                  available or you cannot deliver your senior
                                  notes, the letter of transmittal or any other
                                  documents required by the letter of
                                  transmittal or comply with the applicable
                                  procedures under DTC's Automated Tender Offer
                                  Program prior to the expiration date, you must
                                  tender your senior notes according to the
                                  guaranteed delivery procedures set forth in
                                  this prospectus under "The Exchange Offer --
                                  Guaranteed Delivery Procedures."

Conditions to the
Exchange Offer..................  The exchange offer is subject to customary
                                  conditions, which we may waive. Please read
                                  the section captioned "The Exchange Offer -
                                  Conditions to the Exchange Offer" of this
                                  prospectus for more information regarding the
                                  conditions to the exchange offer.

Effect on Holders of
Senior Notes....................  As a result of the making and consummation of
                                  the exchange offer, we will have fulfilled a
                                  covenant contained in the registration rights
                                  agreement and, accordingly, there will be no
                                  increase in the interest rate on the senior
                                  notes under the circumstances described in the
                                  registration rights agreement. If you are a
                                  holder of senior notes and you do not tender
                                  your senior notes in the exchange offer, you
                                  will continue to be entitled to all the rights
                                  and limitations applicable to the senior notes
                                  in the indenture, except as noted above.

                                  To the extent that the senior notes are
                                  tendered and accepted in the exchange offer,
                                  the trading market for senior notes could be
                                  adversely affected.

                                       8
<PAGE>

Consequences of Failure to
Exchange........................  All untendered senior notes will continue to
                                  be subject to the restrictions on transfer
                                  provided for in the senior notes and in the
                                  indenture. In general, the senior notes may
                                  not be offered or sold, unless registered
                                  under the Securities Act, except pursuant to
                                  an exemption from, or in a transaction not
                                  subject to, the Securities Act and applicable
                                  state securities laws. Other than in
                                  connection with the exchange offer, we do not
                                  currently anticipate that we will register the
                                  senior notes under the Securities Act.

Exchange Agent.................   Suntrust Bank is the exchange agent for the
                                  exchange offer. The address and telephone
                                  number of the exchange agent are set forth in
                                  the section captioned "Exchange Offer --
                                  Exchange Agent" of this prospectus.

Use of Proceeds................   We will not receive any cash proceeds from the
                                  exchange offer.

                                       9
<PAGE>

                          TERMS OF THE EXCHANGE NOTES

  The exchange offer applies to $300,000,000 aggregate principal amount of the
exchange notes. The form and terms of the exchange notes are the same as the
form and terms of the senior notes except that the exchange notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer. The exchange notes will evidence the same debt as the
senior notes and will be entitled to the benefits of the indenture. See
"Description of Notes."

Issuer..................  Smithfield Foods, Inc.

Notes Offered...........  $300,000,000 aggregate principal of 8% Senior Notes,
                          Series B, due 2009.

Maturity................  October 15, 2009.

Interest................  Annual rate: 8%.

Interest Payment Dates..  October 15 and April 15 of each year, commencing on
                          April 15, 2002.

Change of Control.......  Upon the occurrence of a change of control, you will
                          have the right to require us to purchase all or a
                          portion of your exchange notes at a price equal to
                          101% of the principal amount together with accrued and
                          unpaid interest, if any, to the date of purchase.

Ranking.................  The exchange notes will be senior unsecured
                          obligations and will rank equally in right of payment
                          to all of our existing and future unsecured and
                          unsubordinated indebtedness and senior to our existing
                          and future subordinated indebtedness, including our
                          senior subordinated notes. The exchange notes will be
                          effectively subordinated to all of our existing and
                          future senior secured indebtedness to the extent of
                          the value of the assets securing that indebtedness.

                          As of July 29, 2001, our aggregate principal amount of
                          indebtedness, including capital lease obligations, was
                          approximately $1,301.5 million, of which $1,114.9
                          million was senior secured indebtedness.

                          The exchange notes will not be guaranteed by any of
                          our subsidiaries and will be subordinated to all of
                          the obligations and liabilities of our subsidiaries.

                          As of July 29, 2001, the aggregate principal amount of
                          indebtedness of our subsidiaries was approximately
                          $199.6 million, excluding capital lease obligations
                          and guarantees of the senior secured notes and our
                          $650.0 million revolving credit facility (the "U.S.
                          Revolver").

                                       10
<PAGE>

Covenants...............  We will issue the exchange notes under an indenture
                          with SunTrust Bank, as trustee. SunTrust Bank also
                          serves as the trustee under the indenture relating to
                          our 7 5/8% Senior Subordinated Notes due 2008. The
                          indenture will, among other things, limit our ability
                          and the ability of our subsidiaries to:

                          .  borrow money;
                          .  incur liens;
                          .  pay dividends on stock, redeem stock or redeem
                             subordinated debt;
                          .  make investments;
                          .  sell assets or sell capital stock of restricted
                             subsidiaries;
                          .  enter into agreements that restrict dividends from
                             subsidiaries;
                          .  enter into sale and leaseback transactions;
                          .  guarantee indebtedness;
                          .  merge or consolidate; and
                          .  enter into affiliate transactions.

                          If the notes are assigned an investment grade rating
                          from Standard and Poor's Ratings Services (at least
                          BBB-) and Moody's Investors Service, Inc. (at least
                          Baa3), so long as no default or event of default has
                          occurred and is continuing, our obligation to comply
                          with these covenants will "fall-away," even if the
                          notes are subsequently downgraded. The "fall-away,"
                          however, will not affect our obligation to comply with
                          the covenant relating to liens, sale and leaseback
                          transactions, and mergers and consolidations.

Liquidity...............  The exchange notes are new securities and there is
                          currently no established market for the exchange
                          notes. The exchange notes generally will be freely
                          transferable but will also be new securities for which
                          there will not initially be a market. Accordingly,
                          there can be no assurance as to the development or
                          liquidity of any market for the exchange notes. The
                          exchange notes are expected to be eligible for trading
                          in the PORTAL market. We do not intend to apply for a
                          listing of the exchange notes on any securities
                          exchange or an automated dealer quotation system.

<TABLE>
<CAPTION>
                          52 Weeks  13 Weeks                 Fiscal Year Ended
                                                             -----------------
                           Ended     Ended
                          July 29,  July 29,  April 29,  April 30,  May 2,  May 3,  April 27,
                            2001      2001       2001       2000     1999    1998      1997
                            ----      ----       ----       ----     ----    ----      ----
<S>                       <C>       <C>       <C>        <C>        <C>     <C>     <C>
Ratio of earnings
 to fixed charges.......    4.0x      4.9x      3.7x       2.4x      3.8x    3.2x      2.8x
</TABLE>

     In evaluating an investment in the exchange notes, prospective investors
should carefully consider, along with the other information set forth in this
prospectus, the specific factors set forth under "Risk Factors" for risks
involved with an investment in the exchange notes.

                                       11
<PAGE>

             SUMMARY CONSOLIDATED CONDENSED FINANCIAL INFORMATION

     The following table sets forth our summary consolidated condensed
  historical financial data which should be read in conjunction with and is
  qualified in its entirety by reference to the audited consolidated financial
  statements, the unaudited consolidated financial statements and the related
  notes included elsewhere in, and incorporated by reference into, this
  prospectus. The summary consolidated condensed financial data for the 52 week
  period ended July 29, 2001 and the 13 week periods ended July 29, 2001 and
  July 30, 2000 have been derived from unaudited consolidated financial
  statements. In the opinion of management, the unaudited information reflects
  all adjustments (consisting only of normal and recurring adjustments)
  necessary for a fair presentation of the results for those periods. Results
  for the 52 weeks and 13 weeks ended July 29, 2001 are not necessarily
  indicative of the results to be expected for the full fiscal year. The summary
  consolidated condensed financial data for the fiscal years ended April 29,
  2001, April 30, 2000 and May 2, 1999 and have been derived from our financial
  statements which have been audited by Arthur Andersen LLP.

<TABLE>
<CAPTION>

                                  52 Weeks
                                    Ended          13 Weeks Ended                 Fiscal Year Ended
                                    -----          --------------                 -----------------
                                  July 29,     July 29,     July 30,    April 29,    April 30,      May 2,
                                    2001         2001         2000         2001         2000         1999
                                    ----         ----         ----         ----         ----         ----
                                                               (in thousands)
<S>                              <C>          <C>          <C>         <C>           <C>          <C>
Income Statement Data:
Sales..........................  $6,115,013   $1,636,412   $1,421,326   $5,899,927   $5,150,469   $3,774,989
Gross profit...................     974,921      255,418      229,400      948,903      694,066      539,575
Selling, general and
 Administrative expenses.......     463,339      116,219      103,845      450,965      390,634      295,610
Depreciation expense...........     125,888       31,707       30,655      124,836      109,893       63,524
Interest expense...............      85,222       19,636       23,388       88,974       71,944       40,521
Minority interests.............       7,653        1,578         (246)       5,829        1,608       (3,518)
Nonrecurring gain (1)..........     (86,027)      (7,008)          --      (79,019)          --           --
Income before income taxes.....     378,846       93,286       71,758      357,318      119,987      143,438
Net income.....................     235,848       56,904       44,569      223,513       75,112       94,884


Other Data:
EBITDA (2).....................  $  524,957   $  144,265   $  129,043   $  509,735   $  310,895   $  252,525
EBITDA margin (3)..............         8.6%         8.8%         9.1%         8.6%         6.0%         6.7%
Capital expenditures...........  $  139,748   $   26,134   $   30,506   $  144,120   $  100,383   $   95,447
Ratio of EBITDA to interest
 Expense.......................         6.2x         7.3x         5.5x         5.7x         4.3x         6.2x
Ratio of net debt to
 EBITDA (4)....................         2.4x         8.6x        10.0x         2.4x         4.0x         2.6x
Ratio of earnings to fixed
 charges (5)...................         4.0x         4.9x         3.5x         3.7x         2.4x         3.8x
Amortization expense...........  $   13,616   $    1,644   $    3,242   $   15,214   $    9,071   $    5,042

Balance Sheet Data (end of
 period):
Cash...........................  $   61,192   $   61,192   $   46,157   $   56,532   $   49,882   $   30,590
Working capital (6)............     288,687      288,687      580,656      635,413      609,857      215,865
Total debt (including capital
 lease obligations)............   1,301,511    1,301,511    1,334,654    1,261,317    1,301,199      683,969
Shareholders' equity...........   1,094,168    1,094,168      932,797    1,053,132      902,909      542,246

Operating Data:
Fresh meat sales (pounds)......   2,869,719      693,010      635,091    2,811,800    2,786,400    2,687,412
Processed meat sales
 (pounds)......................   2,231,352      549,205      515,553    2,197,700    2,192,100    1,606,021
Total hogs processed...........      20,450        4,598        4,724       20,576       20,367       19,093
</TABLE>

                                       12
<PAGE>

         NOTES TO SUMMARY CONSOLIDATED CONDENSED FINANCIAL INFORMATION

(1)  Reflects nonrecurring gains of $86.0 million for the 52 weeks ended July
     29, 2001, $7.0 million for the 13 weeks ended July 29, 2001 and $79.0
     million for the fiscal year ended April 29, 2001 on the sale of shares of
     IBP, inc. common stock.

(2)  "EBITDA" represents income from continuing operations before interest
     expense, income taxes, depreciation and amortization, the nonrecurring
     gains described in note (1), $7.5 million of expenses incurred related to
     the attempted merger with IBP for the 52 weeks ended July 29, 2001 and the
     fiscal year ended April 29, 2001, a $5.1 million gain on the sale of a
     plant for the 52 weeks ended July 29, 2001 and the fiscal year ended April
     29, 2001 and a $5.0 million loss resulting from a fire at a Circle Four
     farm in Utah for the 52 weeks and 13 weeks ended July 29, 2001. We have
     included EBITDA in Other Data because it is used by some investors as a
     measure of an issuer's ability to service debt. EBITDA should not be
     considered as an alternative to operating earnings, net income or net cash
     provided by operating activities (or any other measure of performance
     determined in accordance with generally accepted accounting principles) or
     as a measure of our ability to meet our cash needs. As of July 29, 2001,
     Schneider and its subsidiaries and Animex S.A. were parties to debt
     agreements that limited the amount of dividends and assets they were
     permitted to transfer to us. EBITDA includes $40.8 million and $29.0
     million, respectively, of combined EBITDA of Schneider and Animex for the
     fiscal years ended April 29, 2001 and April 30, 2000 and $44.1 million,
     $8.5 million and $5.2 million, respectively, for the 52 weeks ended July
     29, 2001 and the 13 weeks ended July 29, 2001 and July 30, 2000.

(3)  Represents EBITDA as a percentage of sales.

(4)  Net debt represents total debt plus capital lease obligations less cash.

(5)  For the purpose of computing the ratios of earnings to fixed charges,
     earnings represent income before taxes, the nonrecurring gain described in
     note (1), the expenses related to our attempted merger with IBP and the
     gain on the sale of a plant, described in note (2) plus fixed charges
     (excluding capitalized interest). Fixed charges include interest on
     indebtedness (including capitalized interest), amortization of deferred
     debt issuance costs and an estimate of the interest portion of fixed rent
     expense.

(6)  During the first quarter of fiscal 2002, our U.S. Revolver became
     classified as a current portion of long term debt, and our working capital
     reflected a decrease of $438.0 million, which was the amount outstanding
     under our U.S. Revolver as of July 29, 2001. We have begun the process to
     refinance this facility and expect to complete the refinancing during the
     third quarter of fiscal 2002.

                                       13
<PAGE>

                                 RISK FACTORS

  In evaluating an investment in the exchange notes, prospective investors
should carefully consider the following risk factors, as well as the other
information set forth in this prospectus:


The cyclical nature of the North American pork processing markets may adversely
affect our business, the results of our operations or our financial conditions.

  Our results of operations and financial condition are largely dependent upon
the cost and supply of hogs and the selling prices for many of our products,
both of which are determined by constantly changing market forces of supply and
demand over which we have little or no control. The North American pork
processing markets are highly competitive, with major and regional companies
competing in each market. The market prices for pork products are highly
cyclical, being characterized by periods of supply and demand imbalance and
sensitivity to changes in industry capacity.

  Furthermore, some structural factors accentuate this cyclicality, including
the following:

  . substantial capital investment and high fixed costs required to manufacture
    pork products efficiently;

  . the significant exit costs associated with capacity reductions; and

  . competition from producers of other meats and protein sources, especially
    beef, chicken and fish.

In addition, the supply and market price of live hogs to be processed is
dependent upon a variety of factors over which we have little or no control.
These factors include, among other factors, the following:

  . fluctuations in the size of herds maintained by North American hog
    suppliers;

  . environmental and conservation regulations;

  . economic conditions;

  . the relative cost of feed for hogs;

  . weather; and

  . livestock diseases.

  In addition, severe price swings in raw materials, and the resultant impact on
the prices we charge for our products, have at times had, and may in the future
have, material adverse effects on our results of operations. We cannot assure
that all or part of any increased costs experienced by us can be passed along to
consumers of our products directly or in a timely manner.

                                       14
<PAGE>

We are subject to the general risks affecting the food industry and specific
risks relating to animal health.

  The food products manufacturing industry is subject to the risks posed by the
following:

  . adverse changes in general economic conditions;

  . food spoilage or food contamination;

  . evolving consumer preferences and nutritional and health-related concerns;

  . federal, state and local food processing controls;

  . consumer product liability claims;

  . product tampering; and

  . possible unavailability and expense of liability insurance.

  In addition, we are subject to risks relating to our ability to maintain
animal health and control diseases. If our livestock is affected by disease, we
may be required to destroy infected livestock, which could adversely affect our
production or our ability to sell or export our products. Adverse publicity
concerning any disease or health concern could also cause customers to lose
confidence in the safety and quality of our food products. Although there have
been no reported cases of either foot and mouth disease or mad cow disease in
the United States, these health concerns have had an adverse effect on the
livestock industry in Europe and South America and we cannot assure that
livestock diseases will not affect our business.


Our numerous acquisitions in recent years, and any future acquisitions, may
adversely affect our business, the results of our operations or our financial
conditions.

  We have made numerous acquisitions in recent years, and as part of our
business strategy, we regularly review and seek new acquisitions. These
acquisitions could include very large transactions. Acquisitions involve a
number of risks and present financial, managerial and operational challenges,
including:

  . diversion of management attention from existing businesses;

  . difficulty with integration of personnel and financial and other systems;

  . increased expenses, including compensation expenses resulting from newly
    hired employees;

  . assumption of unknown liabilities;

  . potential disputes with the sellers of acquired businesses, technologies,
    services or products; and

  . adverse effects on reported operating results due to the amortization of
    goodwill associated with acquisitions.

  We could also experience financial or other setbacks if any of the businesses
that we have acquired or may acquire in the future have problems of which we are
not aware. In addition, as a result of future acquisitions we may further
increase our leverage.

                                       15
<PAGE>

Our net sales and profitability could be adversely affected by the deterioration
in the financial condition of one or more of our major customers.

  Some customers are material to our business and operations. Our ten largest
customers represented approximately 21% of net sales for the fiscal year 2001.
We do not have long-term purchase agreements (other than to third-party hog
customers) or other contractual assurance as to future sales to these major
customers. In addition, continued consolidation within the retail industry has
resulted in an increasingly concentrated retail base. To the extent this
consolidation continues to occur, our net sales and profitability may be
increasingly sensitive to a deterioration in the financial condition of or other
adverse developments in our relationship with one or more customers. In
addition, as a result of consolidation in the retail food industry, and the
entry of mass merchants such as Wal-Mart into that market, our customers are
able to exert increasing pressure on us with respect to pricing, product quality
and new product introductions.


We are subject to governmental regulations and noncompliance with these
regulations by us could adversely affect our business, the results of our
operations or our financial conditions.

  Our operations are subject to extensive regulation by the United States Food
and Drug Administration, the United States Department of Agriculture and other
state and local authorities regarding the processing, packaging, storage,
distribution, advertising and labeling of our products, including food safety
standards. Our manufacturing facilities and products are subject to constant
inspection by federal, state and local authorities. We believe that we are
currently in compliance with all material governmental laws and regulations and
maintain all material permits and licenses relating to our operations.
Nevertheless, we cannot assure that we are in compliance with these laws and
regulations or that we will be able to comply with any future laws and
regulations. Our failure to comply with applicable laws and regulations could
subject us to civil remedies, including fines, injunctions, recalls or seizures,
as well as potential criminal sanctions. These penalties could be severe enough
to have a significant negative impact on us.


Compliance with environmental regulations may result in significant costs and
failure to comply with environmental regulations may result in civil as well as
criminal penalties, liability for damages and negative publicity.

  Our past and present business operations and our past and present ownership
and operation of real property are subject to extensive and increasingly
stringent federal, state and local laws and regulations pertaining to the
discharge of materials into the environment and the handling and disposition of
wastes (including solid and hazardous wastes) or otherwise relating to
protection of the environment. Failure to comply can have serious consequences
for us. These consequences include criminal as well as civil penalties,
liability for damages, and negative publicity. Many requirements applicable to
us may be enforced by citizen groups as well as governmental authorities.
Compliance with these laws and regulations and future changes to

                                       16
<PAGE>

them is material to our business. We have incurred and will continue to incur
significant capital and operating expenditures to comply with these laws and
regulations. We cannot assure that additional environmental issues will not
require currently unanticipated investigation, assessment or expenditures, or
that requirements applicable to us will not be altered in ways that will require
us to incur significant additional costs. In addition, some of our facilities
have been in operation for many years. During that time, we and previous owners
of these facilities have generated and disposed of wastes that are or may be
considered hazardous. Discovery of previously unknown contamination of property
underlying or in the vicinity of our present or former properties or
manufacturing facilities and/or waste disposal sites could require us to incur
material unforeseen expenses. Occurrences of any of these events may have a
material adverse affect on our financial condition. A description of some
environmental litigation and proceedings involving us appear beginning on page
50.


We are subject to many risks relating to our international operations that could
have a material adverse affect on our business, the results of our operations or
our financial conditions.

  International sales accounted for approximately 21% of our sales for the
fiscal year 2001. International sales are subject to risks related to general
economic conditions, imposition of tariffs, quotas, trade barriers and other
restrictions. We are also subject to risks relating to enforcement of remedies
in foreign jurisdictions, compliance with applicable foreign laws, and other
economic and political uncertainties. Furthermore, we conduct foreign operations
in Canada, France and Poland. These foreign operations are subject to the risks
described above as well as risks related to fluctuations in currency values,
translation of foreign currencies into U.S. dollars, foreign currency exchange
controls, compliance with foreign laws and other economic or political
uncertainties. In addition, we are engaged in joint ventures in Mexico and
Brazil. Our investment in these joint ventures are also subject to these risks.
As of July 29, 2001, approximately 22% of our long-lived assets were associated
with our foreign operations.


We are highly leveraged. Our substantial indebtedness will severely limit cash
flow available for our operations and could adversely affect our ability to
service debt or obtain additional financing if necessary.

  We currently have a significant amount of outstanding indebtedness and,
subsequent to the October 2001 offering of the senior notes, we will remain
significantly leveraged. As of July 29, 2001, on a pro forma basis after giving
effect to that offering and the application of the net proceeds from that
offering, our indebtedness would have been $1,306.5 million, our availability
under the U.S. Revolver would have been $507.0 million and our net availability
(excluding $17.6 million of outstanding letters of credit) under the U.S.
Revolver would have been $489.4 million. In addition, our international credit
facilities for our Canadian and Polish subsidiaries provided us approximately an
additional $117.3 million of availability, exclusive of outstanding letters of
credit, as of July 29, 2001.

                                       17
<PAGE>

  The degree to which we are leveraged could have important consequences to us,
including:

  . increased vulnerability to adverse general economic, industry and
    competitive conditions,

  . impaired ability to obtain additional financing for future working capital,
    capital expenditures, acquisitions, general corporate purposes or other
    purposes, and

  . dedication of a significant portion of our cash flow from operations to the
    payment of principal and interest on indebtedness, reducing the funds
    available for operations and future business opportunities.

The indenture relating to the notes permits us to incur additional debt,
including debt ranking equal to the notes, subject to some limitations. In
addition, the terms of our debt agreements include some covenants that could
limit our operating and financial flexibility. Our ability to make scheduled
payments of principal or interest on, or refinance, our indebtedness depends on
our future business performance, which is subject to economic, financial,
competitive and other factors that are beyond our control.


Our ability to meet our obligations under our indebtedness depends on the
earnings and cash flows of our subsidiaries and the ability of our subsidiaries
to pay dividends or advance or repay funds to us.

  Because we are a holding company that conducts our operations through
subsidiaries, our ability to meet our obligations under our indebtedness depends
on the earnings and cash flows of our subsidiaries and the ability of our
subsidiaries to pay dividends or advance or repay funds to us. Our ability to
meet our obligations under our indebtedness includes our ability to meet our
obligations relating to the exchange notes. In addition, any of our rights to
participate in the assets of any of our subsidiaries upon a liquidation or
reorganization of any of our subsidiaries will be subject to the prior claims of
that subsidiary's creditors (except to the extent we may ourselves be a creditor
of that subsidiary). This includes that subsidiary's trade creditors and our
creditors who have obtained guarantees from the subsidiary. As a result, the
notes will be structurally subordinated to the obligations and liabilities of
all of our subsidiaries. As of July 29, 2001, on a pro forma basis after giving
effect to the October 2001 offering of the senior notes and the application of
the net proceeds from that offering, the aggregate accrued liabilities and
obligations of our subsidiaries would have been $1,789.8 million.


If the notes receive an "investment grade" rating then we will no longer be
subject to most of the covenants in the indenture.

  If at any time the notes receive an "investment grade" rating from Standard
& Poor's Ratings Service and Moody's Investors Service, Inc., then, subject to
certain additional conditions, we will no longer be subject to most of the
covenants set forth in the indenture governing the notes. If most of the
covenants have ceased to apply to us as a result of achieving those ratings,
those covenants will not be restored, even if the notes are later rated below
investment grade by either or both of the rating agencies.

                                       18
<PAGE>

The covenants in our outstanding indebtedness impose restrictions that may limit
our operating and financial flexibility.

  Our various debt agreements contain financial covenants that require the
maintenance of certain levels and ratios for working capital, net worth, current
ratio, fixed charges, capital expenditures and among other restrictions, limit
additional borrowings, the acquisition, disposition and leasing of assets and
payment of dividends to shareholders.

  Our ability to comply with the covenants and restrictions contained in our
debt agreements may in the future be affected by events beyond our control,
including then prevailing economic, financial and industry conditions. The
breach of any of these covenants or restrictions could result in a default that
would permit our senior lenders to declare all amounts borrowed, together with
accrued and unpaid interest, to be due and payable under our debt agreements. In
addition, in the event of a breach, the commitments of the relevant senior
lenders to make further extensions of credit under the international credit
facilities and the U.S. Revolver could be terminated. If there is an
acceleration of our senior debt obligations, then the holders of our senior
subordinated notes may also declare those debt obligations to be due and
payable. If we were unable to repay our indebtedness to our senior secured
lenders, these lenders could proceed against the collateral securing that
indebtedness.


In the event of a bankruptcy or similar proceeding, our assets will be available
to satisfy the obligations under any secured debt before any payments are made
on the notes.

  Because the notes will be unsecured, they will effectively be subordinated to
secured debt to the extent of the value of the assets securing the secured debt.
In the event of a bankruptcy or similar proceeding in which we are involved, our
assets that serve as collateral will be available to satisfy the obligations
under any secured debt before any payments are made on the notes. As of July 29,
2001, on a pro forma basis after giving effect to the October 2001 offering of
the senior notes and the application of the net proceeds from that offering, we
would have had outstanding approximately $819.9 million of secured debt.


There are limitations relating to changes of control and such limitations may
discourage or make more difficult a sale or takeover of us.

  Upon a change of control, we will be required to offer to purchase all of the
outstanding notes, as well as the outstanding senior subordinated notes and the
senior secured notes. Such offers to purchase must be at a price equal to 101%
(100% in the case of the senior secured notes) of the principal amount
outstanding on the date of repurchase plus accrued and unpaid interest to the
date of repurchase. The change of control purchase feature may in some
circumstances discourage or make more difficult a sale or takeover of us. In
particular, a change of control may also cause an acceleration of, or require an
offer to repurchase under, the international credit facilities, the U.S.
Revolver, the senior secured notes, the senior subordinated

                                       19
<PAGE>

notes and some of our other indebtedness, as well as the debt of our
subsidiaries. The inability to repay that indebtedness, if accelerated, and to
purchase all tendered notes, senior subordinated notes and senior secured notes
would constitute an event of default under our indenture. We cannot assure that
we will have funds available to repurchase the notes, the senior subordinated
notes and the senior secured notes upon the occurrence of a change of control,
or to repay the international credit facilities or U.S. Revolver. In addition,
future debt we incur may limit our ability to repurchase the exchange notes upon
a change of control or require us to offer to redeem that debt upon a change of
control. Moreover, the exercise by the holders of the notes of their repurchase
right could cause a default under that debt, even if the change of control does
not cause a default due to the financial effect on us of that purchase.


Holders who fail to exchange their senior notes will continue to be subject to
restrictions on transfer.

  If you do not exchange your senior notes for exchange notes in the exchange
offer, you will continue to be subject to the restrictions on transfer of your
senior notes described in the legend on the certificates of those notes. The
restrictions on transfer of your senior notes arise because we issued the senior
notes under exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, you may only offer or sell the senior notes if they are registered
under the Securities Act and applicable state securities laws, or offered and
sold under an exemption from these requirements. We do not plan to register the
senior notes under the Securities Act.


An active public market for the exchange notes may not develop.

     The exchange notes will generally be freely transferable but will be new
securities for which there will not initially be a market. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
exchange notes. We do not intend to apply for a listing of the exchange notes on
any securities exchange or on any automated dealer quotation system. The
exchange offer will not be conditioned upon any minimum or maximum aggregate
principal amount of senior notes being tendered for exchange. No assurance can
be given as to the liquidity of the trading market for the exchange notes, or,
in the case of non-exchanging holders of senior notes, the trading market for
the senior notes following the exchange offer.

     The liquidity of, and trading market for, the exchange notes also may be
adversely affected by general declines in the market for similar securities.
Such a decline may adversely affect such liquidity and trading markets
independent of the financial performance of, and prospects for, us.

                                       20
<PAGE>

                                USE OF PROCEEDS

     We will not receive any cash proceeds from the exchange offer. Any senior
notes that are properly tendered and exchanged pursuant to the exchange offer
will be retired and cancelled. We used the net proceeds from the issuance of the
senior notes, after deducting underwriting discounts, fees and expenses, to
repay indebtedness under our U.S. Revolver. At July 29, 2001, this revolving
credit facility bore interest at 4.57%. The repayment of amounts under this
revolving credit facility did not reduce the lenders' commitments under it. We
expect to use the availability under this facility, together with internal
funds, for additional capital expenditures and general corporate purposes,
including expansion of our processed meats business and strategic acquisitions.


                      RATIO OF EARNINGS TO FIXED CHARGES

     The following table sets forth the ratio of earnings to fixed charges for
the 52 weeks ended July 29, 2001, the 13 weeks ended July 29, 2001 and each of
the last five fiscal years.

<TABLE>
<CAPTION>
                         52 Weeks   13 Weeks                         Fiscal Year Ended
                                                                     -----------------
                          Ended       Ended
                         July 29,    July 29,    April 29,    April 30,    May 2,    May 3,    April 27,
                           2001        2001        2001         2000        1999      1998       1997
                           ----        ----        ----         ----        ----      ----       ----
<S>                      <C>         <C>         <C>          <C>          <C>       <C>       <C>
Ratio of earnings
to fixed charges.....      4.0x        4.9x        3.7x         2.4x        3.8x      3.2x       2.8x
</TABLE>

     For the purpose of computing the ratios of earnings to fixed charges,
earnings represent income before taxes and reflects a nonrecurring charge of
$12.6 million for the fiscal year ended May 3, 1998 related to civil penalties
in an environmental case and nonrecurring gains of $79.0 million for the fiscal
year ended April 29, 2001, $7.0 million for the 13 weeks ended July 29, 2001,
and $86.0 million for the 52 weeks ended July 29, 2001 on the sale of shares of
IBP, inc common stock and a $5.1 million gain on the sale of a plant for the
fiscal year ended April 29, 2001 and the 52 weeks ended July 29, 2001, net of
expenses of $7.5 million incurred related to the attempted merger with IBP, inc
for the fiscal year ended April 29, 2001 and the 52 weeks ended July 29, 2001,
and a $5.0 million loss resulting from a fire at a Circle Four farm in Utah for
the 13 weeks and 52 weeks ended July 29, 2001 plus fixed charges (excluding
capitalized interest). Fixed charges include interest on indebtedness (including
capitalized interest), amortization of deferred debt issuance costs and an
estimate of the interest portion of fixed rent expense.

                                       21
<PAGE>

                                CAPITALIZATION

     The following table sets forth (i) our actual capitalization as of July 29,
2001, and (ii) our capitalization as adjusted to give effect to the offering of
the senior notes and the application of the proceeds of that offering as
described under "Use of Proceeds." This table should be read in conjunction
with "Summary Consolidated Condensed Financial Information," "Selected
Historical Consolidated Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements and unaudited consolidated financial statements and the
related notes included elsewhere in, and incorporated by reference into, this
prospectus.

<TABLE>
<CAPTION>
                                                                      As of July 29, 2001
                                                                      -------------------
                                                                                    As
                                                                       Actual    Adjusted
                                                                      ---------  --------
<S>                                                                   <C>        <C>
                                                                         (In millions)
Cash and cash equivalents..........................................    $   61.2  $   61.2
                                                                       ========  ========
U.S. Revolver (a)..................................................    $  438.0  $  143.0
International Facilities (b).......................................        28.1      28.1
Notes payable......................................................         6.9       6.9
Current portion of long-term debt and capital lease obligations....        60.3      60.3
Long-term debt and capital lease obligations:
  Smithfield Senior Secured Notes..................................       422.2     422.2
  Other subsidiary debt obligations................................       141.2     141.2
  8% Senior Notes, Series A, due 2009..............................          --     300.0
  7 5/8% Senior Subordinated Notes due 2008.........................      185.1     185.1
  Capital lease obligations........................................        19.7      19.7
                                                                       --------  --------
Total debt (including capital lease obligations)...................     1,301.5   1,306.5
                                                                       --------  --------
Total shareholders' equity.........................................     1,094.2   1,094.2
                                                                       --------  --------
Total capitalization...............................................    $2,395.7  $2,400.7
                                                                       ========  ========
</TABLE>
___________
(a)  The U.S. Revolver is a $650.0 million revolving credit facility maturing on
     July 15, 2002. The commitments under the U.S. Revolver are subject to a
     borrowing base limitation. As of July 29, 2001, after giving effect to this
     offering and the application of the net proceeds of this offering, we would
     have had outstanding borrowings of $143.0 million and availability of
     $489.4 million under the U.S. Revolver (excluding $17.6 million of
     outstanding letters of credit). The amount outstanding under the U.S.
     Revolver fluctuates throughout the year depending on our working capital
     needs.

(b)  Our consolidated Canadian operations maintain credit facilities of C$115.0
     million maturing on various dates from March 2002 to January 2003, and our
     consolidated Polish operations maintain a US$100.0 million-equivalent
     credit facility maturing in June 2006. As of July 29, 2001, we had
     outstanding borrowings of approximately US$17.3 million under the Canadian
     credit facilities and approximately US$10.8 million under Polish notes
     which were refinanced under the Polish credit facility in the second
     quarter of fiscal 2002.

                                       22
<PAGE>

                SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     The following table sets forth our selected historical consolidated
financial data and other data which should be read in conjunction with and is
qualified in its entirety by reference to "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated financial
statements and unaudited consolidated financial statements and the related notes
included elsewhere in, and incorporated by reference into, this prospectus. The
selected historical consolidated financial data for the 52 week period ended
July 29, 2001 and the 13 week periods ended July 29, 2001 and July 30, 2000 have
been derived from unaudited consolidated financial statements. In the opinion of
management, the unaudited information reflects all adjustments (consisting only
of normal and recurring adjustments) necessary for a fair presentation of the
results for those periods. Results for the 52 weeks and 13 weeks ended July 29,
2001 are not necessarily indicative of the results to be expected for the full
fiscal year. The selected consolidated financial data for the fiscal years ended
April 29, 2001, April 30, 2000, May 2, 1999, May 3, 1998 and April 27, 1997 have
been derived from our financial statements which have been audited by Arthur
Andersen LLP.

<TABLE>
<CAPTION>
                               52 Weeks            13 Weeks
                                 Ended               Ended                                  Fiscal Year Ended
                                 -----               -----                                  -----------------
                               July 29,     July 29,     July 30,    April 29,    April 30,      May 2,       May 3,     April 27,
                                 2001         2001         2000         2001         2000         1999         1998         1997
                                 ----         ----         ----         ----         ----         ----         ----         ----
<S>                           <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Income Statement Data:
Sales.......................  $6,115,013   $1,636,412   $1,421,326   $5,899,927   $5,150,469   $3,774,989   $3,867,442   $3,870,611
Cost of sales...............   5,140,092    1,380,994    1,191,926    4,951,024    4,456,403    3,235,414    3,479,629    3,546,816
                              ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
Gross profit................     974,921      255,418      229,400      948,903      694,066      539,575      387,813      323,795
Selling, general and
 administrative
 expenses...................     463,339      116,219      103,845      450,965      390,634      295,610      219,861      191,225
Depreciation expense........     125,888       31,707       30,655      124,836      109,893       63,524       42,300       35,825
Interest expense............      85,222       19,636       23,388       88,974       71,944       40,521       31,891       26,211
Minority interests..........       7,653        1,578         (246)       5,829        1,608       (3,518)         199        2,857
Nonrecurring charge
 (gain) (1).................     (86,027)      (7,008)          --      (79,019)          --           --       12,600           --
Income before income
 taxes......................     378,846       93,286       71,758      357,318      119,987      143,438       80,962       67,677
Income taxes................     142,998       36,382       27,189      133,805       44,875       48,554       27,562       22,740
                              ----------   ----------   ----------   ----------   ----------   ----------   ----------   ----------
Net income..................  $  235,848   $   56,904   $   44,569   $  223,513   $   75,112   $   94,884   $   53,400   $   44,937
                              ==========   ==========   ==========   ==========   ==========   ==========   ==========   ==========

Other Data:
EBITDA (2)..................  $  524,957   $  144,265   $  129,043   $  509,735   $  310,895   $  252,525   $  158,725   $  132,945
EBITDA margin (3)...........         8.6%         8.8%         9.1%         8.6%         6.0%         6.7%         4.1%         3.4%
Capital expenditures........  $  139,748   $   26,134   $   30,506   $  144,120   $  100,383   $   95,447   $   92,913   $   69,147
Ratio of EBITDA to
 interest expense...........         6.2x         7.3x         5.5x         5.7x         4.3x         6.2x         5.0x         5.1x
Ratio of net debt to
 EBITDA (4).................         2.4x         8.6x        10.0x         2.4x         4.0x         2.6x         2.2x         2.6x
Ratio of earnings to fixed
 charges (5)................         4.0x         4.9x         3.5x         3.7x         2.4x         3.8x         3.2x         2.8x
Amortization expense........  $   13,616   $    1,644   $    3,242   $   15,214   $    9,071   $    5,042   $    3,572   $    3,232

Balance Sheet Data:
Working capital (6).........  $  288,687   $  288,687   $  580,656   $  635,413   $  609,857   $  215,865   $  259,188   $  164,312
Total assets................   3,358,417    3,358,417    3,182,792    3,250,888    3,129,613    1,771,614    1,083,645      995,254
Total debt (including
 capital lease
 obligations)...............   1,301,511    1,301,511    1,334,654    1,261,317    1,301,199      683,969      415,783      373,786
Shareholders' equity........   1,094,168    1,094,168      932,797    1,053,132      902,909      542,246      361,010      307,486

Operating Data:
Fresh meat sales
 (pounds)...................   2,869,719      693,010      635,091    2,811,800    2,786,400    2,687,412    2,539,221    2,320,477
Processed meat sales
 (pounds)...................   2,231,352      549,205      515,553    2,197,700    2,192,100    1,606,021    1,370,232    1,218,835
Total hogs processed........      20,450        4,598        4,724       20,576       20,367       19,093       17,952       16,869
</TABLE>

                                       23
<PAGE>

           NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

(1)  Reflects nonrecurring gains of $86.0 million for the 52 weeks ended July
     29, 2001, $7.0 million for the 13 weeks ended July 29, 2001 and $79.0
     million for the fiscal year ended April 29, 2001 on the sale of shares of
     IBP, inc. common stock and a nonrecurring charge of $12.6 million for the
     fiscal year ended May 3, 1998 related to civil penalties in an
     environmental case.

(2)  "EBITDA" represents income from continuing operations before interest
     expense, income taxes, depreciation and amortization, the nonrecurring
     charge and gains described in note (1), $7.5 million of expenses incurred
     related to the attempted merger with IBP for the 52 weeks ended July 29,
     2001and the fiscal year ended April 29, 2001, a $5.1 million gain on the
     sale of a plant for the 52 weeks ended July 29, 2001and the fiscal year
     ended April 29, 2001 and a $5.0 million loss resulting from a fire at a
     Circle Four farm in Utah for the 52 weeks and 13 weeks and ended July 29,
     2001. We have included EBITDA in Other Data because it is used by some
     investors as a measure of an issuer's ability to service debt. EBITDA
     should not be considered as an alternative to operating earnings, net
     income or net cash provided by operating activities (or any other measure
     of performance determined in accordance with generally accepted accounting
     principles) or as a measure of our ability to meet our cash needs. As of
     July 29, 2001, Schneider and its subsidiaries and Animex were parties to
     debt agreements that limited the amount of dividends and assets they were
     permitted to transfer to us. EBITDA includes $40.8 million and $29.0
     million, respectively, of combined EBITDA of Schneider and Animex for the
     fiscal years ended April 29, 2001 and April 30, 2000 and $44.1 million,
     $8.5 million and $5.2 million, respectively, for the 52 weeks ended July
     29, 2001 and the 13 weeks ended July 29, 2001 and July 30, 2000.

(3)  Represents EBITDA as a percentage of sales.

(4)  Net debt represents total debt plus capital lease obligations less cash.

(5)  For the purpose of computing the ratios of earnings to fixed charges,
     earnings represent income before taxes, the nonrecurring charge and gain
     described in note (1), the expenses related to our attempted merger with
     IBP, the gain on the sale of a plant and the fire loss, described in note
     (2) plus fixed charges (excluding capitalized interest). Fixed charges
     include interest on indebtedness (including capitalized interest),
     amortization of deferred debt issuance costs and an estimate of the
     interest portion of fixed rent expense.

(6)  During the first quarter of fiscal 2002, our U.S. Revolver became
     classified as a current portion of long term debt, and our working capital
     reflected a decrease of $438.0 million, which was the amount outstanding
     under our U.S. Revolver as of July 29, 2001. We have begun the process to
     refinance this facility and expect to complete the refinancing during the
     third quarter of fiscal 2002.

                                       24
<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Historical
Consolidated Financial Data" and the Consolidated Financial Statements
(including the related notes) included elsewhere in, and incorporated by
reference into, this prospectus.


General

     During the fiscal year 2001 and the first quarter of fiscal year 2002, we
were comprised of a Meat Processing Group and a Hog Production Group. At July
29, 2001, the Meat Processing Group consisted primarily of seven wholly owned
domestic meat processing subsidiaries and four international meat processing
entities. The Hog Production Group consisted primarily of three hog production
operations located in the United States and joint ventures outside the United
States.


Acquisitions

     Several acquisitions affect the comparability of results of operations for
the 13 weeks ended July 29, 2001, the 13 weeks ended July 30, 2000 and for
fiscal years 2001, 2000 and 1999. The base business refers to our operating
companies not affected by acquisitions during the periods of comparison.

