S&C HOLDCO 3 INC - 10-Q Quarterly Report

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 þ No o

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

There is no market for the Registrant’s common stock. As of January 1, 2004, 1,000 shares of the Registrant’s common stock were outstanding.


			Page
			No.

		PART I. Financial Information
Item 1.	Financial Statements			3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.	Controls and Procedures			41
		PART II. Other Information
Item 1.	Legal Proceedings			41
Item 2.	Changes in Securities and Use of Proceeds			41
Item 3.	Defaults Upon Senior Securities			41
Item 4.	Submission of Matters to a Vote of Security Holders			42
Item 5.	Other Information			42
Item 6.	Exhibits and Reports on Form 8-K			42
	Signatures			43


					May 25, 2003		November 23, 2003

							(unaudited)
				ASSETS
Current assets:
	Cash and cash equivalents				$	64,939	$	112,083
	Trade accounts receivable, net					280,264		326,632
	Accounts receivable from related parties (Note 4)					34,553		32,746
	Inventories					464,463		533,268
	Other current assets					23,830		36,209

		Total current assets				868,049		1,040,938
Property, plant and equipment, net						609,475		619,622
Goodwill						66,717		69,383
Other intangibles, net						38,204		35,356
Other assets						38,018		36,742

		Total assets			$	1,620,463	$	1,802,041

			LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
	Current portion of long-term debt				$	4,307	$	4,727
	Accounts payable					275,834		280,315
	Accounts payable to related parties (Note 4)					15,156		14,586
	Accrued liabilities					142,179		234,065

		Total current liabilities				437,476		533,693
Long-term debt, excluding current portion						619,946		631,382
Other non-current liabilities						92,185		96,856

		Total liabilities				1,149,607		1,261,931
Commitments and contingencies
Stockholder’s equity:
Common stock, par value $0.01, 1,000 shares authorized, issued and outstanding at May 25, 2003 and November 23, 2003						—		—
Additional paid-in capital						393,377		394,182
Retained earnings						39,286		89,359
Accumulated other comprehensive income						38,193		56,569

		Total stockholder’s equity				470,856		540,110

					$	1,620,463	$	1,802,041

S&C HOLDCO 3, INC. AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(in thousands)
(unaudited)


		Combined

		Predecessor Entity

		ConAgra Red Meat Business

		Twenty-Four Days
		From			115 Days From
		August 26, 2002			May 27, 2002
		Through			Through
		September 18, 2002			September 18, 2002

Net sales (Note 4)		$	552,016		$	2,692,450
Cost of goods sold (Note 4)			544,346			2,609,419

	Gross profit		7,670			83,031

Selling, general and administrative			10,081			36,900
Corporate allocations: Selling, general and administrative			941			4,509
Corporate allocations: Finance charges/interest and financing expense			2,839			13,604

	Total expenses		13,861			55,013

	Income (loss) before income taxes		(6,191	)		28,018
Income tax expense (benefit)			(2,556	)		9,602

	Net income (loss)	$	(3,635	)	$	18,416


		Consolidated

		S&C Holdco 3, Inc. and Subsidiaries

		Sixty-Seven Days From
		September 19, 2002					Twenty-Six Weeks
		Through			Thirteen Weeks Ended		Ended
		November 24, 2002			November 23, 2003		November 23, 2003

Net sales (Note 4)		$	1,532,527		$	2,538,289	$	5,018,680
Cost of goods sold (Note 4)			1,474,902			2,462,383		4,836,195

	Gross profit		57,625			75,906		182,485

Selling, general and administrative			21,804			36,180		67,711
Translation (gains) losses			(4,206	)		710		1,257
Interest expense			13,591			15,155		35,883

	Total expenses		31,189			52,045		104,851

	Income before income taxes		26,436			23,861		77,634
Income tax expense			9,105			8,483		27,561

	Net income	$	17,331		$	15,378	$	50,073

S&C HOLDCO 3, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


				Combined

				Predecessor Entity			Consolidated
				ConAgra Red Meat
				Business			S&C Holdco 3, Inc. and Subsidiaries

							Sixty-Seven Days
				115 Days From May			From September 19,			Twenty-Six Weeks
				27, 2002 Through			2002 Through			Ended
				September 18, 2002			November 24, 2002			November 23, 2003

Cash flows from operating activities:
	Net income			$	18,416		$	17,331		$	50,073
	Adjustments to reconcile net income to net cash from operating activities:
		Depreciation			21,442			13,208			39,395
		Amortization of intangibles, debt issuance costs and accretion of bond discount			130			1,118			7,240
		Stock-based compensation			—			443			805
		Other noncash items			—			(1,652	)		217
	Change in assets and liabilities				(37,660	)		2,731			(27,076	)

			Net cash flows provided by operating activities		2,328			33,179			70,654

Cash flows from investing activities:
	Net additions to property, plant and equipment				(8,842	)		(11,256	)		(36,267	)
	Proceeds from sales of property, plant and equipment				—			—			1,550
	Purchase of acquired businesses, net of cash acquired				—			(793,500	)		—
	Notes receivable and other items				1,348			—			—

			Net cash flows used in investing activities		(7,494	)		(804,756	)		(34,717	)

Cash flows from financing activities:
	Proceeds from debt issuance				261,890			681,985			12,365
	Payments of long-term debt				(13,123	)		(51,106	)		(2,195	)
	Change in overdraft balances				—			58,000			275
	Issuance of common stock				—			160,000			—
	Debt issuance costs				—			(37,000	)		—
	Net investments and advances				(239,564	)		—			—

			Net cash flows provided by financing activities		9,203			811,879			10,445

Effect of exchange rates on cash					—			—			762
Net change in cash and cash equivalents					4,037			40,302			47,144

Cash and cash equivalents, beginning of period					8,643			34,622			64,939

Cash and cash equivalents, end of period				$	12,680		$	74,924		$	112,083

Non-cash investing and financing activities:
	Capital lease				—			—		$	382

S&C Holdco 3, Inc. (“Swift Holdings”), is a Delaware corporation which owns 100% of the issued and outstanding capital stock of Swift & Company (“Swift Operating”). The operations of Swift Operating and its subsidiaries constitute the operations of Swift Holdings under accounting principles generally accepted in the United States of America.

Swift Operating is one of the leading beef and pork processing companies in the world. Swift Operating processes, prepares, packages and delivers fresh, further processed and value-added beef and pork products for sale to customers in the United States and international markets. Swift Operating also provides services to its customers designed to help them develop more sophisticated and profitable sales programs. Swift Operating sells its meat products to customers in the foodservice, international, further processor and retail distribution channels. Swift Operating also produces and sells by-products that are derived from its meat processing operations and variety meats to customers in various industries.

Swift Operating conducts its domestic beef and pork processing businesses through Swift Beef Company (“Swift Beef”) and Swift Pork Company (“Swift Pork”) and its Australian beef business through Australia Meat Holdings Pty. Ltd. (“Swift Australia”). Swift Operating operates six beef processing facilities, three pork processing facilities, one lamb processing facility and one value-added facility in the United States and four beef processing facilities and four feed lots in Australia. Swift Operating’s facilities are strategically located to access raw materials in a cost-effective manner and to service our global customer base.

These statements should be read in conjunction with the audited consolidated financial statements and related notes, which are included in the Swift Holdings Annual Report on Form 10-K. The interim consolidated financial information furnished herein is unaudited and reflects all normal and recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presented.

On September 19, 2002, HMTF Rawhide, L.P. (the “Purchaser”) acquired a 54% interest in the United States beef, pork and lamb processing business and the Australian beef business of ConAgra Foods Inc. (the “Transaction”) excluding (i) ConAgra Beef Company’s cattle feeding operations (the “domestic cattle feeding operations”) and (ii) Weld Insurance Company, Inc., Monfort Finance Company, Inc., and Monfort Construction Company. Subsequent to the Transaction, the Purchaser retained approximately 54%, ConAgra Foods owns approximately 45%, and management of Swift Foods owns approximately 1% of Swift Foods Company. Swift Foods Company (“Swift Foods”) owns 100% of the outstanding capital stock of S&C Holdco 2, Inc., which in turn owns 100% of the outstanding common stock of Swift Holdings, which in turn owns 100% of the outstanding common stock of Swift Operating. The entities that were historically operated by ConAgra Foods as an integrated business, which include the domestic cattle feeding operations and other assets and insignificant businesses that were not acquired and liabilities that were not assumed in the Transaction, are referred to as the “ConAgra Red Meat Business” or the “Predecessor Entity”. Those entities and operations within the ConAgra Red Meat Business that were actually acquired in the Transaction and which are being operated by Swift Operating and its subsidiaries are referred to as the “Acquired Business” or “Successor.”

Accounting principles generally accepted in the United States of America require the ConAgra Red Meat Business’ operating results prior to the Transaction to be reported as the results of the Predecessor Entity for periods prior to September 19, 2002 in the historical financial statements. Swift Operating’s operating results subsequent to the Transaction are presented as the Successor’s results in the financial statements and include the sixty-seven days ended November 24, 2002 and the thirteen and twenty-six weeks ended November 23, 2003.

The results of operations for any quarter or a partial fiscal year period or for the periods presented for the Predecessor Entity or Successor are not necessarily indicative of the results to be expected for other periods or the full fiscal year. Certain prior year amounts have been reclassified in order to conform to the current year presentation.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, using management’s best estimates and judgments where appropriate. These estimates and judgments affect

the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and judgments will also affect the reported amounts for certain revenues and expenses during the reporting period. Actual results could differ materially from these estimates and judgments.

Certain prior year amounts have been reclassified to conform to current year presentations.

