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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended January 26, 2003

OR

For the transition period from                                          to                                         

Commission File Number 0-2258

SMITHFIELD FOODS, INC.

200 Commerce Street

Smithfield, Virginia 23430

(757) 365-3000

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x  No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x  No  ¨

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SMITHFIELD FOODS, INC.

CONTENTS

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

SMITHFIELD FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

See Notes to Consolidated Condensed Financial Statements

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SMITHFIELD FOODS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

See Notes to Consolidated Condensed Financial Statements

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SMITHFIELD FOODS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

See Notes to Consolidated Condensed Financial Statements

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SMITHFIELD FOODS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Consolidated Condensed Financial Statements

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SMITHFIELD FOODS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

In the current fiscal year, the Company adopted the fair value method defined in Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation” (SFAS 123) to account for the Company’s stock option plans. The Company records compensation expense for stock options granted subsequent to April 28, 2002 based on the fair value as determined using the Black-Scholes option pricing model and weighted average assumptions. The Company estimates that the impact of recording compensation expense for stock options granted will be less than one cent per diluted share in the current fiscal year. Stock options granted prior to April 29, 2002 continue to be accounted for under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). Under APB 25, no compensation expense is recorded. Had the Company used the fair value method to determine compensation

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expense for its stock options granted prior to April 29, 2002, net income and net income per basic and diluted share would have been as follows:

In December 2002, the Financial Accounting Standards Board (FASB) issued, SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment to SFAS No. 123” (SFAS 148). SFAS 148 outlines certain methods for applying the fair value method as defined in SFAS 123. This statement also requires disclosures for options accounted for under APB 25 for all interim and annual financial statements. The Company’s prospective application of the fair value method of accounting for stock options is in compliance with the provisions of SFAS 148.

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In June of fiscal 2003, the Company acquired an 80% interest in Stefano Foods, Inc. (Stefano’s) for $35.8 million in cash plus assumed debt. The preliminary 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 goodwill totaling $28.2 million.

In October of fiscal 2002, the Company acquired Packerland Holdings, Inc. (Packerland) and its affiliated companies for 6.3 million shares of the Company’s common stock plus assumed debt and other liabilities. The balance of the purchase prices in excess of the fair value of the assets acquired and the liabilities assumed at the date of acquisition was recorded as goodwill totaling $105.7 million.

In June of fiscal 2002, the Company acquired Moyer Packing Company (Moyer) for $90.5 million in cash plus assumed 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 goodwill totaling $7.2 million.

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Had the acquisitions of Packerland and Moyer occurred at the beginning of fiscal 2002, sales, net income and net income per diluted share would have been $6.3 billion, $177.5 million and $1.56 for the 39 weeks ended January 27, 2002.

In September of fiscal 2002, the Company acquired the remaining common shares of Schneider Corporation (Schneider) for 2.8 million shares of the Company’s common stock. Prior to this transaction, the Company owned approximately 63% of the outstanding shares of Schneider. 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 goodwill totaling $13.7 million.

In July of fiscal 2002, the Company acquired substantially all of the assets and business of Gorges/Quik-to-Fix Foods, Inc. (Quik-to-Fix) for $31.0 million in cash.

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 the acquisitions of Stefano’s, Quik-to-Fix and the purchase of the remaining shares of Schneider occurred at the beginning of the fiscal years in which they were acquired, there would not have been a material effect on sales, net income or net income per diluted share for the 13 and 39 weeks ended January 26, 2003 or January 27, 2002.

As of January 26, 2003, the balance of deferred net losses on derivative instruments included in Accumulated Other Comprehensive Loss was $0.2 million, net of tax. 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. As of January 26, 2003, the maximum maturity date for any commodity contract outstanding was 13 months. As of January 26, 2003, the Company had derivative related balances totaling $2.1 million recorded in other current assets and $2.0 million recorded in other current liabilities.

The net impact of ineffectiveness related to the Company’s hedges was not material for the 13 and 39 weeks ended January 26, 2003. No hedges were discontinued for the 13 and 39 weeks ended January 26, 2003 as a result of it becoming probable that the forecasted transaction would not occur.