     In June 2001, we completed the acquisition of Moyer for approximately $90
million and the assumption of debt. Moyer is a beef processor with annual sales
of approximately $600 million.

     In July 2001, we completed the acquisition of substantially all of the
assets and business of Gorges/Quik-to-Fix Foods for approximately $31 million.
Quik-to-Fix is a producer, marketer and distributor of value-added beef, pork
and poultry products for the retail and food service industry with annual sales
of approximately $140 million.

     In the third quarter of fiscal 2001, Schneider increased its investment in
Saskatchewan-based Mitchell's Gourmet Foods to 54%, requiring us to consolidate
their accounts and to discontinue using the equity method of accounting for this
investment. The impact of including Mitchell's Gourmet Foods in the consolidated
condensed balance sheet as of April 29, 2001 was to increase total assets $87.3
million and long-term debt $10.4 million. For the fiscal year ended October
2000, Mitchell's Gourmet Foods had annual sales of approximately $190 million.

     In January of fiscal 2000, we completed the acquisition of Murphy Farms and
its affiliated companies for 22.1 million shares of our common stock (subject to
post-closing adjustments) and the assumption of approximately $203 million in
debt, plus other liabilities. Murphy Farms is a hog producer with approximately
345,000 sows that produce approximately 6.1 million market hogs annually.

                                       25
<PAGE>

     In May of fiscal 2000, we completed the acquisition of Carroll's Foods and
its affiliated companies and partnership interests for 8.7 million shares of our
common stock and the assumption of approximately $231 million in debt, plus
other liabilities. Carroll's Foods' U.S. hog production operations include
approximately 180,000 sows which produce approximately 3.5 million market hogs
annually. The acquisition also included Carroll's Foods' 50% interest in Tar
Heel Turkey Hatchery, 100% of Carroll's Foods' turkey grow-out operations,
Carroll's Foods' 49% interest in Carolina Turkeys and hog production interests
in Brazil and Mexico.

     In August of fiscal 2000, we acquired the capital stock of Societe
Financiere de Gestion et de Participation S.A., a private-label processed meats
manufacturer in France. Prior to the acquisition, Societe Financiere had annual
sales of approximately $100 million.

     In November of fiscal 1999, we acquired 63% of the total equity of
Schneider, in exchange for approximately 5.1 million Exchangeable Shares of
Smithfield Canada Limited, our wholly owned subsidiary. On August 8, 2001, we
offered to buy the remainder of Schneider that we do not already own, which
would result in Schneider becoming our indirect wholly owned subsidiary.
Schneider produces and markets fresh pork and a full line of processed meats and
is the second largest meat processing company in Canada. Prior to the
acquisition, Schneider had annual sales of approximately $550 million.

     In April of fiscal 1999, we acquired a 67% interest in Animex, a major meat
and poultry processing company in Poland. During fiscal 2000, we increased our
ownership in Animex to 85% of total equity. Prior to the acquisition, Animex had
annual sales of approximately $400 million.

     In September of fiscal 1999, we acquired all of the capital stock of
Societe Bretonne de Salaisons, one of the largest private-label manufacturers of
ham, pork shoulder and bacon products in France. Prior to the acquisition,
Societe Bretonne had annual sales of approximately $100 million.

     In June of fiscal 1999, we increased our ownership in the Circle Four hog
production operation from 37% to 84%, requiring us to consolidate the accounts
of Circle Four and to discontinue using the equity method of accounting. Prior
to June of fiscal 1999, Circle Four was accounted for using the equity method of
accounting. As a result of the acquisition of Carroll's Foods in May of fiscal
2000, Circle Four became our wholly owned subsidiary.

     In October of fiscal 1999, we acquired all of the assets and business of
North Side Foods Corp., a major domestic supplier of precooked sausage to
McDonald's Corporation. Prior to the acquisition, North Side had annual sales of
approximately $60 million.

     Each of these acquisitions was accounted for using the purchase method of
accounting and, accordingly, the accompanying financial statements include the
results of operations from the dates of acquisition.

                                       26
<PAGE>

Results of Operations

Consolidated

  13 Weeks Ended July 29, 2001 Compared to 13 Weeks Ended July 30, 2000

     Sales in the 13 weeks ended July 29, 2001 increased by $215.1 million, or
15.1%, from the comparable prior year period. The increases in sales reflected a
9.2% increase in unit selling prices in the Meat Processing Group and the
incremental sales of acquired businesses.

     Gross profit in the 13 weeks ended July 29, 2001 increased $26.0 million,
or 11.3%, from the comparable prior year period. The current year gross profit
increases are primarily the result of higher live hog prices and increased hog
production in the Hog Production Group and better margins in the Meat Processing
Group. Higher profit margins in the Meat Processing Group are the result of a
more favorable product mix and an increased focus on margin improvement.

     Selling, general and administrative expenses in the 13 weeks ended July 29,
2001 increased $12.4 million, or 11.9%, primarily on a $5.0 million loss
incurred as a result of a fire at a Circle Four farm in Utah, an increase in
marketing and promotional costs for branded fresh and processed meats and the
inclusion of expenses of acquired businesses. These increases were partially
offset by a $2.3 million reduction in amortization expense of acquired goodwill
and other intangible assets in connection with the adoption of Statement of
Financial Accounting Standards No. 142.

     Depreciation expense in the 13 weeks ended July 29, 2001 increased $1.1
million, or 3.4%, from the comparable prior year period. The increases are
primarily due to the inclusion of depreciation expense of acquired businesses.

     Interest expense decreased $3.8 million, or 16.0%, from the comparable
prior year period. The decrease in interest expense is primarily due to the
decrease in average interest rates.

     In the first quarter of 2002, we sold 2.9 million shares of IBP common
stock resulting in a nonrecurring, pretax gain of $7.0 million.

     The effective income tax rate for the 13 weeks ended July 29, 2001
increased to 39.0% as compared with 37.9% last year on higher effective rates of
foreign operations. We had a valuation allowance of $20.5 million related to
income tax assets as of July 29, 2001 primarily related to losses in foreign
jurisdictions for which no tax benefit was recognized.

     Reflecting the foregoing factors, net income increased to $56.9 million, or
$.53 per diluted share, in the 13 weeks ended July 29, 2001 up from net income
of $44.6 million, or $.40 per diluted share in the 13 weeks ended July 30, 2000.
Excluding the after-tax gain on the sale of IBP common stock, and the after-tax
loss incurred as a result of a fire at a Circle Four farm in Utah, net income
increased to $55.7 million, or $.52 per diluted share for the 13 weeks ended
July 29, 2001.

                                       27
<PAGE>

  Fiscal 2001 Compared to Fiscal 2000

     Sales in fiscal 2001 increased by $749.5 million, or 14.6%. The increase in
sales reflected a 12.0% increase in unit selling prices in the Meat Processing
Group and the incremental sales of businesses acquired in fiscal 2001 and 2000.
See the following sections for comments on sales changes by business segment.

     Gross profit in fiscal 2001 increased $254.8 million, or 36.7%, primarily
the result of the inclusion of Murphy Farms, sharply improved margins in the Hog
Production Group due to higher live hog prices and higher margins in the Meat
Processing Group. Higher Meat Processing Group margins are the result of more
favorable product mix and increased focus on margin improvement.

     Selling, general and administrative expenses increased $60.3 million, or
15.4%, primarily on the inclusion of selling, general and administrative
expenses of acquired businesses, increased promotion of processed meats,
expenses related to the attempted merger with IBP, inc. and expenses on the
subsequent sale of the common stock of IBP. Also in fiscal 2001, we recognized a
$5.1 million gain on the sale of a plant in Canada that is reported in selling,
general and administrative expenses.

     Depreciation expense increased $14.9 million, or 13.6%, in fiscal 2001
compared to fiscal 2000, primarily related to the inclusion of the depreciation
expense of acquired businesses and increased depreciation expense in the
existing business reflecting capital expenditures to increase processed meats,
case-ready and other value-added fresh pork capacities.

     Interest expense increased $17.0 million, or 23.7%, in fiscal 2001 compared
to fiscal 2000. The increase is primarily due to the inclusion of interest
expense on assumed debt of acquired businesses, additional borrowings associated
with our investment in the common stock of IBP and the share repurchase program,
partially offset by lower average borrowing costs.

     In fiscal 2001, we sold 8.2 million shares of IBP common stock resulting in
a nonrecurring, pretax gain of $79.0 million.

     The effective income tax rate was 37.4% for fiscal 2001 and 2000. We had a
valuation allowance of $20.2 million and $5.3 million related to income tax
assets as of April 29, 2001 and April 30, 2000, respectively, primarily related
to losses in foreign jurisdictions for which no tax benefit was recognized.

     Reflecting the factors previously discussed, net income increased to $223.5
million, or $2.03 per diluted share, in fiscal 2001 up from $75.1 million, or
$.76 per diluted share, in fiscal 2000. Excluding the gain on the sale of IBP
common stock and the plant in Canada, net of related expenses and income taxes,
net income increased to $174.9 million, or $1.59 per diluted share. Earnings per
diluted share was also affected by the issuance of shares in connection with the
acquisition of Murphy Farms in fiscal 2000 and the retirement of shares under
our share repurchase program in fiscal 2001 and 2000.

                                       28
<PAGE>

  Fiscal 2000 Compared to Fiscal 1999

     Sales in fiscal 2000 increased $1.4 billion, or 36.4%, from fiscal 1999.
The increase in sales was primarily attributable to the incremental sales of
businesses acquired in fiscal 2000 and 1999 and an increase in both average unit
selling prices and processed meats volume in the base business. See the
following sections for comments on sales changes by business segment.

     Gross profit in fiscal 2000 increased $154.5 million, or 28.6%, primarily
the result of the inclusion of acquired businesses in the Hog Production Group
where margins improved sharply due to higher live hog prices which were
partially offset by expenses related to the implementation of food safety
programs at our facilities in the Meat Processing Group and lost production due
to the aftereffects of Hurricane Floyd. Fiscal 2000 margins were also favorably
impacted by commodity hedging gains in the Hog Production Group. Excluding
acquisitions, gross profit in the base business, which was more heavily weighted
to the Meat Processing Group, declined as a result of the same higher live hog
prices which reduced fresh pork and processed meats margins.

     Selling, general and administrative expenses increased $95.0 million, or
32.1%, primarily on the inclusion of selling, general and administrative
expenses of acquired businesses. In the base business, costs increased primarily
due to higher advertising and promotion expenses to market branded fresh pork
and processed meats.

     Depreciation expense increased $46.4 million, or 73.0%, in fiscal 2000
compared to fiscal 1999 primarily related to the inclusion of the depreciation
expense of acquired businesses and increased depreciation expense in the base
business on processed meats expansion and information systems projects.

     Interest expense increased $31.4 million, or 77.5%, in fiscal 2000 compared
to fiscal 1999 reflecting the inclusion of the interest expense on assumed debt
of the acquired businesses, the cost of borrowings to finance additional
investments and higher interest rates.

     The effective income tax rate for fiscal 2000 increased to 37.4% compared
to 33.9% in fiscal 1999 primarily on the inclusion of foreign earnings which are
taxed at higher rates. We had a valuation allowance of $5.3 million related to
income tax assets as of April 30, 2000 primarily related to losses in foreign
jurisdictions for which no tax benefit was recognized. At May 2, 1999, we had no
valuation allowances for deferred tax assets.

     Reflecting the factors previously discussed, net income decreased to $75.1
million, or $.76 per diluted share, in fiscal 2000 down from $94.9 million, or
$1.16 per diluted share, in fiscal 1999. Earnings per diluted share was also
affected by the issuance of shares in connection with business acquisitions and
the retirement of shares under our share repurchase program in fiscal 2000.

                                       29
<PAGE>

Meat Processing Group

  13 Weeks Ended July 29, 2001 Compared to 13 Weeks Ended July 30, 2000

     Sales in the Meat Processing Group increased $211.4 million, or 15.9%, in
the 13 weeks ended July 29, 2001, from the comparable prior year period on a
9.2% increase in unit selling prices and a 7.9% increase in fresh and processed
meats sales volume. The sales tonnage increase is related to the inclusion of
sales of acquired businesses, partially offset by the sale of a Canadian fresh
pork plant. In the base business, fresh meat volumes increased 2.9% over the 13
week period while processed meats volume decreased 2.0%.

     The Meat Processing Group had an operating loss in the 13 weeks ended July
29, 2001 of $0.5 million compared to an operating loss of $7.8 million in the
comparable prior year period. This improvement is due to higher margins in both
fresh and processed meats, despite higher cost of raw materials (live hogs).
Fresh meat margins increased resulting from the continued emphasis on the
branded, value-added and case-ready categories. Increased processed meat margins
reflected higher pricing and improved product mix.

  Fiscal 2001 Compared to Fiscal 2000

     Meat Processing Group sales in fiscal 2001 increased $600.6 million, or
12.0%, on a significant increase in unit selling prices and the inclusion of the
sales of businesses acquired. The unit selling price increase was primarily
attributable to higher live hog costs and a greater proportion of branded and
value-added fresh pork in the sales mix. In fiscal 2001, fresh pork volume
increased 2.2%, primarily on branded fresh pork and case-ready while processed
meats volume remained relatively flat. Sales volume of other products (primarily
by-products) decreased 5.5%. Excluding acquired businesses, sales volume
decreased 2.1%, the result of a 3.9% decrease in processed meats volume
partially offset by a 0.8% increase in fresh pork volume. Sales volume decreases
in processed meats in the base business reflect the elimination of lower margin
business due in part to plant closures in Poland and the U.S. These decreases
were partially offset by the inclusion of the sales volume of Mitchell's Gourmet
Foods and Societe Financiere.

     Operating profit in the Meat Processing Group increased to $135.2 million
in fiscal 2001 from $122.9 million, the result of sharply higher margins on
processed meats partially offset by lower margins on fresh pork. Margins in
processed meats reflected better pricing, lower production costs and improved
product mix. Fresh pork margins were down, largely the result of higher live hog
costs which were partially offset by an improved product mix resulting from the
growth in the branded, value-added and case-ready categories. Meat Processing
Group operating profit also increased due to a $5.1 million gain on the sale of
a plant in Canada and the incremental operating profit from acquired businesses.

  Fiscal 2000 Compared to Fiscal 1999

     Meat Processing Group sales in fiscal 2000 increased $1.3 billion, or
33.6%, from fiscal 1999. The increase in sales was primarily attributable to the
incremental sales from businesses

                                       30
<PAGE>

acquired in fiscal 2000 and 1999 and an increase in both average unit selling
prices and processed meats volume in the base business. For fiscal 2000,
processed meats and fresh pork volume increased 36.5% and 3.7%, respectively, on
incremental volume of acquired businesses. In addition, unit selling prices
increased 14.0% due to higher live hog costs and a greater proportion of value-
added processed meats in the sales mix. Excluding acquired businesses, processed
meats volume increased 6.0% which was offset by a 6.2% decrease in fresh pork
volume. Fresh pork volume decreased as we reduced processing levels as a result
of sharply lower fresh pork margins compared with the prior year.

     Operating profit in the Meat Processing Group decreased to $122.9 million
in fiscal 2000 from $253.8, the result of sharply lower margins on fresh pork
partially offset by the incremental operating profit generated in acquired
businesses. In addition, increased spending in the base business on the market
expansion of fresh pork and processed meats brands, the implementation of food
safety programs at our facilities and lost production due to the aftereffects of
Hurricane Floyd also contributed to lower operating profit.


Hog Production Group

  13 Weeks Ended July 29, 2001 Compared to 13 Weeks Ended July 30, 2000

     Hog Production Group sales increased 11.4% in the 13 weeks ended July 29,
2001 from the comparable prior year period. This increase is the result of a
7.9% increase in unit selling prices for hogs and a 3.2% increase in production.
Most Hog Production Group sales represent intersegment sales to the Meat
Processing Group and, therefore, are eliminated in our condensed statements of
income.

     Operating profit in the 13 weeks ended July 29, 2001 at the Hog Production
Group improved to $119.7 million from $111.2 million, for the comparable prior
year period. Operating profit improved on higher live hog prices, increased
volume and lower raising costs, partially offset by the impact of unfavorable
commodity hedging contracts and a loss incurred as a result of a fire at a
Circle Four farm in Utah.

  Fiscal 2001 Compared to Fiscal 2000

     Hog Production Group sales increased sharply in fiscal 2001 to $1.2 billion
from $735.3 million due to the inclusion of a full year of the sales of Murphy
Farms compared to only four months in fiscal 2000. Hog Production Group sales
also benefited from a 10.5% increase in live hog prices in the base business.
With the acquisition of Murphy Farms in fiscal 2000, hogs sold in fiscal 2001
increased to 11.8 million from 7.7 million in the comparable period in fiscal
2000. Intersegment sales to the Meat Processing Group are eliminated in the
Consolidated Statements of Income.

     Operating profit in the Hog Production Group improved to $281.3 million
compared to $99.6 million in fiscal 2000 primarily as a result of sharply higher
live hog prices, relatively stable grain costs and increased volume from the
Murphy Farms acquisition. In addition, the Hog

                                       31
<PAGE>

Production Group realized cost savings on production efficiencies between the
hog production units and the Meat Processing Group plants.

  Fiscal 2000 Compared to Fiscal 1999

     Hog Production Group sales increased sharply in fiscal 2000 compared to
fiscal 1999 as a result of the inclusion of the sales of Murphy Farms and
Carroll's Foods and a 27.9% increase in live hog prices. With the acquisition of
Carroll's Foods and Murphy Farms, hogs sold in fiscal 2000 more than doubled in
the comparable period in fiscal 1999.

     Operating profit in the Hog Production Group improved to $99.6 million
compared to a loss of $46.1 million in fiscal 1999 primarily as a result of a
sharp increase in hog prices from their historic lows in fiscal 1999 and the
impact of selling significantly more hogs at substantially better margins in the
current year. The operating profit was partially offset by the aftereffects of
Hurricane Floyd on the hog production operations on the East Coast of the U.S.
In addition, operating profit benefited from favorable commodity hedging
contracts.


Liquidity and Capital Resources

     The pork processing industry is characterized by high sales tonnage and
rapid turnover of inventories and accounts receivable. Because of the rapid
turnover rate, we consider our pork processing inventories and accounts
receivable highly liquid and readily convertible into cash. Borrowings under our
credit facilities are used to finance increases in the levels of inventories and
accounts receivable resulting from seasonal and other market-related
fluctuations in raw material costs. The demand for seasonal borrowings usually
peaks in early November when inventories are at their highest levels, and
borrowings are repaid in January when the related accounts receivable are
collected.

     Cash provided by operations totaled $91.3 million for the 13 weeks ended
July 29, 2001 compared to $59.9 million in the same period last year. This
increase is due to higher earnings, a gain on the sale of IBP common stock, and
a reduction in working capital commitments compared to the same period last
year.

     Cash provided by operations increased to $218.3 million for fiscal 2001
from $125.2 million in fiscal 2000. This increase is primarily attributed to the
impact of sharply higher earnings, net of a gain on the sale of IBP common
stock. Cash used in operating assets and liabilities was $56.4 million in fiscal
2001 compared to $79.5 million in fiscal 2000 primarily due to less cash
deposited for commodity hedging commitments.

     Cash used in investing activities increased to $93.0 million for the 13
weeks ended July 29, 2001 compared to $76.0 million for the comparable prior
period. The increase is primarily due to our acquisitions of Moyer and Quik-to-
Fix, partially offset by the proceeds from the sale of IBP common stock. Capital
expenditures in the current period totaled $26.1 million primarily related to
fresh and processed meat expansion projects and plant improvements. As of July
29, 2001, we

                                       32
<PAGE>

had definitive commitments of $108.2 million for capital expenditures primarily
for processed meat expansion, production efficiencies and additional hog
production facilities in Utah.

     In fiscal 2001, cash used in investing activities was $59.8 million
compared to $192.3 million in fiscal 2000. The decrease is primarily due to
proceeds from the sale of IBP common stock less the cost of shares purchased
during fiscal 2001 compared to the cost of IBP shares purchased in fiscal 2000.
Capital expenditures totaled $144.1 million related to fresh pork and processed
meats expansion projects and plant improvements. During fiscal 2001, we invested
$29.7 million in business acquisitions, primarily Mitchell's Gourmet Foods. In
addition, we had proceeds of $38.9 million during fiscal 2001 from the sale of
property, plant and equipment primarily the result of the sale of a plant in
Canada.

     Financing activities provided cash of $6.8 million in the 13 weeks ended
July 29, 2001 compared to $12.5 million for the prior year. We increased our
borrowings on our U.S. Revolver $31.0 million to fund net investment activity
and to repurchase 1.1 million shares of our common stock. As of July 29, 2001,
12.3 million shares of our common stock have been repurchased under a 16.0
million share repurchase program.

     Financing activities used $152.4 million in fiscal 2001 as funds provided
by operations and the sale of IBP common stock were used to repay long-term debt
and capital lease obligations as well as repurchase 5.3 million shares of our
common stock.

     The U.S. Revolver is scheduled to expire in July 2002. We have begun the
process to refinance this facility and expect to complete the refinancing during
the third quarter of fiscal 2002. At July 29, 2001 the outstanding balance on
this facility of $438.0 million was included in the current portion of long-term
debt and capital lease obligations on the consolidated condensed balance sheet.


Subsequent Events

     On October 25, 2001, we completed the acquisition of Packerland in exchange
for approximately 6.3 million shares of our common stock plus the assumption of
approximately $118 million of debt and other liabilities. Packerland is the
fifth largest beef processor in the U.S. with a daily processing capacity of
6,150 head. Packerland had net sales of $1.4 billion for the fiscal year ended
December 30, 2000.


Risk Management

     Substantially all of our products are produced from commodity-based raw
materials, corn and soybean meal in the Hog Production Group and live hogs in
the Meat Processing Group. The cost of corn and soybean meal (the principal feed
ingredients for hogs) and live hogs are subject to wide fluctuations due to
unpredictable factors such as weather conditions, economic conditions,
government regulation and other unforeseen circumstances. We utilize futures and
option contracts for live hogs and grains to manage hog production margins when
management

                                       33
<PAGE>

determines the conditions are appropriate for these hedges. The particular
hedging methods employed and the time periods for the contracts depend on a
number of factors, including the availability of adequate contracts for the
respective periods for the hedge. We attempt to closely match the commodity
contract expiration periods with the dates for product sale and delivery. The
pricing of our fresh pork and processed meats is monitored and adjusted upward
and downward in reaction to changes in the cost of the underlying raw materials.
The unpredictability of the raw material costs limits our ability to forward
price fresh pork and processed meat products without the use of commodity
contracts through a program of price-risk management. We use price-risk
management techniques to enhance our ability to engage in forward sales
contracts, where prices for future deliveries are fixed, by purchasing (or
selling) commodity contracts for future periods to reduce or eliminate the
effect of fluctuations in future raw material costs on the profitability of the
related sales. While this may tend to limit our ability to participate in gains
from favorable commodity price fluctuations, it also tends to reduce the risk of
loss from adverse changes in raw material prices. As of April 29, 2001, we had a
deferred loss of $20.8 million compared to a deferred loss on outstanding
futures contracts of $41.3 million at April 30, 2000. As of April 29, 2001 and
April 30, 2000, we had open futures contracts with contract values of $251.4
million and $711.7 million, respectively. As of April 29, 2001 and April 30,
2000, we had deposits with brokers for outstanding futures contracts of $23.3
million and $45.1 million, respectively, included in prepaid expenses and other
current assets. For open futures contracts, we use a sensitivity analysis
technique to evaluate the effect that changes in the market value of commodities
will have on these commodity derivative instruments. As of April 29, 2001, the
potential change in fair value of open futures contracts, assuming a 10% change
in the underlying commodity price, was $14.7 million.


                       DESCRIPTION OF OTHER INDEBTEDNESS

     As of July 29, 2001 and April 29, 2001, we had outstanding the following
other indebtedness (excluding capital lease obligations):

<TABLE>
                                                 July 29,      April 29,
                                                   2001           2001
                                                   ----           ----
                                                      (in millions)
<S>                                              <C>        <C>
U.S. Revolver..................................  $  438.0       $  407.0
International Facilities.......................      28.1           35.5
Smithfield Senior Secured Notes................     455.2          459.7
Other Subsidiary Debt..........................     171.6          149.3
7 5/8% Senior Subordinated Notes due 2008......     185.1          185.1
                                                 --------       --------
  Total debt...................................   1,278.0        1,236.6
                                                 --------       --------
Less amounts classified as current maturities..    (529.5)        (111.1)
                                                 --------       --------
  Total long-term debt.........................  $  748.5       $1,125.5
                                                 ========       ========
</TABLE>

     As of April 29, 2001, our debt obligations had the following maturities
over the next five years:

<TABLE>
<CAPTION>
                              Fiscal Year            Amount
                              -----------        -------------
                                                 (in millions)
               <S>                               <C>
               2002.............................     $111.1
               2003.............................      494.5
               2004.............................      111.0
               2005.............................       50.7
               2006.............................       47.1
</TABLE>

                                       34
<PAGE>

U.S. Revolver

     Until December 7, 2001, the U.S. Revolver referred to in this prospectus
was in place with a group of banks, including JPMorgan Chase Bank, an affiliate
of an initial purchaser of the senior notes, as administrative agent, that
provided for up to $650.0 million of committed revolving credit borrowings
through July 15, 2002, secured by inventory and receivables. As of July 29,
2001, outstanding borrowings were $438.0 million under the U.S. Revolver and
were classified as a current portion of long-term debt. The average interest
rate applicable to borrowings under this credit facility was 7.179% during
fiscal 2001 and 4.857% during the 13 weeks ended July 29, 2001. The U.S.
Revolver was scheduled to expire in July 2002. The commitments under the U.S.
Revolver were subject to a requirement that the sum of the indebtedness under
the U.S. Revolver and indebtedness pari passu with the indebtedness under the
U.S. Revolver and the indebtedness under hedging agreements cannot exceed the
borrowing base calculated on the basis of our inventory and receivables. The
U.S. Revolver contained financial covenants that required the maintenance of
levels/ratios for consolidated current ratio, consolidated working capital,
consolidated leverage ratio, consolidated tangible net worth and consolidated
interest coverage ratio. In addition, the U.S. Revolver imposed restrictions on
indebtedness, liens, fundamental changes (e.g., mergers, sales of assets, etc.,
joint ventures and lines of business), investments, loans, advances, guarantees
and acquisitions, hedging agreements, restricted payments, transactions with
affiliates, restrictive agreements and sales and leaseback transactions. The
borrowings under the U.S. Revolver were guaranteed by some of our existing
subsidiaries, the assets of which are included in the calculation of our
borrowing base. The U.S. Revolver was also secured by the assets included in the
borrowing base.

     We completed the refinancing of the U.S. Revolver on December 7, 2001. The
replacement for the U.S. Revolver is also with a group of banks, including
JPMorgan Chase Bank. The committed availability under the replacement facility
has increased to $750.0 million and it is scheduled to expire December 6, 2006.
The borrowings under the replacement facility are secured by the same class of
assets that secured the U.S. Revolver and guaranteed by some of our
subsidiaries. The replacement facility differs from the U.S. Revolver in that
the borrowings need not be based on borrowing base certifications, although the
replacement facility does contain a collateral coverage financial covenant.
Other financial covenants in the replacement facility have also changed and
include a debt to EBITDA test and an EBITDA coverage ratio. The other covenants
in the replacement facility are substantially similar to those in the U.S.
Revolver. See "-- Recent Waivers" for information concerning a potential
covenant violation under the U.S. Revolver for which we obtained waivers until
December 7, 2001. The covenants in the replacement for the U.S. Revolver have
been modified from those in the U.S. Revolver such that the potential covenant
violation no longer presents an issue.

International Facilities

     Our foreign subsidiaries had a total of $28.1 million outstanding under the
International Facilities at July 29, 2001: $17.3 million at our Canadian
operations and $10.8 million at our Polish operations. The International
Facilities are classified as notes payable in our consolidated balance sheets.

                                       35
<PAGE>

     Some of the credit facilities of Schneider were refinanced during the first
quarter of fiscal year 2002 with a new revolving credit facility with Canadian
Imperial Bank of Commerce, Bank of Montreal and The Bank of Nova Scotia, which
provides for up to C$85.0 million of committed borrowings. In addition, a total
of C$30.0 million of committed credit facilities is available to various
majority-owned, consolidated subsidiaries of Schneider. The new Schneider credit
facility contains financial covenants that require the maintenance of
levels/ratios for funded debt/EBITDA ratio, interest coverage ratio, current
ratio and consolidated shareholders' equity. In addition, this credit facility
imposes restrictions on dispositions of assets, amalgamation and merger and
fundamental change.

     Some of the credit facilities of Animex were also refinanced during the
first quarter of fiscal year 2002 with a new credit facility with Rabobank
Polska S.A., as arranger, agent, security agent and pledge administrator, which
provides for up to US$100.0 million-equivalent of committed credit, secured by
all Animex assets including receivables, inventory, real estate, plant and
equipment. The commitments under the new credit facility are subject to a
requirement that the sum of the indebtedness under this credit facility and
indebtedness pari passu with the indebtedness under this credit facility cannot
exceed the borrowing base calculated on the basis of Animex's inventory and
receivables. This credit facility contains financial covenants that require the
maintenance of levels/ratios for net worth, current ratio and security coverage
ratio. In addition, this credit facility imposes restrictions on indebtedness,
loans and guarantees, disposals of assets and changes in the nature of Animex's
business and mergers.


Smithfield Senior Secured Notes

     We privately placed senior secured notes with a group of institutional
investors in June 1996, which are guaranteed by some of our subsidiaries and
secured by various real and personal property. This placement consisted of $9.9
million of seven-year 8.41% notes, $40.0 million of four-year 8.34% notes, $9.0
million of four-year 9.80% notes, $9.3 million of six-year 10.75% notes, $100.0
million of seven-year 8.52% notes, $14.0 million of seven-year 9.85% notes and
$14.8 million of five-year 8.41% notes (the "Series B-H Notes"). We restated
the Series B-H Notes dated as of October 1999 and privately placed our second
placement, consisting of $100.0 million of ten-year 7.89% notes, $50.0 million
of ten-year variable rate notes, $50.0 million of ten-year 8.44% notes and $25.0
million of ten-year LIBOR rate notes (the "Series I-L Notes"). The Series I-L
Notes were also guaranteed by some of our subsidiaries and secured by various
real and personal property. In June 2000, we privately placed $100.0 million of
senior secured notes with a group of institutional investors, which are also
guaranteed by some of our subsidiaries and secured by various real and personal
property. The placement consisted of $75.0 million of six-year 8.25% notes and
$25.0 million of two-year LIBOR rate notes (the "Series M-N Notes," and
together with the Series I-L Notes and the Series B-H Notes, the "Senior
Secured Notes"). The interest on all of the Senior Secured Notes is payable
quarterly. We may at any time prepay the principal amount of the Senior Secured
Notes in part or in whole. Upon a change of control, the holders may require us
to repurchase them at a price equal to 100% of their principal amount, together
with a make-whole amount and accrued and unpaid interest. The Senior Secured
Notes contain financial covenants that require the maintenance of levels and/or
ratios regarding current ratio, consolidated working capital, funded debt, fixed
charges coverage

                                       36
<PAGE>

and consolidated tangible net worth. In addition, the Senior Secured Notes
impose restrictions on restricted payments and investments, restrictions on
dividends, liens, mergers and acquisitions, transfers of property and subsidiary
stock, entering new lines of business, transactions with affiliates and
guarantees. See "-- Recent Waivers" for information concerning a potential
covenant violation under the Senior Secured Notes for which we obtained waivers
until December 7, 2001. Before the waivers expired, the Senior Secured Notes
were modified such that the potential covenant violation no longer presents an
issue.


7 5/8% Senior Subordinated Notes due 2008

     In February 1998, we issued $200.0 million of 7 5/8% Senior Subordinated
Notes due 2008. Interest on the Senior Subordinated Notes is payable in semi-
annual installments and the notes mature on February 15, 2008. The Senior
Subordinated Notes are unsecured and subordinated to all future and existing
senior indebtedness. The Senior Subordinated Notes are not guaranteed by any of
our subsidiaries. We cannot redeem the Senior Subordinated Notes at our option,
but the holders, upon a change of control, may require us to repurchase them at
a price equal to 101% of their principal amount, together with accrued and
unpaid interest. The Senior Subordinated Notes impose restrictions on
indebtedness, layering, restricted payments, agreements that restrict
distributions from restricted subsidiaries, sales of assets, transactions with
affiliates, sales or issuances of capital stock of restricted subsidiaries,
liens and future guarantees.


Other Subsidiary Debt

     Various subsidiaries also have entered into other debt agreements. As of
July 29, 2001, there was approximately $171.6 million outstanding under these
agreements. The principal debt agreements in this group are the following:

     Our subsidiaries in France, Smithfield France SAS, Financiere des Pins,
Societe Bretonne de Salaisons and Societe Financiere de Gestion et de
Participation, have credit agreements with various French banks. The aggregate
outstanding borrowings for all our French subsidiaries were approximately $33.4
million under these term credit agreements as of July 29, 2001. Most of these
credit agreements impose restrictions on authorized capital, guarantees,
dispositions of assets and lines of business.

     Prior to our acquisition of 63% of Schneider in 1998, Schneider also issued
two series of debentures. The principal amount of these debentures is
approximately $17.5 million. The debentures contain financial covenants that
require the maintenance of a specified current ratio and consolidated
shareholders' equity. In addition, the debentures impose restrictions on liens,
guarantees, dividends, redemptions of preference shares, dispositions of
indebtedness of subsidiaries, dispositions of shares of subsidiaries, sales of
assets and amalgamations or mergers. In October 2001, Schneider issued a third
series of debentures in the amount of C$65.0 million. Schneider's term credit
agreements that were refinanced under the new revolving credit facility
discussed above totaled approximately $24.3 million as of July 29, 2001.
Schneider's

                                       37
<PAGE>

consolidated subsidiaries also have debt agreements under which approximately
$18.6 million was outstanding as of July 29, 2001.

     Prior to our acquisition, Animex entered into various debt agreements under
which approximately $12.0 million was outstanding as of July 29, 2001.
Outstanding debt under Animex's term credit agreements that we refinanced under
the new US$100.0 million-equivalent commitment discussed above totaled
approximately $31.5 million as of July 29, 2001.

     Carroll's Foods of Virginia LLC currently has a series of term loans with
Colonial Farm Credit, ACA under which outstanding borrowings were $7.7 million
as of July 29, 2001. The amounts outstanding under these loans mature at various
dates through 2003.

     Prior to our acquisition in the first quarter of fiscal 2002, Moyer entered
into various debt agreements under which approximately $17.4 million was
outstanding as of July 29, 2001, including $10.5 million of term loans and $6.9
million of notes payable. The notes payable were repaid in the second quarter of
fiscal 2002.

     Packerland also had various debt agreements, totaling approximately $118
million, prior to our acquisition in the second quarter of fiscal 2002.
Simultaneously with the closing in October 2001, approximately $34 million of
this debt was repaid.


Recent Waivers

     There are provisions in the U.S. Revolver (and its replacement facility)
and the Senior Secured Notes that restrict the extent to which our subsidiaries
may enter into loan agreements that prohibit the payment of dividends or the
making of loans or transferring of property to us or to other subsidiaries.
Until December 7, 2001, some of the covenants contained in some of our
subsidiaries' loan agreements may have violated these provisions of the U. S.
Revolver and the Senior Secured Notes. The subsidiary loan agreements involved
included a loan agreement under which one of Schneider's subsidiaries may borrow
amounts up to C$30 million and the pre-acquisition Animex loan agreements.

     We previously obtained waivers effective until December 7, 2001 from the
lenders under the U.S. Revolver and the Senior Secured Notes that waived any
default that might exist under the terms of their agreements as a result of
these subsidiary loan agreements.

     Before the waivers expired, we took the following actions with regard to
the subsidiary loan agreements causing the defaults:

     .    in the case of the Schneider subsidiary, we reached agreement with the
          lenders under the subsidiary loan agreement to modify that agreement
          to remove the provisions that would cause a default;

     .    and, with respect to other potential covenant violations, we reached
          agreement with the lenders under the Senior Secured Notes and, in the
          case of the U.S. Revolver, the lenders

                                       38
<PAGE>

          under the replacement facility, to modify the provisions in those loan
          agreements such that there would be no default as a result of the
          provisions of the subsidiary loan agreements described above.

                                       39
<PAGE>

                                   BUSINESS

General

  We are the largest hog producer and pork processor in the world. We conduct
our business through two groups, the Meat Processing Group and the Hog
Production Group, each comprised of a number of subsidiaries.

  Meat Processing Group.  The Meat Processing Group produces domestically and
internationally a wide variety of fresh pork and processed meat products and
markets them nationwide and to over 25 foreign markets, including Canada,
Poland, France, Japan and Mexico. In addition, in June 2001 we acquired Moyer,
the ninth largest beef processor in the United States. The Meat Processing Group
currently consists primarily of seven domestic processing subsidiaries and four
international meat processing entities. All these subsidiaries are wholly owned
except as indicated below. Collectively, these subsidiaries currently operate
over 45 processing plants.

<TABLE>
<CAPTION>
Subsidiary                                                              Headquarters                    Fiscal 2001 Sales
----------                                                              ------------                    -----------------
<S>                                                                     <C>                             <C>
The Smithfield Packing Company,
 Incorporated/(1)/..................................................    Smithfield, Virginia            $ 1,808 million
John Morrell & Co...................................................    Cincinnati, Ohio                $ 1,618 million
Schneider Corporation (63%-owned)/(3)/..............................    Kitchener, Ontario, Canada      $   776 million
Moyer Packing Company...............................................    Souderton, Pennsylvania         $   600 million/(2)/
Gwaltney of Smithfield, Ltd.........................................    Smithfield, Virginia            $   590 million
Animex S.A. (85%-owned).............................................    Warsaw, Poland                  $   312 million
Patrick Cudahy Incorporated.........................................    Cudahy, Wisconsin               $    23 million
Quik-to-Fix Foods, Inc..............................................    Dallas, Texas                   $   140 million/(2)/
Societe Financiere de Gestion et de Participation
 S.A................................................................    Quimper and Lyon, France        $   110 million
Societe Bretonne de Salaisons S.A...................................    Lampaul Guimiliau, France       $    93 million
North Side Foods Corp...............................................    Arnold, Pennsylvania            $    81 million
</TABLE>

(1)  For reporting purposes, the sales of The Smithfield Packing Company,
     Incorporated include the sales of Lykes Meat Group, Inc.

(2)  Estimated annualized sales.

(3)  In fiscal 2002, our ownership of Schneider Corporation increased to 100%.

     Hog Production Group.  To complement our processing operations, we have
vertically integrated into hog production through our Hog Production Group,
which currently provides the Meat Processing Group with approximately 50% of its
domestic live hog requirements. In order to more strategically align the hog
production group, we recently reorganized under a subsidiary named Murphy-Brown
LLC which owns and manages the following three wholly owned subsidiaries.

<TABLE>
<CAPTION>
Subsidiary                     Principal Locations                    Number of Sows
----------                     -------------------                    --------------
<S>                            <C>                                    <C>
Murphy Farms, LLC...........   North Carolina, Missouri, Oklahoma,    345,000
                               Illinois, South Dakota and Texas
Carroll's Foods, LLC........   North Carolina and Virginia            180,000
Brown's of Carolina, LLC....   North Carolina, Utah, Colorado         170,000
                               and South Carolina
</TABLE>

                                       40
<PAGE>

Business Strategy

     Our business is based on four basic strategies:

     .    Vertical Integration. We, principally through the acquisitions of
          Carroll's Foods of Virginia, Inc. and Murphy Farms in fiscal years
          1999 and 2000, have increased our vertical integration into hog
          production from 8% to 60%. We produce hogs through a combination of
          company-owned and contract production operations in addition to long-
          term partnerships and strategic alliances. We believe that vertical
          integration provides a number of competitive advantages, including
          substantial economies of scale from high volume hog production,
          increased control over raw material quality and consistency, and
          operational, logistical and transportation efficiencies due to the
          close proximity of our hog production operations to our processing
          facilities. We intend to position ourselves to maximize the benefits
          of vertical integration.

     .    Advanced Genetics. Since May 1991, we have made extensive use of our
          exclusive United States franchise rights from the National Pig
          Development Company, or NPD, relating to genetic lines of specialized
          breeding stock. These hogs are among the leanest hogs commercially
          available, and enable us to market highly differentiated pork
          products. Since introducing a herd of 2,000 sows in 1990, we have
          increased the number of NPD sows to 385,000, or approximately 55% of
          our total sow inventory. Over the next five years we intend to further
          expand production of NPD sows. We believe that the leanness and
          increased meat yields of these hogs will continue to increase the
          overall quality and consistency of our fresh pork and processed meats.

     .    Strategic Acquisitions. Over the last decade, we have made several
          significant acquisitions that have increased production capacity,
          provided vertical integration, expanded our geographic reach into new
          markets, both domestically and internationally, and created a
          portfolio of highly recognized regional brands. Recently, we have
          taken steps to expand our business into beef processing. To that end,
          we recently acquired Moyer Packing Company, the ninth largest U.S.
          beef processor, providing us with the opportunity to expand our
          geographic reach into the northeastern United States and offer a
          broader range of complementary products. In addition, during the
          second quarter of our current fiscal year, we completed the
          acquisition of Packerland Holdings, Inc., the fifth largest U.S., beef
          processor with its principal operations in the northern Midwest and
          the Southwest. During the quarter we also completed the acquisition of
          Stadler's Country Hams, Inc., a producer of country hams, and a 75%
          interest in RMH Foods, Inc., a company specializing in pre-cooked pork
          and beef entrees under the Quick-n-Easy(TM) brand. On November 1,
          2001, we announced an agreement in principle to acquire beef packer
          American Foods Group, Inc., the nation's tenth largest beef packer.
          Going forward, we will continue to look to grow through strategic
          acquisitions both domestically and internationally.