In May 2003, the Emerging Issues Task Force (“EITF”) published EITF Issue No. 01-08, Determining Whether an Arrangement Is a Lease. EITF Issue No. 01-08 addresses how to determine whether an arrangement contains a lease that is within the scope of Statement of Financial Accounting Standards (“SFAS”) No. 13, Accounting for Leases. EITF Issue No. 01-08 should be applied to (a) arrangements agreed to or committed to, if earlier, after the beginning of an entity’s next reporting period beginning after May 28, 2003, (b) arrangements modified after the beginning of an entity’s next reporting period beginning after May 28, 2003, and (c) arrangements acquired in business combinations initiated after the beginning of an entity’s next reporting period beginning after May 28, 2003. Swift Operating is currently in the process of evaluating the impact of this Issue.

In May 2003, the EITF published Issue No. 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor. EITF Issue No. 02-16 addresses the accounting by a vendor for consideration given to a customer, including both a reseller of the vendor’s products and an entity that purchases the vendor’s products from a reseller. The Issue provides accounting guidance on how a vendor should characterize consideration given to a customer, and when to recognize and how to measure that consideration in its income statement. Swift Operating has adopted the guidance in this Issue as it applies to its vendor relationships. The application of this Issue did not have a material impact on Swift Operating’s consolidated financial statements or disclosures.

In January 2003, FIN No. 46, Consolidation of Variable Interest Entities, (FIN 46) was issued. The interpretation provides guidance on consolidating variable interest entities. In November 2003, the Financial Accounting Standards Board (“FASB”) approved a partial deferral of FIN 46 and proposed various other amendments to FIN 46. In December 2003, the FASB issued additional guidance clarifying the provisions of FIN 46. The revised guidelines of the interpretation apply immediately to variable interests in variable interest entities created after December 31, 2003 and will become applicable for Swift Operating in the fourth quarter of fiscal 2005 for variable interest entities created before December 31, 2003. A variable interest entity is an entity that has: (1) an insufficient amount of equity to absorb the entity’s losses; (2) equity owners that do not have voting rights; or (3) equity that does not absorb the entity’s losses or residual returns. FIN 46 requires a variable interest entity to be consolidated by its primary beneficiary, which is the company that is subject to a majority of the risk of loss from the entity’s activities, or is entitled to receive a majority of the entity’s residual returns, or both. FIN 46 requires current disclosure of the nature, purpose, size and activity of the variable interest entity and the maximum exposure to loss as a result of our involvement with the variable interest entity. Swift Operating believes it is reasonably possible that the domestic cattle feeding business with which Swift Operating has a Live Cattle Supply Agreement (see Note 4), could be deemed a variable interest entity under the recently revised rules. Swift Operating’s maximum exposure to loss, if any, is not expected to be material. Swift Operating believes that adoption of FIN 46 will not have a material impact on its results of operations or financial position.

Following is a rollforward of goodwill by segment for the twenty-six weeks ended November 23, 2003 (in thousands):

Other identifiable intangible assets as of May 25, 2003 and November 23, 2003 are as follows (in thousands):


		May 25,2003							November 23, 2003

		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount

Amortizing intangible assets:
	Patents	$	3,782	$	(277	)	$	3,505	$	3,782	$	(483	)	$	3,299
	Preferred Supplier Agreement		28,202		(1,070	)		27,132		28,202		(3,209	)		24,993
	Live Cattle Supply Agreement		1,482		(235	)		1,247		1,482		(706	)		776
	Water Right Agreements		6,320		—			6,320		6,320		(32	)		6,288

Total amortizing intangibles		$	39,786	$	(1,582	)	$	38,204	$	39,786	$	(4,430	)	$	35,356

For the 115 days ended September 18, 2002, the sixty-seven days ended November 24, 2002 and the thirteen and twenty-six weeks ended November 23, 2003, Swift Operating recognized $0.2 million, $0.1 million, $1.4 million and $2.8 million of amortization expense, respectively.

Based on amortizing assets recognized in Swift Operating’s balance sheet as of November 23, 2003, amortization expense for each of the next five fiscal years is estimated as follows (in thousands):

The unaudited pro forma information presented below (in thousands) assumes the Transaction took place at the beginning of the period presented and includes the effect of amortization of identified intangibles and transaction costs from that date. The period presented is comprised of the financial results of the Predecessor Entity after deducting the results of the businesses not acquired for the 115 day period from May 27, 2002 through September 18, 2002 plus the financial results of the Acquired Business for the sixty-seven day period from September 19, 2002 through November 24, 2002. This information is presented under the provisions of SFAS No. 141, Business Combinations, for informational purposes only and is not necessarily indicative of the results of future operations or results that would have been achieved had the Transaction taken place at the beginning of the periods presented.


				Pro Forma			Pro Forma
				(unaudited)			(unaudited)
				Twenty-Six Weeks			Thirteen Weeks
				Ended			Ended
				November 24, 2002			November 24, 2002

Statement of Earnings Data:
	Net sales			$	4,173,450		$	2,072,901
	Cost of goods sold				4,015,807			1,999,967

			Gross profit		157,643			72,934

	Selling, general and administrative expense				59,882			32,565
		Translation gains			(4,206	)		(4,206	)
	Corporate allocations: selling, general and administrative expense				3,634			758
	Interest expense				34,966			17,433

			Total expenses		94,276			46,550

			Income before income taxes		63,367			26,384
	Income tax expense				23,098			9,466

			Net income	$	40,269		$	16,918

The majority of Swift Holding’s bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are included in the trade accounts payable balance, and the change in the related balance is reflected in financing activities on the statements of cash flows, if material. As of May 25, 2003 and November 23, 2003, bank overdrafts included in trade accounts payable were $120.0 million and $120.3 million, respectively.

For foreign operations, the local currency is the functional currency. Translation into U.S. dollars is performed for assets and liabilities at the exchange rates as of the balance sheet date. Income and expense accounts are translated at average exchange rates for the period. Adjustments resulting from the translation are reflected as a separate component of other comprehensive income. Translation gains and losses on U.S. dollar denominated revolving intercompany borrowings between the Australian subsidiaries and the U.S. parent are recorded in earnings. Translation gains and losses on U.S. dollar denominated intercompany borrowings between the Australian subsidiary and the U.S. parent, which are deemed to be part of the investment in the subsidiary, are recorded in other comprehensive income.

The components of comprehensive income for the periods indicated below are as follows (in thousands):


		Combined

		Predecessor Entity						Consolidated

		ConAgra Red Meat Business						S&C Holdco 3, Inc. and Subsidiaries

		Twenty-Four Days						Sixty-Seven Days
		From August 26,			115 Days From May			From September 19,				Twenty-Six Weeks
		2002 Through			27, 2002 Through			2002 Through		Thirteen Weeks Ended		Ended
		September 18, 2002			September 18, 2002			November 24, 2002		November 23, 2003		November 23, 2003

Net income (loss)		$	(3,635	)	$	18,416		$	17,331	$	15,378	$	50,073
Other comprehensive income Derivative adjustment, net of tax			(2,601	)		12			42		52		(2,603	)
	Foreign currency translation adjustment, net of tax		2,613			(1,529	)		8,822		23,562		20,979

Total comprehensive income (loss)		$	(3,623	)	$	16,899		$	26,195	$	38,992	$	68,449

The above derivative adjustments are net of tax of immaterial amounts for the sixty-seven days from September 19, 2002 through November 24, 2002 and the thirteen weeks ended November 23, 2003 and $1.6 million for the twenty-six weeks ended November 23, 2003. The above foreign currency translation adjustments are net of tax of $0 million, $0 million and $0.9 million for the sixty-seven days from September 19, 2002 through November 24, 2002 and the thirteen and twenty-six weeks ended November 23, 2003, respectively.

Swift Operating accounts for the Swift Foods stock-based compensation plan under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based compensation cost related to stock options is reflected in net income, as all options granted have an exercise price equal to or above the market value of the underlying common stock of Swift Foods on the date of grant. If Swift Operating had elected to recognize compensation cost based on the fair value of the stock options at grant date as allowed by SFAS No. 123, Accounting for Stock-Based Compensation, compensation expense, net of income tax, of approximately $51 thousand and $68 thousand would have been recorded for the thirteen and twenty-six weeks ended November 23, 2003, respectively.

Had compensation expense been recorded in accordance with SFAS No. 123, net income would have been as follows (in thousands):

Swift Operating is exposed to market risk, such as changes in commodity prices, foreign currency exchange rates and interest rate risk. To manage volatility associated with these exposures, Swift Operating may enter into various derivative transactions pursuant to established policies. Derivatives that qualify and are designated for hedge accounting under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, are measured at fair value and reported as a component of other comprehensive income and reclassified into earnings in the same period in which the hedged transaction affects earnings. Hedges that do not qualify, or are not designated for hedge accounting, are measured at fair value and the gain or loss is recognized currently into earnings.

The fair value of derivative assets is recognized within other current assets, while the fair value of derivative liabilities is recognized within accrued liabilities. At May 25, 2003 and November 23, 2003, the fair value of derivatives recognized within other

current assets was $4.4 million and $7.7 million, respectively. The fair value of derivatives recognized within accrued liabilities was $0.3 million and $5.8 million, respectively. In the first quarter of fiscal 2004, Swift Operating entered into a $100.0 million notional amount interest rate swap to change the characteristics of a portion of its senior debt from fixed rate debt to variable rate debt. This action was taken in order to achieve a fixed/floating rate debt target deemed appropriate for the business. The maturity date of the interest rate swap is October 2007 and the floating rate is calculated based on the six-month USD LIBOR set on the last day of each calculation period plus a fixed spread. The fair value of the interest rate swap can change dramatically based on a number of variables, including significant change in the shape of the yield curve and the passage of time. The interest rate swap does not qualify for hedge accounting. For the thirteen weeks ended November 23, 2003, Swift Operating recognized in interest expense an increase in fair value, net of interest income, of $2.6 million. For the twenty-six weeks ended November 23, 2003, Swift Operating recognized in interest expense a decrease in fair value, net of interest income, of $0.6 million. At November 23, 2003, the fair value of the interest rate swap recognized within accrued liabilities was $1.2 million.