The Company has an agreement to provide a $30.0 million line of credit to Pennexx Foods, Inc. (Pennexx), a case-ready meat provider, 50% owned by the Company. As of January 26, 2003, Pennexx has outstanding borrowings of $10.9 million on this line. The Company is also a guarantor on $12.1 million of Pennexx equipment leases. The Company is guarantor on a $20.0 million line of credit for Agroindustrial del Noreste, a 50% owned venture in Mexico. As of January 26, 2003, $3.0 million was outstanding on this line of credit.

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In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 expands consolidated financial statements to include variable interest entities (VIEs). VIEs are entities in which the Company does not have majority voting control, but in which the company is considered the primary beneficiary of that entity. FIN 46 is immediately effective for VIEs created after January 31, 2003 and is effective for the Company in the second quarter of fiscal 2004 for VIEs created prior to February 1, 2003. The Company is evaluating unconsolidated entities in which it has significant contractual, ownership, or other pecuniary interests to determine if they are VIEs. Based on this evaluation, the Company does not believe that FIN 46 will have a material impact on the Company’s Consolidated Financial Statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Smithfield Foods, Inc. (the Company) is comprised of a Meat Processing Group (MPG) and a Hog Production Group (HPG). The MPG consists primarily of seven wholly or majority owned domestic fresh pork and processed meats subsidiaries, two domestic beef processing subsidiaries and three international meat processing subsidiaries. The HPG consists primarily of the hog production operations located in the United States (U.S.). The MPG and HPG have certain joint ventures and other investments primarily outside the U.S.

Results of Operations

The following acquisitions affect the comparability of the results of operations for the 13 and 39 weeks ended January 26, 2003 and January 27, 2002:

In November of fiscal 2003, the Company acquired Vall, Inc. (Vall) for $60.7 million in cash plus assumed liabilities. Prior to the acquisition, Vall produced 350,000 market hogs annually.

In June of fiscal 2003, the Company acquired an 80% interest in Stefano Foods, Inc. (Stefano’s) for $35.8 million in cash plus assumed debt. Prior to the acquisition, Stefano’s had annual sales of approximately $22 million.

In October of fiscal 2002, the Company acquired Packerland Holdings, Inc. (Packerland) and its affiliated companies for 6.3 million shares of the Company’s common stock plus assumed debt and other liabilities. In June of fiscal 2002, the Company acquired Moyer Packing Company (Moyer) for $90.5 million in cash plus assumed debt. Packerland and Moyer represent the Company’s beef processing operations. Prior to acquisition, Packerland and Moyer had combined annual sales of approximately $2 billion.

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In September of fiscal 2002, the Company acquired the remaining common shares of Schneider Corporation (Schneider) for 2.8 million shares of the Company’s common stock. Prior to this transaction, the Company owned approximately 63% of the outstanding shares of Schneider.

In July of fiscal 2002, the Company acquired substantially all of the assets and business of Gorges/Quik-to-Fix Foods, Inc. (Quik-to-Fix) for $31.0 million in cash. Prior to the acquisition, Quik-to-Fix had annual sales of approximately $140 million.

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

13 weeks ended January 26, 2003 compared to 13 weeks ended January 27, 2002

Consolidated

Sales decreased by $89.5 million, or 4%, reflecting a 5% decrease in the average unit selling price of pork products in the MPG partially offset by $16.0 million of incremental sales of acquired businesses. The selling price decrease is the result of lower live hog prices and pressure on fresh pork selling prices due to an excess protein supply in the U.S. market. See the following section for comments on sales changes by business segment.

Gross profit decreased $93.5 million, or 31%, primarily the result of sharply lower margins in the HPG on a 13% decrease in live hog market prices, slightly increased raising costs and a weak operating environment for fresh pork. These declines were partially offset by higher processed meats margins in the MPG.

Selling, general and administrative expenses decreased $14.3 million, or 9%. This decrease was primarily due to a reclassification in the current quarter of $7.9 million from the first two quarters of the current fiscal year which increased cost of sales and decreased selling, general and administrative expenses. Excluding this reclassification, selling, general and administrative expenses decreased $6.4 million, or 4%. This decrease reflected lower advertising and promotion costs and decreases in other variable operating expenses.

Depreciation expense increased $4.3 million, or 12%. This increase is primarily due to completed capital projects to increase the Company’s processed meats capacities.

Interest expense decreased $3.8 million, or 13%. The decrease is due to lower average interest rates on the revolving credit facility and the Company’s variable rate debt partially offset by increased borrowing levels.