     .    Value-Added and Branded Products. We believe that significant earnings
          growth will occur through focused efforts to market value-added and
          branded products. In this regard, we have embarked on a strategy of
          increasing brand awareness by marketing branded fresh pork and further
          processed fresh pork cuts into value-added and case-ready products for
          sale to retailers and consumers. In addition, we introduced a new line

                                       41
<PAGE>

          of fresh pork products under the Smithfield Lean Generation Pork brand
          name approximately six years ago. These products, using only raw
          materials from the NPD hog, are marketed nationwide to selected
          retailers and institutional food customers. Since their introduction,
          sales of Smithfield Lean Generation Pork products have grown to more
          than 100 million pounds annually. The success of this and other
          branded pork programs provides us with increased name recognition
          among retailers and consumers, which we believe facilitates our sale
          of other processed meat products such as ham, bacon, sausage and hot
          dogs.

Historical Expansion and Acquisitions

     Since 1975, when current management assumed control, we have made several
acquisitions that have increased production capacity, provided vertical
integration and expanded both our geographic reach and our portfolio of
recognized brands. We have also announced expansion into the beef processing
business to provide a broader range of products.

     United States Meat Processing Acquisitions.  In fiscal 1982, we acquired
Gwaltney of Smithfield, then Smithfield Packing's principal Mid-Atlantic
competitor. This acquisition doubled our sales and production capacity and added
several popular lines of branded products along with a highly efficient hot dog
and luncheon meats production facility. The proximity of Gwaltney of Smithfield
to Smithfield Packing allowed for synergies and cost savings in manufacturing,
purchasing, engineering and transportation. This combination set the stage for a
series of acquisitions of smaller regional processors with widely recognized
brands, including Patrick Cudahy, Esskay, Mash's and Valleydale.

     In December 1995, we acquired John Morrell, a major Midwestern pork
processor with primary markets in the Midwest, Northeast and western United
States. This acquisition changed our character from a large multi-regional pork
processor to one with national distribution. It also doubled our sales and
production capacity, added several popular lines of branded processed meat
products along with four efficient processing facilities and more than doubled
our international sales. We believe that John Morrell's strength in smoked
sausage, hot dogs, luncheon meats, bacon and smoked hams complements the strong
smoked meats, hot dog and bacon business of our Eastern operations. The
acquisition of John Morrell also presented substantial opportunities for cost
savings in the areas of processing, marketing, purchasing and distribution.

     In November 1996, we acquired the assets and businesses of the Lykes Meat
Group. Lykes is a pork processor with primary markets in the South and
Southeast. Lykes produces branded processed meats, including bacon, hot dogs and
breakfast and dinner sausages under the Lykes and Sunnyland brands.

     In October 1998, we acquired all of the assets and business of North Side,
a major domestic supplier of precooked sausage to McDonald's Corporation.

                                       42
<PAGE>

     In June 2001, we completed the acquisition of 50% of the outstanding common
shares of Pinnacle Foods, a Pottsdown, Pennsylvania-based producer of pre-
priced, pre-packaged case-ready products.

     In July 2001, we completed the acquisition of The Smithfield Companies,
Inc. The Smithfield Companies, Inc. produces hams and other specialty food
products.

     Also in July 2001, we completed the acquisition of substantially all of the
assets and business of Gorges/Quik-to-Fix Foods, a leading producer, marketer,
and distributor of value-added beef, pork and poultry products for the retail
and food service industry.

     Also during the second quarter of our current fiscal year we completed the
acquisition of Stadler's Country Hams, Inc. and a 75% interest in RMH Foods,
Inc.. Stadler's is a producer of country hams based in Elon College, North
Carolina. RMH Foods, based in Morton, Illinois, specializes in pre-cooked pork
and beef entrees under the Quick-n-Easy(TM) brand. These acquisitions were
valued at $20 million in the aggregate.

     International Meat Processing Acquisitions. In September 1998, we acquired
all of the capital stock of Societe Bretonne de Salaisons, one of the largest
private-label manufacturers of ham, pork shoulder and bacon products in France.

     On August 8, 2001, we offered to acquire all of the common shares of
Schneider Corporation, a food processing company headquartered in Kitchener,
Ontario, that we did not already own for approximately 2.8 million shares of our
common stock. At that time, we already owned approximately 63% of the
outstanding shares of Schneider. As a result of the offer, we came to own
approximately 99% of the outstanding shares of Schneider. In early November
2001, we completed our acquisition and now own 100% of the Schneider shares.

     Between September 1998 and June 1999, we acquired an 85% stake in Animex,
the largest meat and poultry processing company in Poland. Animex produces a
very broad line of fresh and processed meats and poultry.

     In August 1999, we acquired the capital stock of Societe Financiere de
Gestion et de Participation, a private-label processed meats manufacturer in
France.

     In September 1999, we acquired a 50% stake in a joint venture called
Agroindustrial del Noroeste S. de R.L. de C.V., a Mexican meat processing and
hog production venture.

     Hog Production Acquisitions.   In January 1999, we acquired a 12,000 sow
operation in Colorado to supply hogs to John Morrell.

     In May 1999, we acquired Carroll's Foods and related companies and assets,
including approximately 180,000 sows. Carroll's Foods was a longtime hog
production partner of ours. Through a 49%-owned joint venture, Carroll's Foods
is also among the nation's largest turkey processors.

                                       43
<PAGE>

     In January 2000, we acquired Murphy Farms and related companies and assets,
including approximately 345,000 sows. Murphy Farms was a longtime hog production
partner of ours.

     Recent Beef Processing Initiatives. In November 2000, we made an offer to
acquire all of the outstanding shares of IBP, the largest beef processor in the
United States. Subsequently, IBP entered into an agreement to be acquired by
Tyson Foods, Inc. and we sold the shares of IBP that we had previously
purchased.

     In June 2001, we acquired all of the outstanding shares of Moyer, the ninth
largest beef processor in the United States.

     On October 25, 2001, we completed the acquisition of Packerland Holdings,
Inc., the fifth largest beef processor in the United States.

     On November 1, 2001, we announced an agreement in principle to acquire beef
packer American Foods Group, Inc., the nation's tenth largest beef processor.


Meat Processing Group

     The Meat Processing Group derives its revenue from fresh pork and processed
meats. The following table shows for the fiscal periods indicated the
percentages of Meat Processing Group revenues derived from fresh pork, processed
meats and other products.

<TABLE>
<CAPTION>
                           Fiscal Year   Fiscal Year   Fiscal Year   Fiscal Year   Fiscal Year
                              Ended         Ended         Ended         Ended         Ended
                            April 29,     April 30,      May 2,        May 3,       April 27,
                              2001          2000          1999          1998           1997
                              ----          ----          ----          ----           ----
<S>                        <C>           <C>           <C>           <C>           <C>
     Processed Meats......       50%           50%          46%           40%            37%
     Fresh Pork...........       46%           44%          49%           56%            59%
     Other Products.......        4%            6%           5%            4%             4%
                               ----          ----         ----          ----           ----
                                100%          100%         100%          100%           100%
                               ====          ====         ====          ====           ====
</TABLE>

     The increase in processed meats since fiscal 1997 reflects our acquisitions
of higher margin processing operations and, prior to fiscal 2000, the impact of
lower fresh pork prices.


United States Processing Operations

     Fresh Pork Products. We are the largest fresh pork processor in the world,
producing in fiscal 2001 approximately 2.8 billion pounds of which 2.5 billion
pounds are produced in the United States. The Meat Processing Group's domestic
operations process hogs at five plants (three in the Southeast and two in the
Midwest), with a current aggregate slaughter capacity of 78,300 hogs per day. A
substantial portion of the Meat Processing Group's fresh pork is sold to retail
customers as unprocessed, trimmed cuts such as loins (including roasts and
chops), butts, picnics and ribs. The Meat Processing Group also sells hams,
bellies and trimmings to other further processors. The Meat Processing Group is
putting greater emphasis on the sale of value-added, higher margin fresh pork
products, such as loins, butts and ribs. In addition, our Hog

                                       44
<PAGE>

Production Group provides the Meat Processing Group with raw material of much
higher quality than that generally available through open market purchases.

  We are marketing on a national basis an extensive product line of leaner fresh
pork cuts (including boneless loins, shoulder cuts, chops, ribs and processed
and cubed pork) under the Smithfield Lean Generation Pork brand to selected
retail chains and institutional foodservice customers. Several of our
subsidiaries have also developed a case-ready pork program designed to supply
supermarket chains with pre-packaged, weighed, labeled and pre-priced fresh pork
ready for immediate sale to the consumer. Management believes that these
initiatives, over time, will result in greater brand identification and higher
margins for our fresh pork products. For the 52 weeks ended July 29, 2001, our
case-ready volumes reached 88 million pounds, and we expect case-ready volumes
to reach 100 million pounds in fiscal 2002. We have increased capacity by
opening four new case-ready facilities, one located in the North, two in the
South and another in the Midwest. For more information on our lean pork
products, see the discussion of NPD pork in "Hog Production Group" below.

  Processed Meats Products.   We manufacture a wide variety of processed meats,
including smoked and boiled hams, bacon, sausage, hot dogs (pork, beef and
chicken), deli and luncheon meats and specialty products such as pepperoni and
dry salami. Through the 52 weeks ended July 29, 2001, our U.S. operations
produced 1.5 billion pounds of processed meat products. We market our domestic
processed meat products under labels that include Smithfield Premium, Gwaltney,
Patrick Cudahy and John Morrell, as well as Dinner Bell, Ember Farms, Esskay,
Great, Kretschmar, Lykes, Patrick's Pride, Rath and Valleydale. We also sell a
substantial quantity of processed meats as private-label products. We believe we
are one of the largest producers of smoked hams and picnics in the United
States.

  In recent years, as consumers have become more health conscious, we have
broadened our product line to include leaner fresh pork products as well as fat-
free, lower fat and lower salt processed meats. We also market a lower-fat line
of value-priced luncheon meats, smoked sausage and hot dogs, as well as fat-free
hot dogs, fat-free deli hams and 40-percent-lower-fat bacon. Management believes
that leaner pork products combined with the industry's efforts to heighten
public awareness of pork as an attractive protein source have led to increased
consumer demand.

  Raw Materials.  The Meat Processing Group's primary raw material is live hogs.
Historically, hog prices have been subject to substantial fluctuations. In
addition, hog prices tend to rise seasonally as hog supplies decrease during the
hot summer months and tend to decline as supplies increase during the fall. This
is due to lower farrowing performance during the winter months and slower animal
growth rates during the hot summer months. Hog supplies, and consequently
prices, are also affected by factors such as corn and soybean meal prices,
weather and farmers' access to capital.

  The Meat Processing Group purchases almost 50% of its domestic live hog
requirements from the Hog Production Group. In addition, we have established
multi-year agreements with Maxwell Foods, Inc. and Prestage Farms, Inc. which
provide us with a stable supply of high-

                                       45
<PAGE>

quality hogs at market-indexed prices. These producers supply approximately 14%
of the hogs that we currently process.

  The Meat Processing Group also purchases hogs on a daily basis at Southeastern
and Midwestern processing plants, at company-owned buying stations in three
Southeastern and five Midwestern states and from Canadian sources. We also
purchase fresh pork from other meat processors to supplement our processing
requirements. Additional purchases include raw beef, poultry and other meat
products to add to our sausage, hot dogs and luncheon meats. Those meat products
and other materials and supplies, including seasonings, smoking and curing
agents, sausage casings and packaging materials are readily available from
numerous sources at competitive prices.

  Customers and Marketing.   The Meat Processing Group has significant market
presence nationwide, and strong market positions in the Mid-Atlantic, Southeast,
South and Midwest. Our fundamental marketing strategy is to sell large
quantities of value-priced processed meat products as well as fresh pork to
national and regional supermarket chains, wholesale distributors, the
foodservice industry (fast food, restaurant and hotel chains, hospitals and
other institutional customers) and export markets. Management believes that this
marketing approach reaches the largest number of value-conscious consumers
without requiring large advertising and promotional campaigns. We use both in-
house salespersons as well as independent commission brokers to sell our
products. In fiscal 2001, we sold our products to more than 3,500 customers,
none of whom accounted for as much as 10% of our revenues. We have no
significant or seasonally variable backlog because most customers prefer to
order products shortly before shipment, and therefore, do not enter into formal
long-term contracts. Management believes that registered trademarks have been
important to the success of our branded fresh pork processed meats products. In
a number of markets, our brands are among the leaders in selected product
categories.

  The Meat Processing Group in recent years has emphasized growth in export
sales. Through the 52 weeks ended July 29, 2001, export sales comprised
approximately 5% of our total sales. We provide Japanese markets with a line of
branded fresh pork products, as well as other chilled and frozen unbranded fresh
pork products. In connection with export sales to Japan, we maintain a
distributorship arrangement with Sumitomo Corporation of America. We currently
have export sales to Mexico and to more than two dozen other foreign countries.
We expect continued growth in our export sales for the foreseeable future.
Export sales are subject to factors beyond our control, such as tariffs,
exchange rate fluctuations and changes in governmental policies. We conduct all
of our export sales in U.S. dollars and therefore bear no currency exchange
risk.

  Our processed meats business is somewhat seasonal in that, traditionally, the
periods of higher sales for hams are the holiday seasons such as Thanksgiving,
Christmas and Easter, and the periods of higher sales of smoked sausage, hot
dogs and luncheon meats are the summer months. We typically build substantial
inventories of hams in anticipation of our seasonal holiday business.

  We use recognized price risk management and hedging techniques to enhance
sales and to reduce the effect of adverse price changes on our profitability.
Our price risk management and

                                       46
<PAGE>

hedging activities currently are utilized in the areas of forward sales, hog
production margin management, procurement of raw materials (ham and bacon) for
seasonal demand peaks, inventory hedging, hog contracting and truck fleet fuel
purchases. For further information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

  Trademarks.  We own and use numerous marks. These marks are our registered
trademarks or are otherwise subject to protection under applicable intellectual
property laws. We consider these marks and the accompanying goodwill and
customer recognition valuable and material to our business.

  Distribution.  The Meat Processing Group uses a private fleet of leased
tractors and trailers and independent common carriers to distribute both fresh
pork and processed meats to its customers, as well as to move raw material
between plants for further processing. We coordinate deliveries and use
backhauling to reduce overall transportation costs. We distribute our products
directly from some of our plants and from leased distribution centers in
California, Connecticut, Indiana, Kansas, Missouri, North Carolina and Texas. We
also operate distribution centers adjacent to our plants in Bladen County, North
Carolina, and Sioux Falls, South Dakota.

  Competition.  The protein industry generally, and the pork processing industry
in particular, is highly competitive. Our products compete with a large number
of other protein sources, including beef, chicken, turkey and seafood, but our
principal competition comes from other pork processors.

  Management believes that the principal competitive factors in the pork
processing industry are price, quality, product distribution and brand loyalty.
Some of our competitors are larger, have correspondingly greater financial and
other resources and enjoy wider recognition for their branded products. Some of
these competitors are also more diverse than we are. To the extent that their
other operations generate profits, these companies may be able to subsidize
their pork processing operations for a time.


International Processing Operations

  In fiscal 1999, the Meat Processing Group made its first international
acquisitions by acquiring operations in Canada, Poland and France. In fiscal
2000, we made another acquisition in France and entered into a joint venture in
Mexico. These acquisitions reflect our heightened emphasis on expansion into
international markets.

  Schneider.  In November 1998, we acquired a 63% stake in Schneider. In August
2001, we offered to acquire the remaining interest in Schneider for
approximately 2.8 million shares of our common stock. On August 8, 2001, we
offered to acquire all of the common shares of Schneider Corporation, a food
processing company headquartered in Kitchener, Ontario, that we did not already
own for approximately 2.8 million shares of our common stock.  In early November
2001, we completed our acquisition and now own 100% of the Schneider shares.
Schneider, based in Kitchener, Ontario, is one of Canada's largest producers of
premium quality food products, with brands including Schneiders and Fleetwood.
Schneider has annual production

                                       47
<PAGE>

volume of approximately 650 million pounds and manages its various subsidiaries
and joint ventures through two operating groups, consumer foods and
agribusiness. The consumer foods group, comprised of the processed meat and
grocery operations, produces more than 1,000 products, including hams, sausage,
wieners, bacon, luncheon meats, specialty meats and savory bakery products for
sale through traditional grocery stores, delicatessens and foodservice
establishments. Schneider has consumer foods operations in Kitchener, Ayr, St.
Mary's, Guelph, Port Perry and Mississauga, Ontario; Surry, British Columbia;
Saskatoon, Saskatchewan; and St.-Anselme, Quebec. In addition, Schneider
participates in the consumer foods sector through joint ventures with the Prince
Group of Drummondville, Quebec; Cappola Food of Toronto, Ontario; National Meats
of Toronto; and Luigino's of Duluth, Minnesota. The agribusiness group,
comprised of the fresh pork and live poultry operations, focuses on identifying
and meeting the needs of retail, foodservice and export customers. Schneider
markets its products in the poultry sector under the Schneiders brand and
private labels to retail and foodservice customers. The pork processing plant in
Winnipeg, Manitoba, previously owned by Schneiders, was sold in fiscal 2001 and
customers of that facility are being serviced from other facilities.

  Animex.  Between September 1998 and June 1999, we acquired an 85% stake in
Animex, the largest meat and poultry processing company in Poland. Animex
produces a very broad line of fresh and processed meats and poultry products,
with approximately 375 million pounds of annual volume. Animex's brands include
Krakus and Pek. Animex operates seven plants, four for red meat and three for
poultry, located across Poland. We plan to expand Animex's network of
distribution centers to include several additional areas in Poland.

  Societe Bretonne de Salaisons.  In September 1998, we acquired Societe
Bretonne de Salaisons, one of the largest private-label manufacturers of ham,
pork shoulder and bacon products in France. It has annual production volume of
approximately 70 million pounds.

  Societe Financiere de Gestion et de Participation.  In August 1999, we
acquired the capital stock of Societe Financiere de Gestion et de Participation,
a private-label processed meats manufacturer in France. It has annual production
volume of approximately 60 million pounds.

  Agroindustrial del Noroeste.  We have a 50% interest in a joint venture,
Agroindustrial del Noroeste with two Mexican partners. It has annual production
volume of approximately 100 million pounds.

Hog Production Group

  General.  As a complement to our hog processing operations, we have vertically
integrated into hog production through Brown's, Carroll's Foods and Murphy
Farms, which operate numerous hog production facilities with approximately
695,000 sows producing about 11.8 million market hogs annually. The Meat
Processing Group obtains approximately 50% of the live hogs it currently
processes from the Hog Production Group. Including adjusting for sales to
unrelated parties, we believe we are 60% vertically integrated. The
profitability of hog production is directly related to the market price of live
hogs and the cost of corn and soybean meal. The Hog Production Group generates
higher profits when hog prices are high and corn and soybean meal prices are
low, and lower profits (or losses) when hog prices are low and corn and

                                       48
<PAGE>

soybean meal prices are high. Management believes that the Hog Production Group
furthers our strategic initiative of vertical integration and reduces our
exposure to fluctuations in profitability historically experienced by the pork
processing industry.

  In May 1991, we acquired from NPD, a British company, exclusive United States
franchise rights relating to genetic lines of specialized breeding stock. The
Hog Production Group makes extensive use of these genetic lines, with
approximately 385,000 NPD breeding sows. In addition, we have sub-licensed some
of these rights to some of our strategic hog production partners. All NPD hogs
produced under these sub-licenses are supplied to us. We believe the hogs
produced by these genetic lines are the leanest hogs commercially available and
enable us to market highly differentiated pork products. Management believes
that the leanness and increased meat yields of these hogs will, over time,
improve our profitability with respect to both fresh pork and processed meat.
Through the 52 weeks ended July 29, 2001, we processed 4.5 million NPD hogs.

  Hog Production Operations.  The Hog Production Group is the world's largest
hog producer. This Group uses advanced management techniques to produce premium
quality hogs on a large scale as a low cost producer. We develop breeding stock,
optimize diets for our hogs at each stage of the growth process, process feed
for our hogs and design and build hog confinement facilities. We believe our
economies of scale and production methods, together with our use of the advanced
NPD genetics in approximately 47% of our breeding sows, make us a low cost
producer.

  The Hog Production Group uses a three-site production process consisting of
sow, nursery and finishing sites. Production of market hogs begins in a facility
known as a sow site. The Group's average commercial sow site is designed to
house approximately 2,400 sows. The sow's purpose is to conceive, give birth to
and nurse piglets which will be raised to become market hogs. Approximately 18
days after birth, the piglets are separated from the sows and transported to a
separate nursery site. At each nursery site, the piglets are fed a closely
monitored diet and grow to approximately 45 pounds, a process which takes
approximately seven weeks. Once the hogs reach the desired weight, the Hog
Production Group transports them to a finishing site where they are maintained
and fed until reaching a market weight of approximately 250 pounds, a process
which takes approximately 20 weeks. When the hogs reach market weight, they are
transported to the Meat Processing Group's plants or sold to unrelated third
parties.

  The Hog Production Group also utilizes independent farmers and their
facilities to raise hogs produced from the Group's breeding stock. Under multi-
year contracts, the farmer provides the initial facility investment, labor and
front line management in exchange for a service fee. This contract farming is
utilized primarily in the nursery and finishing stages where animal growth, feed
and survival rates are most critical and are easily adapted to an incentive-
based contract payment. Currently, approximately 76% of the Hog Production
Group's market hogs come from contract farms.

  As of July 2001, the Hog Production Group operated numerous hog production
facilities, primarily in North Carolina, Utah and Virginia with additional hog
production facilities in Colorado, South Carolina, Illinois, Texas and Oklahoma.
Except for some expansion activity in

                                       49
<PAGE>

Utah and Colorado, the Hog Production Group's farm sites are mature operations
with static production volume.

  Nutrient Management and Other Environmental Issues.  All of the Hog
Production Group's hog production facilities have been designed to meet or
exceed all applicable zoning and other government regulations. These regulations
require, among other things, maintenance of separation distances between farms
and nearby residences, schools, churches, public use areas and businesses,
rivers, streams and wells and adherence to required construction standards.

  Hog production facilities generate significant quantities of manure, which
must be managed properly to protect public health and the environment. We
believe that the best technology currently available for the management of swine
manure is the lagoon and sprayfield system. This system utilizes earthen lagoons
to treat the manure before it is applied to agricultural fields by spray
application. The nitrogen and phosphorus in the treated manure serve as a crop
fertilizer. Lagoon and sprayfield systems require permits under state, and in
some instances, federal law. The permits impose standards and conditions on the
design and operation of the systems to ensure that they protect public health
and the environment.

  The Hog Production Group follows a number of other protocols to minimize the
impact of its operations to the environment, including: ongoing employee
training regarding environmental controls; walk-around inspections at all sites
by trained personnel; formal emergency response plans that are regularly
updated; and collaborations with manufacturers regarding testing and developing
new equipment.


Environmental Stewardship

  On July 25, 2000, in furtherance of our continued commitment to responsible
environmental stewardship, Smithfood Foods, Inc. and our North Carolina-based
hog production companies entered into an agreement designed to enhance water
quality in the State of North Carolina through a series of initiatives to be
undertaken by Smithfield while protecting our access to swine operations in
North Carolina. These initiatives emphasize operations of our hog production
subsidiaries in the State of North Carolina, particularly areas devastated by
hurricanes in the fall of 1999. Under one of these initiatives, we have
identified those farms owned by, or under contract to, operating subsidiaries
with buildings or lagoons located in the flood plain, and have provided
assistance to some of our independent contract growers to implement measures to
protect water quality should these structures experience flooding in the future.
We are also working with our hog production and other operating subsidiaries to
develop and implement formal environmental management systems. We intend to
develop and implement these systems throughout our company over the next few
years, with initial focus on our North Carolina hog production operations. We
believe that the environmental management systems developed by our hog
production operations will, when fully implemented, be a model program, not only
in the pork production industry, but among agribusinesses nationally. In April
2001, Carroll's Foods was recognized as the first livestock operation in the
United States to receive the ISO 14001 certification for its environmental
management system. ISO 14001 is a standard published by the International
Organization for Standardization, which establishes a coordinated framework of

                                       50
<PAGE>

controls to manage environmental protection within an organization. To obtain
ISO 14001 certification, an organization must meet a rigorous and comprehensive
set of requirements and criteria developed by experts from all over the world
and submit to independent audits by third parties. We plan for Murphy Farms and
Brown's each to receive ISO 14001 certification by the end of 2001.

     Under the North Carolina agreement, we agreed to undertake a series of
immediate measures to address concerns over the potential environmental impact
of the current system of anaerobic lagoons and spray fields. In July 2000, we
assumed a leadership role in the development of environmentally superior swine
waste management technologies by committing $15.0 million toward an intensive
technology development program. We and our North Carolina hog production
subsidiaries have also committed to assist in the preservation of wetlands and
other natural areas in eastern North Carolina. We have committed up to $2.0
million a year for 25 years to the State of North Carolina to advance this
initiative and to promote similar environmental enhancement activities.

     Our environmental stewardship initiatives are proceeding under the
oversight of our Environmental Compliance Committee, which was established by
the Board of Directors in January 2000. Members of this committee include, among
others, our General Counsel, Vice President-Engineering, and senior officers
from our principal operating subsidiaries. Our initiatives under the North
Carolina agreement are also overseen by the Attorney General of North Carolina.


Regulation

     Regulation Generally.   Like other participants in the meat processing
industry, we are subject to various laws and regulations administered by
federal, state and other government entities, including the Environmental
Protection Agency and corresponding state agencies as well as the United States
Department of Agriculture, the United States Food and Drug Administration and
the United States Occupational Safety and Health Administration. Management
believes that we presently are in compliance with all these laws and regulations
in all material respects, and that continued compliance with these standards
will not have a material adverse effect on our financial position or results of
operations. In addition, the EPA has proposed to extensively modify its
regulations governing confined animal feeding operations. These proposed
modifications are scheduled to be finalized by December 2002 and could have a
significant impact on our hog production operations. We are committed to
responsible environmental stewardship in our operations, as discussed in
"Business--Environmental Stewardship."

     We from time to time receive notices from regulatory authorities and others
asserting that we are not in compliance with some laws and regulations. In some
instances, litigation ensues, including the matters discussed below. Although
the suits below remain pending and relief, if granted, would be costly, we
believe that their ultimate resolution will not have a material adverse effect
on our financial position or annual results of operations.

                                       51
<PAGE>

     EPA Suit.   In United States of America v. Smithfield Foods, Inc. et al.,
the United States District Court for the Eastern District of Virginia imposed a
$12.6 million civil penalty on us and our Smithfield Packing and Gwaltney
subsidiaries for Clean Water Act violations at our Smithfield, Virginia
processing plants. We recorded a nonrecurring charge of $12.6 million during
fiscal 1998 with respect to this penalty. In September 1999, the United States
Court of Appeals for the Fourth Circuit affirmed the District Court's
determination of liability but remanded the penalty determination to the
District Court with instructions to recalculate the civil penalty solely to
correct a 4% error made by the government's expert. In May 2000, we filed a
certiorari petition seeking review of the Fourth Circuit's ruling by the United
States Supreme Court. Our certiorari petition was denied, and we satisfied the
judgment.

     Water Keeper Alliance Inc. Litigation.   The Water Keeper Alliance Inc., an
environmental activist group from New York, has recently filed or caused to be
filed a series of lawsuits against us and our subsidiaries and properties, as
described below.

     In June 2000, Neuse River Foundation, Richard J. Dove, d/b/a The Neuse
Riverkeeper, D. Boulton Baldridge, d/b/a The Cape Fear Riverkeeper, New River
Foundation, Inc., Tom Mattison, d/b/a The New Riverkeeper and The Water Keeper
Alliance filed a lawsuit in the General Court of Justice, Superior Court
Division of the State of North Carolina against Smithfield Foods, Inc.,
Carroll's Foods, Inc., Brown's of Carolina, Inc., Murphy Farms, Inc., Wendell H.
Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III. The lawsuit
alleged, among other things, claims based on negligence, trespass, strict
liability and unfair trade practices related to the operation of swine waste
lagoons and sprayfields in North Carolina. The lawsuit sought numerous and
costly remedies, including injunctive relief to end all use of hog waste lagoons
in North Carolina, unspecified but costly remediation efforts and other damages.
On March 27, 2001, the Superior Court granted our motion and dismissed the
lawsuit. The plaintiffs noted their appeal on April 11, 2001.

     In February 2001, Thomas E. Jones and twelve other individuals filed a
lawsuit in the North Carolina General Court of Justice, Superior Court Division,
Wake County, against Smithfield Foods, Inc., three of its subsidiaries, Wendell
H. Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III, referred to as
the "Jones Suit." The Jones Suit alleged, among other things, claims based on
negligence, trespass, strict liability and unfair trade practices related to the
operation of swine waste lagoons and sprayfields in North Carolina. The lawsuit
sought numerous and costly remedies, including injunctive relief to end all use
of hog waste lagoons in North Carolina, unspecified but costly remediation
efforts and other damages. On March 27, 2001, the Superior Court granted our
motion and dismissed the lawsuit. The plaintiffs noted their appeal on April 11,
2001.

     Also in February 2001, Water Keeper Alliance Inc., Thomas E. Jones d/b/a
Neuse Riverkeeper, and Neuse River Foundation filed two lawsuits in the United
States District Court for the Eastern District of North Carolina against one of
our subsidiaries, and two of that subsidiary's hog production facilities in
North Carolina, referred to as the "Citizens Suits." Smithfield Foods, Inc. is
named as a defendant in one of the suits, and the plaintiffs have served an
amended notice of intent to join Smithfield Foods, Inc. as a defendant in the
other suit. The Citizens Suits allege, among other things, violations of various
environmental laws at each

                                       52
<PAGE>

facility and the failure to obtain federal permits at each facility. The
lawsuits seek remediation costs, injunctive relief and substantial civil
penalties. We and our subsidiaries moved to dismiss each of these lawsuits. The
motions were denied, as was our subsequent motion for their reconsideration.

     The Company has also received notices from several organizations, including
the Water Keeper Alliance, of their intent to file additional lawsuits against
us under various federal environmental statutes regulating water quality, air
quality and management of solid waste. These threatened lawsuits may seek civil
penalties, injunctive, relief and remediation costs. However, we are unable to
determine whether any of these notices will result in suit being filed.

     In March 2001, Eugene C. Anderson and other individuals filed what purports
to be a class action in the United States District Court for the Middle District
of Florida, Tampa Division, against us and Joseph W. Luter, III, referred to as
the "Anderson Suit." The Anderson Suit purports to allege violations of
various laws, including the Racketeer Influenced and Corrupt Organizations Act,
based on our alleged failure to comply with environmental laws. The complaint
seeks treble damages that are unspecified. The plaintiffs filed an amended
complaint on May 1, 2001. We have moved to dismiss the Anderson Suit. Plaintiffs
have moved for class certification, which we have opposed. There has been no
ruling on plaintiffs' certification motion.

     We believe that the Anderson Suit is baseless and without merit and we
intend to defend the suit vigorously. We have investigated the allegations made
in the Citizens Suits and believe that the outcome of these lawsuits will not
have a material adverse effect on our financial condition or results of
operations. We believe that all of the litigation described above represents the
agenda of special advocacy groups including the Water Keeper Alliance Inc. The
plaintiffs in these cases have stated that federal and state environmental
agencies have declined to bring any of these suits and, indeed, have criticized
these agencies.


Legal Proceedings

     In April 2000, Smithfield Foods, Inc. and one of its subsidiaries were
named as defendants, along with IBP, in a civil action filed in the United
States District Court for the Middle District of Georgia. The case was filed by
four named plaintiffs on behalf of a putative nationwide class of hog producers
who from 1994 to the present produced and sold finished hogs to the defendants
on a spot, auction or cash market basis. The plaintiffs contend that the
defendants violated the Packers and Stockyards Act of 1921 by reason of the
defendants' engaging in various captive supply arrangements for the procurement
of hogs for processing. We moved the Georgia court to dismiss the case for lack
of jurisdiction or in the alternative transfer it to the Eastern District of
Virginia, where we are headquartered. On March 30, 2001, the Georgia court
granted our motion to transfer. On May 11, 2001, we filed a motion to dismiss
the case, arguing that the alleged captive supply arrangements do not violate
the Act and are consistent with similar vertical integration in the poultry
industry. The Eastern District of Virginia court denied our motion to dismiss by
order dated September 19, 2001. However, in light of the issues raised by that
motion regarding the scope of the Act, the Court required the parties to comply
with a

                                       53
<PAGE>

schedule for a focused discovery plan relating to the allegation that captive
supply hog procurement practices violate the Act and required prompt briefing on
a motion for summary judgment by the defendants. The hearing on the summary
judgment motion was November 21, 2001 and the court stated its intention to rule
in our favor. We expect a written order to this effect in the near future.


Employees

     As of July 29, 2001, the Meat Processing Group had approximately 32,500
employees, approximately 13,750 of whom are covered by collective bargaining
agreements expiring between January 15, 2002 and July 1, 2006, and the Hog
Production Group had approximately 4,000 employees, none of whom are covered by
collective bargaining agreements. A replacement for one collective bargaining
agreement that expired October 31, 2001 is still being negotiated. While we
believe that our relationship with our employees is satisfactory, we are
involved in several proceedings on appeal to the National Labor Relations Board
concerning two meat processing facilities. In one proceeding before the National
Labor Relations Board, an administrative law judge has directed that a
bargaining order be entered against us. The outcome of these appeals may
determine whether approximately 1,800 employees will be union represented or
whether new representation elections will be conducted to determine this issue.

                                       54
<PAGE>

                                  MANAGEMENT

Our Executive Officers and Directors

     Our executive officers and directors are set forth below.

<TABLE>
<CAPTION>
                                                Years in
        Name                         Age      Meat Industry         Positions with us and Other Information
        ----                         ---      -------------         ---------------------------------------
<S>                                  <C>      <C>                <C>
Joseph W. Luter, III.............     62           32            Director; Chairman of the Board and Chief
                                                                 Executive Officer
C. Larry Pope....................     46           20            President and Chief Operating Officer
Joseph W. Luter, IV..............     36           10            Executive Vice President
Richard J. M. Poulson............     62            2            Executive Vice President and General
                                                                 Counsel
Daniel G. Stevens................     42            3            Vice President and Chief Financial Officer
Jerry H. Godwin..................     54            7            President of Murphy-Brown LLC
Lewis R. Little..................     57           37            President of Smithfield Packing
Joseph B. Sebring................     54           26            President of John Morrell
Richard V. Vesta.................     54           30            President of Packerland
Robert L. Burrus, Jr. ...........     66           --            Director; Chairman of the law firm of
                                                                 McGuireWoods LLP, Richmond, Virginia
Carol T. Crawford................     58           --            Director; Private investor and former
                                                                 Commissioner of the U.S. International
                                                                 Trade Commission
Ray A. Goldberg..................     74           --            Director; Moffett Professor of Agriculture
                                                                 and Business, Emeritus, Harvard Business
                                                                 School
George E. Hamilton, Jr. .........     85           63            Director; Retired President and Chief
                                                                 Operating Officer of Smithfield Packing
Wendell H. Murphy................     62           38            Director; Former Chairman of the Board
                                                                 and Chief Executive Officer of Murphy
                                                                 Farms
William H. Prestage..............     66           33            Director; Chairman of the Board, President
                                                                 and Chief Executive Officer of Prestage
                                                                 Farms, Inc. /(1)/, Clinton, North Carolina, a
                                                                 hog and turkey producer
John T. Schwieters...............     61           --            Director; Vice Chairman of Perseus L.L.C.,
                                                                 a merchant bank and private equity fund
                                                                 management company
Melvin O. Wright.................     72           --            Director; Advisor to PrimeCorp Finance, a
                                                                 Paris merchant bank
</TABLE>
______________
(1)  As discussed elsewhere in this prospectus, this producer is a party to
     various hog supply contracts and/or hog production arrangements with us.
     For further information, see "Related Party Transactions."

                                       55
<PAGE>

                            PRINCIPAL SHAREHOLDERS

     The following table sets forth some information concerning (i) the share
ownership of each person known to us to be the beneficial owner of more than
five percent of the outstanding shares of our Common Stock and (ii) the share
ownership of our Common Stock by all Directors and executive officers as a
group, in each case as of July 12, 2001.

<TABLE>
<CAPTION>
                                                                  Amount and Nature of
                                                                  Beneficial Ownership
Name and Address of                                                 (Number of Shares           Percent
Beneficial Owner                                                    Beneficially Owned         of Class
----------------                                                  --------------------         --------
<S>                                                               <C>                          <C>
Joseph W. Luter, III............................................          6,237,886 (1)           5.9%
  Smithfield Foods, Inc
  200 Commerce Street
  Smithfield, VA 23430
Wendell H. Murphy, some family members and a related entity.....         19,581,012 (2)          18.8%
  Post Office Box 280
  Rose Hill, NC 28458
Directors and Executive Officers as a group.....................         26,951,798 (3)          25.9%
</TABLE>

(1)  Includes 400,000 shares which Mr. Luter has the right to acquire pursuant
     to the exercise of presently exercisable stock options.
(2)  In connection with our purchase of Murphy Farms, Inc. and affiliated
     corporations in January 2000, Wendell H. Murray, a director, and family
     members listed below entered into a shareholders agreement with us pursuant
     to which the Murphy family members agreed to restrictions relating to,
     among other things, the voting and disposition of their shares of common
     stock. For purposes of the reporting requirements of the Exchange Act,
     these arrangements may cause the Murphy family members to be deemed to
     constitute a group. Previously, the Murphy family members expressly
     disclaimed the existence of a group; however, they recently expressly
     elected to be considered as a group. As of June 30, 2001, Wendell H. Murphy
     holds 5,289,732 shares directly and 567,150 shares indirectly; Harry D.
     Murphy holds 2,924,844 shares directly and 321,630 shares indirectly; Joyce
     M. Norman holds 1,800,984 shares directly and 205,124 shares indirectly;
     Wendell H. Murphy, Jr. holds 3,432,676 shares directly and 390,966 shares
     indirectly; Wendy Murphy Crumpler holds 1,008,274 shares directly and
     114,838 shares indirectly; Stratton K. Murphy holds 1,162,176 shares
     directly and 168,590 shares indirectly; Marc D. Murphy holds 1,162,176
     shares directly and 168,590 shares indirectly; and Angela Brown holds
     554,150 shares directly and 63,112 shares indirectly. The indirect
     ownership of the Murphy family members reflects their respective interests
     in 2,000,000 shares held in escrow in connection with our purchase of
     Murphy Farms. The Murphy family members are entitled to receive the shares
     held in escrow but they do not currently have voting power or dispositive
     power over those shares. The amount shown in the table includes 246,000
     shares owned by a limited liability company, Murfam Enterprises, LLC, of
     which the Murphy family members are the sole owners and may therefore be
     deemed to share voting power and dispositive power with respect to those
     shares. The amount shown in the table does not include an additional number
     of shares (currently estimated at 446,872) that the Murphy family members
     are expected to become entitled to receive from us as the result of a post-
     closing purchase price adjustment in connection with the purchase of Murphy
     Farms.
(3)  Includes 710,000 shares subject to presently exercisable stock options.

                                       56
<PAGE>

                          RELATED PARTY TRANSACTIONS

     In May, 1999, we purchased Carroll's Foods and some related companies and
assets for 8,676,548 shares of common stock. As a result of this transaction,
the former shareholders of Carroll's Foods (Carroll M. Baggett, James O.
Matthews and Jeffrey S. Matthews) became the beneficial owners, in the
aggregate, of 13,112,000 shares of our common stock, which amount includes
shares of common stock previously held by Carroll's Foods or its affiliates. In
August 1999, we repurchased 1,000,000 of these shares based on the prevailing
market price at that time. In connection with the acquisition, we entered into a
registration rights agreement and a shareholders agreement with the former
Carroll's Foods shareholders. Under the registration rights agreement, each of
the former Carroll's Foods shareholders is entitled for a period of seven years
to have us register public resales of 1,000,000 or more shares of common stock,
subject to customary terms and conditions, on demand. The agreement also
provides for customary piggyback registration rights. We are not required under
the registration rights agreement to file or maintain a "shelf registration"
with respect to these shares.

     William H. Prestage, one of our directors, is the chairman of the board,
president and chief executive office of Prestage Farms, Inc., a hog and turkey
producer located in Clinton, North Carolina. We have a market-indexed multi-year
purchase agreement with Prestage Farms which obligates us to purchase hogs
produced by Prestage Farms in Virginia, North Carolina and South Carolina.
Pursuant to the purchase agreement, we purchased $157,510,000 of live hogs from
Prestage Farms in fiscal 2001. We believe that the prices paid under the
purchase agreement with Prestage Farms are equivalent to market.

     In January 2000, we purchased Murphy Farms and some affiliated corporations
for 22,108,792 shares of common stock (subject to post-closing adjustment). As a
result of this transaction, the former shareholders of Murphy Farms (Wendell H.
Murphy, a director, Harry D. Murphy, Joyce M. Norman, Wendell H. Murphy, Jr.,
Wendy Murphy Crumpler, Stratton K. Murphy, Marc D. Murphy and Angela Brown)
became the beneficial owners in the aggregate of 24,042,792 shares of our common
stock, which amount includes shares of common stock previously held by Murphy
Farms, these shareholders and their affiliates. In connection with the
acquisition, we entered into a registration rights agreement and a shareholders
agreement with the former Murphy Farms shareholders. Under the registration
rights agreement, each of the former Murphy Farms shareholders is entitled for a
period of five years to have us register public resales of 1,000,000 or more
shares of common stock, subject to customary terms and conditions, on demand.
The agreement also provides for customary piggyback registration rights. We are
not required under the registration rights agreement to file or maintain a
"shelf registration" with respect to these shares. Under the shareholders
agreement, each of the former Murphy Farms shareholders agreed for five years
not to (i) initiate any solicitation of proxies from our shareholders or
participate in any election contest or in any proposal made under Rule 14(a)-8
of the Exchange Act; (ii) oppose, or participate in any group opposing any
management proposals presented at a shareholders meeting, or vote against any of
these proposals; or (iii) acquire or substantially affect our control, or seek
to do so. Under this agreement, these shareholders also agreed not to sell or
otherwise transfer shares of common stock aggregating 5% or more of the then
outstanding common stock to any one person or group. These shareholders further
agreed not to sell or transfer within any 12-month period or make any other
agreement or arrangement

                                       57
<PAGE>

of transfer with respect to 10% or more of the shares of common stock, issued to
any shareholder in connection with the acquisition of Murphy Farms.