As of May 25, 2003 and November 23, 2003, the net deferred amount of derivative gains and losses recognized in accumulated other comprehensive income was a $2.3 million net of tax gain and a $0.3 million net of tax loss, respectively. Swift Operating anticipates losses of $0.3 million, net of tax, will be transferred out of accumulated other comprehensive income and recognized within earnings over the next 12 months.

Swift Operating requires various raw materials in its operations, including cattle, hogs and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. Swift Operating considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond its control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, Swift Operating hedges a portion of its anticipated consumption of commodity inputs for periods of up to 12 months. Swift Operating may enter into longer-term derivatives on particular commodities if deemed appropriate. As of November 23, 2003, Swift Operating executed derivative contracts for certain portions of the anticipated consumption of commodity inputs through November 2004. As of November 23, 2003, Swift Operating had derivative positions in place covering approximately 3% and 26% of its anticipated need for livestock and natural gas, respectively.


			May 25,		November 23,
			2003		2003

Short-term debt :
	Revolving credit facility		$	—	$	—
	Current portion of long-term debt (term loan)			2,000		2,000
	Current portion of installment notes payable			1,283		1,657
	Current portion of capital lease obligations			1,024		1,070

		Current portion of long-term debt		4,307		4,727

Long-term debt:
	Term loan facility, net of current portion			197,000		196,000
	Senior notes, net of unamortized discount			252,228		253,474
	Senior subordinated notes			150,000		150,000
	Long-term portion of installment notes payable			658		11,896
	Long-term capital lease obligations			20,060		20,012

		Long-term debt, less current portion		619,946		631,382

Total debt			$	624,253	$	636,109

As of November 23, 2003, Swift Operating had approximately $198.0 million of secured debt outstanding, approximately $27.4 million of outstanding letters of credit, and approximately $269.7 million of availability under its revolving credit facility. The remaining $52.9 million under the revolving credit facility was not immediately available for borrowings due to borrowing base limitations.

A summary of the components of interest expense is presented below (in thousands):


		Sixty-Seven Days		Thirteen Weeks			Twenty-Six Weeks
		Ended		Ended November 23,			Ended
		November 24, 2002		2003			November 23, 2003

Interest on:
	Revolving credit facility	$	1,337	$	1,397		$	2,552
	Term loan facility (approximately 5.0%, 4.4% and 4.4%)		1,987		2,180			4,417
	Senior notes (10.125% rate)		4,981		6,757			13,625
	Senior subordinated notes (12.50% rate)		3,442		4,672			9,334
	Capital lease interest		273		451			903
	Other miscellaneous interest charges		—		126			186
	Interest rate swap		—		(2,580	)		554
	Amortization of deferred financing costs		1,113		1,602			3,186
	Amortization of original issue discount		458		621			1,245
	Less: Capitalized interest		—		(71	)		(119	)

Total interest expense		$	13,591	$	15,155		$	35,883

Financial Covenants – Swift Operating’s senior credit facilities contain financial covenants that limit its ability to incur additional indebtedness, sell or dispose of assets, pay certain dividends and prepay or amend certain indebtedness among other matters. For more information on Swift Operating’s financial covenants please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Bank Covenant Compliance.”

Historically, ConAgra Foods’ executive, finance, tax and other corporate departments performed certain administrative and other services for the Predecessor Entity. Expenses incurred by ConAgra Foods and allocated to the Predecessor Entity were determined based on specific services being provided or were allocated based on ConAgra Foods’ investment in the Predecessor Entity in proportion to ConAgra Foods’ total investment in its subsidiaries. In addition, ConAgra Foods charged the Predecessor Entity finance charges on ConAgra Foods’ investment in the company and net intercompany advances. Management believes that such expense allocations were reasonable. Corporate allocations include allocated selling, general and administrative expenses of approximately $4.5 million for the 115 days ended September 18, 2002, and allocated finance charges of approximately $13.6 million for the same period. ConAgra Foods also historically paid certain direct expenses on the Predecessor Entity’s behalf and charged it directly for these expenses. Such expenses, which are included in selling, general and administrative expenses, were $2.9 million for the 115 days ended September 18, 2002.

Purchases and Sales with ConAgra Foods — The Predecessor Entity historically entered into transactions in the normal course of business with affiliates of ConAgra Foods that are not part of the Acquired Business. In connection with the Transaction, Swift Operating entered into a preferred supplier agreement with ConAgra Foods. Net sales to these parties, which are included in net sales in the statements of earnings, were $129.6 million for the sixty-seven days from September 19, 2002 through November 24, 2002 and $200.2 million and $376.2 million for the thirteen and twenty-six weeks ended November 23, 2003, respectively. Purchases from affiliates of ConAgra Foods, which are included in cost of goods sold in the statements of earnings, were $141.5 million for the sixty-seven days from September 19, 2002 through November 24, 2002 and $265.0 million and $534.6 million for the thirteen and twenty-six weeks ended November 23, 2003, respectively. These amounts include purchases made under the Live Cattle Supply Agreement. Within Swift Operating’s May 25, 2003 and November 23, 2003 balance sheets are balances due to ConAgra Foods affiliates of $15.1 million and $14.6 million, respectively, and balances due from ConAgra Foods affiliates of $34.5 million and $32.7 million, respectively. These balances include any payable or receivable related to the Live Cattle Supply Agreement and the By-Products Marketing Agreement.

Monitoring and Oversight Agreement — In connection with the Transaction, Swift Operating and certain of its direct and indirect parents and subsidiaries entered into a ten-year agreement with an affiliate of Hicks Muse (“Hicks Muse Partners”) pursuant to which Swift Operating will pay Hicks Muse Partners an annual fee for ongoing oversight and monitoring services provided to it. The annual fee will be adjusted at the beginning of each fiscal year to an amount equal to the greater of (a) $2 million or (b) 1% of the budgeted consolidated annual EBITDA of Swift Foods and its subsidiaries. The annual fee will also be adjusted in the event that Swift Foods or any of its subsidiaries acquires another entity or business during the term of the agreement. This expense is paid in advance quarterly and $0.6 million is included in selling, general and administrative expense for each of the thirteen weeks ended August 24, 2003 and November 23, 2003.

Transition Services Agreement — At the closing of the Transaction, Swift Operating, certain of its direct and indirect parents and subsidiaries, and the entities that acquired and operate the domestic cattle feeding operations of ConAgra Foods entered into a one-year transition services agreement (“Transition Services Agreement”) with ConAgra Foods pursuant to which, among other things, ConAgra Foods provided certain transition services, including information technology, accounting, risk management, market research and product brokerage services, to Swift Operating and Swift Operating provided certain transition services, including information technology, purchasing and human resources services to ConAgra Foods. The parties agreed, during the term, to use their commercially reasonable efforts to locate third party service providers to replace the services provided under the Transition Services Agreement. Payments received from ConAgra Foods for services Swift Operating provided under this agreement for the thirteen weeks ended November 23, 2003 were $0.1 million. For this same period, Swift Operating did not pay any amounts to ConAgra Foods for services provided to it under this agreement. Such amounts, if paid, are included in cost of goods sold and selling, general and administrative expenses in the accompanying statements of earnings. This agreement terminated on September 20, 2003.

Live Cattle Supply Agreement — At the closing of the Transaction, Swift Beef and the entity that operates the domestic cattle feeding operations acquired from ConAgra Foods entered into a live cattle supply agreement (“Cattle Supply Agreement”) pursuant to which Swift Beef purchases all of the cattle produced by the domestic cattle feeding operations from such entity for processing at facilities owned by Swift Beef. The parties meet periodically, but no less frequently than every 90 days, to determine the quantities of cattle to be supplied under the agreement, prices are based on current spot (market) prices for live cattle. The Cattle Supply Agreement will terminate on the date of termination of the credit facility for the domestic cattle feeding operations, which will be the earlier of 24 months after the Transaction or the disposition of the domestic cattle feeding operations, unless extended in accordance with the Cattle Supply Agreement for an additional year. For the thirteen and twenty-six weeks ended November 23, 2003, Swift Beef paid $255.2 million and $514.0 million, respectively, under this agreement, which amount is included in cost of goods sold in the statements of earnings.

By-Products Marketing Agreement — On October 8, 2003, Swift Operating entered into a by-products marketing agreement (the “Marketing Agreement”) with ConAgra Trade Group, Inc. (“CTG”) pursuant to which Swift Operating sells to CTG certain by-products resulting from its processing of cattle and hogs in its US operations at prices in accordance with the agreement. The term of the agreement commenced May 26, 2003 and will terminate on May 31, 2005. The parties split the pre-tax profit or losses resulting from CTG’s marketing of the by-products purchased based on a sliding scale. The May 25, 2003 and November 23, 2003 balance sheets included approximately $1.0 million and $1.6 million in receivables from CTG, respectively.

On October 8, 2003, Swift Operating entered into a separate agreement for by-products marketing of its Australian operations with CTG pursuant to which Swift Operating sells certain by-products resulting from its processing of cattle at prices in accordance with the agreement. In addition, Swift Operating received the right to continue utilizing the existing business name “CTG Rendered Products” for by-products in Australia and New Zealand. The term of the agreement commenced May 26, 2003 and will terminate on May 31, 2005. Swift Australia had approximately $0.8 million and $0.2 million on the balance sheet payable to CTG at May 25, 2003 and November 23, 2003.