The effective income tax rate decreased to 29% as compared with 38% primarily the result of a decrease in overall earnings at lower marginal tax rates and the elimination of non-tax effected losses in foreign jurisdictions.

Reflecting the foregoing factors, net income decreased to $5.3 million, or $.05 per diluted share as compared to $54.5 million, or $.48 per diluted share for the same period last year.

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Segment Results

The following table presents the Company’s segment results for the 13 weeks ended January 26, 2003 and January 27, 2002.

Hog Production Group

HPG sales decreased 8%, due to a 13% decrease in live hog market prices, partially offset by a 7% increase in the number of head sold. HPG had sales of $216.5 million and $208.1 million for the 13 weeks ended January 26, 2003 and January 27, 2002, respectively, at current prices, to the MPG which were eliminated in the Company’s Consolidated Condensed Statements of Income.

Operating profit decreased $94.7 million primarily due to the decrease in live hog prices and higher raising costs from increased feed costs in the current year. HPG operations reflected cost reductions from production efficiencies resulting from the consolidation of the Company’s production operations.

Meat Processing Group

Sales in the MPG segment decreased $60.0 million, or 3%, primarily due to a 5% decrease in average unit selling prices in the pork operations. In addition to lower live hog pricing, fresh pork sales prices were negatively affected by an increased supply of protein in the U.S. market. The increased supply of protein also effected fresh pork sales volumes, which decreased 3%. Processed meats sales volumes in the base business increased 4%. Total beef sales volume and pricing remained flat.

MPG operating profit increased by $7.8 million on higher margins and volumes in processed meats and higher margins in the beef operations. These increases were partially offset by lower margins for fresh pork as a result of unfavorable market conditions. Increased processed meats margins reflected improved product mix and lower raw material costs. Increased beef margins include higher pricing for hides and rendered byproducts. Fresh pork margin decreases were partially offset by the Company’s continued emphasis on value-added fresh pork categories.

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39 weeks ended January 26, 2003 compared to 39 weeks ended January 27, 2002

Consolidated

Sales increased by $562.6 million, or 10%, reflecting $910.6 million of incremental sales of acquired businesses partially offset by a 10% decrease in the average unit selling price of pork products in the MPG. The selling price decrease is the result of lower live hog prices and pressure on fresh meat selling prices due to an excess protein supply in the U.S. market. See the following section for comments on sales changes by business segment.

Gross profit decreased $197.4 million, or 23%, primarily the result of sharply lower margins in the HPG on a 26% decrease in live hog market prices, slightly higher raising costs and a weak operating environment for fresh pork. These declines were partially offset by the inclusion of $73.9 million of gross profit of acquired businesses and higher processed meats margins in the MPG. Gross margin percentage decreased to 11% from 16% primarily due to substantially lower margins in the HPG and the acquisition of the beef operations. The beef operations are primarily non-branded, fresh meat businesses with accompanying lower margins.

Selling, general and administrative expenses increased $22.5 million, or 6%. This increase was primarily due to the inclusion of $30.3 million in expenses of acquired businesses and increased advertising and promotion of branded fresh pork and processed meats, partially offset by a $4.7 million insurance settlement. Prior year results reflect a $5.0 million loss incurred as a result of a fire at a Circle Four farm in Utah.

Depreciation expense increased $18.6 million, or 18%. The increase is primarily due to the inclusion of $8.1 million of depreciation expense of acquired businesses and increased depreciation in the existing business reflecting capital expenditures to increase processed meats capacities.

Interest expense increased $1.8 million, or 3%. The increase is due to the inclusion of $5.7 million of interest expense of acquired businesses and additional borrowings associated with the acquisitions and the Company’s share repurchase program, partially offset by a decrease in the average interest rates on the revolving credit facility and the Company’s variable rate debt.

The effective income tax rate decreased to 34% as compared to 38% primarily the result of a decrease in overall earnings at lower marginal tax rates and the elimination of non-tax effected losses in foreign jurisdictions. The Company had a valuation allowance of $28.8 million related to income tax assets as of January 26, 2003 primarily related to losses in foreign jurisdictions for which no tax benefit is recognized.

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Net income and net income per diluted share for the 39 weeks ended January 26, 2003 and January 27, 2002, adjusted for nonrecurring items, are presented below.

Segment Results

The following table presents the Company’s segment results for the 39 weeks ended January 26, 2003 and January 27, 2002.