     Wendell H. Murphy, one of our directors, holds a 35% interest in Murfam
Enterprises, LLC and a 1% interest in DM Farms of Rose Hill, LLC. Some other
former shareholders of Murphy Farms hold the remaining membership interests in
Murfam Enterprises and DM Farms. Murfam Enterprises and DM Farms own some farms
that produce hogs under the contract and sell feed ingredients to Murphy Farms.
From January 2000 through the end of fiscal year 2001, we made payments totaling
$3,769,872 to Murfam Enterprises for the production of hogs and feed ingredients
and received payments totaling $1,448,569 from Murfam Enterprises for
reimbursement of associated farm and other support costs. From January 2000
through the end of fiscal year 2001, we made payments of $29,030,975 to DM Farms
for the production of hogs and received payments of $18,257,996 from DM Farms
for reimbursement of associated farm and support costs. We believe that the
terms of the foregoing arrangements were no less favorable to us than if entered
into with unaffiliated parties.

     In May 2001, Mr. Prestage purchased a 51% interest in Stoecker Farms, Inc.,
a hog producer located in Ames, Iowa. An individual who is an employee of
Murphy-Brown LLC owns the remaining 49% of Stoecker Farms. Mr. Prestage has an
option to acquire the remaining 49% of Stoecker Farms, which is exercisable
until November 2001. Murphy Farms and Stoecker Farms are parties to several
contracts, including (i) a feeder pig purchase agreement expiring in 2010 (which
may be extended to 2012 at Murphy Farms' option) under which Stoecker Farms
purchases its requirements of feeder pigs from Murphy Farms, (ii) a service
agreement (terminable by Stoecker Farms on 60 days' notice) under which Murphy
Farms provides the services of some personnel to Stoecker Farms, and (iii) a
non-exclusive feed purchase agreement. In addition, Murphy holds a note from,
and provides some trade terms under the Stoecker Farms agreements to, Stoecker
Farms. The obligations of Stoecker Farms to Murphy Farms under the note were
incurred in connection with the sale of some assets by Murphy Farms to Stoecker
Farms prior to our acquisition of Murphy Farms in January 2000. Stoecker Farms'
obligations to Murphy Farms are secured by liens on substantially all the assets
of Stoecker Farms.

     We believe that the terms of the Stoecker Farms agreements are no less
favorable to us than market. We estimate that during fiscal 2001, Stoecker Farms
made payments of approximately $184,200,000 to Murphy Farms under the Stoecker
Farms agreements. Business volumes at approximately this level are expected to
continue, based on equivalent hog prices, while the Stoecker Farms agreements
are in effect.

     The aggregate amount outstanding from Stoecker Farms under the note and
under the feeder pig purchase agreement was approximately $48,700,000 at the end
of fiscal year 2001. The largest amount outstanding during the fiscal year was
approximately $74,800,000. The rate of interest under the note is 8% per annum.
Under the feeder pig purchase agreement, Stoecker Farms pays Murphy Farms for
feeder pigs only after Stoecker Farms receives payment from its customer for
them. No interest is accrued during this period.

                                       58
<PAGE>

     In September 9, 1998, we made loans aggregating $9,444,000 to our employees
including Messrs. Luter and Pope. The loans were made to facilitate the
employees' payment of the purchase price and taxes upon the exercise of stock
options granted under our 1984 Stock Option Plan. The options, which would have
expired in 1999, covered an aggregate of 2,520,000 shares. The loans bore
interest payable quarterly at a rate of 8% per annum. Each employee's loan was
secured by a pledge to us of shares acquired upon exercise of the options. Mr.
Luter repaid his loan in full in the amount of $7,546,154 on July 7, 2000, by
delivery of 524,950 shares of our common stock at a price of $14.38 per share.
On that date, the market closed with a price of $14.4688 per share of our common
stock. Mr. Pope repaid his loan principal and accrued interest in full in the
amount of $306,000 on August 31, 2000.

     In March 14, 2001, we purchased 1,000,000 shares of our common stock from
Mr. Luter at a purchase price of $15.75 per share. On that date, the market
closed with a price of $15.88 per share of our common stock.

                                       59
<PAGE>

                              THE EXCHANGE OFFER

General

     We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal (which together
constitute the exchange offer), to exchange up to $300,000,000 aggregate
principal amount of exchange notes for a like aggregate principal amount of the
senior notes. For the exchange offer to be effected the senior notes must be
properly tendered on or prior to the date the exchange offer expires and the
senior notes cannot have been properly withdrawn. The exchange offer is being
made with respect to all of the senior notes.

     As of the date of this prospectus, the aggregate principal amount of the
senior notes is $300,000,000. This prospectus, together with the letter of
transmittal, is first being sent on or about December 10, 2001, to all
registered holders of the senior notes. Our obligation to accept senior notes
for exchange is subject to certain conditions set forth under "Conditions to the
Exchange Offer" below. We currently expect that each of the conditions will be
satisfied and that no waivers will be necessary.


Purpose of the Exchange Offer

     The senior notes were issued on October 23, 2001 in a transaction exempt
from the registration requirements of the Securities Act. Accordingly, the
senior notes may not be reoffered, resold, or otherwise transferred unless
registered under the Securities Act or any applicable securities law or unless
an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available. In connection with the sale of
the senior notes, we agreed to file with the SEC on or before 90 days after the
issuance of the senior notes a registration statement registering the exchange
notes to be offered in exchange for the senior notes. We also agreed that the
notes to be registered, known as the exchange notes, would contain the same
terms as the senior notes, except as is otherwise set forth in this prospectus.

     Under the exchange and registration rights agreement, we are obligated to
use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act within 150 days
after the date of issuance of the senior notes. As soon as practicable after the
effectiveness of the exchange offer registration statement, we will offer to the
holders of transfer restricted securities, as defined below, who are not
prohibited by any law or policy of the SEC from participating in the exchange
offer, the opportunity to exchange their transfer restricted securities for the
exchange notes offered in connection with this prospectus, that are identical in
all material respects to the senior notes, except that these exchange notes will
not contain transfer restrictions and will be registered under the Securities
Act. We will keep the exchange offer open for not less than 30 days, or longer
if required by applicable law, after the date on which notice of the exchange
offer is mailed to the holders of the senior notes.

                                       60
<PAGE>

     If

     .    we are not permitted to effect the exchange offer as contemplated by
          this prospectus because of any change in law or applicable
          interpretations of the law by the staff of the SEC;

     .    for any other reason the exchange offer is not consummated within 180
          days after the date of issuance of the notes;

     .    any initial purchaser so requests with respect to notes held by the
          initial purchaser that are not eligible to be exchanged for exchange
          notes in the exchange offer;

     .    any applicable law or interpretations do not permit any holder of
          notes to participate in the exchange offer; or

     .    any holder of notes that participates in the exchange offer does not
          receive freely transferable exchange notes in exchange for tendered
          notes,

then we will file as promptly as practicable, but in no event more than 75 days
after so required or requested, with the SEC, which we refer to as the shelf
filing date, a shelf registration statement to cover resales of transfer
restricted securities by those holders who satisfy various conditions relating
to the provision of information in connection with the shelf registration
statement.

     For purposes of the above, "transfer restricted securities" means each
senior note, until the earliest to occur of:

     .    the date on which that senior note has been exchanged for a freely
          transferable exchange note in the exchange offer;

     .    the date on which that senior note has been effectively registered
          under the Securities Act and disposed of in accordance with the shelf
          registration statement; or

     .    the date on which that senior note is distributed to the public
          pursuant to Rule 144 under the Securities Act or may be sold under
          Rule 144(k) under the Securities Act.

     We will use our reasonable best efforts to have the exchange offer
registration statement or, if applicable, the shelf registration statement,
declared effective by the SEC as promptly as practicable after it is filed.
Unless the exchange offer will not be permitted by policy of the SEC, we will
commence the exchange offer and will use our reasonable best efforts to
consummate it as promptly as practicable, but in any event before 180 days after
the date of issuance of the senior notes. If applicable, we will use our
reasonable best efforts to keep the shelf registration statement effective for a
period ending on the earlier of two years after the date of issuance of the
senior notes or the date all transfer restricted securities become eligible for
resale without volume restrictions under Rule 144 under the Securities Act.

                                       61
<PAGE>

     We will be deemed not to have used our reasonable best efforts to keep the
shelf registration statement effective during the requisite period if we
voluntarily take any action that would result in holders of transfer restricted
securities covered by the shelf registration statement not being able to offer
and sell those transfer restricted securities during that period, unless this
action is required by applicable law. The foregoing will not apply to actions
taken by us in good faith and for valid business reasons (not including
avoidance of our obligations under the exchange and registration rights
agreement), including, without limitation the acquisition or divestiture of
assets, so long as we within 30 days thereafter comply with the requirements of
the exchange and registration rights agreement.

     Any period during which we fail to keep the shelf registration statement
effective and usable for offers and sales of transfer restricted securities is
referred to as a "suspension period." A suspension period would commence on
and include the date that we give notice that the shelf registration statement
is no longer effective or the prospectus included in this shelf registration
statement is no longer usable for offers and sales of transfer restricted
securities. The suspension period would end on the date when each holder of
transfer restricted securities covered by the shelf registration statement
either receives the copies of a supplemented or amended prospectus or is advised
in writing by us that use of the prospectus may be resumed. If one or more
suspension periods occur, the two-year time period referenced above would be
extended by the aggregate of the number of days included in each suspension
period.

     If any of the following events occur, each of which we refer to as a
registration default:

     .    the exchange offer registration statement is not filed with the SEC on
          or before 90 days after the date of issuance of the senior notes or
          the shelf registration statement is not filed with the SEC on or
          before the shelf filing date;

     .    the exchange offer registration statement is not declared effective
          within 150 days after the date of issuance of the senior notes or the
          shelf registration statement is not declared effective within 150 days
          after the shelf filing date;

     .    the exchange offer is not consummated on or before 180 days after the
          date of issuance of the senior notes; or

     .    the shelf registration statement is filed and declared effective
          within 150 days after the shelf filing date but thereafter ceases to
          be effective, at any time that we are obligated to maintain its
          effectiveness, without being succeeded within 75 days by an additional
          registration statement being filed and declared effective,

we will be obligated to pay additional interest to each holder of transfer
restricted securities, during the period of one or more registration defaults,
in an amount equal to $0.192 per week per $1,000 principal amount of the senior
notes constituting transfer restricted securities held by the holder until the
applicable registration statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated, or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. All accrued additional interest will be paid to holders in
the same manner as interest payments on the senior

                                       62
<PAGE>

notes on semi-annual payment dates that correspond to interest payment dates for
the senior notes. Additional interest only accrues during a registration
default.

     The exchange and registration rights agreement also provides that we will:

     .    make available, for a period of 90 days after the consummation of the
          exchange offer, a prospectus meeting the requirements of the
          Securities Act to any broker-dealer for use in connection with any
          resale of any exchange notes received in exchange for senior notes
          that were acquired as a result of market-making activities or other
          trading activities; and

     .    pay all expenses incident to the exchange offer, including the expense
          of one counsel to the holders of the senior notes, and will indemnify
          holders of the senior notes, including any broker-dealer, against some
          liabilities, including liabilities under the Securities Act.

     A broker-dealer that delivers a prospectus to purchasers in connection with
resales of the exchange notes will be subject to some of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
exchange and registration rights agreement, including indemnification rights and
obligations.


Resale of Exchange Notes

     Each holder of senior notes who wishes to exchange its senior notes for
exchange notes in the exchange offer will be required to make representations,
including representations that:

     .    any exchange notes to be received by it will be acquired in the
          ordinary course of its business;

     .    it has no arrangement or understanding with any person to participate
          in the distribution of the exchange notes; and

     .    it is not an "affiliate," as defined in Rule 405 under the
          Securities Act, of ours, or if it is an affiliate, that it will comply
          with the registration and prospectus delivery requirements of the
          Securities Act to the extent applicable.

     If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
exchange notes. If the holder is a broker-dealer that will receive exchange
notes for its own account in exchange for senior notes that were acquired as a
result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of its exchange notes.

     Holders of the senior notes will be required to make representations to us,
as described above, in order to participate in the exchange offer. They will
also be required to deliver information to be used in connection with the shelf
registration statement in order to have their senior notes included in the shelf
registration statement and benefit from the provisions regarding additional
interest set forth in the preceding paragraphs. A holder who sells senior notes
pursuant to the shelf registration statement generally will be required to be
named as a selling

                                       63
<PAGE>

securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to some of the civil liability provisions under the
Securities Act in connection with these sales and will be bound by the
provisions of the exchange and registration rights agreement that are applicable
to a holder, including indemnification obligations.

     For so long as the senior notes are outstanding, we will continue to
provide to holders of the senior notes and to the prospective purchaser of the
senior notes the information with respect to us required by Rule 144A(d)(4)
under the Securities Act.


Terms of the Exchange

     Subject to the terms and conditions set forth in this prospectus and the
letter of transmittal, we will accept for exchange any senior notes properly
tendered and not properly withdrawn prior to the expiration date. We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000 principal
amount of senior notes surrendered upon the exchange offer. Senior notes may be
tendered only in integral multiples of $1,000.

     The form and terms of the exchange notes will be substantially identical to
the forms and terms of the senior notes except that the exchange notes:

     .    will be registered under the Securities Act;

     .    will not bear legends restricting their transfer; and


     .    will not provide for any additional interest upon our failure to
          fulfill our obligation under the registration rights agreement to
          file, and cause to be effective, a registration statement.

The exchange notes will evidence the same debt as the senior notes. The exchange
notes will be issued under and entitled to the benefits of the same indenture
that authorized the issuance of the senior notes. Consequently, both series will
be treated as a single class of debt securities under the indenture. For a
description of the indenture, see "Description of the Exchange Notes" below.

     The exchange offer is not conditioned upon any minimum aggregate principal
amount of senior notes being tendered or accepted for exchange.

     As of the date of this prospectus, $300 million aggregate principal amount
of the senior notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of senior notes. There will
be no fixed record date for determining registered holders of senior notes
entitled to participate in the exchange offer.

     We intend to conduct the exchange offer in accordance with the provisions
of the exchange and registration rights agreement, the applicable requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
SEC. Senior notes that are not tendered for exchange in the exchange offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the indenture relating to the senior
notes and the registration rights agreement.

                                       64
<PAGE>

     We will be deemed to have accepted for exchange properly tendered senior
notes when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the exchange notes from us and delivering the
exchange notes to such holders. Subject to the terms of the registration rights
agreement. We expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any senior notes not previously accepted
for exchange, upon the occurrence of any of the conditions specified below under
the caption "Conditions to the Exchange Offer."

     Tendering holders of the senior notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of the senior notes
pursuant to the exchange offer.

     Interest on each exchange note issued pursuant to the exchange offer will
accrue from the last interest payment date to which interest was paid on the
senior notes surrendered in the exchange offer. If no interest has been paid on
the senior notes from the date of original issue of the senior notes, then
interest will accrue from the date of original issue of the senior notes.


Expiration Date; Extensions; Termination; Amendments

     The exchange offer will expire at 5:00 p.m., New York City time on January
8, 2002, unless in our sole discretion, we extend it.

     In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
senior notes of the extension no later than 9:00 a.m., New York City time, on
the business day after the previously scheduled expiration date.

     We reserve the right, in our sole discretion:

     .    to delay accepting for exchange any of the senior notes;

     .    to extend the exchange offer or to terminate the exchange offer and to
          refuse to accept senior notes not previously accepted if any of the
          conditions set forth below under "Conditions to the Exchange Offer"
          have not been satisfied, by giving oral or written notice of such
          delay, extension or termination to the exchange agent; or

     .    subject to the terms of the exchange and registration rights
          agreement, to amend the terms of the exchange offer in any manner.

     Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of the senior notes. If we amend the exchange offer in a manner that we
determine to constitute a material change, we will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the senior
notes of such amendment.

     Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have

                                       65
<PAGE>

no obligation to publish, advertise, or otherwise communicate any such public
announcement, other than by making a timely release to a financial news service.


How to Tender

     Only a holder of senior notes may tender such senior notes in the exchange
To tender in the exchange offer, a holder must:

     .    complete, sign and date the letter of transmittal, or a facsimile of
          the letter of transmittal; have the signature on the letter of
          transmittal guaranteed if the letter of transmittal so requires; and
          mail or deliver such letter of transmittal or facsimile to the
          exchange agent prior to the expiration date;

     .    comply with the guaranteed delivery procedures described below; or

     .    the holder must comply with the DTC's Automated Tender Offer Program
          procedures described below.

In addition, either:

     .    the exchange agent must receive the senior notes along with the letter
          of transmittal; or

     .    the exchange agent must receive, prior to the expiration date, a
          timely confirmation of book-entry transfer of such senior notes into
          the exchange agent's account at DTC according to the procedure for
          book-entry transfer described below or a properly transmitted agent's
          message; or

     .    the holder must comply with the guaranteed delivery procedures
          described below.

     To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "Exchange Agent" prior to the expiration date.

     The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.

     The method of delivery of the senior notes, the letter of transmittal and
all other required documents to the exchange agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. Holders should not send the letter of transmittal or senior notes to us.
Holders may request their respective brokers, dealers, commercial banks, trust
companies or other nominees to effect the above transactions for them.

     Any beneficial owner whose senior notes are registered in the name of a
dealer, commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct it to tender on the
owner's behalf. If such beneficial owner wishes to tender on its own behalf, it
must, prior to completing and executing the letter of transmittal and delivering
its senior notes, either:

                                       66
<PAGE>

     .    make appropriate arrangements to register ownership of the senior
          notes in such owner's name; or

     .    obtain a properly completed bond power from the registered holder of
          the senior notes.

     The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.

     Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or another "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the senior notes tendered pursuant
thereto are tendered:

     .    by a registered holder who has not completed the box entitled "Special
          Issuance Instructions" or "Special Delivery Instructions" on the
          letter of transmittal; or

     .    for the account of an eligible guarantor institution.

     If the letter of transmittal is signed by a person other than the
registered holder of any senior notes listed on the senior notes, such senior
notes must be endorsed or accompanied by a properly completed bond power. The
bond power must be signed by the registered holder as the registered holder's
name appears on the senior notes and an eligible guarantor institution must
guarantee the signature on the bond power.

     If the letter of transmittal or any senior notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.

     The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the senior notes to the exchange agent
in accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term "agent's message" means a message
transmitted by DTC, received by the exchange agent and forming part of the book-
entry confirmation, to the effect that:

     .    DTC has received an express acknowledgment from a participant in its
          Automated Tender Offer Program that it is tendering senior notes that
          are the subject of such book-entry confirmation;

     .    such participant has received and agrees to be bound by the terms of
          the letter of transmittal, or, in the case of an agent's message
          relating to guaranteed delivery, that such participant has received
          and agrees to be bound by the applicable notice of guaranteed
          delivery; and

                                       67
<PAGE>

     .    the agreement may be enforced against such participant.

     We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered senior
notes and withdrawal of tendered senior notes. Our determination will be final
and binding. We reserve the absolute right to reject any senior notes not
properly tendered or any senior notes the acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defects, irregularities or conditions of tender as to particular senior notes.
Interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of senior notes must be cured within such time as we shall determine. Although
we intend to notify holders of defects or irregularities with respect to tenders
of senior notes neither we, the exchange agent nor any other person will incur
any liability for failure to give such satisfaction. Tenders of senior notes
will not be deemed made until such defects or irregularities have been cured or
waived. Any senior notes received by the exchange agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned to the exchange agent without cost to the tendering
holder, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.

     In all cases, we will issue exchange notes for senior notes that we have
accepted for exchange under the exchange offer only after the exchange agent
timely receives:

     .    senior notes or a timely book-entry confirmation of such senior notes
          into the exchange agent's account at DTC; and

     .    a properly completed and duly executed letter of transmittal and all
          other required documents or a properly transmitted agent's message.

     By signing the letter of transmittal, each tendering holder of senior notes
will represent to us that, among other things:

     .    any exchange notes that the holder receives will be acquired in the
          ordinary course of its business;

     .    the holder has no arrangement or understanding with any person or
          entity to participate in the distribution of the exchange notes;

     .    if the holder is not a broker-dealer, that it is not engaged in and
          does not intend to engage in the distribution of the exchange notes;

     .    the holder is not an initial purchaser, that has, or is reasonably
          likely to have an unsold allotment of the senior notes from the
          initial issuance of the senior notes;

     .    if the holder is a broker-dealer that will receive exchange notes for
          its own account in exchange for senior notes that were acquired as a
          result of market-making activities, that it will deliver a prospectus,
          as required by law, in connection with any resale of such exchange
          notes; and

     .    the holder is not an "affiliate," as defined in Rule 405 of the
          Securities Act, of ours or, if the holder is an affiliate, it will
          comply with any applicable registration and prospectus delivery
          requirements of the Securities Act.

                                       68
<PAGE>

Book-Entry Transfer

     The exchange agent will make a request to establish an account with respect
to the senior notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus; and any financial institution participating in DTC's
system may make book-entry delivery of senior notes by causing DTC to transfer
such senior notes into the exchange agent's account at DTC in accordance with
DTC's procedures for transfer. Holders of senior notes who are unable to deliver
confirmation of the book-entry tender of their senior notes into the exchange
agent's account at DTC or all other documents required by the letter of
transmittal to the exchange agent on or prior to the expiration date must tender
their senior notes according to the guaranteed delivery procedures described
below.


Guaranteed Delivery Procedures

     Holders wishing to tender their senior notes but whose senior notes are not
immediately available or who cannot deliver their senior notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration date may tender if:

     .    the tender is made through an eligible guarantor institution;

     .    prior to the expiration date, the exchange agent receives from such
          eligible guarantor institution either a properly completed and duly
          executed notice of guaranteed delivery (by facsimile transmission,
          mail or hand delivery) or a properly transmitted agent's message and
          notice of guaranteed delivery:

          .    setting forth the name and address of the holder, the registered
               number(s) of such senior notes and the principal amount of senior
               notes tendered;

          .    stating that the tender is being made; and

          .    guaranteeing that, within three (3) New York Stock Exchange
               trading days after the expiration date, the letter of
               transmittal, or a facsimile of the letter of transmittal,
               together with the senior notes or a book-entry confirmation, and
               any other documents required by the letter of transmittal will be
               deposited by the eligible guarantor institution with the exchange
               agent; and

     .    the exchange agent receives such properly completed and executed
          letter of transmittal, or a facsimile of the letter of transmittal, as
          well as all tendered senior notes in proper form for transfer or a
          book-entry confirmation, and all other documents required by the
          letter of transmittal, within three (3) New York Stock Exchange
          trading days after the expiration date.

     Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their senior notes according to the
guaranteed delivery procedures set forth above.

                                       69
<PAGE>

Withdrawal Rights

     Except as otherwise provided in this prospectus, holders of senior notes
may withdraw their tenders at any time prior to the expiration date.

     For a withdrawal to be effective:

     .    the exchange agent must receive a written notice, which may be by
          facsimile transmission or letter, of withdrawal at one of the
          addresses set forth below under "Exchange Agent;" or

     .    holders must comply with the appropriate procedures of DTC's Automated
          Tender Offer Program system.

     Any such notice of withdrawal must:

     .    specify the name of the person who tendered the senior notes to be
          withdrawn;

     .    identify the senior notes to be withdrawn (including the principal
          amount of such senior notes); and

     .    where certificates for senior notes have been transmitted, specify the
          name in which such senior notes were registered, if different from
          that of the withdrawing holder.

     If certificates for senior notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit:

     .    the serial numbers of the particular certificates to be withdrawn; and

     .    a signed notice of withdrawal with signatures guaranteed by an
          eligible guarantor institution unless such holder is an eligible
          guarantor institution.

     If senior notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn senior notes and
otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility, including time of receipt,
of such notices, and our determination shall be final and binding on all
parties. We will deem any senior notes so withdrawn not to have been validity
tendered for purposes of the exchange offer. Any senior notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to their holder without cost to the holder, or, in the case of senior notes
tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, such senior notes will be credited
to an account maintained with DTC for senior notes, as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn senior notes may be retendered by following one of the procedures
described under "How to Tender" above at any time on or prior to the expiration
date.

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<PAGE>

Conditions to the Exchange Offer

     Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for, any senior notes, and
we may terminate the exchange offer as provided in this prospectus before
accepting any senior notes for exchange if in our reasonable judgment:

     .    the exchange notes to be received will not be tradeable by the holder,
          without restriction under the Securities Act, the Exchange Act and
          without material restrictions under the blue sky or securities laws of
          substantially all of the states of the United States;

     .    the exchange offer, or the making of any exchange by a holder of
          senior notes, would violate applicable law or any applicable
          interpretation of the staff of the SEC; or

     .    any action or proceeding has been instituted or threatened in any
          court or by or before any governmental agency with respect to the
          exchange offer that, in our judgment, would reasonably be expected to
          impair our ability to proceed with the exchange offer.

     In addition, we will not be obligated to accept for exchange the senior
notes of any holder that has not made to us:

     .    the representations described under "Purpose of the Exchange Offer,"
          "How to Tender" and "Plan of Distribution" and

     .    such other representations as may be reasonably necessary under
          applicable SEC rules, regulations or interpretations to make available
          to us an appropriate form for registration of the exchange notes under
          the Securities Act.

     We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, it may
delay acceptance of any senior notes by giving oral or written notice of such
extension to their holders. During any such extensions, all senior notes
previously tendered will remain subject to the exchange offer, and we may accept
them for exchange. We will return any senior notes that we do not accept for
exchange for any reason without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.

     We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any senior notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the senior notes as
promptly as practicable. In the case of any extension, such notice will be
issued no later than 9:00 a.m., New York City time, on the business day after
the previously scheduled expiration date.

     These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.

                                       71
<PAGE>

     In addition, we will not accept for exchange any senior notes tendered, and
will not issue exchange notes in exchange for any such senior notes, if at such
time any stop order will be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939.


Exchange Agent

     SunTrust Bank has been appointed as the exchange agent for the exchange
offer. All executed letters of transmittal should be directed to the exchange
agent at the address set forth below. Questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for notices of guaranteed delivery should be directed
to the exchange agent addressed as follows:

<TABLE>
<S>                      <C>                                  <C>
     By Facsimile:       By Registered or Certified Mail:     By Hand/Overnight Delivery:
     (404) 588-7335      SunTrust Bank                        SunTrust Bank
                         Corporate Trust Depart. (mc008)      Corporate Trust Depart. (mc008)
                         25 Park Place, 24/th/ Floor          25 Park Place, 24/th/ Floor
                         Atlanta, Georgia 30303-2900          Atlanta, Georgia 30303-2900
                         Attention: Jack Ellerin              Attention: Jack Ellerin
</TABLE>

     DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF
TRANSMITTAL.


Fees and Expenses

     We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.

     We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for services and reimburse it for its related
reasonable out-of-pocket expenses.

     We will pay the cash expenses to be incurred in connection with the
exchange offer. The expenses are estimated in the aggregate to be approximately
$300,000. They include:

     .    SEC registration fees;

     .    fees and expenses of the exchange agent and trustee;

     .    accounting and legal fees and printing costs; and

     .    related fees and expenses.

                                       72
<PAGE>

Transfer Taxes

  We will pay all transfer taxes, if any, applicable to the exchange of senior
notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:

     .    certificates representing senior notes for principal amounts not
          tendered or accepted for exchange are to be delivered to, or are to be
          issued in the name of, any person other than the registered holder of
          the senior notes tendered;

     .    tendered senior notes are registered in the name of any person other
          than the person signing the letter of transmittal; or

     .    a transfer tax is imposed for any reason other than the exchange of
          senior notes under the exchange offer.

     If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.


Consequences of Failure to Exchange

     Holders of senior notes who do not exchange their senior notes for exchange
notes under the exchange offer will remain subject to the restrictions on
transfer of the senior notes:

     .    as set forth in the legend printed on the senior notes as a
          consequence of the issuance of the senior notes pursuant to the
          exemptions from, or in transactions not subject to, the registration
          requirements of the Securities Act and applicable state securities
          laws; and

     .    otherwise set forth in the offering memorandum distributed in
          connection with the private offering of the senior notes.

     In general, you may not offer or sell the senior notes unless they are
registered under the Securities Act or the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the senior notes under the Securities Act. Based on
interpretations of the SEC staff, exchange notes issued pursuant to the exchange
offer may be offered for resale, resold or otherwise transferred by their
holders, other than any such holder that is our "affiliate" within the meaning
of Rule 405 under the Securities Act, without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holders acquired the exchange notes in the ordinary course of the holders'
business and the holders have no arrangement or understanding with respect to
the distribution of the exchange notes to be acquired in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the exchange notes:

     .    cannot rely on the applicable interpretations of the SEC; and

     .    must comply with the registration and prospectus delivery requirements
          of the Securities Act in connection with a secondary resale
          transaction.

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<PAGE>

Accounting Treatment

     We will record the exchange notes at the same carrying value as the senior
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. The
expenses of the exchange offer will be amortized over the term of the exchange
notes.


Solicitation of Tenders

     No person has been authorized to give any information or to make any
representations in connection with the exchange offer other than those contained
in this prospectus. If such information or representations are given or made
they should not be relied upon as though authorized by us. Neither the delivery
of this prospectus nor any exchange made based on this Prospectus will create
any implication that there has been no change in our affairs since the dates of
the information provided by this prospectus. The exchange offer is not being
made to (nor will tenders be accepted from or on behalf of) holders of senior
notes in any jurisdiction in which the making of the exchange offer or the
acceptance of the exchange offer would not be in compliance with the laws of
such jurisdiction. However, we may, at our discretion, take such action as we
may deem necessary to make the exchange offer in any such jurisdiction and
extend the exchange offer to holders of senior notes in such jurisdiction. In
any jurisdiction which the securities laws or blue sky laws require the exchange
offer to be made by a licensed broker or dealer, the exchange offer is being
made on our behalf by one or more registered brokers or dealers and they are
licensed under the laws of such jurisdiction.


Federal Income Tax Consequences

     The exchange of the senior notes for the exchange notes in the exchange
offer should not constitute an exchange for federal income tax purposes.
Consequently, (i) no gain or loss should be realized by a U.S. Holder upon
receipt of the exchange notes; (ii) the holding period of the exchange notes
should include the holding period of the senior notes exchanged therefor; and
(iii) the adjusted tax basis of the exchange notes should be the same as the
adjusted tax basis of the senior notes exchanged therefor immediately before the
exchange. Even if the exchange of senior notes for the exchange notes were
treated as an exchange, however, such an exchange should constitute a tax-free
recapitalization for federal income tax purposes. Accordingly, the exchange
notes should have the same issue price as the senior notes and a U.S. Holder
should have the same adjusted basis and holding period in the exchange note as
it had in the senior notes immediately before the exchange.

     As used in this prospectus, the term "U.S. Holder" means a person who is,
for United States federal income tax purposes, (i) a citizen or resident of the
United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
of the United States; or (iii) an estate or trust the income of which is subject
to United States federal income taxation regardless of its source.

                                       74
<PAGE>

     Holders of senior notes who are not U.S. Holders are urged to consult their
own advisors regarding the tax consequences to them of an exchange of senior
notes for exchange notes.


Other

     Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.

     We may in the future seek to acquire untendered senior notes in open market
or privately negotiated transactions, through subsequent exchange offers or
otherwise. We have no present plans to acquire any senior notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered senior notes.

                                       75
<PAGE>

                              DESCRIPTION OF NOTES


     The exchange notes will be issued under the indenture, dated as of October
23, 2001, between SunTrust Bank, the trustee, and us. A copy of the indenture is
filed with the SEC as an exhibit to the registration statement of which this
prospectus is a part and is available upon request at our address set forth
under the heading "Incorporation of Certain Documents By Reference." This is the
same indenture under which the senior notes were issued. SunTrust Bank also
serves as the trustee under the indenture relating to our 1998 Notes.

     The following description is only a summary of the provisions of the
indenture. This summary is qualified in its entirety by reference to all the
provisions of the indenture, including the definitions of terms used in the
indenture and those terms made part of the indenture by reference to the Trust
Indenture Act of 1939. Upon the issuance of the exchange notes or, if we file
the shelf registration statement described on page 61 of this prospectus, upon
the effectiveness of the shelf registration statement, the indenture will be
subject to and governed by the Trust Indenture Act.

     You will find the definitions of capitalized terms used in this description
at the end of this section under the heading "Certain Definitions." For
purposes of this description, references to the "Company," "we," "our" and
"us" refer to Smithfield Foods, Inc. and not to its subsidiaries. References
to "Notes" refers to both the senior notes and the exchange notes.


General

     Principal of, premium, if any, and interest on the exchange notes will be
payable, and the Notes may be exchanged or transferred, at our office for that
purpose in the Borough of Manhattan, The City of New York. Initially the office
of exchange or transfer will be the office of the Trustee, located at 88 Pine
Street, 19th Floor, New York, NY 10005. Alternatively, at our option, payment of
interest may be made by check mailed to the address of the registered holders of
the Notes as such address appears in the Note Register. We will pay principal
of, premium, if any, and interest on, Notes in global form registered in the
name of or held by The Depositary Trust Company or its nominee in immediately
available funds to The Depositary Trust Company or its nominee, as the case may
be, as the registered holder of such global note.

     The Notes will be our general unsecured, senior obligations, ranking
equally in right of payment to any of our future senior indebtedness.

     The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but we may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection with the transfer.

     The exchange notes are new securities and there is currently no established
market for the exchange notes. The exchange notes generally will be freely
transferable but will also be new

                                       76
<PAGE>

securities for which there will not initially be a market. Accordingly, there
can be no assurance as to the development or liquidity of any market for the
exchange notes. The exchange notes are expected to be eligible for trading in
the PORTAL market. We do not intend to apply for a listing of the exchange notes
on any securities exchange or an automated dealer quotation system.


Terms of the Notes

     The Notes will initially be limited to $300,000,000 aggregate principal
amount, and will mature on October 15, 2009. The indenture permits us to issue
an unlimited amount of Notes, subject to compliance with the terms of the
covenants described under "Certain Covenants--Limitation on Indebtedness."
Each Note will bear interest at a rate per annum shown on the front cover of
this prospectus from the date of issuance, or from the most recent date to which
interest has been paid or provided for, payable semiannually on October 15 and
April 15 of each year, beginning April 15, 2002 to Holders of record at the
close of business on the October 1 or April 1 immediately before the interest
payment date.


No Sinking Fund or Redemption

     The Notes will not be redeemable at our option of and will not be entitled
to the benefit of any sinking fund.


Ranking

     The Notes will be our general unsecured obligations that rank senior in
right of payment to all existing and future Indebtedness that is expressly
subordinated in right of payment to the Notes. The Notes will rank equally in
right of payment with all of our existing and future liabilities that are not so
subordinated. In the event of our bankruptcy, liquidation, reorganization or
other winding up or upon a default in payment with respect to, or the
acceleration of, any Indebtedness under the Revolving Credit Facility, the
Senior Secured Notes or other Secured Indebtedness, our assets that secure
Secured Indebtedness will be available to pay obligations on the Notes only
after all Indebtedness under such Revolving Credit Facility, the Senior Secured
Notes and other Secured Indebtedness has been repaid in full from such assets.
We advise you that there may not be sufficient assets remaining to pay amounts
due on any or all the Notes then outstanding. The Notes are not guaranteed by
our subsidiaries. As a result, the Notes are structurally junior to the
obligations and liabilities of our subsidiaries.

     As of July 29, 2001, the aggregate principal amount of our indebtedness,
including capital lease obligations, was approximately $1,301.5 million, of
which $1,114.9 million was senior secured indebtedness. As of July 29, 2001, the
aggregate principal amount of indebtedness of our subsidiaries was approximately
$199.6 million, excluding capital lease obligations and guarantees of the
Revolving Credit Facility and the Senior Secured Notes.

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Change of Control

     Upon the occurrence of any of the following events (each, a "Change of
Control"), each Holder will have the right to require us to repurchase all or
any part of the Holder's Notes at a purchase price in cash equal to 101% of the
principal amount of the Holder's Notes, plus accrued and unpaid interest, if
any, to the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):

          (i) any sale, transfer or other conveyance, whether direct or
     indirect, of all or substantially all of the fair market value of our
     assets on a consolidated basis, in one transaction or a series of related
     transactions, to any Person or Persons other than us or one or more of our
     Restricted Subsidiaries;

          (ii) any "person" or "group" (as such terms are used in Sections
     13(d) and 14(d) of the Exchange Act), other than one or more Permitted
     Holders, is or becomes the "beneficial owner" (as defined in Rules 13d-3
     and 13d-5 under the Exchange Act, except that a Person shall be deemed to
     have "beneficial ownership" of all shares that any such Person has the
     right to acquire within one year), directly or indirectly, of more than 50%
     of our Voting Stock (or our successor by merger, consolidation or purchase
     of all or substantially all of our assets);

          (iii) during any period of two consecutive years, individuals who at
     the beginning of such period constituted the Board of Directors (together
     with any new directors whose election by such Board of Directors or whose
     nomination for election by our shareholders was approved by a vote of a
     majority of our directors then still in office who were either directors at
     the beginning of such period or whose election or nomination for election
     was previously so approved) cease for any reason to constitute a majority
     of the Board of Directors then in office; or

          (iv) the adoption of a plan relating to our liquidation or
     dissolution.

     In the event that at the time of such Change of Control the terms of any
Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then the indenture requires that prior to the mailing of the notice to
Holders provided for in the immediately following paragraph but in any event
within 30 days following any Change of Control, we shall either (i) repay in
full all Indebtedness or offer to repay in full all such Indebtedness and repay
the Indebtedness of each lender who has accepted such offer or (ii) obtain the
requisite consent under the agreements governing such Indebtedness to permit the
repurchase of the Notes as provided for in the immediately following paragraph.
We will first comply with the covenant in the preceding sentence before we will
be required to make the Change of Control Offer or to purchase the Notes
pursuant to the provisions described in this prospectus; provided that such
compliance will not extend the time periods set forth in the indenture for us to
make an offer to repurchase the Notes in connection with a Change of Control.

     Within 30 days following any Change of Control, we shall mail a notice (the
"Change of Control Offer") to each Holder with a copy to the Trustee stating:
(1) that a Change of Control

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has occurred and that such Holder has the right to require us to purchase such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
of the Holder's Notes, plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of Holders of record on a record date to receive
interest on the relevant interest payment date); (2) the circumstances and
relevant facts and financial information regarding such Change of Control; (3)
the repurchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed) (the "Change of Control Payment
Date"); (4) that any Note not tendered will continue to accrue interest
pursuant to its terms; (5) that, unless we default in the payment of the
purchase price, any Note accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest on and after the Change of Control Payment
Date; and (6) the instructions determined by us, consistent with this covenant,
that a Holder must follow in order to have its Notes purchased or to cancel such
order of purchase.

     On or before the Change of Control Payment Date, we shall: (i) accept for
payment Notes or portions of the Notes tendered pursuant to the Change of
Control Offer; (ii) deposit with the paying agent money sufficient to pay the
purchase price of all Notes or portions of the Notes so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Notes or portions of the
Notes so accepted together with an Officers' Certificate specifying the Notes or
portions of the Notes accepted for payment by us. The paying agent shall
promptly mail, to the Holders of Notes so accepted, payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail to
such Holders a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples of $1,000.
We will publicly announce the results of the Change of Control Offer on or as
soon as practicable after the Change of Control Payment Date. For purposes of
the "Change of Control" covenant of the indenture, the Trustee shall act as
paying agent.

     We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes pursuant to this covenant. To the extent
that the provisions of any securities laws or regulations conflict with
provisions of this covenant, we will comply with the applicable securities laws
and regulations and will not be deemed to have breached our indenture
obligations under this covenant by virtue of our compliance with applicable
securities laws and regulations.

     The Change of Control purchase feature is a result of negotiations between
us and the initial purchasers of the senior notes. We have no present plans to
engage in a transaction involving a Change of Control, although it is possible
that we would decide to do so in the future. Subject to the limitations
discussed below, we could, in the future, enter into certain transactions,
including acquisitions, refinancings or recapitalizations, that would not
constitute a Change of Control under the indenture, but that could increase the
amount of indebtedness outstanding at such time or otherwise affect our capital
structure or credit ratings.

     If we are unable to repay all of our indebtedness that would prohibit
repurchase of the Notes or are unable to obtain the consents of the holders of
indebtedness, if any, of our outstanding at the time of a Change of Control
whose consent would be so required to permit the repurchase of Notes, then we
will have breached the "Change of Control" covenant of the indenture. This

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breach will constitute an Event of Default under the indenture if it continues
for a period of 30 consecutive days after written notice is given to us by the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Notes outstanding. In addition, our failure to repurchase Notes at the
conclusion of the Change of Control Offer will constitute an Event of Default
without any waiting period or notice requirements.

     The occurrence of a Change of Control would constitute a default under the
Revolving Credit Facility. In addition, certain events that may constitute a
Change of Control under the Revolving Credit Facility and cause a default
thereunder may not constitute a Change of Control under the indenture.
Furthermore, we are required upon the occurrence of certain change of control
events (including but not limited to, certain events which would constitute a
Change of Control) to make an offer to repurchase the 1998 Notes and the Senior
Secured Notes. Future Indebtedness of us and our Subsidiaries may contain
prohibitions on certain events which would constitute a Change of Control or
require such Indebtedness to be repurchased upon a Change of Control. Moreover,
the exercise by the Holders of their right to require us to repurchase the Notes
or of the 1998 Notes could cause a default under agreements evidencing such
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on us. Finally, our ability to pay cash to
the Holders upon a repurchase may be limited by our then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases of either of the Notes or of any
indebtedness outstanding that would prohibit such a Note repurchase.