On May 10, 2002, a lawsuit was filed against ConAgra Foods, Inc. and ConAgra Beef Company (which was part of the Acquired Business and renamed Swift Beef Company) in the United States District Court for the District of Nebraska seeking certification of a class of all persons who have sold fed cattle to ConAgra Foods for cash, or on a basis affected by the cash price for fed cattle, during the period in which claims may be maintained pursuant to the applicable statute of limitations. The case was originally filed by two named plaintiffs on behalf of a putative nationwide class that plaintiffs estimate exceeds 15,000. The complaint alleges that ConAgra Foods, in violation of the Packers and Stockyards Act of 1921, has used its market power and alleged use of captive supplies of fed cattle to reduce the prices paid to cattle producers. The plaintiffs seek declaratory relief, unspecified compensatory damages, attorneys’ fees and expenses and injunctive relief. On December 4, 2002, the complaint was amended to substitute two corporate entities for one of the individual plaintiffs. On December 16, 2002, the plaintiffs moved for class certification. ConAgra Foods has answered the amended complaint and discovery is under way. ConAgra Foods will indemnify Swift Operating against any judgments for monetary damages or settlements arising out of this litigation or any future litigation filed against ConAgra Foods, the Acquired Business, Swift Operating, or certain of its affiliates, that is based primarily on the substantive facts of this litigation to the extent that the litigation seeks damages resulting from the activities of ConAgra Foods or the Acquired Business prior to the acquisition of these entities. Swift Operating believes that the defendants have acted properly and lawfully in their dealings with cattle producers. Management is currently unable to evaluate the outcome of this matter or to estimate the amount of potential loss, if any. In

accordance with SFAS No. 5, Accounting for Contingencies (SFAS No. 5), Swift Operating has not established a loss accrual associated with this claim.

On July 1, 2002, a lawsuit was filed against ConAgra Beef Company (which was part of the Acquired Business and renamed Swift Beef Company), Tyson Foods, Inc., Excel Company and Farmland National Beef Packing Company, L.P. in the United States District Court of South Dakota seeking certification of a class of all persons who sold cattle to the defendants for cash, or on a basis affected by the cash price for cattle, during the period from April 2, 2001 through May 11, 2001 and for some period up to two weeks thereafter. The case was filed by three named plaintiffs on behalf of a putative nationwide class that plaintiffs estimate is comprised of hundreds or thousands of members. The complaint alleges that the defendants, in violation of the Packers and Stockyards Act of 1921, knowingly used, without correction or disclosure, incorrect and misleading boxed beef price information generated by the United States Department of Agriculture to purchase cattle offered for sale by the plaintiffs at a price substantially lower than was justified by the actual and correct price of boxed beef during this period. The plaintiffs seek unspecified damages, or alternatively, restitution based on equitable principles of unjust enrichment. The plaintiffs also seek attorneys’ fees and expenses. No class has yet been certified in this action. ConAgra Foods has answered the amended complaint and discovery will soon be underway. ConAgra Foods will indemnify Swift Operating against any judgments for monetary damages or settlements arising out of this litigation or any future litigation filed against ConAgra Foods, the Acquired Business, Swift Operating or certain of its affiliates that is based primarily on the substantive facts of this litigation to the extent that the litigation seeks damages resulting from the activities of ConAgra Foods or the Acquired Business prior to the acquisition of these entities. Swift Operating believes that Swift Beef Company has acted properly and lawfully in its dealings with cattle producers. Management is currently unable to evaluate the outcome of this matter or to estimate the amount of potential loss, if any. In accordance with SFAS No. 5, Swift Operating has not established a loss accrual associated with this claim.

Swift Operating is also a party to a number of other lawsuits and claims arising out of the operation of its businesses. Management believes the ultimate resolution of such matters should not have a material adverse effect on Swift Operating’s financial condition, results of operations or liquidity.

Swift Operating is organized into three reportable segments, Swift Beef, Swift Pork and Swift Australia. Segment operating performance is evaluated based on total assets, net sales, depreciation and amortization and operating income. The segment disclosures of the Predecessor Entity have been restated to provide comparable financial information for each of Swift Operating’s three reporting segments that resulted from the Transaction.

Swift Beef — The majority of Swift Beef’s revenues are generated from the sale of fresh meat, which includes chuck cuts, rib cuts, loin cuts, round cuts, thin meats, ground beef and other products. In addition, Swift Beef also sells beef by-products to the variety meat, feed processing, fertilizer and pet food industries.

Swift Pork — A significant portion of Swift Pork’s revenues are generated from the sale of fresh pork products, including trimmed cuts such as loins, roasts, chops, butts, picnics and ribs. Other pork products, including hams, bellies and trimmings, are predominantly sold to further processors who, in turn, manufacture bacon, sausage and deli and luncheon meats. The remaining sales are derived from by-products.

Swift Australia — The majority of Swift Australia’s revenues are generated from the sale of fresh meat, which includes chuck cuts, rib cuts, loin cuts, round cuts, thin meats and other products. Approximately 85% of the beef product sold by Swift Australia is derived from grass-fed animals. The remainder of Swift Australia’s beef products are derived from grain-fed animals that are sold primarily to Japan. Other sales are derived from our foods division, which manufactures meat patties and distributes products for McDonald’s in Australia and produces value-added meat products including pizza toppings for Pizza Hut. The remaining sales are derived from our wholesale business which sells and distributes boxed meat products to brokers who in turn resell those products to end customers.

Corporate and Other — This line item includes certain expenses not directly attributable to the reportable segments. In Predecessor Entity periods, this line also includes the domestic cattle feeding operations which were excluded from the Transaction.

The following table presents segment results for the twenty-four and 115 days ended September 18, 2002, the sixty-seven days ended November 24, 2003 and the thirteen and twenty-six weeks ended November 23, 2003 (in thousands):


		Predecessor Entity

		ConAgra Red Meat Business						S&C Holdco 3, Inc. and Subsidiaries

		Twenty-Four Days						Sixty-Seven Days						Twenty-Six Weeks
		Ended			115 Days Ended			Ended			Thirteen Weeks Ended			Ended
		September 18, 2002			September 18, 2002			November 24, 2002			November 23, 2003			November 23, 2003

Net Sales
	Swift Beef	$	366,521		$	1,811,247		$	1,022,224		$	1,676,854		$	3,376,641
	Swift Pork		94,719			478,812			291,034			477,086			917,829
	Swift Australia		79,326			350,525			222,620			384,377			724,215
	Corporate and Other		11,450			51,866			(3,351	)		(28	)		(5	)

Total		$	552,016		$	2,692,450		$	1,532,527		$	2,538,289		$	5,018,680

Depreciation and Amortization (a)
	Swift Beef	$	2,734		$	12,236		$	8,990		$	13,864		$	27,262
	Swift Pork		1,029			4,633			3,002			5,093			10,179
	Swift Australia		732			3,531			2,671			4,487			8,875
	Corporate and Other		262			1,172			(337	)		300			319

Total		$	4,757		$	21,572		$	14,326		$	23,744		$	46,635

Operating Income (Loss) Before Other Items (b)
	Swift Beef	$	(1,811	)	$	41,820		$	10,810		$	8,305		$	70,416
	Swift Pork		3,953			9,061			13,983			32,146			46,809
	Swift Australia		4,709			14,929			11,338			(315	)		(2,235	)
	Corporate and Other		(9,262	)		(19,679	)		(310	)		(410	)		(216	)

Total			(2,411	)		46,131			35,821			39,726			114,774

Corporate allocations			(3,780	)		(18,113	)		—			—			—
Translation gains (losses)			—			—			4,206			(710	)		(1,257	)
Interest expense			—			—			(13,591	)		(15,155	)		(35,883	)

Total Income (Loss) Before Income Taxes		$	(6,191	)	$	28,018		$	26,436		$	23,861		$	77,634

(a)

Depreciation and amortization amounts above include bond discount accretion and debt issuance cost amortization for Swift Beef of $1.0 million and $2.1 million, for Swift Pork of $0.6 million and $1.2 million, and for Swift Australia of $0.6 million and $1.1 million for the thirteen and twenty-six weeks ended November 23, 2003. These amounts are included in interest expense in the statements of earnings.

(b)

Other items include corporate allocations prior to the Transaction and include translation gains and losses and interest expense subsequent to the Transaction.

A significant amount of Swift Operating’s income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet Swift Operating’s debt service obligations including its obligations under the senior notes and the senior subordinated notes are provided in large part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as Swift Operating’s financial condition and operating requirements and those of certain domestic subsidiaries, could limit Swift Operating’s ability to obtain cash for the purpose of meeting its debt service obligation including the payment of principal and interest on the senior notes and the senior subordinated notes.

The following condensed financial statements set forth Swift Operating’s balance sheets as of May 25, 2003 and November 23, 2003, and the Predecessor Entity’s and Swift Operating’s statements of earnings and cash flows for the twenty-four and 115 days ended September 18, 2002, the sixty-seven days ended November 24, 2002 and the thirteen and twenty-six weeks ended November 23, 2003. Effective with the date of the Transaction, the senior notes and the senior subordinated notes have been guaranteed by Swift Holdings (the “Parent Guarantor”) and each of Swift Operating’s domestic subsidiaries (the “Subsidiary Guarantors”). The financial information for pre- and post- Transaction periods is presented under the following column headings: Parent Guarantor (for periods subsequent to formation), Issuer (for periods subsequent to formation), Subsidiary Guarantors and Subsidiary Non-Guarantors. For pre-Transaction periods, “Subsidiary Non-Guarantors” includes (i) the domestic cattle feeding operations, (ii) the businesses not acquired in the Transaction and (iii) the foreign subsidiaries of the Predecessor Entity which were acquired in the Transaction and renamed. Swift Holdings and Swift Operating were formed on May 29, 2002. For post-Transaction periods, “Subsidiary Non-Guarantors” includes only the foreign subsidiaries of the Predecessor Entity which were acquired in the Transaction and renamed, which entities include Swift Refrigerated Foods S.A. de C.V., Kabushiki Kaisha SAC Japan and Australia Meat Holdings Pty. Ltd. Investments in Swift Operating’s subsidiaries are accounted for on the equity method. Accordingly, entries necessary to consolidate the Parent Guarantor, Swift Operating, and all of its subsidiaries are reflected in the elimination column. Separate complete financial statements of Swift Operating and the Subsidiary Guarantors would not provide additional material information that would be useful in assessing the financial composition of Swift Operating or the Subsidiary Guarantors.