     The definition of "Change of Control" (see clause (i) of such definition)
includes a disposition of all or substantially all of our property and assets
and the property and assets of our Subsidiaries. With respect to the disposition
of property or assets, the phrase "all or substantially all" as used in the
indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law and is
subject to judicial interpretation. Accordingly, in certain circumstances there
may be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the property or
assets of a Person, and therefore it may be unclear as to whether a Change of
Control has occurred and whether we are required to make an offer to repurchase
the Notes as described above.

     None of the provisions of the indenture relating to a purchase of the Notes
upon a Change of Control is waivable by our Board of Directors. Without the
consent of each affected Noteholder, after the mailing of the notice of a Change
of Control Offer, no amendment of the indenture may, directly or indirectly,
affect our obligation to consummate a Change of Control Offer or waive any
default in the performance of the provisions of the indenture relating to a
purchase of the Notes upon a Change of Control or modify any of the provisions
of the definitions with respect to any such offer.


Certain Covenants

     The indenture contains covenants including, among others, the following:

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     Limitation on Indebtedness.   (a) We will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness (including Acquired
Indebtedness); provided, however, that we and our Restricted Subsidiaries may
Incur Indebtedness if on the date of the Incurrence of such Indebtedness the
Consolidated Coverage Ratio would be equal to or greater than 2.00:1.00.

     (b)  Notwithstanding the foregoing paragraph (a), we and our Restricted
Subsidiaries, as set forth below, may Incur the following Indebtedness:

          (i) (A) Our Indebtedness Incurred pursuant to the Revolving Credit
     Facility and (B) the Incurrence by a Receivables Entity of Indebtedness in
     a Qualified Receivables Transaction that is nonrecourse to us or any
     Subsidiary of ours (except for Standard Securitization Undertakings) in an
     aggregate principal amount for Indebtedness Incurred under clauses (A) and
     (B) since the date of the 1998 Indenture and outstanding at any one time,
     not to exceed the greater of (x) $400.0 million, less the aggregate amount
     of all repayments of principal actually made under the Revolving Credit
     Facility since the 1998 Issue Date with Net Available Cash from Asset
     Dispositions pursuant to clause (a)(iii)(A) of the covenant described under
     "--Limitation on Sales of Asset Sales" and (y) the Borrowing Base;

          (ii) the incurrence by us of Indebtedness represented by the Notes;

          (iii) Indebtedness (A) of ours to any Wholly Owned Subsidiary and (B)
     of any Restricted Subsidiary to us or any other Wholly Owned Subsidiary;
     provided, however, that any subsequent issuance or transfer of any Capital
     Stock or any other event that results in any such Wholly Owned Subsidiary
     ceasing to be a Wholly Owned Subsidiary or any other subsequent transfer of
     any such Indebtedness (except to us or a Wholly Owned Subsidiary) will be
     deemed, in each case, an Incurrence of Indebtedness by us or such
     Restricted Subsidiary, as the case may be;

          (iv) any Indebtedness (other than the Indebtedness described in
     clauses (i) or (iii) above) outstanding on the date of the 1998 Indenture,
     including the 1998 Notes and the Senior Secured Notes then in existence and
     the Guarantees related thereto, and any Refinancing Indebtedness Incurred
     in respect of any Indebtedness described in this clause (iv) or paragraph
     (a);

          (v) Indebtedness represented by the Subsidiary Guarantees and
     Guarantees of Indebtedness Incurred pursuant to clause (i) above;

          (vi) Indebtedness in respect of performance, surety or appeal bonds
     provided in the ordinary course of business;

          (vii) Indebtedness under Hedging Obligations; provided, however, that
     such Hedging Obligations are entered into for bona fide hedging purposes by
     us or any Restricted Subsidiary in the ordinary course of business;

          (viii) Indebtedness (in addition to Indebtedness described in clauses
     (i), (iii) and (iv)) of us or any Restricted Subsidiary attributable to
     Capitalized Lease Obligations, or Incurred to

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     finance the acquisition, construction or improvement of fixed or capital
     assets, or constituting Attributable Debt in respect of Sale/Leaseback
     Transactions, in an aggregate principal amount at any time outstanding,
     since the date of the 1998 Indenture, not in excess of $50.0 million;

          (ix) Indebtedness of a Restricted Subsidiary issued and outstanding on
     or prior to the date on which such Restricted Subsidiary was acquired by us
     (other than Indebtedness Incurred (A) as consideration in, or to provide
     all or any portion of the funds or credit support utilized to consummate,
     the transaction or series of related transactions pursuant to which such
     Restricted Subsidiary became a Restricted Subsidiary or was acquired by us
     or (B) otherwise in connection with, or in contemplation of, such
     acquisition) and any Refinancing Indebtedness with respect thereto;
     provided, however, that on the date of any such acquisition of a Restricted
     Subsidiary, we shall have been able to Incur at least an additional $1.00
     of Indebtedness under paragraph (a) above after giving effect to such
     acquisition; and

          (x) Indebtedness (in addition to Indebtedness described in clauses
     (i)-(ix)) in a principal amount which, when taken together with the
     principal amount of all other Indebtedness Incurred pursuant to this clause
     (x) since the date of the 1998 Indenture and then outstanding, will not in
     the aggregate exceed $50.0 million.

     (c)  Notwithstanding the foregoing, we will not Incur any Indebtedness
pursuant to the foregoing paragraph (b) if the proceeds of the Indebtedness are
used, directly or indirectly, to refinance any Subordinated Indebtedness unless
such Indebtedness (i) will be subordinated to the Notes to at least the same
extent as such Subordinated Indebtedness and (ii) will not mature prior to the
Stated Maturity of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to the remaining Average
Life of the Indebtedness to be refinanced or refunded.

     (d)  We will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Indebtedness; provided, however, if any
such Indebtedness ceases to be Non-Recourse Indebtedness, such event shall be
deemed to constitute an Incurrence of Indebtedness by us or a Restricted
Subsidiary.

     (e)  No Subsidiary Guarantor will incur any Indebtedness if the proceeds of
the Indebtedness are used, directly or indirectly, to refinance any Guarantor
Subordinated Indebtedness of such Subsidiary Guarantor unless such Indebtedness
will be subordinated to the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee to at least the same extent as such Guarantor Subordinated
Indebtedness.

     (f)  For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, we, in our sole discretion, shall classify such item of Indebtedness at
the time of Incurrence and only be required to include the amount and type of
such Indebtedness in one of such clauses.

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     (g)  For purposes of determining compliance with any U.S. dollar-
denominated restriction on the Incurrence of Indebtedness, the U.S. dollar-
equivalent principal amount of Indebtedness denominated in a foreign currency
shall be calculated based on the relevant currency exchange rate in effect on
the date such Indebtedness was Incurred, in the case of term Indebtedness, or
first committed, in the case of revolving credit Indebtedness; provided that if
such Indebtedness is Incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S. dollar-
dominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, such U.S. dollar-
dominated restriction shall be deemed not to have been exceeded so long as the
principal amount of such refinancing Indebtedness does not exceed the principal
amount of such Indebtedness being refinanced. Notwithstanding any other
provision of this covenant, the maximum amount of Indebtedness that we may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rate of currencies. The principal amount of any
Indebtedness incurred to refinance other Indebtedness, if Incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
Refinancing Indebtedness is denominated that is in effect on the date of such
refinancing.

     Limitation on Restricted Payments.   (a) We will not, and will not permit
any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
us) except (x) dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and (y) dividends or distributions payable to us
or any of our Subsidiaries (and, if such Subsidiary is not directly or
indirectly owned 100% by us, to our other stockholders on a pro rata basis),
(ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock
of us or any Restricted Subsidiary held by Persons other than us or any of our
Subsidiaries, (iii) purchase, repurchase, redeem, prepay interest, defease or
otherwise acquire or retire for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment, any Subordinated Indebtedness or
Guarantor Subordinated Indebtedness (other than the purchase, repurchase or
other acquisition of Subordinated Indebtedness or Guarantor Subordinated
Indebtedness purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of the
date of purchase, repurchase or acquisition) or (iv) make any Restricted
Investment in any Person (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment referred to
in clauses (i) through (iv) being referred to as a "Restricted Payment") if at
the time we or such Restricted Subsidiary make such Restricted Payment:

          (1)  a Default shall have occurred and be continuing (or would result
     from the above actions);

          (2)  we could not Incur at least an additional $1.00 of Indebtedness
     under paragraph (a) of the covenant described under "--Limitation on
     Indebtedness"; or

          (3)  the aggregate amount of such Restricted Payment and all other
     Restricted Payments (the amount so expended, if other than in cash, to be
     determined in good faith by our Board of Directors, whose determination
     shall be conclusive and evidenced by a resolution of our

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     Board of Directors) declared or made subsequent to the date of the 1998
     Indenture would exceed the sum of:

               (A)  50% of the Consolidated Net Income accrued during the period
          (treated as one accounting period) commencing on the 1998 Issue Date
          to the end of the most recent fiscal quarter ending prior to the date
          of such Restricted Payment as to which financial results are available
          (but in no event ending more than 135 days prior to the date of such
          Restricted Payment) (or, in case such Consolidated Net Income shall be
          a deficit, minus 100% of such deficit);

               (B)  the aggregate Net Cash Proceeds received by us from the
          issuance or sale of our Capital Stock (other than Disqualified Stock)
          or other cash capital contributions subsequent to the 1998 Issue Date
          (other than an issuance or sale to a Subsidiary of ours and other than
          an issuance or sale to an employee stock ownership plan or other trust
          established by us or any of our Subsidiaries for the benefit of their
          employees to the extent the purchase by such plan or trust is financed
          by Indebtedness of such plan or trust and for which we or any
          Restricted Subsidiary are the lender or are liable as guarantor or
          otherwise);

               (C)  the sum of (i) the amount by which our Indebtedness is
          reduced on our balance sheet upon the conversion or exchange (other
          than by a Subsidiary of ours) subsequent to the 1998 Issue Date, of
          any our Indebtedness or our Restricted Subsidiaries convertible or
          exchangeable for our Capital Stock (other than Disqualified Stock)
          (less the amount of any cash or other property (other than Capital
          Stock) distributed by us upon such conversion or exchange) and (ii)
          the aggregate Net Cash Proceeds received by us (less any contingent
          amounts that we may be required to refund or return) upon the
          conversion or exchange (other than by a Subsidiary of ours) subsequent
          to the 1998 Issue Date of any our Indebtedness or our Restricted
          Subsidiaries convertible or exchangeable for Capital Stock (other than
          Disqualified Stock);

               (D)  the amount equal to the net reduction in Investments since
          the 1998 Issue Date in Unrestricted Subsidiaries resulting from (i)
          repayments of loans or advances or other transfers of assets to us or
          any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the
          redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
          (valued in each case as provided in the definition of "Investment")
          not to exceed, in the case of any Unrestricted Subsidiary, the amount
          of Investments previously made by us or any Restricted Subsidiary in
          such Unrestricted Subsidiary, which amount was treated as a Restricted
          Payment (and, with respect to clauses (i) and (ii), without
          duplication of any amounts included in Consolidated Net Income); and

               (E)  to the extent that any Restricted Investment that was made
          after the 1998 Issue Date is sold for cash or otherwise liquidated or
          repaid for cash, the lesser of (A) the net proceeds of such sale,
          liquidation or repayment and (B) the net book value of such Restricted
          Investment.

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     (b)  So long as there is no Default or Event of Default continuing, the
provisions of the foregoing paragraph (a) will not prohibit:

          (i) any purchase, defeasance or redemption of our Capital Stock or
     Subordinated Indebtedness made by exchange for, or out of the proceeds of
     the substantially concurrent sale of, our Capital Stock (other than
     Disqualified Stock and other than Capital Stock issued or sold to a
     Subsidiary of ours or an employee stock ownership plan or other trust
     established by us or any of our Subsidiaries for the benefit of their
     employees to the extent the purchase by such plan or trust is financed by
     Indebtedness by such plan or trust and for which we or any Restricted
     Subsidiary are the lender or are liable as a guarantor or otherwise);
     provided, however, that (A) such purchase, defeasance or redemption shall
     be excluded in subsequent calculations of the amount of Restricted Payments
     and (B) the Net Cash Proceeds from such sale of Capital Stock shall be
     excluded in calculations under clause (3)(B) of paragraph (a);

          (ii) any purchase, defeasance or redemption of Subordinated
     Indebtedness made by exchange for, or out of the proceeds of the
     substantially concurrent sale of, our Subordinated Indebtedness that is
     Refinancing Indebtedness; provided, however, that (A) such Indebtedness is
     subordinated to the Notes at least to the same extent as such Subordinated
     Indebtedness so purchased or redeemed and (B) such purchase, defeasance or
     redemption shall be excluded in subsequent calculations of the amount of
     Restricted Payments;

          (iii) the repurchase, redemption or other acquisition or retirement
     for value of our Subordinated Indebtedness or Guarantor Subordinated
     Indebtedness of any of our Restricted Subsidiaries pursuant to a "change
     of control" or "asset sale" covenant set forth in the indenture pursuant
     to which the same is issued and such "change of control" and "asset
     sale" covenants are substantially identical in all material respects to
     the comparable provisions included in the indenture; provided that such
     repurchase, redemption or other acquisition or retirement for value shall
     only be permitted if all of the terms and conditions in such provisions
     have been complied with and such repurchases, redemptions or other
     acquisitions or retirements for value are made in accordance with such
     indenture pursuant to which the same is issued and provided further that we
     have repurchased all Notes required to be repurchased by us pursuant to the
     terms and conditions described under the caption "Change of Control" or
     "Certain Covenants--Limitation on Asset Sales," as the case may be, prior
     to the repurchase, redemption or other acquisition or retirement for value
     of such Subordinated Indebtedness or Guarantor Subordinated Indebtedness
     pursuant to the "change of control" or "asset sale" covenant included
     in such indenture; provided that such repurchase, redemption or other
     acquisition shall be excluded in subsequent calculations of the amount of
     Restricted Payments;

          (iv) dividends paid within 60 days after the date of declaration of
     such dividend if at such date of declaration such dividend would have
     complied with paragraph (a); provided, however, that such dividend shall be
     included in subsequent calculations of the amount of Restricted Payments;

          (v) any repurchase of an Equity Interest deemed to occur upon exercise
     of stock options if such Equity Interests represent a portion of the
     exercise price of such options; or

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          (vi) Permitted Employee Payments in an aggregate amount not in excess
     of $5.0 million since the 1998 Issue Date; provided, however, that such
     payments shall be included in the calculation of Restricted Payments.

     Limitation on Sale/Leaseback Transactions.   We will not, and will not
permit any of our Restricted Subsidiaries to, enter into any Sale/Leaseback
Transaction unless:

          (1)  we or such Restricted Subsidiary, as the case may be, receive
     consideration at the time of such Sale/Leaseback Transaction at least equal
     to the fair market value (as evidenced by a resolution of our Board of
     Directors) of the property subject to such transaction;

          (2)  we or such Restricted Subsidiary could have Incurred Indebtedness
     in an amount equal to the Attributable Indebtedness in respect of such
     Sale/Leaseback Transaction pursuant to the covenant described under "--
     Limitation on Indebtedness";

          (3)  we or such Restricted Subsidiary would be permitted to create a
     Lien on the property subject to such Sale/Leaseback Transaction without
     securing the Notes by the covenant described under "--Limitation on
     Liens"; and

          (4)  the Sale/Leaseback Transaction is treated as an Asset Disposition
     and all of the conditions of the indenture described under "--Limitation
     on Sale of Assets" (including the provisions concerning the application of
     Net Available Cash) are satisfied with respect to such Sale/Leaseback
     Transaction, treating all of the consideration received in such
     Sale/Leaseback Transaction as Net Available Cash for purposes of such
     covenant.

     Limitation on Restrictions on Distributions from Restricted Subsidiaries.
We will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligations owed to us or any other Restricted Subsidiary,
(ii) make any loans or advances to us or any other Restricted Subsidiary or
(iii) transfer any of its property or assets to us or any other Restricted
Subsidiary, except:

          (1)  any encumbrance or restriction pursuant to an agreement in effect
     at or entered into on the 1998 Issue Date, including pursuant to the
     indenture, the Revolving Credit Facility and the Senior Secured Notes then
     in existence;

          (2)  any encumbrance or restriction with respect to a Restricted
     Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
     by such Restricted Subsidiary prior to the date on which such Restricted
     Subsidiary was acquired by us (other than Indebtedness Incurred as
     consideration in, or to provide all or any portion of the funds or credit
     support utilized to consummate, the transaction or series of related
     transactions pursuant to which such Restricted Subsidiary became a
     Restricted Subsidiary or was acquired by us) and outstanding on such date;

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          (3)  any encumbrance or restriction with respect to a Restricted
     Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness
     Incurred pursuant to an agreement referred to in clause (1) or (2) of this
     covenant or this clause (3) or contained in any amendment to an agreement
     referred to in clause (1) or (2) of this covenant or this clause (3);
     provided, however, that the encumbrances and restrictions contained in any
     such refinancing agreement or amendment are no less favorable to the
     Holders of the Notes taken as a whole than the original encumbrances and
     restrictions contained in such agreements;

          (4)  in the case of clause (iii) above, any encumbrance or restriction
     (A) that restricts in a customary manner the subletting, assignment or
     transfer of any property or asset that is subject to a lease, license or
     similar contract, (B) by virtue of any transfer of, agreement to transfer,
     option or right with respect to, any of our property or assets or any
     Restricted Subsidiary not otherwise prohibited by the indenture, (C)
     contained in security agreements securing Indebtedness of a Restricted
     Subsidiary to the extent such encumbrance or restrictions restrict the
     transfer of the property subject to such security agreements and (D)
     ordinary course provisions restricting the assignability of contracts;

          (5)  any restriction with respect to us or a Restricted Subsidiary
     imposed pursuant to an agreement entered into for the sale or disposition
     of all or substantially all the Capital Stock or our assets or the assets
     of such Restricted Subsidiary pending the closing of such sale or
     disposition;

          (6)  restrictions created in connection with a Qualified Receivables
     Transaction that, in the good faith determination of the Board of
     Directors, are necessary to effect such Qualified Receivables Transaction;
     provided that such restrictions apply only to such Receivables Entity; and

          (7)  any restriction by operation of applicable law.

     Limitation on Sales of Assets.   (a) We will not, and will not permit any
Restricted Subsidiary to, make any Asset Disposition unless (i) we or such
Restricted Subsidiary receive consideration (including by way of relief from, or
by any other Person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of such Asset Disposition at least equal to
the fair market value of the shares and assets subject to such Asset Disposition
(as determined in good faith by our management, or if such Asset Disposition
involves consideration in excess of $20.0 million, by a resolution of the Board
of Directors set forth in an Officers' Certificate delivered to the Trustee),
(ii) at least 75% of the consideration received by us or such Restricted
Subsidiary is in the form of cash and/or Cash Equivalents (except such
requirement of cash and/or Cash Equivalents shall not apply to any property,
plant, equipment or other facility closed and designated as unused, idle or
obsolete by either Senior Management or by resolution of the Board of Directors,
and in either case set forth in an Officers' Certificate delivered to the
Trustee) and (iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by us (or such Restricted Subsidiary, as the case
may be) as follows:

          (A)  first, to the extent we or such Restricted Subsidiary elects (or
     is required by the terms of any Indebtedness), to prepay, repay or purchase
     Indebtedness (other than

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     Disqualified Stock or Subordinated Indebtedness) (and to correspondingly
     reduce commitments with respect thereto) within 365 days after the date of
     such Asset Disposition; (B) second, to the extent of the balance of Net
     Available Cash after application in accordance with clause (A), to the
     extent we or such Restricted Subsidiary elects, to reinvest in Additional
     Assets (including by means of an Investment in Additional Assets by a
     Restricted Subsidiary with Net Available Cash received by us or another
     Restricted Subsidiary) within 365 days from the date of such Asset
     Disposition; (C) third, to the extent of the balance of such Net Available
     Cash after application in accordance with clauses (A) and (B), to make an
     offer to purchase Notes and Pari Passu Indebtedness with similar asset sale
     provisions, pro rata at 100% of the tendered principal amount thereof (or
     100% of the accreted value of such other Pari Passu Indebtedness so
     tendered, if such Pari Passu Indebtedness was offered at a discount) plus
     accrued and unpaid interest, if any, thereon to the purchase date and (D)
     fourth, to the extent of the balance of such Net Available Cash after
     application in accordance with clauses (A), (B) and (C) above, to fund (to
     the extent consistent with any other applicable provision of the indenture
     or the 1998 Indenture) any corporate purpose; provided, however, that in
     connection with any prepayment, repayment or purchase of Indebtedness
     pursuant to clause (A) or (C) above, we or such Restricted Subsidiary will
     retire such Indebtedness and will cause the related loan commitment (if
     any) to be permanently reduced in an amount equal to the principal amount
     so prepaid, repaid or purchased. Notwithstanding the foregoing provisions
     of this covenant, we and the Restricted Subsidiaries shall not be required
     to apply any Net Available Cash in accordance with this covenant except to
     the extent that the aggregate Net Available Cash from all Asset
     Dispositions that is not yet applied in accordance with this covenant
     exceeds $10.0 million.

     For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of our Indebtedness (other than our Disqualified Stock or
Subordinated Indebtedness) or any Restricted Subsidiary and our release or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Disposition and (y) securities received by us or any Restricted
Subsidiary from the transferee that are converted within 30 days by us or such
Restricted Subsidiary into cash. Upon the completion of the application of the
Net Available Cash from any Asset Disposition pursuant to this paragraph (a)
above, the amount of Net Available Cash attributable to such Asset Disposition
shall be deemed to be zero.

     (b)  In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(C), we will be required to apply such Excess
Proceeds (as defined below) to the repayment of the Notes and any other Pari
Passu Indebtedness outstanding with similar provisions requiring us to make an
offer to purchase such Indebtedness with the proceeds from any Asset Disposition
as follows: (A) we will make an offer to purchase (an "Offer") within ten days
of such time from all holders of the Notes in accordance with the procedures set
forth in the indenture in the maximum principal amount (expressed as a multiple
of $1,000) of Notes that may be purchased out of an amount (the "Note Amount")
equal to the product of such Excess Proceeds multiplied by a fraction, the
numerator of which is the outstanding principal amount of the Notes and the
denominator of which is the sum of the outstanding principal amount of the Notes
and such Pari Passu Indebtedness and (B) to the extent required by such Pari
Passu Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, we will make an offer to purchase or otherwise repurchase or
redeem Pari Passu Indebtedness (a

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"Pari Passu Offer") in an amount equal to the excess of the Excess Proceeds
over the Note Amount at a purchase price of 100% of their principal amount plus
accrued and unpaid interest (or 100% of the accreted value of such Pari Passu
Indebtedness, if such Pari Passu Indebtedness was offered at a discount) to the
purchase date in accordance with the procedures (including prorating in the
event of oversubscription) set forth in the indenture with respect to the Offer
and in the documentation governing such Pari Passu Indebtedness with respect to
the Pari Passu Offer. If the aggregate purchase price of the Notes tendered
pursuant to the Offer and Pari Passu Offer is less than the Excess Proceeds, the
remaining Excess Proceeds will be available to us for use in accordance with
clause (a)(iii)(D) above. We shall not be required to make an Offer for Notes
pursuant to this covenant if the Net Available Cash available therefor (after
application of the proceeds as provided in clauses (a)(iii)(A) and (a)(iii)(B)
above) ("Excess Proceeds") is less than $10.0 million (which lesser amounts
shall be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).

     (c)  We will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, we will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
this paragraph (c) by virtue of the applicable securities laws and regulations.

     Limitation on Transactions with Affiliates.   (a) We will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
conduct any transaction or series of transactions (including the purchase, sale,
lease or exchange of any property or assets or the rendering of any service or
the making of any Investment) with any Affiliate of ours (an "Affiliate
Transaction") on terms (i) that are less favorable to us or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's length dealings with a Person who is not an Affiliate
and (ii) that, in the event such Affiliate Transaction involves an aggregate
amount in excess of $10.0 million, are not in writing and have not been approved
or negotiated and entered into on behalf of us or such Restricted Subsidiary by
Senior Management acting pursuant to authorizing resolutions adopted by a
majority of the members of the Board of Directors or by a majority of the
members of the Board of Directors having no personal stake in such Affiliate
Transaction (and such majority or majorities, as the case may be, determines
that such Affiliate Transaction satisfies the criteria in (i) above). In
addition, any Affiliate Transaction involving aggregate payments or other
transfers by us and our Restricted Subsidiaries in excess of $20.0 million will
also require an opinion from an independent investment banking firm or
appraiser, as appropriate, of national prominence, to the effect that the terms
of such transaction are either (i) no less favorable to us or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's length dealings with a Person who is not an Affiliate
or (ii) fair to us or such Restricted Subsidiary, as the case may be, from a
financial point of view.

     (b)  The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment or Permitted Investment permitted to be paid pursuant to
the covenant described under "--Limitation on Restricted Payments," (ii) the
performance of our or Restricted Subsidiary's

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obligations under any collective bargaining agreement, employee benefit plan,
related trust agreement or any other similar arrangement heretofore or hereafter
entered into in the ordinary course of business, (iii) payment of reasonable
fees and compensation to employees, officers or directors as determined in good
faith by our Board of Directors or Senior Management (including indemnification
to the fullest extent permitted by applicable law, directors' and officers'
insurance and similar arrangements, employment contracts, non-competition and
confidentiality agreements and similar instruments or payments) entered into in
the ordinary course of business, (iv) maintenance in the ordinary course of
business of reasonable benefit programs or arrangements for employees, officers
or directors, including vacation plans, health and life insurance plans, SERPs,
split-dollar life insurance plans, deferred compensation plans, and retirement
or savings plans and similar plans as determined in good faith by our Board of
Directors or Senior Management, (v) any transaction between us and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries, (vi) transactions
effected as part of a Qualified Receivables Transaction, (vii) any issuance by
us of Capital Stock (other than Disqualified Stock) or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans to the extent
reasonable, as determined in good faith by our Board of Directors in the
ordinary course of business, and loans or advances to employees in the ordinary
course of our business or our Restricted Subsidiaries consistent with past
practices, (viii) transactions with customers, suppliers, or purchasers or
sellers of goods or services, in each case, in the ordinary course of business
and otherwise in compliance with the terms of the indenture which are fair to us
or the Restricted Subsidiaries or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated third party, in
the reasonable determination of our Board of Directors or Senior Management, and
(ix) any agreement as in effect on the 1998 Issue Date or any amendment to any
such agreement (so long as any such amendment is not disadvantageous to the
holders of the Notes in any material respect).

     Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries.  We (i) will not, and will not permit any Restricted Subsidiary
to, transfer, convey, lease, sell or otherwise dispose of any shares of Capital
Stock of a Restricted Subsidiary to any Person (other than to us or a Wholly
Owned Subsidiary), and (ii) will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock (other than
directors' qualifying shares) to any Person (other than to us or a Wholly Owned
Subsidiary); provided, however, that (i) we are permitted to sell all the
Capital Stock of a Restricted Subsidiary as long as we are in compliance with
the terms of the covenant described under "--Limitation on Sales of Assets"
and (ii) we are permitted to sell less than all of the Capital Stock of a
Restricted Subsidiary if (A) immediately after giving effect to such sale such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any
Investment in such Person remaining after giving effect to such sale would have
been permitted to be made under "--Limitation on Restricted Payments" covenant
if made on the date of such issuance or sale and (B) we are in compliance with
the terms of the covenant described under "--Limitation on Sales of Assets."

     Limitation on Liens.  We will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
suffer to exist any Lien (other than Permitted Liens) that secures obligations
under any Indebtedness on any of our assets or property or such Restricted
Subsidiary, including any Guarantee of such Restricted Subsidiary, or any income
or

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profits from any such asset or property, or assign or convey any right to
receive income from any such asset or property, unless the Notes are equally and
ratably secured with the obligations so secured (or senior to, in the event the
Lien relates to Subordinated Indebtedness) or until such time as such
obligations are no longer secured by a Lien.

     The indenture will provide that no Subsidiary Guarantor will directly or
indirectly create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) that secures obligations under any Indebtedness of such
Subsidiary Guarantor on any asset or property of such Subsidiary Guarantor or
any income or profits from any such asset or property, or assign or convey any
right to receive income from any such asset or property, unless the Subsidiary
Guarantee of such Subsidiary Guarantor is equally and ratably secured with the
obligations so secured (or senior to, in the event the Lien relates to Guarantor
Subordinated Indebtedness) or until such time as such obligations are no longer
secured by a Lien.

     Notwithstanding the foregoing, Liens on assets transferred to a Receivables
Entity or on assets of a Receivables Entity incurred in connection with a
Qualified Receivables Transaction will not require such equal and ratable
security.

     SEC Reports.   Notwithstanding that we may not remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, we will file
(if then permitted to do so) with the SEC and provide (whether or not so filed
with the SEC) the Trustee and Noteholders and prospective Noteholders (upon
request) within 15 days of the date of filing with the SEC or, if not filed, on
the date that such reports would be required to be filed with the SEC if we were
a reporting company, with the annual reports and the information, documents and
other reports, which are specified in Sections 13 and 15(d) of the Exchange Act;
provided, however, that we shall provide one copy of the exhibits of the
foregoing to the Trustee and shall (upon request) provide additional copies of
such exhibits to any Noteholder or prospective Noteholder. We also will comply
with the other provisions of (S)314(a) of the Trust Indenture Act.

     Future Subsidiary Guarantors.   (a) The indenture will provide that we will
not permit any Restricted Subsidiary to Guarantee the payment of any of our
Indebtedness or any Indebtedness of any other Restricted Subsidiary unless (i)
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the indenture providing for a Guarantee of payment of the Notes by
such Restricted Subsidiary (a "Subsidiary Guarantee") except that with respect
to a guarantee of our Indebtedness if such Indebtedness is by its express terms
subordinated in right of payment to the Notes, any such Guarantee of such
Restricted Subsidiary with respect to such Indebtedness shall be subordinated in
right of payment to such Restricted Subsidiary's Subsidiary Guarantee with
respect to the Notes substantially to the same extent as such Indebtedness is
subordinated to the Notes; (ii) such Restricted Subsidiary waives and will not
in any manner whatsoever claim or take the benefit or advantage of, any rights
of reimbursement, indemnity or subrogation or any other rights against us or any
other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; and (iii) such Restricted Subsidiary
shall deliver to the Trustee an Opinion of Counsel to the effect that (A) such
Subsidiary Guarantee has been duly executed and authorized and (B) such
Subsidiary Guarantee constitutes a valid, binding and enforceable obligation of
such Restricted Subsidiary, except insofar as enforcement of the obligation may
be limited by bankruptcy, insolvency or

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similar laws (including, without limitation, all laws relating to fraudulent
transfers) and except insofar as enforcement of the obligation is subject to
general principles of equity; provided that this paragraph (a) shall not become
applicable to any Guarantee of any Restricted Subsidiary (x) that (A) existed at
the time such Person became a Restricted Subsidiary of ours and (B) was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary of ours or (y) that Guarantees the payment of our
obligations or any Restricted Subsidiary under the Revolving Credit Facility or
the Senior Secured Notes or Indebtedness with similar terms (other than interest
rates and maturity), provisions and covenants as the Senior Secured Notes and
such Indebtedness is secured by a Lien Incurred exclusively under clause (18) of
the definition of Permitted Liens and the principal amount of such Indebtedness
in the aggregate does not exceed 15% of Total Assets and any refunding,
refinancing or replacement of Total Assets, in whole or in part; provided that
such Indebtedness incurred under this clause (y) and any refunding, refinancing
or replacement (1) does not constitute Subordinated Indebtedness and (2) is not
incurred pursuant to a registered offering of securities under the Securities
Act or a private placement of securities (including under Rule 144A) pursuant to
an exemption from the registration requirements of the Securities Act, which
private placement provides for registration rights under the Securities Act (any
guarantee excluded by operations of this clause (2) being an "Excluded
Guarantee").

     (b)  Notwithstanding the foregoing and the other provisions of the
indenture, any Subsidiary Guarantee by a Restricted Subsidiary shall provide by
its terms that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of ours, of all of our Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the indenture), (ii) the release or discharge of the guarantee
which resulted in the creation of such Note Guarantee, except a discharge or
release by or as a result of payment under such guarantee or (iii) such
Restricted Subsidiary is designated an Unrestricted Subsidiary of ours in
accordance with the terms of the indenture by our Board of Directors.

     Limitation on Lines of Business.   We will not, and will not permit any
Restricted Subsidiary to, engage in any business other than a Related Business.


Effectiveness of Covenants

     The covenants described under "--Limitation on Indebtedness," "--
Limitation on Restricted Payments," "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries," "--Limitation on Sales of
Assets," "--Limitation on Transactions with Affiliates," "--Limitation on
the Sale or Issuance of Capital Stock of Restricted Subsidiaries," "--SEC
Reports," "--Future Subsidiary Guarantors" and "--Limitation on Lines of
Business" (the "Suspended Covenants") will no longer be in effect upon our
reaching Investment Grade Status.

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Merger and Consolidation

     We will not, in a single transaction or series of related transactions,
consolidate with or merge with or into, or convey, transfer, lease or otherwise
dispose of all or substantially all its assets to, any Person nor permit any
Person to merge with or into us, unless: (i) the resulting, surviving or
transferee Person (the "Successor Company") will be a Person organized and
existing under the laws of the United States of America, any State of the United
States of America or the District of Columbia and the Successor Company (if not
us) will expressly assume, by a supplemental indenture, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of ours
under the Notes and the indenture; (ii) immediately before and after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the Successor Company or any Restricted Subsidiary as a result of
such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default or Event of
Default will have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company would be able to Incur an
additional $1.00 of Indebtedness under paragraph (a) of the covenant described
under "--Limitation on Indebtedness"; (iv) each Subsidiary Guarantor (unless
it is the other party to the transactions above, in which case clause (i) shall
apply) shall have by supplemental indenture confirmed that its Subsidiary
Guarantee shall apply to such Person's obligations in respect of the indenture
and the Notes; and (v) we will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
indenture. For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transactions or series of transactions) of all or
substantially all of the properties and assets of one or more of our
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
our properties and assets, shall be deemed to be the transfer of all or
substantially all of our properties and assets.

     Subject to paragraph (b) of "--Future Subsidiary Guarantors," each
Subsidiary Guarantor will not, in a single transaction or series of related
transactions, consolidate with or merge with or into, or convey, transfer, lease
or otherwise dispose of all or substantially all its assets to, any Person nor
permit any Person to merge with or into such Subsidiary Guarantor, unless, (i)
the resulting, surviving or transferee Person (the "Successor Guarantor") will
be a Person organized and existing under the laws of the United States of
America, any State of the United States of America or the District of Columbia
and the Successor Guarantor (if not the Subsidiary Guarantor) will expressly
assume in writing all the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee; (ii) immediately before and after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Guarantor or any Restricted Subsidiary as a result of such transaction
as having been Incurred by the Successor Guarantor or such Restricted Subsidiary
at the time of such transaction), no Default or Event of Default will have
occurred and be continuing; (iii) immediately after giving effect to such
transaction, we would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "--Limitation on Indebtedness";
(iv) each other Subsidiary Guarantor shall have delivered a written instrument
in form and substance satisfactory to the Trustee confirming its Subsidiary
Guarantee; and (v) we will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such

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consolidation, merger or transfer and such assumption of the Subsidiary
Guarantee, if applicable, comply with the indenture. For purposes of the
foregoing, the transfer (by lease, assignment, sale or otherwise, in a single
transaction or series of transactions) of all or substantially all of the
properties and assets of one or more Subsidiaries of such Subsidiary Guarantor,
the Capital Stock of which constitutes all or substantially of all of the
properties and assets of such Subsidiary Guarantor, shall be deemed to be the
transfer of all or substantially all of the properties and assets of such
Subsidiary Guarantor.

     The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, ours under the indenture, but we, as the
predecessor company, in the case of a conveyance, transfer or lease of all or
substantially all our assets will not be released from the obligation to pay the
principal of and interest on the Notes. Solely for the purpose of computing
amounts described in clause 3(A) of "--Limitation on Restricted Payments," the
Successor Company shall only be deemed to have succeeded and be substituted for
us with respect to periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets.

     Notwithstanding the foregoing clauses (ii) and (iii) of the first paragraph
of this covenant, (1) any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to us and (2) we may merge
with an Affiliate incorporated exclusively for the purpose of reincorporating us
in another jurisdiction to realize tax or other benefits.


Defaults

     An Event of Default is defined in the indenture as (i) a default in the
payment of principal of or premium, if any, on any Note when due at its Stated
Maturity, upon required repurchase, upon declaration or otherwise, (ii) a
default in any payment of interest on any Note when due, continued for 30 days,
(iii) the failure by us or any Subsidiary Guarantor to comply with our or its
obligations under the covenant described under "--Merger and Consolidation"
above, (iv) the failure by us to comply for 30 days after notice with any of our
obligations under the covenants described under "--Change of Control" or "--
Certain Covenants" above (in each case, other than a failure to purchase
Notes), (v) a default by us in the performance of or a breach by us of any other
covenant or agreement of ours in the indenture or under the Notes and such
default continues for a period of 60 consecutive days after receipt by us of
notice of such default or breach, (vi) the failure by any Subsidiary Guarantor
that is a Significant Subsidiary (if any) to comply with its obligations under
any Subsidiary Guarantee to which such Subsidiary Guarantor is a party, after
any applicable grace period, (vii) the failure by us or any Significant
Subsidiary to pay any Indebtedness within any applicable grace period after
final maturity or the acceleration of any such Indebtedness by the holders of
any such Indebtedness if the total amount of such Indebtedness unpaid or
accelerated exceeds $25.0 million or its foreign currency equivalent (the
"cross acceleration provision"), (viii) certain events of bankruptcy,
insolvency or reorganization, whether voluntary or involuntary, of us or a
Significant Subsidiary (the "bankruptcy provisions"), (ix) the rendering of
any judgment or decree for the payment of money in excess of $25.0 million or
its foreign currency equivalent in the aggregate for all such final judgments or
orders against us or a Significant Subsidiary if (A) an enforcement proceeding

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thereon is commenced and not discharged within ten days or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment or
decree and is not discharged, waived, stayed or bonded (the "judgment default
provision"), or (x) the failure of any Subsidiary Guarantee by a Subsidiary
Guarantor (if any) which is a Significant Subsidiary to be in full force and
effect (except as contemplated by the terms of the Subsidiary Guarantee) or the
denial or disaffirmation by any such Subsidiary Guarantor of its obligations
under any Subsidiary Guarantee if such Default continues for 30 days.

     The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.

     However, a Default under clause (iv) or (v) will not constitute an Event of
Default until the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes notify us of the Default and we do not cure such Default
within the time specified in clauses (iv) and (v) after receipt of such notice.

     If an Event of Default (other than a Default relating to certain events of
bankruptcy, insolvency or reorganization of us or a Significant Subsidiary)
occurs and is continuing, the Trustee by notice to us, or the Holders of at
least 25% in aggregate principal amount of the outstanding Notes by notice to us
and the Trustee, may, and the Trustee at the request of such Holders shall,
declare the principal of, premium, if any, and accrued but unpaid interest on
all the Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. In the event of a declaration of
acceleration because an Event of Default set forth in clause (vii) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default or payment default
triggering such Event of Default pursuant to clause (vii) shall be remedied or
cured by us and/or the relevant Significant Subsidiaries or waived by the
holders of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of us or a Significant
Subsidiary occurs and is continuing, the principal of, premium, if any, and
interest on all the Notes will become immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. The Holders
of a majority in principal amount of the outstanding Notes may waive all past
defaults (except with respect to nonpayment of principal, premium or interest)
and rescind any such acceleration with respect to the Notes and its consequences
if (i) all existing Events of Default, other than the nonpayment of the
principal of, premium, if any, and interest on the Notes that have become due
solely by such declaration of acceleration, have been cured or waived and (ii)
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction.

     Subject to the provisions of the indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if

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any) or interest when due, no Holder may pursue any remedy with respect to the
indenture or the Notes unless (i) such Holder has previously given the Trustee
notice that an Event of Default is continuing, (ii) Holders of at least 25% in
principal amount of the outstanding Notes have requested the Trustee to pursue
the remedy, (iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt of the request and
the offer of security or indemnity and (v) the Holders of a majority in
principal amount of the outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 60-day period. Subject to certain
restrictions, the Holders of a majority in principal amount of the outstanding
Notes are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that would
involve the Trustee in personal liability. Prior to taking any action under the
indenture, the Trustee will be entitled to indemnification satisfactory to it in
its sole discretion against all losses and expenses caused by taking or not
taking such action.

     The indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium (if any) or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, we are required to deliver to the Trustee, within 120 days after
the end of each fiscal year, a certificate indicating whether the signers of the
certificate know of any Default that occurred during the previous year. We also
are required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action we are taking or proposes to take in respect of
those Defaults.


Defeasance

     We may, at our option and at any time, elect to have our obligations and
the obligations of the Subsidiary Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that we
shall be deemed to have paid and discharged the entire indebtedness represented
by the outstanding Notes, except for (i) the rights of holders of the Notes to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) our obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payments, (iii) the rights, powers, trust, duties and immunities of the Trustee
and our related obligations and (iv) the Legal Defeasance provisions of the
indenture. In addition, we may, at our option and at any time, elect to have our
obligations released with respect to certain covenants that are described in the
indenture ("Covenant Defeasance") and, after such an election is made, any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the Notes.

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  We may exercise our Legal Defeasance option notwithstanding our prior exercise
of our Covenant Defeasance option. If we exercise our Legal Defeasance option,
payment of the Notes may not be accelerated because of an Event of Default with
respect thereto. If we exercise our Covenant Defeasance option, payment of the
Notes may not be accelerated because of an Event of Default specified in clause
(iv), (v), (vi), (vii), (viii) (with respect to Significant Subsidiaries), (ix)
or (x) under "Events of Default" above or because of the failure of us to
comply with clause (iii) or (iv) under "Certain Covenants--Merger and
Consolidation" above.