All of the Subsidiary Guarantors are wholly-owned subsidiaries of Swift Operating and their guarantees are full and unconditional and joint and several. There are no provisions in the indentures governing the senior notes or the senior subordinated notes or other existing agreements that would prevent holders of guaranteed obligations from taking immediate action against the Parent Guarantor or any Subsidiary Guarantor in the event of default. The ability of the Subsidiary Guarantors to pay dividends or make loans or other payments to Swift Operating depends on their earnings, capital requirements and general financial condition. The senior credit facilities and the indentures governing the senior notes and the senior subordinated notes limit the ability of Swift Operating and its subsidiaries to restrict the ability of the Subsidiary Guarantors to pay dividends or make loans or other advances to Swift Operating, subject to applicable laws and regulations and future agreements to which the Subsidiary Guarantors may be a party. The Parent Guarantor is a holding company with no operations of its own, and its only asset is the capital stock of Swift Operating. Consequently, its ability to pay amounts under its guarantee depends on the earnings and cash flows of Swift Operating and its subsidiaries and the ability of these entities to pay dividends or advance funds to the Parent Guarantor.

As a portion of the financing related to the acquisition of the Australian operations in conjunction with the Transaction, for the thirteen and twenty-six weeks ended November 23, 2003, an amount of $3.3 million and $6.4 million, respectively, was reflected as interest expense of the Subsidiary Non-Guarantors and interest income of Swift Operating in the accompanying statements of earnings.

S&C HOLDCO 3, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
MAY 25, 2003
(in thousands)


			Swift Holdings		Swift Operating		Subsidiary		Subsidiary		Eliminations/
			Parent Guarantor		Issuer		Guarantors		Non-Guarantors		Adjustments			Total

ASSETS
Current assets:
	Cash and cash equivalents		$	—	$	53,695	$	4,432	$	6,812	$	—		$	64,939
	Accounts receivables, net			—		31,983		229,572		85,823		(32,561	)		314,817
	Inventories			—		—		345,208		119,255		—			464,463
	Other current assets			—		7,768		13,452		2,610		—			23,830

		Total current assets		—		93,446		592,664		214,500		(32,561	)		868,049
Property, plant and equipment, net				—		—		456,336		153,139		—			609,475
Intercompany receivable				—		770,501		—		7,170		(777,671	)		—
Goodwill				—		—		38,620		28,097		—			66,717
Other intangibles, net				—		28,379		9,825		—		—			38,204
Other assets				—		112,217		3,177		7,548		(84,924	)		38,018
Net investment and advances in subsidiaries				470,856		132,300		—		—		(603,156	)		—

		Total assets	$	470,856	$	1,136,843	$	1,100,622	$	410,454	$	(1,498,312	)	$	1,620,463

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
	Current portion of long-term debt		$	—	$	2,000	$	2,188	$	30,119	$	(30,000	)	$	4,307
	Accounts payable			—		9,435		186,591		94,964		—			290,990
	Intercompany payable			—		—		777,671		—		(777,671	)		—
	Accrued liabilities			—		42,282		50,240		52,218		(2,561	)		142,179

		Total current liabilities		—		53,717		1,016,690		177,301		(810,232	)		437,476
Long-term debt, excluding current portion				—		599,229		19,882		85,759		(84,924	)		619,946
Other noncurrent liabilities				—		13,041		58,332		20,812		—			92,185
Commitments and contingencies				—		—		—		—		—			—

		Total liabilities		—		665,987		1,094,904		283,872		(895,156	)		1,149,607
Common stock				—		—		2		75,000		(75,002	)		—
Additional paid-in capital				393,377		393,377		—		—		(393,377	)		393,377
Retained earnings				39,286		39,286		4,198		15,500		(58,984	)		39,286
Accumulated other comprehensive income				38,193		38,193		1,518		36,082		(75,793	)		38,193

		Total stockholder’s equity		470,856		470,856		5,718		126,582		(603,156	)		470,856

		Total liabilities and stockholder’s equity	$	470,856	$	1,136,843	$	1,100,622	$	410,454	$	(1,498,312	)	$	1,620,463

S&C HOLDCO 3, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
November 23, 2003
(in thousands)


			Swift Holdings		Swift Operating		Subsidiary			Subsidiary		Eliminations/
			Parent Guarantor		Issuer		Guarantors			Non-Guarantors		Adjustments			Total

ASSETS
Current assets:
	Cash and cash equivalents		$	—	$	85,242	$	17,416		$	9,425	$	—		$	112,083
	Accounts receivables, net			—		53,641		245,503			114,065		(53,831	)		359,378
	Inventories			—		—		382,560			150,708		—			533,268
	Other current assets			—		7,379		17,394			11,436		—			36,209

		Total current assets		—		146,262		662,873			285,634		(53,831	)		1,040,938
Property, plant and equipment, net				—		—		456,385			163,237		—			619,622
Intercompany receivable				—		769,466		—			791		(770,257	)		—
Goodwill				—		—		38,620			30,763		—			69,383
Other intangibles, net				—		25,769		9,587			—		—			35,356
Other assets				—		109,644		3,080			8,942		(84,924	)		36,742
Net investment and advances in subsidiaries				540,110		196,334		—			—		(736,444	)		—

		Total assets	$	540,110	$	1,247,475	$	1,170,545		$	489,367	$	(1,645,456	)	$	1,802,041

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
	Current portion of long-term debt		$	—	$	2,352	$	2,250		$	51,996	$	(51,871	)	$	4,727
	Accounts payable			—		32,151		152,568			110,182		—			294,901
	Intercompany payable			—		—		770,257			—		(770,257	)		—
	Accrued liabilities			—		48,730		110,892			76,403		(1,960	)		234,065

		Total current liabilities		—		83,233		1,035,967			238,581		(824,088	)		533,693
Long-term debt, excluding current portion				—		611,370		18,741			86,195		(84,924	)		631,382
Other noncurrent liabilities				—		12,762		58,103			25,991		—			96,856
Commitments and contingencies				—		—		—			—		—			—

		Total liabilities		—		707,365		1,112,811			350,767		(909,012	)		1,261,931
Common stock				—		—		2			75,000		(75,002	)		—
Additional paid-in capital				394,182		394,182		—			—		(394,182	)		394,182
Retained earnings				89,359		89,359		58,752			6,883		(154,994	)		89,359
Accumulated other comprehensive income				56,569		56,569		(1,020	)		56,717		(112,266	)		56,569

		Total stockholder’s equity		540,110		540,110		57,734			138,600		(736,444	)		540,110

		Total liabilities and stockholder’s equity	$	540,110	$	1,247,475	$	1,170,545		$	489,367	$	(1,645,456	)	$	1,802,041


		Combined Predecessor Entity
		ConAgra Red Meat Business
		Twenty-Four Days Ended September 18, 2002

		(in thousands)
		Swift Holdings							Subsidiary
		Parent		Swift Operating		Subsidiary			Non-			Eliminations/
		Guarantor		Issuer		Guarantors			Guarantors			Adjustments			Total

Net sales		$	—	$	—	$	461,242		$	146,848		$	(56,074	)	$	552,016
Cost of goods sold			—		—		449,327			151,093			(56,074	)		544,346

	Gross profit(loss)		—		—		11,915			(4,245	)		—			7,670
Selling, general and administrative			—		—		9,044			1,037			—			10,081
Corporate allocations			—		—		2,935			845			—			3,780

			—		—		11,979			1,882			—			13,861
	Income (loss) before income taxes		—		—		(64	)		(6,127	)		—			(6,191	)
Income tax expense (benefit)			—		—		(36	)		(2,520	)		—			(2,556	)

	Income before equity in earnings of unconsolidated subsidiaries		—		—		(28	)		(3,607	)		—			(3,635	)
Equity in earnings of unconsolidated subsidiaries			—		—		(5,903	)		—			5,903			—

	Net income (loss)	$	—	$	—	$	(5,931	)	$	(3,607	)	$	5,903		$	(3,635	)


		Combined Predecessor Entity
		ConAgra Red Meat Business
		115 Days Ended September 18, 2002

		(in thousands)
		Swift Holdings		Swift					Subsidiary
		Parent		Operating		Subsidiary			Non-			Eliminations/
		Guarantor		Issuer		Guarantors			Guarantors			Adjustments			Total

Net sales		$	—	$	—	$	2,290,060		$	587,822		$	(185,432	)	$	2,692,450
Cost of goods sold			—		—		2,205,612			589,239			(185,432	)		2,609,419

	Gross profit(loss)		—		—		84,448			(1,417	)		—			83,031
Selling, general and administrative			—		—		33,567			3,333			—			36,900
Corporate allocations			—		—		14,066			4,047			—			18,113

			—		—		47,633			7,380			—			55,013
	Income (loss) before income taxes		—		—		36,815			(8,797	)		—			28,018
Income tax expense (benefit)			—		—		13,717			(4,115	)		—			9,602

	Income before equity in earnings of unconsolidated subsidiaries		—		—		23,098			(4,682	)		—			18,416
Equity in earnings of unconsolidated subsidiaries			—		—		(13,494	)		—			13,494			—

	Net income (loss)	$	—	$	—	$	9,604		$	(4,682	)	$	13,494		$	18,416


		Consolidated S&C Holdco 3, Inc. and Subsidiaries
		Sixty-Seven Days Ended November 24, 2002

		(in thousands)
		Swift Holdings							Subsidiary
		Parent		Swift Operating			Subsidiary		Non-			Eliminations/
		Guarantor		Issuer			Guarantors		Guarantors			Adjustments			Total

Net sales		$	—	$	—		$	1,313,141	$	222,683		$	(3,297	)	$	1,532,527
Cost of goods sold			—		—			1,269,032		209,167			(3,297	)		1,474,902

	Gross profit		—		—			44,109		13,516			—			57,625
Selling, general and administrative			—		469			19,325		2,010			—			21,804
Translation (gains) losses			—		—			—		(4,206	)		—			(4,206	)
Interest & financing expenses			—		1,568			8,902		3,121			—			13,591

			—		2,037			28,227		925			—			31,189
	Income (loss) before income taxes		—		(2,037	)		15,882		12,591			—			26,436
Income tax expense (benefit)			—		(702	)		5,564		4,243			—			9,105

	Income before equity in earnings of unconsolidated subsidiaries		—		(1,335	)		10,318		8,348			—			17,331
Equity in earnings of unconsolidated subsidiaries			17,331		18,666			—		—			(35,997	)		—

	Net income (loss)	$	17,331	$	17,331		$	10,318	$	8,348		$	(35,997	)	$	17,331


		Consolidated S&C Holdco 3, Inc. and Subsidiaries
		Thirteen Weeks Ended November 23, 2003

		(in thousands)
		Swift Holdings							Subsidiary
		Parent		Swift Operating			Subsidiary		Non-			Eliminations/
		Guarantor		Issuer			Guarantors		Guarantors			Adjustments			Total

Net sales		$	—	$	42		$	2,153,944	$	384,303		$	—		$	2,538,289
Cost of goods sold			—		—			2,083,854		378,529			—			2,462,383

	Gross profit		—		42			70,090		5,774			—			75,906
Selling, general and administrative			—		(43	)		29,836		6,387			—			36,180
Translation (gains) losses			—		1			417		292			—			710
Interest expense (income)			—		(3,257	)		14,125		4,287			—			15,155

			—		(3,299	)		44,378		10,966			—			52,045
	Income (loss) before income taxes		—		3,341			25,712		(5,192	)		—			23,861
Income tax expense (benefit)			—		1,177			8,471		(1,165	)		—			8,483

	Income before equity in earnings of unconsolidated subsidiaries		—		2,164			17,241		(4,027	)		—			15,378
Equity in earnings of unconsolidated subsidiaries			15,378		13,214			—		—			(28,592	)		—

	Net income (loss)	$	15,378	$	15,378		$	17,241	$	(4,027	)	$	(28,592	)	$	15,378


		Consolidated S&C Holdco 3, Inc. and Subsidiaries
		Twenty-Six Weeks Ended November 23, 2003

		(in thousands)
		Swift Holdings							Subsidiary
		Parent		Swift Operating			Subsidiary		Non-			Eliminations/
		Guarantor		Issuer			Guarantors		Guarantors			Adjustments			Total

Net sales		$	—	$	42		$	4,294,481	$	724,157		$	—		$	5,018,680
Cost of goods sold			—		—			4,120,721		715,474			—			4,836,195

	Gross profit		—		42			173,760		8,683			—			182,485
Selling, general and administrative			—		—			56,561		11,150			—			67,711
Translation (gains) losses			—		—			371		886			—			1,257
Interest expense (income)			—		(6,356	)		33,283		8,956			—			35,883

			—		(6,356	)		90,215		20,992			—			104,851
	Income (loss) before income taxes		—		6,398			83,545		(12,309	)		—			77,634
Income tax expense (benefit)			—		2,262			28,991		(3,692	)		—			27,561

	Income before equity in earnings of unconsolidated subsidiaries		—		4,136			54,554		(8,617	)		—			50,073
Equity in earnings of unconsolidated subsidiaries			50,073		45,937			—		—			(96,010	)		—

	Net income (loss)	$	50,073	$	50,073		$	54,554	$	(8,617	)	$	(96,010	)	$	50,073


			Combined Predecessor Entity
			ConAgra Red Meat Business
			115 Days Ended September 18, 2002

			(in thousands)
			Swift Holdings		Swift					Subsidiary
			Parent		Operating		Subsidiary			Non-			Eliminations/
			Guarantor		Issuer		Guarantors			Guarantors			Adjustments			Total

Net cash flows provided by (used in) operating activities			$	—	$	—	$	(657	)	$	(4,075	)	$	7,060		$	2,328

Cash flows from investing activities:
	Net additions to property, plant and equipment			—		—		(7,860	)		(982	)		—			(8,842	)
	Notes receivable and other items			—		—		—			1,348			—			1,348

		Net cash flows provided by (used in) investing activities		—		—		(7,860	)		366			—			(7,494	)

Cash flows from financing activities:
	Proceeds from debt issuance			—		—		—			261,890			—			261,890
	Payments of long-term debt			—		—		(5,000	)		(8,123	)		—			(13,123	)
	Net investments and advances			—		—		13,517			(246,021	)		(7,060	)		(239,564	)

		Net cash flows provided by financing activities		—		—		8,517			7,746			(7,060	)		9,203

Net change in cash and cash equivalents				—		—		—			4,037			—			4,037

Cash and cash equivalents, beginning of period				—		—		—			8,643			—			8,643

Cash and cash equivalents, end of period			$	—	$	—	$	—		$	12,680		$	—		$	12,680


				Consolidated S&C Holdco 3, Inc. and Subsidiaries
				Sixty-Seven Days Ended November 24, 2002

				(in thousands)
												Subsidiary
				Swift Holdings		Swift Operating			Subsidiary			Non-			Eliminations/
				Parent Guarantor		Issuer			Guarantors			Guarantors			Adjustments			Total

Net cash flows provided by operating activities				$	—	$	3,394		$	12,050		$	17,735		$	—		$	33,179

Cash flows from investing activities:
	Net additions to property, plant and equipment				—		—			(6,604	)		(4,652	)		—			(11,256	)
	Acquisition of acquired business				—		(644,645	)		—			(223,855	)		75,000			(793,500	)

		Net cash flows used in investing activities			—		(644,645	)		(6,604	)		(228,507	)		75,000			(804,756	)

Cash flows from financing activities:
	Proceeds from debt issuance				—		497,061			—			184,924			—			681,985
	Payments of long-term debt				—		(11,000	)		(106	)		(40,000	)		—			(51,106	)
	Change in overdraft balances				—		—			58,000			—			—			58,000
	Issuance of common stock				—		160,000			—			75,000			(75,000	)		160,000
	Debt issuance costs				—		(30,000	)		—			(7,000	)		—			(37,000	)
	Net investments and advances/(distributions)				—		75,769			(75,284	)		(485	)		—			—

			Net cash flows provided by (used in) financing activities		—		691,830			(17,390	)		212,439			(75,000	)		811,879

Net change in cash and cash equivalents					—		50,579			(11,944	)		1,667			—			40,302

Cash and cash equivalents, beginning of period					—		—			28,251			6,371			—			34,622

Cash and cash equivalents, end of period				$	—	$	50,579		$	16,307		$	8,038		$	—		$	74,924


				Consolidated S&C Holdco 3, Inc. and Subsidiaries
				Twenty-Six Weeks Ended November 23, 2003

				(in thousands)
												Subsidiary
				Swift Holdings		Swift Operating			Subsidiary			Non-			Eliminations/
				Parent Guarantor		Issuer			Guarantors			Guarantors			Adjustments			Total

Net cash flows provided by (used in) operating activities				$	—	$	1,029		$	68,021		$	(20,267	)	$	21,871		$	70,654

Cash flows from investing activities:
	Net additions to property, plant and equipment				—		—			(32,858	)		(3,409	)		—			(36,267	)
	Proceeds from sales of property, plant and equipment				—		—			1,416			134			—			1,550

		Net cash flows used in investing activities			—		—			(31,442	)		(3,275	)		—			(34,717	)

Cash flows from financing activities:
	Proceeds from debt issuance				—		12,365			—			21,871			(21,871	)		12,365
	Payments of long-term debt				—		(1,116	)		(1,079	)		—			—			(2,195	)
	Change in overdraft balances				—		15,424			(14,683	)		(466	)		—			275
	Net investments and advances/(distributions)				—		3,845			(7,833	)		3,988			—			—

			Net cash flows provided by (used in) financing activities		—		30,518			(23,595	)		25,393			(21,871	)		10,445

	Effect of exchange rates on cash				—		—			—			762			—			762

Net change in cash and cash equivalents					—		31,547			12,984			2,613			—			47,144

Cash and cash equivalents, beginning of period					—		53,695			4,432			6,812			—			64,939

Cash and cash equivalents, end of period				$	—	$	85,242		$	17,416		$	9,425		$	—		$	112,083

On December 23, 2003, the USDA reported the first apparent case of bovine spongiform encephalopathy (commonly referred to as “mad cow disease” or BSE) in the United States after performing preliminary tests on a cow slaughtered in Washington. Additional testing of the samples performed in the United Kingdom confirmed the findings on December 25, 2003. Following the announcement, the USDA recalled approximately 10,000 pounds of beef that originated from the Washington slaughter facility, and nearly a dozen countries, including Mexico, Japan, South Korea, Australia, Taiwan, Singapore, Malaysia, Russia and China, have temporarily banned the import of U.S. beef. Mexico, Japan and South Korea are the top three importers of U.S. beef by volume according to the U.S. Meat Export Federation. During fiscal 2003 and the quarter ended November 23, 2003, these three countries collectively accounted for approximately 85% and 87%, respectively, of Swift Operating’s U.S. beef exports, representing 11% and 14% of total worldwide beef sales for these periods. This development did not have any impact on the second quarter fiscal 2004 results as inventory turns within three weeks.