  In order to exercise either Legal Defeasance or Covenant Defeasance, (i) we
must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Notes cash in U.S. dollars, non-callable U.S. Government
Obligations, or a combination of both, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the Notes on the
stated date for payment of the Notes or on the applicable redemption date, as
the case may be; (ii) in the case of Legal Defeasance, we shall have delivered
to the Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) we have received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, we shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the holders of the Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default with respect to the indenture resulting from the incurrence of
Indebtedness, all or a portion of which will be used to defease the Notes
concurrently with such incurrence); (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under the indenture or any other material agreement or instrument to which we or
any of our Subsidiaries are a party or by which we or any of our Subsidiaries
are bound; (vi) we shall have delivered to the Trustee an opinion of counsel to
the effect that (A) the Notes and (B) assuming no intervening bankruptcy of us
between the date of deposit and the 91st day following the deposit and that no
Holder of the Notes is an insider of ours, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; and (vii) certain other customary conditions precedent are
satisfied.


Amendments and Waivers

  Subject to certain exceptions, the indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
and any past default (other than

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with respect to nonpayment) or compliance with any provisions may be waived with
the consent of the Holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each Holder of an affected
outstanding Note, no amendment may, among other things, (i) reduce the principal
amount of Notes whose Holders must consent to an amendment, (ii) reduce the rate
of or extend the time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon repurchase or change the time at which any Note may be repurchased
under "Change of Control" and "Limitations on Sales of Assets," (v) make any
Note payable in money other than that stated in the Note, (vi) impair the right
of any Holder to receive payment of principal of and interest on such Holder's
Notes on or after the due dates for the payments or to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes, (vii)
release any Subsidiary Guarantor (if any) from any of its obligations under its
Subsidiary Guarantee or the indenture, except in compliance with the terms of
the Subsidiary Guarantee or the indenture, as applicable, or (viii) make any
change in the amendment provisions which require each Holder's consent or in the
waiver provisions.

  Without the consent of any Holder, we and the Trustee may amend the indenture
to (i) cure any ambiguity, omission, defect or inconsistency, (ii) to provide
for the assumption by a successor corporation of our obligations under the
indenture, (iii) to provide for uncertificated Notes in addition to or in place
of certificated Notes (provided, however, that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), (iv) to add Guarantees with respect to the Notes or release a
Subsidiary Guarantor upon its designation as an Unrestricted Subsidiary;
provided, however, that the designation is in accordance with the applicable
provision of the indenture, (v) to secure the Notes, (vi) to add to our
covenants for the benefit of the Noteholders or to surrender any right or power
conferred upon us and (vii) to make any change that does not adversely affect
the rights of any Holder or to comply with any requirement of the SEC in
connection with the qualification of the indenture under the Trust Indenture
Act.

  The consent of the Noteholders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment. After an amendment under the
indenture becomes effective, we are required to mail to Noteholders a notice
briefly describing such amendment. However, the failure to give such notice to
all Noteholders, or any defect in the indenture, will not impair or affect the
validity of the amendment.


No Personal Liability of Incorporators, Shareholders, Officers, Directors, or
Employees

  The indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based on the
indenture or otherwise in respect of the indenture, and no recourse under or
upon any obligation, covenant or agreement of us in the indenture, or in any of
the Notes or because of the creation of any Indebtedness represented by the
Notes, shall be had against any incorporator, shareholder, officer, director,
employee or controlling person of us or of any successor Person thereof. Each
Holder, by accepting the Notes,

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waives and releases all such liability. Such waiver and release are not intended
to affect the rights of Holders under the federal securities laws.


Concerning the Trustee

  SunTrust Bank is the Trustee under the indenture and has been appointed by us
as registrar and paying agent with regard to the Notes. SunTrust Bank also
serves as the trustee under the indenture relating to our 1998 Notes.

  The indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such indenture. If an Event of Default has occurred
and is continuing, the Trustee is to use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.

  The indenture and provisions of the Trust Indenture Act, incorporated by
reference in the indenture contain limitations on the rights of the Trustee,
should it become our creditor, to obtain payment of claims in certain cases or
to realize on certain property received by it in respect of any such claims, as
security or otherwise. The Trustee is permitted to engage in other transactions;
provided, however, that if it acquires any conflicting interest, it must
eliminate such conflict or resign.


Governing Law

  The indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York.


Certain Definitions

  "1998 Indenture" means the indenture, dated as of February 9, 1998, between us
and the Trustee.

  "1998 Issue Date" means February 9, 1998.

  "1998 Notes" means our 7?% Senior Subordinated Notes due 2008.

  "Acquired Indebtedness" means Indebtedness (i) of a Person or any of our
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
(ii) assumed in connection with the acquisition of assets from such Person, in
each case whether or not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
of us or such acquisition. Acquired Indebtedness shall be deemed to have been
incurred, with respect to clause (i) of the preceding sentence, on the date such
Person

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becomes a Restricted Subsidiary and, with respect to clause (ii) of the
preceding sentence, on the date of consummation of such acquisition of assets.

  "Additional Assets" means (i) any property or assets (other than Indebtedness
and Capital Stock) to be used by us or a Restricted Subsidiary in a Related
Business; (ii) the Capital Stock of a Person that becomes a Restricted
Subsidiary as a result of the acquisition of such Capital Stock by us or another
Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest
in any Person that at such time is or will thereupon become a Restricted
Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.

  "Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person, (ii) any Person who is a director or officer
(a) of such Person, (b) of any Subsidiary of such Person or (c) of any Person
described in clause (i) above and (iii) any beneficial owner of shares
representing 5% or more of the total voting power of the Voting Stock (on a
fully diluted basis) or of rights or warrants to purchase our Voting Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to clauses (i) and (ii). For the purposes
of this definition, "control" when used with respect to any Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. Notwithstanding the foregoing, no Person (other
than us or any Subsidiary of ours) in whom a Receivables Entity makes an
Investment in connection with a Qualified Receivables Transaction shall be
deemed to be an Affiliate of ours or any of our Subsidiaries solely by reason of
such Investment.

  "Asset Disposition" means any sale, lease, transfer or other issuance or
disposition (or series of related sales, leases, transfers, issuance or
dispositions that are part of a common plan) of shares of Capital Stock of a
Subsidiary (other than directors' qualifying shares), property or other assets
(each referred to for the purposes of this definition as a "disposition") by
us or any of our Restricted Subsidiaries (including any disposition by means of
a sale and leaseback, merger, consolidation or similar transaction, but
excluding any disposition by means of any pledge of assets or stock by us or any
of our Subsidiaries otherwise permitted under the indenture, and any transaction
or series of related transactions from which we or any of our Subsidiaries
receive an aggregate consideration of less than $500,000) other than (i) a
disposition by a Restricted Subsidiary to us or by us or a Restricted Subsidiary
to a Wholly Owned Subsidiary, (ii) a disposition of assets held for resale in
the ordinary course of business, (iii) the sale of Temporary Cash Investments in
the ordinary course of business, (iv) the sale or other disposition of damaged,
worn, unneeded or obsolete equipment in the ordinary course of business, (v) for
purposes of the covenant described under "--Limitation on Sales of Assets"
only, a disposition subject to the covenant described under "--Limitation on
Restricted Payments," (vi) the sale of other assets so long as the fair market
value of the assets disposed of pursuant to this clause (vi) does not exceed
$2.0 million in the aggregate in any fiscal year and $10.0 million in the
aggregate prior to October 15, 2009, (vii) any disposition of assets pursuant to
and in accordance with the provisions described under "Merger and
Consolidation" and/or

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"Change of Control", (viii) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, to the extent that the consideration received would constitute
Additional Assets or an Investment in a Permitted Joint Venture that in each
case complies with the "--Limitation on Restricted Payments" covenant and (ix)
sales of accounts receivable and related assets of the type specified in the
definition of "Qualified Receivables Transaction" to a Receivables Entity for
its fair market value, including cash in an amount at least equal to 75% of its
book value as determined in accordance with GAAP.

  "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).

  "Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.

  "Bank Indebtedness" means any and all amounts payable under or in respect of
the Revolving Credit Facility and any Refinancing Indebtedness with respect to
the foregoing, as amended from time to time, including principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to us whether or not a
claim for postfiling interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof (including, without limitation, cash
collateralization of letters of credit).

  "Board of Directors" means our Board of Directors or any committee of our
Board of Directors duly authorized to act on behalf of our Board of Directors
with respect to the relevant matter.

  "Borrowing Base" means, as of the date of determination, an amount equal to
the sum, without duplication, of (i) 75% of the net book value of our and our
Restricted Subsidiaries' accounts receivable at such date and (ii) 75% of the
net book value of our and our Restricted Subsidiaries' inventories at such date.
Net book value shall be determined in accordance with GAAP and shall be that
reflected on the most recent available balance sheet (it being understood that
the accounts receivable and inventories of an acquired business may be included
if such acquisition has been completed on or prior to the date of
determination).

  "Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to close
in New York City or Atlanta, Georgia.

  "Capital Stock" of any Person means (i) with respect to any Person that is a
corporation, any and all shares, interests, rights to purchase, warrants,
options, participations or other

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equivalents of or interests in (however designated) equity of such Person,
including any Preferred Stock, and (ii) with respect to any Person that is not a
corporation, any and all partnership or other equity interests of such Person
but in each case excluding any debt securities convertible into such equity.

  "Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity of such obligation shall be the
date of the last payment of rent or any other amount due under such lease.

  "Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality of the United States government, (ii) certificates of deposit,
time deposits and eurodollar time deposits with maturities of one year or less
from the date of acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any commercial bank
having capital and surplus in excess of $500.0 million and the commercial paper
of the holding company of which is rated at least "A-1" or the equivalent of
"A-1" by S&P or "P-1" or the equivalent of "P-1" by Moody's, (iii)
repurchase obligations for underlying securities of the types described in
clauses (i) and (ii) entered into with any financial institution meeting the
qualifications specified in clause (ii) above, (iv) commercial paper rated "A-
1" or the equivalent of  "A-1" by S&P or "P-1" or the equivalent of "P-1"
by Moody's and in each case maturing within one year after the date of
acquisition of the commercial paper, (v) investment funds investing 95% of their
assets in securities of the type described in clauses (i)-(iv) above.

  "Code" means the Internal Revenue Code of 1986, as amended.

  "Consolidated Coverage Ratio" as of any date of determination means the ratio
of (i) the aggregate amount our EBITDA and our Restricted Subsidiaries for the
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination for which our consolidated financial statements are
available to (ii) our Consolidated Interest Expense and our Restricted
Subsidiaries for such four consecutive fiscal quarters; provided, however, that:

     (1) if we or any Restricted Subsidiary have Incurred any Indebtedness since
  the beginning of such period that remains outstanding on such date of
  determination or if the transaction giving rise to the need to calculate the
  Consolidated Coverage Ratio is an Incurrence of Indebtedness, EBITDA and
  Consolidated Interest Expense for such period shall be calculated after giving
  effect on a pro forma basis to such Indebtedness as if such Indebtedness had
  been Incurred on the first day of such period and the discharge of any other
  Indebtedness repaid, repurchased, defeased or otherwise discharged with the
  proceeds of such new Indebtedness as if such discharge had occurred on the
  first day of such period,

     (2) if since the beginning of such period we or any Restricted Subsidiary
  shall have made any Asset Disposition, the EBITDA for such period shall be
  reduced by an amount equal to the EBITDA (if positive) directly attributable
  to the assets that are the subject of such Asset Disposition for such period
  or increased by an amount equal to the EBITDA (if

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  negative) directly attributable thereto for such period and Consolidated
  Interest Expense for such period shall be reduced by an amount equal to the
  Consolidated Interest Expense directly attributable to any of our Indebtedness
  or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
  discharged (to the extent the related commitment is permanently reduced) with
  respect to us and our continuing Restricted Subsidiaries in connection with
  such Asset Disposition for such period (or, if the Capital Stock of any
  Restricted Subsidiary is sold, the Consolidated Interest Expense for such
  period directly attributable to the Indebtedness of such Restricted Subsidiary
  to the extent we and our continuing Restricted Subsidiaries are no longer
  liable for such Indebtedness after such sale),

     (3) if since the beginning of such period we or any Restricted Subsidiary
  (by merger or otherwise) shall have made an Investment in any Restricted
  Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
  acquisition of assets, including any Investment in a Restricted Subsidiary or
  any acquisition of assets occurring in connection with a transaction causing a
  calculation to be made hereunder, which constitutes all or substantially all
  of an operating unit of a business, EBITDA and Consolidated Interest Expense
  for such period shall be calculated after giving pro forma effect thereto
  (including the Incurrence of any Indebtedness and including the pro forma
  expenses and cost reductions calculated on a basis consistent with Regulation
  S-X of the Securities Act) as if such Investment or acquisition occurred on
  the first day of such period and without regard to clause (ii) of the
  definition of Consolidated Net Income, and

     (4) if since the beginning of such period any Person (that subsequently
  became a Restricted Subsidiary or was merged with or into us or any Restricted
  Subsidiary since the beginning of such period) shall have made any Asset
  Disposition or any Investment or acquisition of assets that would have
  required an adjustment pursuant to clause (2) or (3) above if made by us or a
  Restricted Subsidiary during such period, EBITDA and Consolidated Interest
  Expense for such period shall be calculated after giving pro forma effect
  thereto as if such Asset Disposition, Investment or acquisition of assets
  occurred on the first day of such period.

  For purposes of this definition, whenever pro forma effect is to be given
to a transaction, the pro forma calculations shall be determined in good faith
by a responsible financial or accounting Officer of ours. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term as at the date
of determination in excess of 12 months).

  "Consolidated Interest Expense" means, for any period, the total
consolidated cash and non-cash interest expense (excluding capitalized interest)
of us and our Restricted Subsidiaries, determined in accordance with GAAP, plus,
to the extent incurred by us and our Restricted Subsidiaries in such period but
not included in such interest expense, (i) interest expense attributable to
Capitalized Lease Obligations and imputed interest with respect to Attributable
Debt, (ii) amortization of debt discount and debt issuance cost (other than
those debt discounts and debt issuance costs incurred on the 1998 Issue Date or
the Issue Date), (iii) capitalized

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interest, (iv) non-cash interest expense, (v) commissions, discounts and other
fees and charges attributable to letters of credit and bankers' acceptance
financing, (vi) interest actually paid by us or any Restricted Subsidiary under
any Guarantee of Indebtedness or other obligation of any other Person, (vii) net
costs associated with Hedging Obligations (or minus net gains associated with
Hedging Obligations), (viii) the product of (A) Preferred Stock dividends in
respect of all Preferred Stock of Restricted Subsidiaries and Disqualified Stock
of ours held by Persons other than us or a Wholly Owned Subsidiary multiplied by
(B) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax rate
of ours, expressed as a decimal, in each case, determined on a consolidated
basis in accordance with GAAP; and (ix) the cash contributions to any employee
stock ownership plan or similar trust to the extent such contributions are used
by such plan or trust to pay interest or fees to any Person (other than us) in
connection with Indebtedness Incurred by such plan or trust. For purposes of the
foregoing, gross interest expense shall be determined after giving effect to any
net payments made or received by us and our Restricted Subsidiaries with respect
to Interest Rate Agreements.

  "Consolidated Net Income" means, for any period, without duplication, our
consolidated net income (loss) and our Restricted Subsidiaries; provided,
however, that there shall not be included in such Consolidated Net Income:

     (i) any net income (loss) of any Person if such Person is not a Restricted
  Subsidiary, except that (A) subject to the limitations contained in clause
  (iv) below, our equity in the net income of any such Person for such period
  shall be included in such Consolidated Net Income up to the aggregate amount
  of cash actually distributed by such Person during such period to us or a
  Restricted Subsidiary as a dividend or other distribution (subject, in the
  case of a dividend or other distribution to a Restricted Subsidiary, to the
  limitations contained in clause (iii) below) and (B) our equity in a net loss
  of any such Person for such period shall be included in determining such
  Consolidated Net Income,

     (ii) any net income (loss) of any Person acquired by us or a Restricted
  Subsidiary in a pooling of interests transaction for any period prior to the
  date of such acquisition,

     (iii) any net income (loss) of any Restricted Subsidiary if such Restricted
  Subsidiary is subject to restrictions, directly or indirectly, on the payment
  of dividends or the making of distributions by such Restricted Subsidiary,
  directly, or indirectly, to us, except that (A) subject to the limitations
  contained in (iv) below, our equity in the net income of any such Restricted
  Subsidiary for such period shall be included in such Consolidated Net Income
  up to the aggregate amount of cash distributed by such Restricted Subsidiary
  during such period to us or another Restricted Subsidiary as a dividend
  (subject, in the case of a dividend that could have been made to another
  Restricted Subsidiary, to the limitation contained in this clause) and (B) our
  equity in a net loss of any such Person for such period shall be included in
  determining such Consolidated Net Income,

     (iv) any gain (but not loss) realized upon the sale or other disposition of
  any asset of ours or our Restricted Subsidiaries (including pursuant to any
  Sale/Leaseback Transaction) that is

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<PAGE>

  not sold or otherwise disposed of in the ordinary course of business and any
  gain (but not loss) realized upon the sale or other disposition of any Capital
  Stock of any Person,

     (v)   any extraordinary gain or loss,

     (vi)  the cumulative effect of a change in accounting principles, and

     (vii) for purposes of clause (a)(3)(A) of "Limitation on Restricted
  Payments," amounts otherwise included in Consolidated Net Income that have the
  effect of reducing the aggregate amount of Investments under clause (viii) of
  the definition of Permitted Investments.

  "Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.

  "Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.

  "Disqualified Stock" means, with respect to any Person, any Capital Stock of
such Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable) or upon the
happening of any event (i) matures or is mandatorily redeemable pursuant to a
sinking fund obligation or otherwise, (ii) is convertible or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder of Capital Stock, in whole or in part, in each case on or prior to 123
days after the Stated Maturity of the Notes; provided that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders of Captial Stock the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in "--Limitation on Sales of
Assets" and "Change of Control" covenants contained in the indenture and the
1998 Indenture and the 1998 Indenture and such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock pursuant
to such provision prior to our repurchase of such Notes as are required to be
repurchased pursuant to the "--Limitation on Sales of Assets" and "Change of
Control" covenants.

  "EBITDA" means, for any period, the Consolidated Net Income for such period,
plus, without duplication and to the extent deducted in calculating such
Consolidated Net Income, (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v)
other non-cash charges or non-cash losses (other than non-cash charges to the
extent they represent an accrual of or reserve for cash charges in any future
period or amortization of a prepaid expense that was paid in a prior period),
less, without duplication, non-cash items increasing Consolidated Net Income of
such Person for such period (excluding any items which represent the reversal of
any accrual of, or cash reserve for, anticipated cash charges in any prior
period); provided, that if any Restricted Subsidiary is not

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directly or indirectly owned 100% by us, EBITDA shall be reduced (to the extent
not otherwise reduced in accordance with GAAP) by an amount equal to (A) the
amount of the EBITDA attributable to such Restricted Subsidiary multiplied by
(B) the quotient of (1) the number of shares of outstanding common Equity
Interests of such Restricted Subsidiary not owned directly or indirectly by us
on the last day of such period by us divided by (2) the total number of shares
of outstanding common Equity Interests of such Restricted Subsidiary on the last
day of such period.

     "Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).

     "GAAP" means generally accepted accounting principles in the United States
of America as in effect on the 1998 Issue Date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the indenture shall be
computed in conformity with GAAP.

     "Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other nonfinancial
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or such other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.

     "Guarantor Subordinated Indebtedness" means, with respect to a Subsidiary
Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on
the Issue Date or thereafter Incurred) which is expressly subordinate in right
of payment to the obligations of such Subsidiary Guarantor under its Subsidiary
Guarantee pursuant to a written agreement.

     "Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.

     "Holder" or "Noteholder" means the Person in whose name a Note is
registered in the Note Register.

     "Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be

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deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary.
Any Indebtedness issued at a discount (including Indebtedness on which interest
is payable through the issuance of additional Indebtedness) shall be deemed
incurred at the time of original issuance of the Indebtedness at the initial
accreted amount thereof.

     "Indebtedness" means, with respect to any Person on any date of
determination (without duplication):

          (i)    the principal of and premium (if any) in respect of
     indebtedness of such Person for borrowed money,

          (ii)   the principal of and premium (if any) in respect of
     obligations of such Person evidenced by bonds, debentures, notes or other
     similar instruments,

          (iii)  all obligations of such Person in respect of letters of credit
     or other similar instruments (including reimbursement obligations with
     respect thereto) (other than obligations with respect to letters of credit
     securing obligations (other than obligations described in clauses (i), (ii)
     and (v)) entered into in the ordinary course of business of such Person to
     the extent that such letters of credit are not drawn upon or, if and to the
     extent drawn upon, such drawing is reimbursed no later than the third
     business day following receipt by such Person of a demand for reimbursement
     following payment on the letter of credit),

          (iv)   all obligations of such Person to pay the deferred and unpaid
     purchase price of property or services (except Trade Payables), which
     purchase price is due more than six months after the date of placing such
     property in final service or taking final delivery and title thereto or the
     completion of such services,

          (v)    all Capitalized Lease Obligations and Attributable Debt of such
     Person,

          (vi)   the redemption, repayment or other repurchase amount of such
     Person with respect to any Disqualified Stock or, with respect to any
     Subsidiary of us, any Preferred Stock (but excluding, in each case, any
     accrued dividends),

          (vii)  all Indebtedness of other Persons secured by a Lien on any
     asset of such Person, whether or not such Indebtedness is assumed by such
     Person; provided, however, that the amount of Indebtedness of such Person
     shall be the lesser of (A) the fair market value of such asset at such date
     of determination and (B) the amount of such Indebtedness of such other
     Persons,

          (viii) all Indebtedness of other Persons to the extent Guaranteed by
     such Person, and

          (ix)   to the extent not otherwise included in this definition, net
Hedging Obligations of such Person (such obligations to be equal at any time to
the termination value of such agreement or arrangement giving rise to such
Hedging Obligation that would be payable by such Person at such time).

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          "Interest Rate Agreement" means with respect to any Person any
     interest rate protection agreement, interest rate future agreement,
     interest rate option agreement, interest rate swap agreement, interest rate
     cap agreement, interest rate collar agreement, interest rate hedge
     agreement or other similar agreement or arrangement as to which such Person
     is party or a beneficiary.

     "Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are,
in conformity with GAAP, recorded as accounts receivable on our balance sheet or
that of our Restricted Subsidiaries) or other extension of credit (including by
way of Guarantee or similar arrangement) or capital contribution to (by means of
any transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary" and the covenant
described under "--Limitation on Restricted Payments," (i) "Investment"
shall include the portion (proportionate to our equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of ours
at the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, we shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary in an amount (if positive) equal to (x) our
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to our equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith either by the Board of
Directors or Senior Management.

     "Investment Grade Status," with respect to us, shall occur when the Notes
receive a rating of "BBB-" or higher from S&P and a rating of "Baa3" or
higher from Moody's.

     "Issue Date" means October 23, 2001.

     "Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof, any option or other agreement to sell,
or any filing of, or any agreement to give any security interest).

     "Moody's" means Moody's Investors Service, Inc., and its successors.

     "Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form), in each case net of (i) all legal, title
and recording tax expenses, commissions and other fees and expenses incurred
(including fees and expenses of counsel, accountants and investment bankers),
and all Federal, state, provincial, foreign and local

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taxes required to be paid or accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness that is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon such assets, or that must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Disposition, (iv)
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by us or any Restricted Subsidiary after
such Asset Disposition and (v) any portion of the purchase price from an Asset
Disposition placed in escrow (whether as a reserve for adjustment of the
purchase price, or for satisfaction of indemnities in respect of such Asset
Disposition), provided, however, that upon the termination of such escrow, Net
Available Cash shall be increased by any portion of funds therein released to us
or any Restricted Subsidiary.

     "Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock or Indebtedness, the cash proceeds of such issuance or sale net of
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.

     "Non-Recourse Indebtedness" means Indebtedness (i) as to which neither we
nor any of our Restricted Subsidiaries (A) provides credit support pursuant to
any undertaking, agreement or instrument that would constitute Indebtedness or
(B) is directly or indirectly liable and (ii) no default with respect to which
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of ours or any of our Restricted Subsidiaries to declare a default
on such Indebtedness or cause the payment thereof to be accelerated or payable
prior to its Stated Maturity.

     "Note Register" means the register of Notes, maintained by the Trustee,
pursuant to the indenture.

     "Officer" means any one of the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Operating Officer, Vice President, Treasurer,
Secretary or Controller of ours.

     "Officers' Certificate" means a certificate signed by two or more Officers.

     "Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to us or the Trustee.

     "Pari Passu Indebtedness" means Indebtedness that ranks equally in right of
payment to the Notes.

     "Permitted Employee Payments" means Restricted Payments by us or any
Restricted Subsidiary in respect of (i) the repurchase of our Capital Stock or
any Restricted Subsidiary from

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an employee of ours or any Restricted Subsidiary or their assigns, estates or
heirs upon the death, retirement or termination of such employee or (ii) loans
or advances to our employees or any of our Subsidiaries made in the ordinary
course of business.

     "Permitted Holders" means Joseph W. Luter, III or any Person the majority
of the equity interests of which is beneficially owned by Joseph W. Luter, III.

     "Permitted Investment" means an Investment by us or any Restricted
Subsidiary in (i) a Restricted Subsidiary, us or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided, however,
that the primary business of such Restricted Subsidiary is a Related Business;
(ii) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, us or a Restricted Subsidiary; provided,
however, that the primary business of such Person is a Related Business; (iii)
Temporary Cash Investments; (iv) receivables owing to us or any Restricted
Subsidiary, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as we
or any such Restricted Subsidiary deems reasonable under the circumstances; (v)
securities received as consideration in Asset Dispositions made in compliance
with the covenant described under "--Limitation on Sales of Assets" with the
exception of securities received as consideration for Asset Dispositions of any
property, plant, equipment or other facility closed and designated in accordance
with clause (a) (ii) of the "--Limitation on Sales of Assets" covenant; (vi)
Investments in existence on the 1998 Issue Date (but not in excess of the amount
of such Investments in existence on the 1998 Issue Date without giving effect to
increases or decreases attributable to accounting for the net income of such
Investments or subsequent changes in value); (vii) any Investment by us or a
Wholly Owned Subsidiary in a Receivables Entity or any Investment by a
Receivables Entity in any other Person in connection with a Qualified
Receivables Transaction; provided that any Investment in a Receivables Entity is
in the form of a Purchase Money Note or an Equity Interest; and (viii)
additional Investments in a Related Business since the 1998 Issue Date having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (viii) since the 1998 Issue Date that are at that time
outstanding, not to exceed 15% of Total Assets at the time of such Investment
(with the fair market value of each Investment being measured at the time made
and without giving effect to subsequent changes in value).

     "Permitted Liens" means, with respect to any Person:

     (1)  Liens securing Indebtedness and our other obligations under the
          Revolving Credit Facility and related Interest Rate Agreements and
          liens on assets of Restricted Subsidiaries securing Guarantees of
          Indebtedness and our other obligations under the Revolving Credit
          Facility permitted to be incurred under the indenture in an aggregate
          principal amount at any one time outstanding not to exceed the greater
          of (x) $650.0 million and (y) the Borrowing Base;

     (2)  pledges or deposits by such Person under workmen's compensation laws,
          unemployment insurance laws or similar legislation, or good faith
          deposits in connection with bids, tenders, contracts (other than for
          the payment of Indebtedness) or leases to which such

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          Person is a party, or deposits to secure public or statutory
          obligations of such Person or deposits or cash or United States
          government bonds to secure surety or appeal bonds to which such Person
          is a party, or deposits as security for contested taxes or import or
          customs duties or for the payment of rent, in each case Incurred in
          the ordinary course of business;

     (3)  Liens imposed by law, including carriers', warehousemen's and
          mechanics' Liens, in each case for sums not yet due or being contested
          in good faith by appropriate proceedings if a reserve or other
          appropriate provisions, if any, as shall be required by GAAP shall
          have been made in respect thereof;

     (4)  Liens for taxes, assessments or other governmental charges not yet
          subject to penalties for non-payment or which are being contested in
          good faith by appropriate proceedings provided appropriate reserves
          required pursuant to GAAP have been made in respect thereof;

     (5)  Liens in favor of issuers of surety or performance bonds or letters of
          credit or bankers' acceptances issued pursuant to the request of and
          for the account of such Person in the ordinary course of its business;
          provided, however, that such letters of credit do not constitute
          Indebtedness;

     (6)  encumbrances, easements or reservations of, or rights of others for,
          licenses, rights of way, sewers, electric lines, telegraph and
          telephone lines and other similar purposes, or zoning or other
          restrictions as to the use of real properties or liens incidental to
          the conduct of the business of such Person or to the ownership of its
          properties which do not in the aggregate materially adversely affect
          the value of said properties or materially impair their use in the
          operation of the business of such Person;

     (7)  Liens securing Hedging Obligations so long as the related Indebtedness
          is, and is permitted to be under the indenture, secured by a Lien on
          the same property securing such Hedging Obligation;

     (8)  leases and subleases of real property which do not materially
          interfere with the ordinary conduct of our business or any of our
          Restricted Subsidiaries;

     (9)  judgment Liens not giving rise to an Event of Default so long as such
          Lien is adequately bonded and any appropriate legal proceedings which
          may have been duly initiated for the review of such judgment have not
          been finally terminated or the period within which such proceedings
          may be initiated has not expired;

     (10) Liens for the purpose of securing the payment of all or a part of the
          purchase price of, or Capitalized Lease Obligations with respect to,
          assets or property acquired or constructed in the ordinary course of
          business, provided that:

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     (a)  the aggregate principal amount of Indebtedness secured by such Liens
          is otherwise permitted to be Incurred under the indenture and does not
          exceed the cost of the assets or property so acquired or constructed;
          and

     (b)  such Liens are created within 180 days of construction or acquisition
          of such assets or property and do not encumber any other assets or
          property of ours or any Restricted Subsidiary other than such assets
          or property and assets affixed or appurtenant thereto;

(11) Liens arising solely by virtue of any statutory or common law provisions
     relating to banker's Liens, rights of set-off or similar rights and
     remedies as to deposit accounts or other funds maintained with a depositary
     institution; provided that:

     (a)  such deposit account is not a dedicated cash collateral account and is
          not subject to restrictions against access by us in excess of those
          set forth by regulations promulgated by the Federal Reserve Board; and

     (b)  such deposit account is not intended by us or any Restricted
          Subsidiary to provide collateral to the depository institution;

(12) Liens arising from Uniform Commercial Code financing statement filings
     regarding operating leases entered into by us and our Restricted
     Subsidiaries in the ordinary course of business;

(13) Liens existing on the Issue Date (excluding Liens permitted under clause
     (1));

(14) Liens on property or shares of stock of a Person at the time such Person
     becomes a Restricted Subsidiary; provided, however, that such Liens are not
     created, incurred or assumed in connection with, or in contemplation of,
     such other Person becoming a Restricted Subsidiary; provided further,
     however, that any such Lien may not extend to any other property owned by
     us or any Restricted Subsidiary;

(15) Liens on property at the time we or a Restricted Subsidiary acquired the
     property, including any acquisition by means of a merger or consolidation
     with or into us or any Restricted Subsidiary; provided, however, that such
     Liens are not created, incurred or assumed in connection with, or in
     contemplation of, such acquisition; provided further, however, that such
     Liens may not extend to any other property owned by us or any Restricted
     Subsidiary;

(16) Liens securing Indebtedness or other obligations of a Restricted Subsidiary
     owing to us or a Wholly Owned Subsidiary (other than a Receivables Entity);

(17) Liens securing the Notes and Subsidiary Guarantees;

(18) Liens securing Indebtedness incurred after the Issue Date and any
     Refinancing Indebtedness relating thereto (excluding any Liens securing any
     other Indebtedness

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     Incurred after the Issue Date permitted under other clauses hereof) in an
     aggregate principal amount at any one time outstanding not to exceed 15% of
     Total Assets;

(19) Liens securing Refinancing Indebtedness (other than Liens Incurred under
     clauses (1) and (18) above) incurred to refinance Indebtedness that was
     previously so secured, provided that any such Lien is limited to all or
     part of the same property or assets (plus improvements, accessions,
     proceeds or dividends or distributions in respect thereof) that secured
     (or, under the written arrangements under which the original Lien arose,
     could secure) the Indebtedness being refinanced or is in respect of
     property that is the security for a Permitted Lien hereunder; and

(20) Liens on assets transferred to a Receivables Entity or on assets of a
     Receivables Entity, in either case incurred in connection with a Qualified
     Receivables Transaction.

  "Permitted Joint Venture" means any Person in which we or a Restricted
Subsidiary owns, directly or indirectly, an ownership interest (other than a
Subsidiary) and whose primary business is related, ancillary or complementary to
any of our businesses and our Restricted Subsidiaries at the time of
determination.

  "Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.

  "Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.

  "Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from us or any Subsidiary
of ours in connection with a Qualified Receivables Transaction to a Receivables
Entity, which note shall be repaid from cash available to the Receivables
Entity, other than amounts required to be established as reserves pursuant to
agreements, amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts owing to such investors and
amounts paid in connection with the purchase of newly generated receivables.

  "Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by us or any of our Subsidiaries pursuant
to which we or any of our Subsidiaries may sell, convey or otherwise transfer to
(a) a Receivables Entity (in the case of a transfer by us or any of our
Subsidiaries) and (b) any other Person (in the case of a transfer by a
Receivables Entity), or may grant a security interest in, any accounts
receivable (whether now existing or arising in the future) of ours or any of our
Subsidiaries, and any assets related thereto including, without limitation, all
collateral securing such accounts receivable, all contracts and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets which are customarily transferred or in
respect of which

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security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.

     "Receivables Entity" means a Wholly Owned Subsidiary of ours (or another
Person in which we or any Subsidiary of ours makes an Investment and to which we
or any Subsidiary of ours transfers accounts receivable and related assets)
which engages in no activities other than in connection with the financing of
accounts receivable and which is designated by our Board of Directors (as
provided below) as a Receivables Entity, (a) no portion of the Indebtedness or
any other obligations (contingent or otherwise) of which (i) is guaranteed by us
or any Subsidiary of ours (excluding guarantees of obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard Securitization
Undertakings), (ii) is recourse to or obligates us or any Subsidiary of ours in
any way other than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of us or any Subsidiary of ours, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings, (b) with which neither we nor
any Subsidiary of ours have any material contract, agreement, arrangement or
understanding other than on terms no less favorable to us or any Subsidiary of
ours than those that might be obtained at the time from Persons that are not
Affiliates of us, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable, and (c) to which neither we nor
any Subsidiary of ours have any obligation to maintain or preserve such entity's
financial condition or cause such entity to achieve certain levels of operating
results. Any such designation by our Board of Directors shall be evidenced to
the Trustee by filing with the Trustee a certified copy of the resolution of our
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.

     "Recourse Indebtedness" means Indebtedness that is not Non-Recourse
Indebtedness.

     "Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," and "refinanced" shall
have a correlative meaning) any Indebtedness existing on the 1998 Issue Date or
Incurred in compliance with the indenture or the 1998 Indenture (including
Indebtedness of us that refinances Indebtedness of any Restricted Subsidiary (to
the extent permitted by the indenture) and Indebtedness of any Restricted
Subsidiary that refinances Indebtedness of another Restricted Subsidiary (except
that a Subsidiary Guarantor shall not refinance Indebtedness of a Restricted
Subsidiary that is not a Subsidiary Guarantor)) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced, (iii) such
Refinancing Indebtedness is Incurred in an aggregate principal amount (or if
issued with original issue discount, an aggregate issue price) that is equal to
or less than the aggregate principal amount (or if issued with original issue
discount, the aggregate accreted value) then outstanding of the Indebtedness
being refinanced, plus fees, underwriting discounts, premiums, unpaid accrued
interest and other costs and expenses incurred in connection with such
Refinancing Indebtedness and (iv) if the Indebtedness being refinanced is
subordinated in right of payment to the Notes or a Subsidiary

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Guarantee, such Refinancing Indebtedness is subordinated in right of payment to
the Notes or the Subsidiary Guarantee on terms at least favorable to the holders
of Notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; provided
further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that refinances Indebtedness of us or
(y) Indebtedness of us or a Restricted Subsidiary that refinances Indebtedness
of an Unrestricted Subsidiary.

     "Related Business" means any business which is the same as or related,
complementary or ancillary to any of the businesses of us and our Restricted
Subsidiaries on the date of the 1998 Indenture.

     "Restricted Investment" means any Investment other than a Permitted
Investment.

     "Restricted Subsidiary" means any Subsidiary of ours other than an
Unrestricted Subsidiary.

     "Revolving Credit Facility" means the Second Amended and Restated Multi-
Year Credit Agreement dated as of December 3, 1999, among Smithfield Foods,
Inc., the Subsidiary Guarantors party thereto, the Lenders party thereto, and
JPMorgan Chase Bank, as Administrative Agent, as it may be amended, supplemented
or modified from time to time and any renewal, increase, extension, refunding,
restructuring, replacement or refinancing thereof (whether with the original
administrative agent and lenders or another administrative agent or agents or
one or more other lenders and whether provided under the original Revolving
Credit Facility or one or more other credit or other agreements or indentures).

     "Sale/Leaseback Transaction" means any direct or indirect arrangement
relating to property now owned or hereafter acquired by us or a Restricted
Subsidiary whereby we or such Restricted Subsidiary transfers such property to a
Person and we or such Restricted Subsidiary leases it from such Person, other
than leases between us and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.

     "Secured Indebtedness" means any Indebtedness of us secured by a Lien.

     "Senior Management" means with respect to us or any of our Subsidiaries, as
the case may be, any one of the Chairman of the Board, the Chief Executive
Officer, the President and the Chief Operating Officer or any combination of the
foregoing.

     "Senior Secured Notes" means collectively, the 8.41% Series B Senior
Secured Notes Due August 1, 2006, the 8.34% Series C Senior Secured Notes Due
August 1, 2003, the 9.80% Series D Senior Secured Notes Due August 1, 2003, the
10.75% Series E Senior Secured Notes Due August 1, 2005, the 8.52% Series F
Senior Secured Notes Due August 1, 2006, the 9.85% Series G Senior Secured Notes
Due November 1, 2006 and the 8.41% Series H Senior Secured Notes Due August 1,
2004, each issued pursuant to the Amended and Restated Note Purchase Agreement,
dated as of October 31, 1999, among us and each of the several purchasers named
in the Amended and Restated Note Purchase Agreement, as the same may be amended,

                                      115
<PAGE>

supplemented or otherwise modified from time to time, the 7.89% Series I Senior
Secured Notes due October 1, 2009, the Variable Rate Series J Senior Secured
Notes due October 1, 2009, the 8.44% Series K Senior Secured Notes due October
1, 2009, the LIBOR Rate Series L Senior Secured Notes due October 1, 2009, each
issued pursuant to the Amended and Restated Note Purchase Agreement, dated as of
October 27, 1999, among us and each of the several purchasers named in the
Amended and Restated Note Purchase Agreement, as the same may be amended,
supplemented or otherwise modified from time to time, and the 8.25% Series M
Senior Secured Notes due March 2, 2006 and the LIBOR Rate Series N Senior
Secured Notes due March 2, 2002 each issued pursuant to the Note Purchase
Agreement, dated as of June 2, 2000, among us and each of the several purchasers
named in the Note Purchase Agreement, as the same may be amended, supplemented
or otherwise modified (but not increased) from time to time.

     "Significant Subsidiary" means any Restricted Subsidiary that is a
"Significant Subsidiary" of us within the meaning of Rule 1-02 under Regulation
S-X promulgated by the SEC.

     "S&P" means Standard & Poor's Ratings Service, a division of The McGraw-
Hill Companies, Inc., and its successors.

     "Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by us or any Subsidiary of us which are
reasonably customary in an accounts receivable transaction.

     "Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer, unless such contingency has
occurred).

     "Subordinated Indebtedness" means any Indebtedness of ours (whether
outstanding on the date of the indenture or the 1998 Indenture or thereafter
Incurred) which is subordinate or junior in right of payment to the Notes
pursuant to a written agreement including in all respects, the 1998 Notes.

     "Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership or joint
venture interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person
or (ii) one or more Subsidiaries of such Person.

     "Subsidiary Guarantee" means any Guarantee of the Notes that may from time
to time be executed and delivered by a Restricted Subsidiary pursuant to the
covenant described under "--Future Subsidiary Guarantors."

     "Subsidiary Guarantor" means any Subsidiary that has issued a Subsidiary
Guarantee.

                                      116
<PAGE>

     "Successor Company" shall have the meaning assigned thereto in clause (i)
under "--Merger and Consolidation."

     "Temporary Cash Investments" means any of the following: (i) any Investment
in direct obligations (x) of the United States of America or any agency thereof
or obligations Guaranteed by the United States of America or any agency thereof
or (y) of any foreign country recognized by the United States of America rated
at least "A" by S&P or "A-1" by Moody's, (ii) Investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 180
days of the date of acquisition thereof issued by a bank or trust company that
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America having capital
and surplus aggregating in excess of $250.0 million (or the foreign currency
equivalent thereof) and whose long-term debt is rated "A" by S&P or "A-1" by
Moody's, (iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) or (ii) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
Investments in commercial paper, maturing not more than 270 days after the date
of acquisition, issued by a corporation (other than an Affiliate of ours)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any Investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P, (v) Investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least "A" by S&P or "A" by Moody's and (vi) any money market deposit accounts
issued or offered by a domestic commercial bank or a commercial bank organized
and located in a country recognized by the United States of America, in each
case, having capital and surplus in excess of $250.0 million (or the foreign
currency equivalent thereof), or investments in money market funds complying
with the risk limiting conditions of Rule 2a-7 (or any short-term successor
rule) of the SEC, under the Investment Company Act of 1940, as amended.