Swift Operating cannot anticipate the duration of these beef import bans or whether additional countries may impose similar restrictions. In addition, Swift Operating cannot presently assess the full economic impact of this occurrence on the U.S. beef industry or on Swift Operating’s operations. Swift Operating’s revenues and net income may be materially adversely affected in the event previously announced import restrictions continue indefinitely, additional countries announce similar restrictions, additional regulatory restrictions are put into effect or domestic consumer demand for beef declines substantially.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report 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 statements 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 availability and prices of live cattle, hogs, raw materials and supplies, food safety, livestock disease, the competitive environment and related market conditions, hedging risk, operating efficiencies, changes in interest rate and foreign currency exchange rates, compliance with covenants of loan agreements, the cost of compliance with environmental and health standards, adverse results from on-going litigation and the actions of domestic and foreign governments. Reference is hereby made to the disclosures contained under the heading “Risk Factors” in “Item 1. Business” of Swift Holdings’ Annual Report on Form 10-K filed with the Securities and Exchange Commission on August 22, 2003 and which should be read in conjunction with this report.

We maintain an internet web site at www.swiftbrands.com. The information on this site does not form a part of this Form 10-Q. Our Form 10-Q may be inspected, without charge, at the offices of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials may also be obtained by mail at prescribed rates from the Public Reference Room of the Securities and Exchange Commission at that address. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. Copies of such materials may also be obtained from the web site that the Securities and Exchange Commission maintains at www.sec.gov.

The ConAgra Red Meat Business was developed through a series of acquisitions made by ConAgra Foods in the late 1980’s and early 1990’s. E.A. Miller Enterprises Inc. and Monfort Inc. were both acquired in 1987 to form the foundation of the current domestic beef company. ConAgra Foods acquired Swift Independent Packing Co. during the late 1980’s in two separate transactions that formed the foundation of the current domestic pork business and expanded the domestic beef business. Finally, the Australian operations were acquired in three separate transactions during the 1990’s. Since the time of the first acquisition, the ConAgra Red Meat Business was operated as a division of ConAgra Foods.

Historically, the domestic cattle feeding operations were wholly owned by ConAgra Beef Company. Substantially all of the sales from those operations were made to our domestic beef processing facilities. For the thirteen weeks ended November 23, 2003, the domestic cattle feeding operations provided approximately 15% of the cattle processed by our domestic beef processing operations. The domestic cattle feeding operations consist of five feedlots that feed over 900,000 cattle annually. In a related transaction, a subsidiary of Swift Foods acquired the domestic cattle feeding operations that were historically included in the domestic beef business. In connection with the Transaction, we entered into an agreement with the entity that acquired the domestic cattle feeding operations under which it will continue to supply cattle to Swift Beef consistent with past practices.

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the 249 days ended May 25, 2003. We have made no changes to those policies during the twenty-six weeks ended November 23, 2003.

Our quarterly operating results are influenced by seasonal factors in both the beef and pork industries. These factors impact the price that we pay for livestock as well as the ultimate price at which we sell our products.

The seasonal demand for beef products is highest in the summer and fall months as weather patterns permit more outdoor activities and there is an increased demand for higher value items that are grilled, such as steaks. Both live cattle prices and boxed beef prices

tend to be at seasonal highs during the summer and fall. Because of higher consumption, more favorable growing conditions and the housing of animals in feedlots for the winter months, there are generally more cattle available in the summer and fall.

The pork business has similar seasonal cycles, but in different months. It takes an average 11 months from conception for a hog to reach market weight. Generally, sows are less productive in summer months resulting in fewer hogs available in the spring and early summer, which causes prices of hogs and boxed pork to rise, but production to fall. The highest demand for pork occurs from October to March, as hog availability and holiday occasions increase the demand for hams, tenderloins and other higher value pork products.

Accounting principles generally accepted in the United States of America require our operating results prior to the Transaction to be reported as the results of the Predecessor Entity for periods prior to September 19, 2002 in the financial statements. Our operating results subsequent to the Transaction are presented as the Successor’s results in the financial statements and include the sixty-seven days ended November 24, 2002 and the thirteen and twenty-six weeks ended November 23, 2003.

The financial results for periods prior to September 19, 2002 reflect the results of all of the historical operations of the ConAgra Red Meat Business, including the results of ConAgra Foods’ domestic beef and pork businesses, the domestic cattle feeding operations, Australia Meat Holding Pty. Ltd., Weld Insurance Company and other related entities which have historically been operated as an integrated business. We refer to the ConAgra Red Meat Business collectively as the “Predecessor Entity.” In the Transaction, we acquired ConAgra Foods’ domestic beef and pork processing businesses and its Australian beef business. We refer to these businesses collectively as the “Acquired Business.” The financial results for periods on or after September 19, 2002 reflect only the operations of the Acquired Business.


			115 Days Ended September 18, 2002													Pro Forma

			ConAgra		Elimination			Adjustments					Sixty-Seven Days			Twenty-Six Weeks
			Red Meat		of Businesses			For the					Ended			Ended November 24,
			Business		Not Acquired			Transaction (a)			Total		November 24, 2002			2002

Statement of Earnings Data:
	Net sales		$	2,692,450	$	(51,527	)	$	—		$	2,640,923	$	1,532,527		$	4,173,450
	Cost of goods sold			2,609,419		(70,989	)		2,475			2,540,905		1,474,902			4,015,807

		Gross profit		83,031		19,462			(2,475	)		100,018		57,625			157,643

	Selling, general and administrative expense			36,900		(2,095	)		3,273			38,078		21,804			59,882
	Translation (gains) losses			—		—			—			—		(4,206	)		(4,206	)
	Corporate allocations: Selling, general and administrative expense			4,509		(875	)		—			3,634		—			3,634
	Corporate allocations: Finance charges/interest and financing expense			13,604		190			(13,794	)		—		—			—
	Interest expense			—		—			21,375			21,375		13,591			34,966

		Total expenses		55,013		(2,780	)		10,854			63,087		31,189			94,276

		Total income (loss) before income taxes		28,018		22,242			(13,329	)		36,931		26,436			63,367
	Income tax expense (benefit)			9,602		8,452			(4,061	)		13,993		9,105			23,098

		Net income (loss)	$	18,416	$	13,790		$	(9,268	)	$	22,938	$	17,331		$	40,269

(a)

Adjustments for the Transaction represent certain adjustments and eliminations, such as an adjustment to estimated depreciation expense based on the fair values of assets acquired, amounts payable pursuant to the Monitoring and Oversight Agreement, amortization expense related to the Live Cattle Supply Agreement, the Preferred Supplier Agreement and water right agreements, an elimination of historical allocated corporate financing cost, interest expense as a result of the Transaction and the tax effects of the pro forma adjustments at an estimated statutory tax rate of 38%.

Twenty-six weeks ended November 23, 2003 compared to twenty-six weeks ended November 24, 2002 (Pro forma).

ended November 23, 2003 to (2) the sum of the unaudited historical financial statements of the Predecessor Entity after deducting the results of the businesses not acquired for the 115 day period from May 27, 2002 through September 18, 2002 and including Pro forma adjustments related to the Transaction, plus the results of the Acquired Business for the sixty-seven day period from September 19, 2002 to November 24, 2002.

Net Sales. Net sales for the twenty-six weeks ended November 23, 2003 increased $845.2 million, or 20%, as compared to the twenty-six weeks ended November 24, 2002 (Pro forma). The increase in net sales reflects higher selling prices for beef and pork products, a 4% increase in pork volume, and a 4% decrease in beef volume. Net sales prices increased 24% in beef and 15% in pork. The increase in beef net sales prices is a result of higher consumer demand for beef products, primarily as a result of the ban on Canadian cattle imports resulting in limited supply of live cattle and boxed beef. The increase in pork net sales prices is primarily due to the escalating prices of competing protein products, such as beef, which in turn have increased the price of pork products. The prices realized for beef in the second quarter exceeded at least the most recent 15 year high.

The US ban on importing Canadian boxed beef, not live animals which is still in effect, was lifted in September 2003, however material volumes of Canadian boxed beef were not imported into the US until the later part of the quarter, at which time selling prices and operating margins declined. We believe the decreases were as a result of the benefit received by Canadian meat packers due to lower priced raw materials and the need to sell the large backlog of supply.

Cost of Goods Sold. Cost of goods sold increased $820.4 million, or 20%, for the twenty-six weeks ended November 23, 2003 compared to the twenty-six weeks ended November 24, 2002 (Pro forma). The increase in cost of goods sold is primarily a result of increased live cattle and hog costs in the current year as compared to the prior year. Live cattle prices were approximately 36% higher for the twenty-six weeks ended November 23, 2003 compared to same period in the prior year.

Gross Margin Percentage. Gross margin percentage was relatively flat at 3.6% for the twenty-six weeks ended November 23, 2003 compared to 3.8% for the twenty-six weeks ended November 24, 2002 (Pro forma). The slight decrease is a result of higher selling prices more than offset by higher live cattle and hog prices.

Selling, General and Administrative Expense. Selling, general and administrative expenses were $67.7 million for the twenty-six weeks ended November 23, 2003 compared to $59.9 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of 13% is primarily related to increased expenses incurred as a result of transitioning to a stand-alone company, such as professional fees including audit, tax and information technology and insurance and labor expenses that had been charged as corporate allocations prior to September 18, 2002.