     "Total Assets" means, with respect to any Person, the total consolidated
assets of such Person and our Restricted Subsidiaries, as shown on the recent
balance sheet of such Person.

     "Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.

     "Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
(S)(S) 77aaa-77bbbb), as in effect from time to time.

     "Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.

     "Trustee" means the party named as such in the indenture until a successor
replaces it and, thereafter, means the successor.

                                      117
<PAGE>

     "Unrestricted Subsidiary" means (i) any Subsidiary of ours that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of ours (including any newly acquired or newly formed Subsidiary of
ours) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital
Stock of, or owns or holds any Lien on any property of, us or any Restricted
Subsidiary (except a Restricted Subsidiary which upon such designation becomes
an Unrestricted Subsidiary in accordance with the indenture); provided that (i)
such designation would be permitted under the "Limitation on Restricted
Payments" covenant described above, (ii) no portion of the Indebtedness or any
other obligation (contingent or otherwise) of such Subsidiary (A) is Guaranteed
by us or any Restricted Subsidiary, (B) is Recourse Indebtedness or (C) subjects
any property or asset of ours or any Restricted Subsidiary, directly or
indirectly, contingently or otherwise, to the satisfaction thereof, and (iii) no
default or event of default with respect to any Indebtedness of such Subsidiary
would permit any holder of any Indebtedness of ours or any Restricted Subsidiary
to declare such Indebtedness of us or any Restricted Subsidiary due and payable
prior to its maturity. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation (x) we could Incur $1.00 of additional Indebtedness
under paragraph (a) of "--Limitation on Indebtedness" and (y) no Default or
Event of Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation and
an Officers' Certificate that such designation complied with the foregoing
provisions.

     "U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.

     "Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.

     "Wholly Owned Subsidiary" means a Restricted Subsidiary 80% or more of the
Capital Stock of which (other than directors' qualifying shares) is owned
directly or indirectly by us.

                                      118
<PAGE>

                              PLAN OF DISTRIBUTION

     Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.  This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for senior notes where such senior notes were acquired as a result of
market-making activities or other trading activities.  We have agreed that, for
a period of 90 days after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.  In addition, until 90 days after the consummation of the
exchange offer, which is expected to be on or about April 8, 2002, all dealers
effecting transactions in the exchange notes may be required to deliver a
prospectus.

     We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such exchange notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of exchange notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.

     For a period of 90 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal.  We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the senior notes)
other than commissions or concessions of any broker-dealers and will indemnify
the holders of the senior notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.

                                      119
<PAGE>

                                 LEGAL MATTERS

     The validity of the exchange notes offered hereby will be passed upon for
us by McGuireWoods LLP, Richmond, Virginia, a limited liability partnership. As
of November 21, 2001, lawyers of McGuireWoods LLP own approximately 14,700
shares of our Common Stock.

                         INDEPENDENT PUBLIC ACCOUNTANTS

     Our audited consolidated financial statements included in, and incorporated
by reference into, this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect to
those financial statements.

                                      120
<PAGE>

                             SMITHFIELD FOODS, INC.

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                                         <C>
Audited Year-End Financial Statements

Report of Independent Public Accountants..................................   F-2

Consolidated Statements of Income for the Fiscal Years 2001, 2000 and
 1999.....................................................................   F-3

Consolidated Balance Sheets for the Fiscal Years Ended April 29, 2001 and
 April 30, 2000...........................................................   F-4

Consolidated Statements of Cash Flows for the Fiscal Years 2001, 2000 and
 1999.....................................................................   F-5

Consolidated Statements of Shareholders' Equity for the Fiscal Years ended
 May 2, 1999, April 30, 2000 and April 29, 2001...........................   F-6

Notes to Consolidated Financial Statements................................   F-7

Unaudited Interim Financial Statements

Consolidated Condensed Statements of Income for the 13 weeks ended July
 29, 2001 and July 30, 2000...............................................  F-27

Consolidated Condensed Balance Sheet at July 29, 2001 ....................  F-28

Consolidated Condensed Statements of Cash Flows for the 13 weeks ended
 July 29, 2001 and July 30, 2000..........................................  F-29

Notes to Consolidated Condensed Financial Statements......................  F-30
</TABLE>

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Smithfield Foods, Inc.:

  We have audited the accompanying consolidated balance sheets of Smithfield
Foods, Inc. (a Virginia corporation) and subsidiaries as of April 29, 2001, and
April 30, 2000, and the related consolidated statements of income, cash flows,
and shareholders' equity for each of the three years in the period ended April
29, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

  We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

  In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Smithfield Foods, Inc. and
subsidiaries as of April 29, 2001, and April 30, 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
April 29, 2001, in conformity with accounting principles generally accepted in
the United States.

                                          /s / ARTHUR ANDERSEN LLP

Richmond, Virginia
June 5, 2001 (except with respect to the matter discussed in Note 16, as to
which the date is October 16, 2001)

                                      F-2
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                       Fiscal Years
                                             ---------------------------------
                                                2001        2000       1999
                                             ----------  ---------- ----------
                                             (In thousands, except per share
                                                          data)
<S>                                          <C>         <C>        <C>
Sales......................................  $5,899,927  $5,150,469 $3,774,989
Cost of sales..............................   4,951,024   4,456,403  3,235,414
                                             ----------  ---------- ----------
 Gross profit..............................     948,903     694,066    539,575

Selling, general and administrative
 expenses..................................     450,965     390,634    295,610
Depreciation expense.......................     124,836     109,893     63,524
Interest expense...........................      88,974      71,944     40,521
Minority interests.........................       5,829       1,608     (3,518)
Gain on sale of IBP, inc. common stock (See
 Note 11)..................................     (79,019)          -          -
                                             ----------  ---------- ----------
Income before income taxes.................     357,318     119,987    143,438
Income taxes...............................     133,805      44,875     48,554
                                             ----------  ---------- ----------
Net income.................................  $  223,513  $   75,112 $   94,884
                                             ==========  ========== ==========
Net income per basic common share (1)......  $     2.06  $      .77 $     1.20
                                             ==========  ========== ==========
Net income per diluted common share (1)....  $     2.03  $      .76 $     1.16
                                             ==========  ========== ==========
</TABLE>

(1) Adjusted for 2-for-1 stock split effective September 14, 2001

                 See Notes to Consolidated Financial Statements

                                      F-3
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      Fiscal Years Ended
                                                 ------------------------------
                                                 April 29, 2001  April 30, 2000
                                                 --------------  --------------
                                              (In thousands, except share data)
<S>                                              <C>             <C>
ASSETS
Current assets:
 Cash and cash equivalents......................   $   56,532      $   49,882
 Accounts receivable less allowances of $6,392
  and $4,899....................................      387,841         390,037
 Inventories....................................      729,167         665,143
 Prepaid expenses and other current assets......       90,155         127,664
                                                   ----------      ----------
  Total current assets..........................    1,263,695       1,232,726
                                                   ----------      ----------
Property, plant and equipment:
 Land...........................................       76,100          73,753
 Buildings and improvements.....................      711,124         666,428
 Machinery and equipment........................      855,838         732,217
 Breeding stock.................................       94,286         100,576
 Construction in progress.......................       59,307          39,069
                                                   ----------      ----------
                                                    1,796,655       1,612,043
 Less accumulated depreciation..................     (522,178)       (398,469)
                                                   ----------      ----------
  Net property, plant and equipment.............    1,274,477       1,213,574
                                                   ----------      ----------
Other assets:
 Goodwill, net of accumulated amortization of
  $18,925 and $8,695............................      347,342         320,148
 Investments in partnerships....................       88,092         102,551
 Other..........................................      277,282         260,614
                                                   ----------      ----------
  Total other assets............................      712,716         683,313
                                                   ----------      ----------
                                                   $3,250,888      $3,129,613
                                                   ==========      ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Notes payable..................................   $   35,504      $   64,924
 Current portion of long-term debt and capital
  lease obligations.............................       79,590          48,505
 Accounts payable...............................      278,093         270,004
 Accrued expenses and other current
  liabilities...................................      235,095         239,436
                                                   ----------      ----------
  Total current liabilities.....................      628,282         622,869
                                                   ----------      ----------
Long-term debt and capital lease obligations....    1,146,223       1,187,770
                                                   ----------      ----------
Other noncurrent liabilities:
 Deferred income taxes..........................      271,516         274,329
 Pension and postretirement benefits............       77,520          78,656
 Other..........................................       25,820          30,311
                                                   ----------      ----------
  Total other noncurrent liabilities............      374,856         383,296
                                                   ----------      ----------
Minority interests..............................       48,395          32,769
                                                   ----------      ----------
Commitments and contingencies
Shareholders' equity:
 Preferred stock, $1.00 par value, 1,000,000
  authorized shares.............................            -               -
 Common stock, $.50 par value, 100,000,000 (1)
  authorized shares; 105,005,902 (2) and
  54,705,386 issued and outstanding.............       52,503(2)       27,353
 Additional paid-in capital.....................      379,413(2)      473,974
 Retained earnings..............................      638,779         415,266
 Accumulated other comprehensive loss...........      (17,563)        (13,684)
                                                   ----------      ----------
  Total shareholders' equity....................    1,053,132         902,909
                                                   ----------      ----------
                                                   $3,250,888      $3,129,613
                                                   ==========      ==========
</TABLE>

(1) Authorized shares were increased from 100,000,000 to 200,000,000 effective
    August 29, 2001
(2) Adjusted for 2-for-1 stock split effective September 14, 2001

                 See Notes To Consolidated Financial Statements

                                      F-4
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                       Fiscal Years
                                               -------------------------------
                                                 2001       2000       1999
                                               ---------  ---------  ---------
                                                      (In thousands)
<S>                                            <C>        <C>        <C>
Operating activities:
 Net income................................... $ 223,513  $  75,112  $  94,884
 Depreciation and amortization................   140,050    118,964     68,566
 Deferred income taxes........................    (7,151)    13,227     20,737
 Gain on sale of IBP, inc. common stock.......   (79,019)         -          -
 Gain on sale of property, plant and
  equipment...................................    (2,714)    (2,591)      (138)
 Changes in operating assets and liabilities,
  net of acquisitions:
  Accounts receivable.........................    (4,640)    (7,192)       954
  Inventories.................................   (51,169)   (35,976)   (17,680)
  Prepaid expenses and other current assets...    29,799    (44,501)    (2,225)
  Other assets................................   (14,276)     2,153    (55,563)
  Accounts payable, accrued expenses and other
   liabilities................................   (16,111)     6,022     13,849
                                               ---------  ---------  ---------
Net cash provided by operating activities.....   218,282    125,218    123,384
                                               ---------  ---------  ---------
Investing activities:
 Capital expenditures.........................  (144,120)  (100,383)   (95,447)
 Business acquisitions, net of cash acquired..   (29,725)   (34,596)  (151,223)
 Proceeds from sale of IBP, inc. common
  stock.......................................   224,451          -          -
 Investments in IBP, inc. common stock........  (147,352)   (51,479)         -
 Investments in partnerships and other
  assets......................................    (2,013)   (11,810)   (16,206)
 Proceeds from sale of property, plant and
  equipment...................................    38,920      6,018        991
                                               ---------  ---------  ---------
Net cash used in investing activities.........   (59,839)  (192,250)  (261,885)
                                               ---------  ---------  ---------
Financing activities:
 Net (repayments) borrowings on notes
  payable.....................................   (39,676)  (249,393)    24,182
 Proceeds from issuance of long-term debt.....    31,009    269,041     22,948
 Net borrowings on long-term credit facility..    12,000    324,000     71,000
 Principal payments on long-term debt and
  capital lease obligations...................   (86,286)  (187,632)   (21,754)
 Repurchase and retirement of common stock....   (77,768)   (73,145)         -
 Exercise of common stock options.............     8,357      4,121     12,155
                                               ---------  ---------  ---------
Net cash (used in) provided by financing
 activities...................................  (152,364)    86,992    108,531
                                               ---------  ---------  ---------
Net increase (decrease) in cash and cash
 equivalents..................................     6,079     19,960    (29,970)
Effect of currency exchange rates on cash.....       571       (668)        38
Cash and cash equivalents at beginning of
 year.........................................    49,882     30,590     60,522
                                               ---------  ---------  ---------
Cash and cash equivalents at end of year...... $  56,532  $  49,882  $  30,590
                                               =========  =========  =========
Supplemental disclosures of cash flow
 information:
 Interest paid, net of amount capitalized..... $ 104,362  $  79,780  $  37,696
                                               =========  =========  =========
 Income taxes paid............................ $ 126,224  $  30,315  $  15,306
                                               =========  =========  =========
 Noncash investing and financing activities:
 Common stock issued for acquisitions......... $       -  $ 369,407  $  73,049
                                               =========  =========  =========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-5
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                 Accumulated
                           Common Stock     Additional              Other
                         ------------------  Paid-In   Retained Comprehensive
                         Shares   Par Value  Capital   Earnings    Income       Total
                         -------  --------- ---------- -------- ------------- ----------
                                                 (In thousands)
<S>                      <C>      <C>       <C>        <C>      <C>           <C>
Balance, May 3, 1998....  37,537   $18,769   $ 96,971  $245,270   $      -    $  361,010
 Comprehensive income:
  Net income............       -         -          -    94,884          -        94,884
  Unrealized gain on
   securities...........       -         -          -         -      1,372         1,372
  Foreign currency
   translation..........       -         -          -         -      2,960         2,960
  Minimum pension
   liability............       -         -          -         -     (3,184)       (3,184)
                         -------   -------   --------  --------   --------    ----------
   Total comprehensive
    income..............                                                          96,032
                                                                              ----------
  Common stock issued...   2,986     1,493     71,556         -          -        73,049
  Exercise of stock
   options..............   1,324       662     11,493         -          -        12,155
                         -------   -------   --------  --------   --------    ----------
Balance, May 2, 1999....  41,847    20,924    180,020   340,154      1,148       542,246
 Comprehensive income:
  Net income............       -         -          -    75,112          -        75,112
  Unrealized loss on
   securities...........       -         -          -         -     (3,882)       (3,882)
  Foreign currency
   translation..........       -         -          -         -     (6,561)       (6,561)
  Minimum pension
   liability............       -         -          -         -     (4,389)       (4,389)
                                                                              ----------
   Total comprehensive
    income..............                                                          60,280
                                                                              ----------
  Common stock issued...  15,604     7,802    361,605         -          -       369,407
  Exercise of stock
   options..............     232       116      4,005         -          -         4,121
  Repurchase and
   retirement of common
   stock................  (2,978)   (1,489)   (71,656)        -          -       (73,145)
                         -------   -------   --------  --------   --------    ----------
Balance, April 30,
 2000...................  54,705    27,353    473,974   415,266    (13,684)      902,909
 Comprehensive income:
  Net income............       -         -          -   223,513          -       223,513
  Unrealized gain on
   securities...........       -         -          -         -     45,899        45,899
  Reclassification
   adjustment for gains
   included in net
   income...............       -         -          -         -    (45,200)      (45,200)
  Foreign currency
   translation..........       -         -          -         -     (3,167)       (3,167)
  Minimum pension
   liability............       -         -          -         -     (1,411)       (1,411)
                                                                              ----------
   Total comprehensive
    income..............                                                         219,634
                                                                              ----------
  Exercise of stock
   options..............     425       212      8,145         -          -         8,357
  Repurchase and
   retirement of common
   stock................  (2,627)   (1,314)   (76,454)        -          -       (77,768)
                         -------   -------   --------  --------   --------    ----------
Balance, April 29,
 2001...................  52,503   $26,251   $405,665  $638,779   $(17,563)   $1,053,132
                         =======   =======   ========  ========   ========    ==========
Balance, April 29, 2001
 adjusted for 2-for-1
 stock split effective
 September 14, 2001      105,006   $52,503   $379,413  $638,779   $(17,563)   $1,053,132
                         =======   =======   ========  ========   ========    ==========
</TABLE>

                 See Notes to Consolidated Financial Statements

                                      F-6
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                 (Dollars In Thousands, Except Per Share Data)

Note 1 -- Summary of Significant Accounting Policies

 Nature of Business

   Smithfield Foods, Inc. and subsidiaries (the "Company") is comprised of a
Meat Processing Group (the "MPG") and a Hog Production Group (the "HPG"). The
MPG consists primarily of five wholly owned domestic pork processing
subsidiaries and four international meat processing entities. The HPG consists
primarily of three domestic hog production operations and certain international
joint ventures.

 Basis of Presentation

   The accompanying consolidated financial statements include the accounts of
the Company after elimination of all material intercompany balances and
transactions. Investments in partnerships are recorded using the equity method
of accounting.

   Management uses estimates and assumptions in the preparation of the
consolidated financial statements in conformity with accounting principles
generally accepted in the U.S. that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.

   The Company's fiscal year consists of 52 or 53 weeks, ending on the Sunday
nearest April 30. Fiscal 2001, 2000 and 1999 were all 52 weeks long.

 Foreign Currency Translation

   For foreign operations, the local foreign currency is the functional
currency. Assets and liabilities are translated into U.S. dollars at the
period-ending exchange rate. Statement of income amounts are translated to U.S.
dollars using average exchange rates during the period. Translation gains and
losses are reported as a component of other comprehensive income in
shareholders' equity. Gains and losses from foreign transactions are included
in current earnings.

 Cash and Cash Equivalents

   The Company considers all highly liquid investments with original maturities
of 90 days or less to be cash equivalents. The carrying value of cash
equivalents approximates market value. As of April 29, 2001 and April 30, 2000,
cash and cash equivalents include $2,670 and $200, respectively, in short-term
marketable securities.

 Inventories

   Inventories are valued at the lower of first-in, first-out cost or market.
Cost includes raw materials, labor and manufacturing and production overhead.
Inventories consist of the following:

<TABLE>
<CAPTION>
                                                             April 29, April 30,
                                                               2001      2000
                                                             --------- ---------
      <S>                                                    <C>       <C>
      Hogs on farms......................................... $331,060  $323,639
      Fresh and processed meats.............................  316,929   264,479
      Manufacturing supplies................................   60,823    55,937
      Other.................................................   20,355    21,088
                                                             --------  --------
                                                             $729,167  $665,143
                                                             ========  ========
</TABLE>

                                      F-7
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 1 -- Summary of Significant Accounting Policies -- Continued

 Financial Instruments

   The Company uses commodity hedging instruments, including futures and
options, to reduce the risk of price fluctuations related to future raw
material requirements and product sales. The terms of such instruments
generally do not exceed twelve months and depend on the commodity and other
market factors. The Company attempts to closely match the commodity contract
expiration periods with the dates for product sale and delivery. Contracts are
generally designated and effective as a hedge of a firm purchase or sale
commitment and, as such, gains and losses are recognized in cost of sales when
the related sale or purchase is made.

   The Company may enter into interest rate swap contracts to manage exposure
to interest rate fluctuations. These contracts are designated as a hedge of
variable or fixed rate debt instruments. The interest differential, receivable
or payable, under the swap contract is recognized as interest expense in the
period incurred. The notional value of outstanding swap contracts as of April
29, 2001 and April 30, 2000 is $22,464 and $32,712, respectively. As of April
29, 2001 and April 30, 2000, the estimated fair values of interest rate swaps
was a loss of $441 and a loss of $249, respectively.

 Property, Plant and Equipment

   Property, plant and equipment is stated at cost and depreciated over the
estimated useful lives of the assets. Buildings and improvements are
depreciated over periods from 20 to 40 years. Machinery and equipment is
depreciated over periods from two to 20 years. Breeding stock is depreciated
over two and one-half years. Assets held under capital leases are classified as
property, plant and equipment and amortized over the lease terms. Lease
amortization is included in depreciation expense. Repairs and maintenance
charges are expensed as incurred. Improvements that materially extend the life
of the asset are capitalized. Gains and losses from dispositions or retirements
of property, plant and equipment are recognized currently.

   Interest on capital projects is capitalized during the construction period.
Total interest capitalized was $2,788 in fiscal 2001, $3,293 in fiscal 2000 and
$2,377 in fiscal 1999. Repair and maintenance expenses totaled $178,928,
$160,222 and $120,833 in fiscal 2001, 2000 and 1999, respectively.

 Other Assets

   Goodwill is amortized over no more than 40 years. Deferred debt issuance
costs are amortized over the terms of the related loan agreements.

 Revenue Recognition

   Revenues from product sales are recorded upon shipment to customers.

 Environmental Expenditures

   Environmental expenditures that relate to current or future operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and cleanups are probable and the cost can be reasonably estimated.
Generally, the timing of these accruals coincides with the Company's commitment
to a formal plan of action (See Note 12).

                                      F-8
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 1 -- Summary of Significant Accounting Policies -- Continued

 Self-Insurance Programs

   The Company is self-insured for certain levels of general and vehicle
liability, property, workers' compensation and health care coverage. The cost
of these self-insurance programs is accrued based upon estimated settlements
for known and anticipated claims. Any resulting adjustments to previously
recorded reserves are reflected in current operating results.

 Net Income Per Share

   The Company presents dual computations of net income per share (See Note
13). The basic computation is based on weighted average common shares
outstanding during the period. The diluted computation reflects the potentially
dilutive effect of common stock equivalents, such as stock options, during the
period.

 Recently Issued Accounting Standards

   In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -an amendment of FASB Statement No.
133." The standards are collectively referred to as SFAS 133. The Company
adopted SFAS 133 effective April 30, 2001, the first day of fiscal 2002.

   SFAS 133 requires that all derivative instruments be reported on the
Company's Consolidated Balance Sheet at fair value. Changes in the fair value
of derivatives will be recorded each period in current earnings or other
comprehensive income, depending on whether the derivative is designated and
effective as part of a hedge transaction and on the type of hedge transaction.
Gains and losses on derivative instruments reported in other comprehensive
income will be recognized in earnings in the period in which earnings are
impacted by the underlying hedged item. The ineffective portion of all hedges
will be recognized in current period earnings. The application of these new
standards may result in volatility in reported earnings, other comprehensive
income and accumulated other comprehensive income (loss).

   On April 30, 2001, the Company recorded a $12,716 after-tax cumulative
effect loss as accumulated other comprehensive loss on the Company's
Consolidated Balance Sheet to recognize the fair value of all derivative
instruments that are designated as hedge transactions.

 Reclassifications

   Certain prior year amounts have been restated to conform to fiscal 2001
presentations.

Note 2 -- Risk Management

   Substantially all of the Company's products are produced from commodity-
based raw materials, corn and soybean meal in the HPG and live hogs in the MPG.
The cost of corn and soybean meal (the principal feed ingredients for hogs) and
live hogs are subject to wide fluctuations due to unpredictable factors such as
weather conditions, economic conditions, government regulation and other
unforeseen circumstances. The Company utilizes futures and option contracts for
live hogs and grains to manage hog production margins when

                                      F-9
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 2 -- Risk Management -- Continued

management determines the conditions are appropriate for such hedges. The
particular hedging methods employed and the time periods for the contracts
depend on a number of factors, including the availability of adequate contracts
for the respective periods for the hedge. The Company attempts to closely match
the commodity contract expiration periods with the dates for product sale and
delivery. The pricing of the Company's fresh pork and processed meats is
monitored and adjusted upward and downward in reaction to changes in the cost
of the underlying raw materials. The unpredictability of the raw material costs
limits the Company's ability to forward price fresh pork and processed meat
products without the use of commodity contracts through a program of price-risk
management. The Company uses price-risk management techniques to enhance its
ability to engage in forward sales contracts, where prices for future
deliveries are fixed, by purchasing (or selling) commodity contracts for future
periods to reduce or eliminate the effect of fluctuations in future raw
material costs on the profitability of the related sales. While this may tend
to limit the Company's ability to participate in gains from favorable commodity
price fluctuation, it also tends to reduce the risk of loss from adverse
changes in raw material prices.

   As of April 29, 2001 and April 30, 2000, the Company had the following open
commodity futures positions:

<TABLE>
<CAPTION>
                                             Contract Value      Fair Value
                                            ----------------- -----------------
                                              2001     2000     2001     2000
                                            -------- -------- --------  -------
      <S>                                   <C>      <C>      <C>       <C>
      Grains............................... $193,184 $206,123 $(20,102) $    90
      Hogs & Bellies.......................   57,921  505,531     (490) (41,399)
</TABLE>

   As of April 29, 2001 and April 30, 2000, the Company had deposits with
brokers for outstanding futures contracts of $23,331 and $45,131, respectively,
included in prepaid expenses and other current assets.

Note 3 -- Acquisitions

   In the Company's third quarter of fiscal 2001, the Company's Schneider
Corporation ("Schneider") subsidiary increased its investment in Saskatchewan-
based Mitchell's Gourmet Foods Inc. ("Mitchell's") to 54%, requiring the
Company to consolidate Mitchell's accounts and to discontinue using the equity
method of accounting for Mitchell's. The impact of including Mitchell's in the
Consolidated Balance Sheet as of April 29, 2001 was to increase total assets
$87,307 and long-term debt $10,396. The balance of the purchase price in excess
of the fair value of assets acquired and liabilities assumed at the date of
acquisition was recorded as an intangible asset totaling $21,457. For the
fiscal year ended October 2000, Mitchell's had annual sales of approximately
$190 million.

   In January of fiscal 2000, the Company completed the acquisition of Murphy
Farms, Inc. ("Murphy") and its affiliated companies for 22.1 million shares of
the Company's common stock (subject to post-closing adjustments) and the
assumption of approximately $203,000 in debt, plus other liabilities. Murphy is
a hog producer that has approximately 345,000 sows that produce approximately
6.1 million market hogs annually. The balance of the purchase price in excess
of the fair value of the assets acquired and the liabilities assumed at the
date of acquisition was recorded as an intangible asset totaling $147,006.

   Had the acquisition of Murphy occurred at the beginning of fiscal 2000,
sales, net income and net income per diluted share would have been $5,329,074,
$77,633 and $.65, respectively.

                                      F-10
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 3 -- Acquisitions -- Continued

   In May of fiscal 2000, the Company completed the acquisition of Carroll's
Foods, Inc. ("Carroll's") and its affiliated companies and partnership
interests for 8.7 million shares of the Company's common stock and the
assumption of approximately $231,000 in debt, plus other liabilities. Carroll's
U.S. hog production operations include approximately 180,000 sows that produce
approximately 3.5 million market hogs annually. The acquisition also included
Carroll's 50% interest in Tar Heel Turkey Hatchery, 100% of Carroll's turkey
grow-out operations, Carroll's 49% interest in Carolina Turkeys and certain hog
production interests in Brazil and Mexico. The balance of the purchase price in
excess of the fair value of the assets acquired and the liabilities assumed at
the date of acquisition was recorded as an intangible asset totaling $45,100.

   In August of fiscal 2000, the Company acquired the capital stock of Societe
Financiere de Gestion et de Participation S.A. ("SFGP"), a private-label
processed meats manufacturer in France. Prior to the acquisition, SFGP had
annual sales of approximately $100,000.

   In November of fiscal 1999, the Company acquired 63% of the total equity of
Schneider in exchange for approximately 5.1 million Exchangeable Shares of
Smithfield Canada Limited, a wholly owned subsidiary of the Company. Schneider
produces and markets fresh pork and a full line of processed meats and is the
second largest meat processing company in Canada. The balance of the purchase
price in excess of the fair value of assets acquired and liabilities assumed at
the date of acquisition was recorded as an intangible asset totaling $36,900.

   In April of fiscal 1999, the Company acquired a 67% interest in Animex S.A.
("Animex"), a major meat and poultry processing company in Poland. During
fiscal 2000, the Company increased its ownership in Animex to 85% of total
equity. The balance of the purchase price in excess of the fair value of assets
acquired and liabilities assumed at the date of acquisition was recorded as an
intangible asset totaling $55,100.

   In September of fiscal 1999, the Company acquired all of the capital stock
of Societe Bretonne de Salaisons ("SBS"), the largest private-label
manufacturer of ham, pork shoulder and bacon products in France. Prior to the
acquisition, SBS had annual sales of approximately $100,000.

   In June of fiscal 1999, the Company increased its ownership in the Circle
Four hog production operation from 37% to 84%, requiring the Company to
consolidate Circle Four's accounts. Prior to June of fiscal 1999, Circle Four
was accounted for using the equity method of accounting. As a result of the
Carroll's acquisition in May of fiscal 2000, Circle Four became a wholly owned
subsidiary of the Company.

   In October of fiscal 1999, the Company acquired all of the assets and
business of North Side Foods Corp. ("North Side"), a major domestic supplier of
precooked sausage to McDonald's Corporation. Prior to the acquisition, North
Side had annual sales of approximately $60,000.

   Each of these acquisitions was accounted for using the purchase method of
accounting and accordingly, the accompanying consolidated financial statements
include the financial position and results of operations from the dates of
acquisition. Had the acquisitions of Mitchell's and SFGP occurred at the
beginning of fiscal 2000, there would not have been a material effect on sales,
net income or net income per diluted share for such fiscal years.

                                      F-11
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 4 -- Debt

   Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                         April 29,   April 30,
                                                            2001        2000
                                                         ----------  ----------
      <S>                                                <C>         <C>
      Long-term credit facility, expiring July 2002....  $  407,000  $  395,000
      7.625% senior subordinated notes, due February
       2008............................................     185,137     186,500
      8.52% senior notes, due August 2006..............     100,000     100,000
      7.89% senior note, payable through October 2009..      85,000      95,000
      8.25% note, payable through March 2006...........      75,000      75,000
      Variable rate note, payable through October
       2009............................................      67,500      72,500
      8.44% note, payable through October 2009.........      50,000      50,000
      8.34% senior notes, due August 2003..............      40,000      40,000
      Euribor 3 mos. +1.00% Euro notes, due June 2001..      22,600      10,672
      Miscellaneous with interest rates ranging from
       4.70% to 10.75%, due May 2001 through September
       2010............................................     168,912     187,651
                                                         ----------  ----------
                                                          1,201,149   1,212,323
      Less current portion.............................     (75,623)    (44,941)
                                                         ----------  ----------
                                                         $1,125,526  $1,167,382
                                                         ==========  ==========
</TABLE>

   Scheduled maturities of long-term debt are as follows:

<TABLE>
      <S>                                                             <C>
      Fiscal Year
      2002..........................................................  $   75,623
      2003..........................................................     494,471
      2004..........................................................     111,029
      2005..........................................................      50,726
      2006..........................................................      47,143
      Thereafter....................................................     422,157
                                                                      ----------
                                                                      $1,201,149
                                                                      ==========
</TABLE>

   The Company has a five-year $650,000 revolving credit facility as its
primary short-term financing source. The borrowings are prepayable and bear
interest, at the Company's option, at various rates based on margins over the
federal funds rate or Eurodollar rate. This facility expires in July 2002 and
is expected to be refinanced in fiscal 2002.

   The Company has aggregate credit facilities totaling $777,856. As of April
29, 2001, the Company had unused capacity under these credit facilities of
$311,704. Included in the aggregate credit facilities are $35,504 of short-term
international credit facilities classified as notes payable in the Consolidated
Balance Sheets. These facilities are generally at prevailing market rates. The
Company pays a commitment fee on the unused portion of the aggregate revolving
credit facilities.

                                      F-12
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 4 -- Debt -- Continued

   Average borrowings under credit facilities were $415,724 in fiscal 2001,
$305,470 in fiscal 2000 and $74,820 in fiscal 1999 at average interest rates of
approximately 7.3%, 7.5% and 6.3%, respectively. Maximum borrowings were
$524,997 in fiscal 2001, $458,922 in fiscal 2000 and $152,510 in fiscal 1999.
Total outstanding borrowings were $442,504 and $457,200 with average interest
rates of 5.9% and 7.2% as of April 29, 2001 and April 30, 2000, respectively.

   The senior subordinated notes are unsecured. Senior notes are secured by
certain of the Company's major processing plants and hog farm facilities. The
$650,000 credit facility is secured by substantially all of the Company's U.S.
inventories and accounts receivable.

   The Company's various debt agreements contain financial covenants that
require the maintenance of certain levels and ratios for working capital, net
worth, current ratio, fixed charges, capital expenditures and, among other
restrictions, limit additional borrowings, the acquisition, disposition and
leasing of assets, and payments of dividends to shareholders.

   The Company determines the fair value of public debt using quoted market
prices and values all other debt using discounted cash flow techniques at
estimated market prices for similar issues. As of April 29, 2001, the fair
value of long-term debt, based on the market value of debt with similar
maturities and covenants, was approximately $1,181,000.

Note 5 -- Income Taxes

   Income tax expense consists of the following:

<TABLE>
<CAPTION>
                                                      2001     2000     1999
                                                    --------  -------  -------
     <S>                                            <C>       <C>      <C>
     Current tax expense:
      Federal.....................................  $121,070  $26,994  $20,445
      State.......................................    15,416    3,174    5,409
      Foreign.....................................     4,470    1,480    1,963
                                                    --------  -------  -------
                                                     140,956   31,648   27,817
                                                    --------  -------  -------
     Deferred tax expense:
      Federal.....................................    (7,362)   9,500   19,924
      State.......................................    (1,479)   1,073   (2,082)
      Foreign.....................................     1,690    2,654    2,895
                                                    --------  -------  -------
                                                     (7,151)   13,227   20,737
                                                    --------  -------  -------
                                                    $133,805  $44,875  $48,554
                                                    ========  =======  =======

   A reconciliation of taxes computed at the federal statutory rate to the
provision for income taxes is as follows:

<CAPTION>
                                                      2001     2000     1999
                                                    --------  -------  -------
     <S>                                            <C>       <C>      <C>
     Federal income taxes at statutory rate.......      35.0%    35.0%    35.0%
     State income taxes, net of federal tax
      benefit.....................................       2.4      1.7      2.5
     Taxes on foreign income which differ from the
      statutory U.S. federal rate.................       0.7      2.9        -
     Foreign sales corporation benefit............      (0.7)    (2.0)    (1.4)
     Other........................................         -     (0.2)    (2.2)
                                                    --------  -------  -------
                                                        37.4%    37.4%    33.9%
                                                    ========  =======  =======
</TABLE>

                                      F-13
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 5 -- Income Taxes -- Continued

   The tax effects of temporary differences consist of the following:

<TABLE>
<CAPTION>
                                                 April 29, 2001 April 30, 2000
                                                 -------------- --------------
     <S>                                         <C>            <C>
     Deferred tax assets:
      Tax credits, carryforwards and net
       operating losses.........................    $ 19,059       $ 13,939
      Accrued expenses..........................      11,909         16,998
      Inventories...............................       2,473          1,758
      Intangibles...............................       2,462          2,210
      Alternative minimum tax credits...........       1,741          1,407
      Employee benefits.........................         654          2,222
      Other.....................................       1,453            572
                                                    --------       --------
                                                    $ 39,751       $ 39,106
                                                    ========       ========
     Deferred tax liabilities:
      Accounting method change..................    $128,900       $138,403
      Property, plant and equipment.............     123,560        120,277
      Investments in subsidiaries...............      40,089         39,560
                                                    --------       --------
                                                    $292,549       $298,240
                                                    ========       ========
</TABLE>

   As of April 29, 2001 and April 30, 2000, the Company had $18,718 and
$15,195, respectively, of net current deferred tax assets included in prepaid
expenses and other current assets. The Company had a valuation allowance of
$20,214 and $5,265 related to income tax assets as of April 29, 2001 and April
30, 2000, respectively, primarily related to losses in foreign jurisdictions
for which no tax benefit was recognized.

   The tax credits, carryforwards and net operating losses expire from fiscal
2002 to 2021. The alternative minimum tax credits do not expire.

   As of April 29, 2001, foreign subsidiary net earnings of $29,139 were
considered permanently reinvested in those businesses. Accordingly, federal
income taxes have not been provided for such earnings. It is not practicable to
determine the amount of unrecognized deferred tax liabilities associated with
such earnings.

Note 6 -- Accrued Expenses and Other Current Liabilities

   Accrued expenses and other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                                   April 29, 2001 April 30, 2000
                                                   -------------- --------------
     <S>                                           <C>            <C>
     Payroll and related benefits.................    $ 80,960       $ 68,611
     Self-insurance reserves......................      31,870         29,248
     Other........................................     122,265        141,577
                                                      --------       --------
                                                      $235,095       $239,436
                                                      ========       ========
</TABLE>

Note 7 -- Shareholders' Equity

 Share Repurchase Program

   As of April 29, 2001, the board of directors has authorized the repurchase
of 16,000,000 shares of the Company's common stock. The Company repurchased
5,253,870 shares and 5,957,200 shares in fiscal 2001 and 2000, respectively.

                                      F-14
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 7 -- Shareholders' Equity -- Continued

 Preferred Stock

   The Company has 1,000,000 shares of $1.00 par value preferred stock
authorized, none of which are issued. The board of directors is authorized to
issue preferred stock in series and to fix, by resolution, the designation,
dividend rate, redemption provisions, liquidation rights, sinking fund
provisions, conversion rights and voting rights of each series of preferred
stock.

 Stock Options

   The Company's 1992 Stock Incentive Plan (the "1992 Plan") provided for the
issuance of nonstatutory stock options to management and other key employees.
Options were granted for periods not exceeding 10 years and exercisable five
years after the date of grant. The exercise price prior to August 31, 1994 was
for not less than the 150% of the fair market value of the common stock on the
date of grant and was amended to not less than the 100% on or after August 31,
1994.

   The Company's 1998 Stock Incentive Plan (the "1998 Plan") provides for the
issuance of nonstatutory stock options to management and other key employees.
Options were granted for periods not exceeding 10 years and exercisable five
years after the date of grant at an exercise price of not less than the 100% of
the fair market value of the common stock on the date of grant. In fiscal 1999,
the 1992 Plan was merged with the 1998 Plan. There are 11,000,000 shares
reserved under the 1998 Plan. As of April 29, 2001, there were 5,358,000 shares
available for grant under the 1998 Plan.

   The following is a summary of stock option transactions for fiscal years
1999 through 2001:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                            Number Of   Exercise
                                                              Shares     Price
                                                            ----------  --------
     <S>                                                    <C>         <C>
     Outstanding at May 3, 1998............................  6,732,000   $ 5.23
      Granted..............................................    520,000    13.98
      Exercised............................................ (2,647,000)    2.21
      Canceled.............................................   (320,000)    7.78
                                                            ----------   ------
     Outstanding at May 2, 1999............................  4,285,000     7.98
      Granted..............................................    110,000    11.99
      Exercised............................................   (464,000)    5.77
      Canceled.............................................   (230,000)    8.43
                                                            ----------   ------
     Outstanding at April 30, 2000.........................  3,701,000     8.34
      Granted..............................................  1,480,000    13.22
      Exercised............................................   (849,000)    5.89
      Canceled.............................................   (130,000)   11.42
                                                            ----------   ------
     Outstanding at April 29, 2001.........................  4,202,000   $10.46
                                                            ==========   ======
</TABLE>

                                      F-15
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 7 -- Shareholders' Equity -- Continued

   The following table summarizes information about stock options outstanding
as of April 29, 2001:

<TABLE>
<CAPTION>
                                                                 Options
                                        Weighted               Exercisable
                                         Average            ------------------
                                        Remaining  Weighted           Weighted
                                       Contractual Average            Average
                                          Life     Exercise           Exercise
   Range Of Exercise Price    Shares     (Years)    Price    Shares    Price
   -----------------------   --------- ----------- -------- --------- --------
   <S>                       <C>       <C>         <C>      <C>       <C>
       $ 5.76 to  5.87       1,162,000         2.7  $ 5.77  1,062,000  $5.77
         6.81 to  7.66         380,000         4.7    6.88    360,000   6.89
         8.23 to  9.39         270,000         6.3    8.66          -      -
        12.84 to 14.59       2,330,000         8.3   13.46          -      -
        15.81 to 16.34          60,000         6.8   16.04          -      -
       ---------------       ---------         ---  ------  ---------  -----
       $ 5.76 to 16.34       4,202,000         6.3  $10.46  1,422,000  $6.05
       ===============       =========         ===  ======  =========  =====
</TABLE>

   The Company does not recognize compensation costs for its stock option
plans. Had the Company determined compensation costs based on the fair value at
the grant date for its stock options granted subsequent to fiscal 1995, the
Company's net income and net income per share would have decreased accordingly.
The fair value of each stock option share granted is estimated at date of grant
using the Black-Scholes option pricing model and weighted average assumptions:

<TABLE>
<CAPTION>
                                                   2001      2000      1999
                                                 --------- --------- ---------
     <S>                                         <C>       <C>       <C>
     Net income, as reported.................... $ 223,513 $  75,112 $  94,884
     Pro forma net income.......................   221,686    73,960    93,705
     Net income per share, as reported:
      Basic..................................... $    2.06 $     .77 $    1.20
      Diluted...................................      2.03       .76      1.16
     Pro forma net income per share:
      Basic..................................... $    2.05       .76 $    1.18
      Diluted...................................      2.01       .75      1.14
     Weighted average fair values of option
      shares granted............................ $    6.64 $    5.84 $    6.70
     Expected option life....................... 7.0 years 7.0 years 7.0 years
     Risk-free interest rate....................      6.3%      5.9%      5.3%
     Expected annual volatility.................     35.0%     35.0%     35.0%
     Dividend yield.............................      0.0%      0.0%      0.0%
</TABLE>

 Preferred Share Purchase Rights

   On May 30, 2001, the board of directors of the Company adopted a new
Shareholder Rights Plan (the "Rights Plan") and declared a dividend of one
preferred share purchase right (a "Right") on each outstanding share of common
stock. Under the terms of the Rights Plan, if a person or group acquires 15%
(or other applicable percentage, as provided in the Rights Plan) or more of the
outstanding common stock, each Right will entitle its holder (other than such
person or members of such group) to purchase, at the Right's then current
exercise price, a number of shares of common stock having a market value of
twice such price. In addition, if the Company is acquired in a merger or other
business transaction after a person or group has acquired such percentage of
the outstanding common stock, each Right will entitle its holder (other than

                                      F-16
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 7 -- Shareholders' Equity -- Continued

such person or members of such group) to purchase, at the Right's then current
exercise price, a number of the acquiring company's common shares having a
market value of twice such price.

   Upon the occurrence of certain events, each Right will entitle its holder to
buy one two-thousandth of a Series A junior participating preferred share
("Preferred Share"), par value $1.00 per share, at an exercise price of $90.00,
subject to adjustment. Each Preferred Share will entitle its holder to 2,000
votes and will have an aggregate dividend rate of 2,000 times the amount, if
any, paid to holders of common stock. The Rights will expire on May 31, 2011,
unless the date is extended or unless the Rights are earlier redeemed or
exchanged at the option of the board of directors for $.00005 per Right.
Generally, each share of common stock issued after May 31, 2001 will have one
Right attached. The adoption of the Rights Plan has no impact on the financial
position or results of operations of the Company.

Note 8 -- Pension and Other Retirement Plans

   The Company provides substantially all U.S. and Canadian employees with
pension benefits. Salaried employees are provided benefits based on years of
service and average salary levels. Hourly employees are provided benefits of
stated amounts for each year of service. The Company's funding policy is to
contribute the minimum amount required under government regulations. Pension
plan assets are invested primarily in equities, debt securities, insurance
contracts and money market funds.

   The Company provides health care and life insurance benefits for certain
retired employees. These plans are unfunded and generally pay covered costs
reduced by retiree premium contributions, co-payments and deductibles. The
Company retains the right to modify or eliminate these benefits.

   The changes in the status of the Company's pension and postretirement plans,
the related components of pension and postretirement expense and the amounts
recognized in the Consolidated Balance Sheets are as follows:

<TABLE>
<CAPTION>
                               Pension Benefits             Postretirement Benefits
                         ------------------------------  ------------------------------
                         April 29, 2001  April 30, 2000  April 29, 2001  April 30, 2000
                         --------------  --------------  --------------  --------------
<S>                      <C>             <C>             <C>             <C>
Change in benefit
 obligation:
 Benefit obligation at
  beginning of year.....       $425,190        $442,752         $26,633         $30,294
  Service cost..........         11,194          10,779             523             596
  Interest cost.........         32,535          30,251           1,916           2,006
  Plan amendments.......          1,437               -               -          (1,360)
  Employee
   contributions........          1,183           1,240               -               -
  Acquisitions..........         36,048          12,584               -               -
  Benefits paid.........        (32,366)        (26,929)         (1,818)         (1,869)
  Foreign currency
   changes..............         (7,379)         (2,727)           (739)           (388)
  Actuarial (gain)
   loss.................         12,602         (42,760)            268          (2,646)
                               --------        --------         -------         -------
 Benefit obligation at
  end of year...........        480,444         425,190          26,783          26,633
                               --------        --------         -------         -------
</TABLE>

                                      F-17
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 8 -- Pension and Other Retirement Plans -- Continued

<TABLE>
<CAPTION>
                               Pension Benefits           Postretirement Benefits
                         ----------------------------- -----------------------------
                         April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000
                         -------------- -------------- -------------- --------------
<S>                      <C>            <C>            <C>            <C>
Change in plan assets:
 Fair value of plan
  assets at beginning of
  year..................     411,273        396,725              -              -
  Actual return on plan
   assets...............      39,422         11,982              -              -
  Acquisitions..........      37,447         11,968              -              -
  Employer and employee
   contributions........      18,550         20,676          1,818          1,869
  Foreign currency
   changes..............      (8,775)        (3,149)             -              -
  Benefits paid.........     (32,366)       (26,929)        (1,818)        (1,869)
                            --------       --------       --------       --------
 Fair value of plan
  assets at end of
  year..................     465,551        411,273              -              -
                            --------       --------       --------       --------
Reconciliation of
 accrued cost:
 Funded status..........     (14,893)       (13,917)       (26,783)       (26,633)
 Unrecognized actuarial
  (gain) or loss........       1,726         (7,333)        (1,053)             -
 Unrecognized prior
  service cost..........      14,322         14,236              -              -
                            --------       --------       --------       --------
  Accrued (prepaid) cost
   at end of year.......    $  1,155       $ (7,014)      $(27,836)      $(26,633)
                            ========       ========       ========       ========
Amounts recognized in
 the statement of
 financial position
 consist of:
 Prepaid benefit cost...    $ 38,601       $ 35,211       $      -       $      -
 Accrued benefit
  liability.............     (64,687)       (64,127)       (27,836)       (26,633)
 Intangible asset.......      12,533          9,508              -              -
 Minimum pension
  liability.............      14,708         12,394              -              -
                            --------       --------       --------       --------
  Net amount recognized
   at end of year.......    $  1,155       $ (7,014)      $(27,836)      $(26,633)
                            ========       ========       ========       ========
</TABLE>

   Components of net periodic costs include:

<TABLE>
<CAPTION>
                                                        Pension Benefits
                                                   ----------------------------
                                                     2001      2000      1999
                                                   --------  --------  --------
     <S>                                           <C>       <C>       <C>
     Service cost................................. $ 11,194  $ 10,779  $  6,626
     Interest cost................................   32,535    30,251    22,007
     Expected return on plan assets...............  (36,339)  (35,468)  (25,834)
     Net amortization.............................    1,315     1,174        86
                                                   --------  --------  --------
     Net periodic cost............................ $  8,705  $  6,736  $  2,885
                                                   ========  ========  ========
<CAPTION>
                                                    Postretirement Benefits
                                                   ----------------------------
                                                     2001      2000      1999
                                                   --------  --------  --------
     <S>                                           <C>       <C>       <C>
     Service cost................................. $    523  $    596  $    397
     Interest cost................................    1,916     2,006     1,416
     Net amortization.............................     (336)     (124)       95
                                                   --------  --------  --------
     Net periodic cost............................ $  2,103  $  2,478  $  1,908
                                                   ========  ========  ========
</TABLE>

   The projected benefit obligations, accumulated benefit obligations and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $200,361, $192,731 and $137,316, respectively, as
of April 29, 2001 and $184,039, $174,709 and $119,951, respectively, as of
April 30, 2000.

                                      F-18
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 8 -- Pension and Other Retirement Plans -- Continued

   In determining the projected benefit obligation and the accumulated
postretirement benefit obligation in fiscal 2001 and 2000, the following
weighted average assumptions were made:

<TABLE>
<CAPTION>
                                    Pension Benefits           Postretirement Benefits
                              ----------------------------- -----------------------------
                              April 29, 2001 April 30, 2000 April 29, 2001 April 30, 2000
                              -------------- -------------- -------------- --------------
     <S>                      <C>            <C>            <C>            <C>
     Discount rate...........      7.4%           7.7%           7.5%           7.5%
     Expected return on
      assets.................      8.7%           8.7%             -              -
     Compensation increase...      3.5%           3.7%             -              -
</TABLE>

   In determining the accumulated postretirement benefit obligation in fiscal
2001 and 2000, the assumed annual rate of increase in per capita cost of
covered health care benefits for U.S. plans was 5.5%. For non-U.S. plans, the
assumed annual rate of increase was 7.5% for fiscal 2001 and decreased by 0.5%
each year until leveling at 5.0%.

   Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A 1% change in the assumed health
care cost trends would have the following effect:

<TABLE>
<CAPTION>
                                                 One Percentage One Percentage
                                                 Point Increase Point Decrease
                                                 -------------- --------------
     <S>                                         <C>            <C>
     Effect on total of service and interest
      cost components..........................      $  189        $  (169)
     Effect on accumulated benefit obligation..      $1,578        $(1,462)
</TABLE>

Note 9 -- Lease Obligations and Commitments

   The Company has agreements, expiring from fiscal 2004 through 2013, to use
cold storage warehouses owned by partnerships, 50% of which are owned by the
Company. The Company has agreed to pay prevailing competitive rates for use of
the facilities, subject to aggregate guaranteed minimum annual fees. In fiscal
2001, 2000 and 1999, the Company paid $9,079, $8,505 and $8,046, respectively,
in fees for use of the facilities. As of April 29, 2001 and April 30, 2000, the
Company had investments of $834 and $989, respectively, in the partnerships.

   The Company leases transportation equipment under operating leases ranging
from one to 10 years with options to cancel at earlier dates. Minimum rental
commitments under all noncancelable operating leases are as follows:

<TABLE>
     <S>                                                                <C>
     Fiscal Year
     2002.............................................................. $ 33,933
     2003..............................................................   20,340
     2004..............................................................   16,492
     2005..............................................................   12,627
     2006..............................................................   10,202
     Thereafter........................................................   27,634
                                                                        --------
                                                                        $121,228
                                                                        ========
</TABLE>

   Rental expense was $39,612 in fiscal 2001, $32,425 in fiscal 2000 and
$24,535 in fiscal 1999. Rental expense in fiscal 2001, 2000 and 1999 included
$3,228, $2,566 and $2,787 of contingent maintenance fees, respectively.

                                      F-19
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 9 -- Pension and Other Retirement Plans -- Continued

   The Company has a sale and leaseback arrangement for certain hog production
facilities accounted for as capital leases. The arrangement provides for an
early termination at predetermined amounts in fiscal 2004. Future minimum lease
payments under capital leases are as follows:

<TABLE>
     <S>                                                                <C>
     Fiscal Year
     2002.............................................................. $ 5,931
     2003..............................................................   5,450
     2004..............................................................  12,194
     2005..............................................................   2,602
     2006..............................................................   1,927
     Thereafter........................................................   1,816
                                                                        -------
                                                                         29,920
     Less amounts representing interest................................  (5,257)
                                                                        -------
     Present value of net minimum obligations..........................  24,663
     Less current portion..............................................  (3,966)
                                                                        -------
     Long-term capital lease obligations............................... $20,697
                                                                        =======
</TABLE>

   As of April 29, 2001, the Company had definitive commitments of $104,965 for
capital expenditures primarily for processed meats expansion, production
efficiency projects and additional hog production facilities in Utah.

Note 10 -- Related Party Transactions

   A director of the Company holds an ownership interest in Murfam Enterprises,
LLC ("Murfam") and DM Farms, LLC. These entities own farms that produce hogs
under contract to the Company. Murfam also produces and sells feed ingredients
to the Company. In fiscal 2001 and 2000, the Company paid $25,236 and $7,565,
respectively, to these entities for the production of hogs and feed
ingredients. In fiscal 2001 and 2000, the Company was paid $16,325 and $3,382
by these entities for associated farm and other support costs. The Company
believes that the terms of the arrangements are at prevailing market prices.

   A director of the Company is the chairman, president and chief executive
officer and a director of Prestage Farms, Inc. ("Prestage"). The Company has a
long-term agreement to purchase hogs from Prestage at prices that, in the
opinion of management, are equivalent to market. Pursuant to this agreement
with Prestage, the Company purchased $157,510, $138,705 and $106,365 of hogs in
fiscal 2001, 2000 and 1999, respectively.

Note 11 -- Nonrecurring Gain

   In fiscal 2001, the Company sold 8,193 shares of IBP, inc. ("IBP") common
stock resulting in a nonrecurring, pretax gain of $79,019. Expenses incurred
during the fiscal year related to the attempted merger with IBP and the
expenses of the subsequent sale of these shares totaled $7,500. The after-tax
gain on the sale, net of expenses, amounted to $45,200, or $.41 per diluted
share.

                                      F-20
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 12 -- Regulation and Litigation

   Like other participants in the meat processing industry, the Company is
subject to various laws and regulations administered by federal, state and
other government entities, including the Environmental Protection Agency
("EPA") and corresponding state agencies as well as the United States
Department of Agriculture, the United States Food and Drug Administration and
the United States Occupational Safety and Health Administration. Management
believes that the Company presently is in compliance with all such laws and
regulations in all material respects, and that continued compliance with these
standards will not have a material adverse effect on the Company's financial
position or results of operations. The EPA has recently proposed to extensively
modify its regulations governing confined animal feeding operations. These
proposed modifications are scheduled to be finalized by December 2002 and could
have a significant impact on the Company's hog production operations. The
Company is committed to responsible environmental stewardship in its
operations.

   The Company from time to time receives notices from regulatory authorities
and others asserting that it is not in compliance with such laws and
regulations. In some instances, litigation ensues, including the matters
discussed below. Although the suits below remain pending and relief, if
granted, could be costly to the Company, the Company believes that their
ultimate resolution will not have a material adverse effect on the Company's
financial position or annual results of operations.

   In United States of America v. Smithfield Foods, Inc. et al., the United
States District Court for the Eastern District of Virginia imposed a $12,600
civil penalty on the Company and two of its subsidiaries for Clean Water Act
violations at the Company's Smithfield, Virginia processing plants. The Company
recorded a nonrecurring charge of $12,600 during fiscal 1998 with respect to
this penalty. In September 1999, the United States Court of Appeals for the
Fourth Circuit affirmed the District Court's determination of liability but
remanded the penalty determination to the District Court with instructions to
recalculate the civil penalty solely to correct a 4% error made by the
government's expert. In May 2000, the Company filed a certiorari petition
seeking review of the Fourth Circuit's ruling by the United States Supreme
Court. The Company's certiorari petition was later denied, and the Company
satisfied the judgment.

   The Water Keeper Alliance Inc., an environmental activist group from the
State of New York, has recently filed or caused to be filed a series of
lawsuits against the Company and/or its subsidiaries and properties, as
described below.

   In June 2000, Neuse River Foundation, Richard J. Dove, d/b/a The Neuse
Riverkeeper, D. Boulton Baldridge, d/b/a The Cape Fear Riverkeeper, New River
Foundation, Inc., Tom Mattison, d/b/a The New Riverkeeper, and The Water Keeper
Alliance, Inc. filed a lawsuit in the General Court of Justice, Superior Court
Division, of the State of North Carolina against the Company, Carroll's Foods,
Inc., Brown's of Carolina, Inc., Murphy Farms, Inc., Wendell H. Murphy, Sr.,
Wendell H. Murphy, Jr., and Joseph W. Luter, III. The lawsuit alleged, among
other things, claims based on negligence, trespass, strict liability and unfair
trade practices related to the operation of swine waste disposal lagoons and
spray fields in North Carolina. The lawsuit sought numerous and costly
remedies, including injunctive relief to end all use of swine waste disposal
lagoons and spray fields in North Carolina, unspecified but costly remediation
efforts and other damages. On March 27, 2001, the Superior Court granted the
Company's motion and dismissed the lawsuit. The plaintiffs noted their appeal
on April 11, 2001.


                                      F-21
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Note 12 -- Regulation and Litigation -- Continued

   In February 2001, Thomas E. Jones and twelve other individuals filed a
lawsuit in the North Carolina General Court of Justice, Superior Court Division
of the State of North Carolina, against the Company, three of its subsidiaries,
Wendell H. Murphy, Sr., Wendell H. Murphy, Jr., and Joseph W. Luter, III (the
"Jones Suit"). The Jones Suit alleged, among other things, claims based on
negligence, trespass, strict liability and unfair trade practices related to
the operation of swine waste disposal lagoons and spray fields in North
Carolina. The lawsuit sought numerous and costly remedies, including injunctive
relief to end all use of hog waste disposal lagoons in North Carolina,
unspecified but costly remediation efforts and other damages. On March 27,
2001, the Superior Court granted the Company's motion and dismissed the
lawsuit. The plaintiffs noted their appeal on April 11, 2001.

   Also in February 2001, The Water Keeper Alliance Inc., Thomas E. Jones d/b/a
The Neuse Riverkeeper, and Neuse River Foundation filed two lawsuits in the
United States District Court for the Eastern District of North Carolina against
one of the Company's subsidiaries, and two of that subsidiary's hog production
facilities in North Carolina (the "Citizens Suits"). The Company is named as a
defendant in one of these suits. The Citizens Suits allege, among other things,
violations of various environmental laws at each facility and the failure to
obtain certain federal permits at each facility. The lawsuits seek remediation
costs, injunctive relief and substantial civil penalties. The Company and its
subsidiaries have moved to dismiss each of these lawsuits.

   The Company has also received notices from several organizations and
individuals, including The Water Keeper Alliance Inc., of their intent to file
additional lawsuits against the Company under various federal environmental
statutes regulating water quality, air quality, and management of solid waste.
These threatened lawsuits may seek civil penalties, injunctive relief and
remediation costs. However, the Company is unable to determine whether any of
these notices will result in suit being filed.

   In March 2001, Eugene C. Anderson and other individuals filed what purports
to be a class action in the United States District Court for the Middle
District of Florida, Tampa Division, against the Company and Joseph W. Luter,
III (the "Anderson Suit"). The Anderson Suit purports to allege violations of
various laws, including the Racketeer Influenced and Corrupt Organizations Act,
based on the Company's alleged failure to comply with certain environmental
laws. The complaint seeks treble damages that are unspecified. The plaintiffs
filed an amended complaint on May 1, 2001.

   The Company believes that the Anderson Suit is baseless and without merit
and the Company intends to defend the suit vigorously. The Company has
investigated the allegations made in the Citizens Suits and believes that the
outcome of these lawsuits will not have a material adverse effect on the
Company's financial condition or results of operations. The Company believes
that all of the litigation described above represents the agenda of special
advocacy groups including the Water Keeper Alliance Inc. The plaintiffs in
these cases have stated that federal and state environmental agencies have
declined to bring any of these suits and, indeed, have criticized these
agencies.

   In April 2000, the Company and one of its subsidiaries were named as
defendants, along with IBP, inc., in a civil action filed in the United States
District Court for the Middle District of Georgia. The case was filed by four
named plaintiffs on behalf of a putative nationwide class of hog producers who
from 1994 to the present produced and sold finished hogs to defendants on a
spot, auction or cash market basis. The plaintiffs contend that the defendants
violated the Packers and Stockyards Act of 1921 (the "PSA"), by reason of the
defendants

                                      F-22
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 12 -- Regulation and Litigation -- Continued

engaging in various captive supply arrangements for the procurement of hogs for
slaughter. The Company moved the Georgia court to dismiss the case for lack of
jurisdiction or in the alternative transfer it to the Eastern District of
Virginia, where the Company is headquartered. On March 30, 2001, the Georgia
court granted the Company's motion to transfer. On May 11, 2001, the Company
filed a motion to dismiss the case for failure to state a claim upon which
relief can be granted. The Company believes that it has valid defenses to this
action, that it has acted properly in its dealings with hog producers, and that
it has not violated the PSA or any other applicable law. The Company further
believes that the action does not qualify for certification as a class action.
Accordingly, the Company intends to defend this action vigorously.

Note 13 -- Net Income Per Share

   The computation for basic and diluted net income per share follows:

<TABLE>
<CAPTION>
                                                    Net       Weighted     Per
                                                   Income  Average Shares Share
                                                  -------- -------------- -----
     <S>                                          <C>      <C>            <C>
     Fiscal 2001
     Net income per basic share.................. $223,513    108,360     $2.06
     Effect of dilutive stock options............        -      1,786         -
                                                  --------    -------     -----
       Net income per diluted share.............. $223,513    110,146     $2.03
                                                  ========    =======     =====
     Fiscal 2000
     Net income per basic share.................. $ 75,112     97,284     $ .77
     Effect of dilutive stock options............        -      1,488         -
                                                  --------    -------     -----
       Net income per diluted share.............. $ 75,112     98,772     $ .76
                                                  ========    =======     =====
     Fiscal 1999
     Net income per basic share.................. $ 94,884     79,256     $1.20
     Effect of dilutive stock options............        -      2,668         -
                                                  --------    -------     -----
       Net income per diluted share.............. $ 94,884     81,924     $1.16
                                                  ========    =======     =====
</TABLE>

   In fiscal 2001, weighted average shares for the computation of diluted net
income per share excludes the antidilutive effect of outstanding stock options
whose exercise price is in excess of $14.23, the average price of the Company's
stock for the fiscal year.

Note 14 -- Segments

   The MPG markets its products to food retailers, distributors, wholesalers,
restaurant and hotel chains, other food processors and manufacturers of
pharmaceuticals and animal feeds in both domestic and international markets.
The HPG supplies raw materials (live hogs) to the hog slaughtering operations
of the Company and other outside operations. The following tables present
information about the results of operations and the assets of both of the
Company's reportable segments for the fiscal years ended April 29, 2001, April
30, 2000 and May 2, 1999. The information contains certain allocations of
expenses that the Company deems reasonable and appropriate for the evaluation
of results of operations. The Company does not allocate income taxes to
segments. Segment assets exclude intersegment account balances as the Company
feels that inclusion would be misleading or not meaningful. Management believes
all intersegment sales are at prices which approximate market.

                                      F-23
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 14 -- Segments -- Continued

<TABLE>
<CAPTION>
                                    Meat       Hog       General
                                 Processing Production  Corporate    Total
                                 ---------- ----------  ---------  ----------
     <S>                         <C>        <C>         <C>        <C>
     Fiscal 2001
     Sales...................... $5,584,572 $1,225,820  $      -   $6,810,392
     Intersegment sales.........          -   (910,465)        -     (910,465)
     Depreciation and
      amortization..............     85,628     49,380     5,042      140,050
     Operating profit (loss)
      /1...................../..    135,205    281,296   (49,228)     367,273
     Gain on sale of IBP common
      stock.....................          -          -   (79,019)     (79,019)
     Interest expense...........     46,607     23,547    18,820       88,974
     Assets.....................  1,743,944  1,282,559   224,385    3,250,888
     Capital expenditures.......    124,923     16,047     3,150      144,120

     Fiscal 2000
     Sales...................... $4,984,010 $  735,328  $      -   $5,719,338
     Intersegment sales.........          -   (568,869)        -     (568,869)
     Depreciation and
      amortization..............     73,133     41,288     4,543      118,964
     Operating profit (loss)....    122,880     99,633   (30,582)     191,931
     Interest expense...........     37,941     26,103     7,900       71,944
     Assets.....................  1,613,395  1,319,097   197,121    3,129,613
     Capital expenditures.......     91,925      7,262     1,196      100,383

     Fiscal 1999
     Sales...................... $3,729,644 $  155,796  $      -   $3,885,440
     Intersegment sales.........          -   (110,451)        -     (110,451)
     Depreciation and
      amortization..............     48,814     16,541     3,211       68,566
     Operating profit (loss)....    253,839    (46,050)  (23,830)     183,959
     Interest expense...........     25,565     12,583     2,373       40,521
     Assets.....................  1,292,633    343,069   135,912    1,771,614
     Capital expenditures.......     62,315     28,755     4,377       95,447
</TABLE>
---------------------
/1 /General corporate expenses include $7,500 of expenses related to the
   attempted merger with IBP and the subsequent sale of IBP common stock (See
   Note 11).

                                      F-24
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 14 -- Segments -- Continued

   The following table presents the Company's sales and long-lived assets
attributed to operations in the U.S. and international geographic areas.

<TABLE>
<CAPTION>
                                                  2001       2000       1999
                                               ---------- ---------- ----------
     <S>                                       <C>        <C>        <C>
     Sales:
       U.S. .................................. $4,639,468 $4,016,749 $3,470,307
       Canada.................................    771,969    632,897    244,121
       Poland.................................    290,055    344,984          -
       France.................................    198,435    155,839     60,561
                                               ---------- ---------- ----------
         Total................................ $5,899,927 $5,150,469 $3,774,989
                                               ========== ========== ==========
     Long-lived assets at end of year:
       U.S. .................................. $1,576,497 $1,545,204 $  790,315
       Canada.................................    229,690    187,092    169,038
       Poland.................................    114,041     90,809     78,201
       France.................................     66,965     73,782     51,980
</TABLE>

Note 15 -- Subsequent Events

   On June 22, 2001, the Company completed the acquisition of Moyer Packing
Company ("Moyer"), a closely held beef processor with annual sales of
approximately $600,000 for $89,500 and the assumption of debt. Moyer is the
ninth largest beef processor in the U.S. and the largest in the Eastern United
States. Operations include beef processing, fabrication, and further
processing, as well as hide processing and rendering operations.

   The Company has announced an offer to acquire all of the common shares of
Schneider that it does not already own for approximately 2.8 million shares of
the Company's common stock. The Company expects to complete the tender offer
during the second quarter of fiscal 2002.

Note 16 -- Stock Split

   On September 14, 2001, the Company effected a 2-for-1 stock split in the
form of a stock dividend. All common share numbers and per share amounts in
these Notes to Consolidated Financial Statements and, where indicated, on the
consolidated financial statements have been adjusted to give effect to this
stock split.

Note 17 -- Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                      First      Second     Third      Fourth
                                    ---------- ---------- ---------- ----------
     <S>                            <C>        <C>        <C>        <C>
     Fiscal 2001
     Sales......................... $1,421,326 $1,430,919 $1,537,372 $1,510,310
       Gross profit................    229,400    234,796    229,493    255,214
     Net income....................     44,569     44,576     80,849     53,519
     Net income per common share
       Basic....................... $      .41 $      .41 $      .74 $      .50
       Diluted..................... $      .40 $      .40 $      .73 $      .49

</TABLE>

                                      F-25
<PAGE>

                    SMITHFIELD FOODS, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

<TABLE>
<CAPTION>
                                      First      Second     Third      Fourth
                                    ---------- ---------- ---------- ----------
     <S>                            <C>        <C>        <C>        <C>
     Fiscal 2000
     Sales......................... $1,142,415 $1,230,129 $1,377,166 $1,400,759
       Gross profit................    147,496    172,640    176,183    197,747
     Net income....................      6,930     22,214     17,488     28,480
     Net income per common share
       Basic....................... $      .08 $      .24 $      .18 $      .26
       Diluted..................... $      .07 $      .24 $      .18 $      .26
</TABLE>


                                      F-26
<PAGE>

                             SMITHFIELD FOODS, INC.

                  CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                          13 Weeks    13 Weeks
                                                           Ended       Ended
                                                          July 29,    July 30,
     (In thousands, except per share data)                  2001        2000
     -------------------------------------               ----------  ----------
     <S>                                                 <C>         <C>
     Sales.............................................  $1,636,412  $1,421,326
     Cost of sales.....................................   1,380,994   1,191,926
                                                         ----------  ----------
     Gross profit......................................     255,418     229,400
     Selling, general and administrative expenses......     116,219     103,845
     Depreciation expense..............................      31,707      30,655
     Interest expense..................................      19,636      23,388
     Minority interests................................       1,578        (246)
     Gain on sale of IBP, inc. common stock............      (7,008)         --
                                                         ----------  ----------
     Income before income taxes........................      93,286      71,758
     Income taxes......................................      36,382      27,189
                                                         ----------  ----------
     Net income........................................  $   56,904  $   44,569
                                                         ==========  ==========
     Net income per common share:
      Basic (1)........................................  $      .54  $      .41
                                                         ==========  ==========
      Diluted (1)......................................  $      .53  $      .40
                                                         ==========  ==========
     Average common shares outstanding:
      Basic (1)........................................     104,934     109,320
                                                         ==========  ==========
      Diluted (1)......................................     106,902     110,686
                                                         ==========  ==========
</TABLE>

    (1)  Adjusted for 2-for-1 stock split effective September 14, 2001

            See Notes to Consolidated Condensed Financial Statements

                                      F-27
<PAGE>

                             SMITHFIELD FOODS, INC.

                     CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                    July 29,
(In thousands, except per share data)                 2001        April 29, 2001
-------------------------------------              ----------     --------------
<S>                                                <C>            <C>
ASSETS                                             (Unaudited)
Current assets:
 Cash and cash equivalents........................ $   61,192       $   56,532
 Accounts receivable, net.........................    462,470          387,841
 Inventories......................................    765,052          729,167
 Prepaid expenses and other current assets........     85,553           90,155
                                                   ----------       ----------
  Total current assets............................  1,374,267        1,263,695
                                                   ----------       ----------
Property, plant and equipment.....................  1,895,314        1,796,655
 Less accumulated depreciation....................   (550,284)        (522,178)
                                                   ----------       ----------
  Net property, plant and equipment...............  1,345,030        1,274,477
                                                   ----------       ----------
Other assets:
 Goodwill.........................................    332,964          347,342
 Investments in partnerships......................    105,819           88,092
 Other............................................    200,337          277,282
                                                   ----------       ----------
  Total other assets..............................    639,120          712,716
                                                   ----------       ----------
                                                   $3,358,417       $3,250,888
                                                   ==========       ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Notes payable.................................... $   34,981       $   35,504
 Current portion of long-term debt and capital
  lease obligations...............................    498,314           79,590
 Accounts payable.................................    297,887          278,093
 Accrued expenses and other current liabilities...    254,398          235,095
                                                   ----------       ----------
  Total current liabilities.......................  1,085,580          628,282
                                                   ----------       ----------
Long-term debt and capital lease obligations......    768,216        1,146,223
                                                   ----------       ----------
Other noncurrent liabilities:
 Deferred income taxes............................    251,143          271,516
 Pension and postretirement benefits..............     74,646           77,520
 Other............................................     34,683           25,820
                                                   ----------       ----------
  Total other noncurrent liabilities..............    360,472          374,856
                                                   ----------       ----------
Minority interests................................     49,981           48,395
                                                   ----------       ----------
Shareholders' equity:
 Preferred stock, $1.00 par value, 1,000,000
  authorized shares...............................        --               --
 Common stock, $.50 par value, 100,000,000 (1)
  authorized shares; 104,365,572 (2) and
  52,502,751 issued...............................     52,183 (2)       26,251
 Additional paid-in capital.......................    364,507 (2)      405,665
 Retained earnings................................    695,682          638,779
 Accumulated other comprehensive loss.............    (18,204)         (17,563)
                                                   ----------       ----------
  Total shareholders' equity......................  1,094,168        1,053,132
                                                   ----------       ----------

                                                   $3,358,417       $3,250,888
                                                   ==========       ==========
</TABLE>

(1) Authorized shares were increased from 100,000,000 to 200,000,000 effective
    August 29, 2001

(2) Adjusted for 2-for-1 stock split effective September 14, 2001

            See Notes to Consolidated Condensed Financial Statements

                                      F-28
<PAGE>

                             SMITHFIELD FOODS, INC.

                CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                      13 Weeks      13 Weeks
                                                        Ended         Ended
(In thousands)                                      July 29, 2001 July 30, 2000
--------------                                      ------------- -------------
<S>                                                 <C>           <C>
Cash flows from operating activities:
 Net income........................................   $ 56,904      $ 44,569
 Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization....................     33,351        33,897
  Gain on sale of IBP, inc. common stock...........     (7,008)           --
  Loss on sale of property, plant and equipment....      1,752         1,463
  Changes in operating assets and liabilities, net
   of effect of acquisitions.......................      6,293       (20,070)
                                                      --------      --------
    Net cash provided by operating activities......     91,292        59,859
                                                      --------      --------

Cash flows from investing activities:
 Capital expenditures..............................    (26,134)      (30,506)
 Business acquisitions, net of cash................   (117,486)       (7,916)
 Proceeds from sale of IBP, inc. common stock......     58,654            --
 Proceeds from sale of property, plant and
  equipment........................................        639           859
 Investments in IBP, inc. common stock.............         --       (31,706)
 Investments in partnerships.......................     (8,680)       (6,772)
                                                      --------      --------
    Net cash used in investing activities..........    (93,007)      (76,041)
                                                      --------      --------

Cash flows from financing activities:
 Net (repayments) borrowings on notes payable......     (1,626)        5,418
 Proceeds from issuance of long-term debt..........      8,352           627
 Net borrowings on revolving credit facility.......     31,000        26,000
 Principal payments on long-term debt and capital
  lease obligations................................    (10,647)      (12,024)
 Repurchase and retirement of common stock.........    (20,911)       (7,992)
 Exercise of common stock options..................        590           471
                                                      --------      --------
    Net cash provided by financing activities......      6,758        12,500
                                                      --------      --------

Net increase (decrease) in cash and cash
 equivalents.......................................      5,043        (3,682)
Effect of foreign exchange rate changes on cash....       (383)          (43)
Cash and cash equivalents at beginning of period...     56,532        49,882
                                                      --------      --------
Cash and cash equivalents at end of period.........   $ 61,192      $ 46,157
                                                      ========      ========

Supplemental disclosures of cash flow information:
 Cash payments during period:
  Interest (net of amount capitalized).............   $ 15,312      $ 20,589
                                                      --------      --------
  Income taxes.....................................   $ 22,563      $ 15,607
                                                      ========      ========
</TABLE>

            See Notes to Consolidated Condensed Financial Statements

                                      F-29
<PAGE>

                             SMITHFIELD FOODS, INC.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


(1) These statements should be read in conjunction with the Consolidated
    Financial Statements and related notes, which are included in the Company's
    Annual Report, for the fiscal year ended April 29, 2001. The interim
    consolidated condensed financial information furnished herein is unaudited.
    The information reflects all adjustments (which include only normal
    recurring adjustments) which are, in the opinion of management, necessary
    for a fair presentation of the financial position and results of operations
    for the periods included in the report.

(2) Inventories consist of the following:

<TABLE>
<CAPTION>
                                                              July 29,  April
   (In thousands)                                               2001   29, 2001
   --------------                                             -------- --------
   <S>                                                        <C>      <C>
   Hogs on farms............................................. $340,569 $331,060
   Fresh and processed meats.................................  328,711  316,929
   Manufacturing supplies....................................   68,505   60,823
   Other.....................................................   27,267   20,355
                                                              -------- --------
                                                              $765,052 $729,167
                                                              ======== ========
</TABLE>

(3) The Company has a 5-year $650.0 million revolving credit facility which is
    scheduled to expire in July 2002. The Company has begun the process to
    refinance this facility and expects to complete the refinancing during the
    third quarter of fiscal 2002. At July 29, 2001, the outstanding balance on
    this facility of $438.0 million was included in current portion of long-
    term debt and capital lease obligations on the Consolidated Condensed
    Balance Sheet.

(4) Net income per basic share is computed based on the average common shares
    outstanding during the period. Net income per diluted share is computed
    based on the average common shares outstanding during the period adjusted
    for the effect of potential common stock equivalents, such as stock
    options. The computation for basic and diluted net income per share is as
    follows:

<TABLE>
<CAPTION>
                                                           13 Weeks Ended
                                                     ---------------------------
(In thousands, except per share data)                July 29, 2001 July 30, 2000
-------------------------------------                ------------- -------------
<S>                                                  <C>           <C>
Net income..........................................    $56,904       $44,569
                                                        -------       -------
Average common shares outstanding:
 Basic..............................................    104,934       109,320
 Dilutive stock options.............................      1,968         1,366
                                                        -------       -------
 Diluted............................................    106,902       110,686
                                                        =======       =======
Net income per common share:
 Basic..............................................    $   .54       $   .41
                                                        =======       =======
 Diluted............................................    $   .53       $   .40
                                                        =======       =======
</TABLE>

                                      F-30
<PAGE>

                             SMITHFIELD FOODS, INC.

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)


(5) The components of comprehensive income, net of related taxes, consist of:

<TABLE>
<CAPTION>
                                                           13 Weeks Ended
                                                     ---------------------------
   (In thousands)                                    July 29, 2001 July 30, 2000
   --------------                                    ------------- -------------
   <S>                                               <C>           <C>
   Net income.......................................    $56,904       $44,569
   Other comprehensive loss:
    Unrealized loss on cash flow hedges.............     (1,796)          --
    Unrealized gain (loss) on securities............      3,300        (1,313)
    Foreign currency translation....................     (2,145)       (6,291)
                                                        -------       -------
   Comprehensive income.............................    $56,263       $36,965
                                                        =======       =======
</TABLE>

(6) The following table presents information about the results of operations
    for each of the Company's reportable segments for the 13 weeks ended July
    29, 2001 and July 30, 2000, respectively.

<TABLE>
<CAPTION>
                                       Meat        Hog      General
   (In thousands)                   Processing  Production Corporate   Total
   --------------                   ----------  ---------- --------- ----------
   <S>                              <C>         <C>        <C>       <C>
   July 29, 2001
   -------------------------------
   Sales..........................  $1,541,388   $361,597   $   --   $1,902,985
   Intersegment sales.............         --    (266,573)      --     (266,573)
   Operating profit (loss)........        (451)   119,700   (13,335)    105,914

   July 30, 2000
   -------------------------------
   Sales..........................  $1,330,024   $324,717   $   --   $1,654,741
   Intersegment sales.............         --    (233,415)      --     (233,415)
   Operating profit (loss)........      (7,818)   111,151    (8,187)     95,146
</TABLE>

(7) In June 2001, the Company completed the acquisition of Moyer Packing
    Company (Moyer) for approximately $89.5 million in cash and the assumption
    of debt. The balance of the purchase price in excess of the fair value of
    the assets acquired and the liabilities assumed at the date of the
    acquisition was recorded as an intangible asset. Prior to the acquisition,
    Moyer had annual sales of approximately $600.0 million.

    In July 2001, the Company acquired substantially all of the assets and
    business of Gorges/Quik-to-Fix Foods, Inc. (Quik-to-Fix) for approximately
    $31 million in cash. Prior to the acquisition, Quik-to-Fix had annual sales
    of approximately $140 million.

    During the third quarter of fiscal year 2001, the Company's Schneider
    Corporation increased its investment in Saskatchewan-based Mitchell's
    Gourmet Foods Inc. (Mitchell's) to 54%. Prior to the third quarter of
    fiscal year 2001, the Company had used the equity method of accounting for
    Mitchell's. For the fiscal year ended October 2000, Mitchell's had sales of
    approximately $190.0 million.

                                      F-31
<PAGE>

                             SMITHFIELD FOODS, INC.

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
    These acquisitions were accounted for using the purchase method of
    accounting, and accordingly, the accompanying financial statements include
    the financial position and results of operations from the dates of
    acquisition. Had these acquisitions occurred at the beginning of the fiscal
    year in which they were acquired, there would not have been a material
    effect to net income or net income per share for the 13 weeks ended July
    29, 2001 or July 30, 2000.

(8) On April 30, 2001, the Company adopted Statement of Financial Accounting
    Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
    Activities", as amended by SFAS No. 137 and No. 138. SFAS 133 requires that
    all derivative instruments be reported on the Company's Consolidated
    Balance Sheet at fair value and provides guidance on the accounting
    treatment of gains and losses from derivatives based on the type of hedging
    transaction. As substantially all of the Company's derivatives are
    considered cash flow hedges, as defined in SFAS 133, changes in the fair
    value of derivatives are recorded in other comprehensive income or current
    earnings depending on whether the derivative is designated as a hedge
    transaction and the effectiveness of the hedging relationship. Gains and
    losses on derivative instruments reported in other comprehensive income are
    recognized in earnings in the period in which earnings are impacted by the
    underlying hedged item. The ineffective portions of cash flow hedges are
    recognized in current period earnings.

    The Company uses futures and option contracts for the purpose of hedging
    its exposure to changes in the cost of raw materials, including live hogs
    and grains, and to changes in the market prices for the sale of live hogs
    when management determines the conditions are appropriate for such hedges.
    Substantially all of the Company's products are produced from commodity-
    based raw materials, corn and soybean meal in the Hog Production Group
    (HPG) and live hogs in the Meat Processing Group (MPG). The cost of corn
    and soybean meal and live hogs are subject to wide fluctuations due to
    unpredictable factors such as weather conditions, economic conditions,
    government regulation and other unforeseen circumstances. In addition, the
    unpredictability of raw material costs in the MPG limits the Company's
    ability to forward price fresh and processed meat products without the use
    of commodity contracts through a program of price-risk management. The
    Company uses price-risk management techniques to engage in forward sales
    contracts, where prices for future deliveries are fixed, by purchasing (or
    selling) commodity contracts to reduce or eliminate the effect of
    fluctuations in future raw material costs. The particular hedging methods
    employed and the time periods for the contracts depend on a number of
    factors, including the availability of adequate contracts for the
    respective periods and commodity hedged. The Company attempts to closely
    match the contract expiration periods with the dates for product sale and
    delivery.

    In accordance with the provisions of SFAS No. 133, the Company recorded a
    transition adjustment on April 30, 2001, (the first day of the Company's
    current fiscal year) of $12.7 million after-tax, cumulative effect loss in
    Accumulated Other Comprehensive Loss and a net decrease in current assets
    of $20.6 million to recognize the fair value of derivative instruments that
    are designated as hedge transactions. During the quarter ended July 29,
    2001, $10.5 million of net derivative losses were reclassified from
    Accumulated Other Comprehensive Loss into earnings and $0.5 million of net
    losses related to cash flow hedge ineffectiveness were recognized in
    earnings.

                                      F-32
<PAGE>

                             SMITHFIELD FOODS, INC.

       NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(Continued)
    As of July 29, 2001, the net accumulated loss on derivative instruments in
    Accumulated Other Comprehensive Loss was $1.8 million. The Company expects
    that substantially all of these losses will be reclassified into earnings
    over the next twelve months as the underlying hedged transactions are
    realized. At July 29, 2001, the maximum maturity date for any commodity
    contract outstanding was 13 months.

(9) In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
    No. 142 "Goodwill and Other Intangible Assets".

    SFAS 142 addresses financial accounting and reporting for acquired goodwill
    and other intangible assets. The Statement requires that acquired goodwill
    and other intangible assets are no longer periodically amortized into
    income, but are subject to an annual impairment measurement. The Company
    has elected early adoption of SFAS 142. In accordance with SFAS 142, the 13
    weeks ended July 29, 2001 do not include amortization of acquired goodwill
    and other intangible assets. The Company has allocated goodwill to its
    reporting units and performed a preliminary assessment of potential capital
    impairment. Management does not currently believe that there is significant
    exposure to a loss from impairment of acquired goodwill and other
    intangible assets. Had the Company not elected to early adopt SFAS 142 as
    of the beginning of the first quarter of fiscal year 2002, pre-tax income
    would have decreased by $2.3 million.

(10) On September 14, 2001, the Company effected a 2-for-1 stock split in the
     form of a stock dividend. All common share numbers and per share amounts
     in these Notes to Consolidated Condensed Financial Statements and, where
     indicated, on the consolidated condensed financial statements have been
     adjusted to give effect to this stock split.

                                      F-33

</TEXT>
</DOCUMENT>