Corporate Allocations/Interest Expense. Corporate allocations including selling, general and administrative and finance charges/interest and financing expense were $18.1 million for the 115 days ended September 18, 2002. No corporate allocations were recorded subsequent to the Transaction date of September 18, 2002, although payments to our prior owner in accordance with the Transition Services Agreement during the twenty-six weeks ended November 23, 2003 totaled $1.0 million. For more information on this agreement see Note 4 of “Notes to Consolidated Financial Statements.”

Interest expense was $35.9 million for the twenty-six weeks ended November 23, 2003. For more information on interest expense see Note 3 of “Notes to Consolidated Financial Statements.”

Other Items. Our operating results were also impacted by a translation loss of $1.3 million for the twenty-six weeks ended November 23, 2003 related to the foreign currency translation impacts of our international businesses, primarily Australia, which increased by 24% between the periods. Our fiscal year ended May 25, 2003 results included a translation gain of $9.0 million related to gains on our U.S. revolving inter-company borrowings. During the second quarter ended November 23, 2003 we entered into a forward contract to hedge this exposure in an effort to mitigate future gains and losses. As a result, expense was recognized relating to the change in fair value of the forward contract. This expense has been recorded in the statement of earnings as an offset to the translation gain recorded on the intercompany borrowing.

Income Taxes. For the sixty-seven days ended November 24, 2002, our effective tax rate for the Acquired Business was approximately 34.4% as compared to 36.0% for prior periods on a Predecessor Entity basis. For the twenty-six weeks ended November 23, 2003, our effective tax rate was approximately 35.5%. As we are no longer a division of our previous parent company, we must file separate consolidated tax returns for the Acquired Business and the parent entities on a stand-alone basis.


			Twenty-Four Days Ended September 18, 2002															Pro Forma

			ConAgra			Elimination			Adjustments						Sixty-Seven Days			Thirteen
			Red Meat			of Businesses			For the						Ended			Weeks Ended
			Business			Not Acquired			Transaction (a)			Total			November 24, 2002			November 24, 2002

Statement of Earnings Data:
	Net sales		$	552,016		$	(11,642	)	$	—		$	540,374		$	1,532,527		$	2,072,901
	Cost of goods sold			544,346			(20,457	)		1,176			525,065			1,474,902			1,999,967

		Gross profit		7,670			8,815			(1,176	)		15,309			57,625			72,934

	Selling, general and administrative expense			10,081			(689	)		1,369			10,761			21,804			32,565
	Translation (gains) losses			—			—			—			—			(4,206	)		(4,206	)
	Corporate allocations: Selling, general and administrative expense			941			(183	)		—			758			—			758
	Corporate allocations: Finance charges/interest and financing expense			2,839			40			(2,879	)		—			—			—
	Interest expense			—			—			3,842			3,842			13,591			17,433

		Total expenses		13,861			(832	)		2,332			15,361			31,189			46,550

		Total Income (Loss) Before Income Taxes		(6,191	)		9,647			(3,508	)		(52	)		26,436			26,384
	Income tax expense (benefit)			(2,556	)		3,918			(1,001	)		361			9,105			9,466

		Net income (loss)	$	(3,635	)	$	5,729		$	(2,507	)	$	(413	)	$	17,331		$	16,918

(a)

Thirteen weeks ended November 23, 2003 compared to thirteen weeks ended November 24, 2002 (Pro forma).

The information presented below for the thirteen weeks ended November 23, 2003 compared to the Pro forma thirteen weeks ended November 24, 2002 is derived from comparing (1) the unaudited results of the Acquired Business for the thirteen weeks ended November 23, 2003 to (2) the sum of the unaudited historical financial statements of the Predecessor Entity after deducting the results of the businesses not acquired for the for the twenty-four day period from August 26, 2002 through September 18, 2002 and including Pro forma adjustments related to the Transaction, plus the results of the Acquired Business for the sixty-seven day period from September 19, 2002 to November 24, 2002.

Net Sales. Net sales for the thirteen weeks ended November 23, 2003 increased $465.4 million, or 23%, as compared to the thirteen weeks ended November 24, 2002 (Pro forma). The increase in net sales reflects higher selling prices for beef and pork products, a 5% increase in pork volume, and an 8% decrease in beef volume. Net sales prices increased approximately 32% in beef and approximately 17% in pork. The increase in beef net sales prices is a result of higher consumer demand for beef products, as a result of factors such as the ban on Canadian cattle imports resulting in limited supply of live cattle and boxed beef. The increase in pork selling prices is primarily due to the escalating prices of competing protein products such as beef, which in turn increase the price of pork products. The prices realized for beef in the second quarter exceeded at least the most recent 15 year high.

Cost of Goods Sold. Cost of goods sold increased $462.4 million, or 23%, for the thirteen weeks ended November 23, 2003 as compared to the thirteen weeks ended November 24, 2002 (Pro forma). The increase in cost of goods sold is primarily a result of increased cattle and hog costs.

Gross Margin Percentage. Gross margin percentages were 3.0% for the thirteen weeks ended November 23, 2003 as compared to 3.5% for the prior thirteen weeks (Pro forma). The decrease is a result of higher selling prices more than offset by higher live cattle and hog prices, on a 5% increase in pork volume and decreased cattle volume of 8%.

Selling, General and Administrative Expense. Selling, general and administrative expenses were $36.2 million for the thirteen weeks ended November 23, 2003 as compared to $32.6 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of 11% is primarily related to increased expenses incurred as a result of transitioning to a stand-alone company, such as professional fees including audit, tax and information technology and insurance and labor expenses that had been charged as corporate allocations prior to September 18, 2002.

Corporate Allocations/Interest Expense. Corporate allocations included selling, general and administrative and finance charges/interest and financing expense were $3.8 million for the twenty-four days ended September 18, 2002. No corporate allocations were recorded subsequent to Transaction date of September 18, 2002, and no payments were made to our prior owner in accordance with the Transition Services Agreement. For more information on this agreement see Note 4 of “Notes to Consolidated Financial Statements.”

Interest expense was $15.2 million for the thirteen weeks ended November 23, 2003. For more information on interest expense see Note 3 of “Notes to Consolidated Financial Statements.”

Other Items. Our operating results were also impacted by a translation loss of $0.7 million for the thirteen weeks ended November 23, 2003 related to the currency impacts of our international businesses, primarily Australia, which increased by 24% between the periods. Our fiscal year ended May 25, 2003 results included a translation gain of $9.0 million related to gains on our U.S. revolving inter-company borrowings. During the second quarter ended November 23, 2003 we entered into a forward contract to hedge this exposure in an effort to mitigate future gains and losses. As a result, expense was recognized relating to the change in fair value of the forward contract. This expense has been recorded in the statement of earnings as an offset to the translation gain recorded on the intercompany borrowing.

Income Taxes. For the sixty-seven days ended November 24, 2002, our effective tax rate for the Acquired Business was approximately 34.4% as compared to 36.0% for prior periods on a Predecessor Entity basis. For the thirteen weeks ended November 23, 2003, our effective tax rate was approximately 35.5%. As we are no longer a division of our previous parent company, we must file separate consolidated tax returns for the Acquired Business and the parent entities on a stand-alone basis.

The following table presents segment results for the twenty-six weeks ended November 24, 2002 and November 23, 2003 (in thousands):


		115 Days Ended September 18, 2002															Pro Forma

		ConAgra			Elimination			Adjustments						Sixty-Seven Days			Twenty-Six Weeks			Twenty-Six Weeks
		Red Meat			of Businesses			For the						Ended			Ended November 24,			Ended November 23,
		Business			Not Acquired			Transaction (a)			Total			November 24, 2002			2002			2003

Net Sales
	Swift Beef	$	1,811,247		$	—		$	—		$	1,811,247		$	1,022,224		$	2,833,471		$	3,376,641
	Swift Pork		478,812			—			—			478,812			291,034			769,846			917,829
	Swift Australia		350,525			—			—			350,525			222,620			573,145			724,215
	Corporate and Other		51,866			(51,527	)		—			339			(3,351	)		(3,012	)		(5	)

Total		$	2,692,450		$	(51,527	)	$	—		$	2,640,923		$	1,532,527		$	4,173,450		$	5,018,680

Depreciation and Amortization
	Swift Beef	$	12,236		$	—		$	1,307		$	13,543		$	8,990		$	22,533		$	27,262
	Swift Pork		4,633			—			750			5,383			3,002			8,385			10,179
	Swift Australia		3,531			—			418			3,949			2,671			6,620			8,875
	Corporate and Other		1,172			(1,142	)		—			30			(337	)		(307	)		319

Total		$	21,572		$	(1,142	)	$	2,475		$	22,905		$	14,326		$	37,231		$	46,635

Operating Income (Loss) Before Other Items (b)
	Swift Beef	$	41,820		$	—		$	(3,035	)	$	38,785		$	10,810		$	49,595		$	70,416
	Swift Pork		9,061			—			(1,742	)		7,319			13,983			21,302			46,809
	Swift Australia		14,929			—			(971	)		13,958			11,338			25,296			(2,235	)
	Corporate and Other		(19,679	)		21,557			—			1,878			(310	)		1,568			(216	)

Total			46,131			21,557			(5,748	)		61,940			35,821			97,761			114,774

Corporate allocations			(18,113	)		685			13,794			(3,634	)		—			(3,634	)		—
Translation gains (losses)			—			—			—			—			4,206			4,206			(1,257	)
Interest expense			—			—			(21,375	)		(21,375	)		(13,591	)		(34,966	)		(35,883	)

Total Income (Loss) Before Income Taxes		$	28,018		$	22,242		$	(13,329	)	$	36,931		$	26,436		$	63,367		$	77,634

(a)

(b)

Other items include corporate allocations prior to the Transaction; and include translation gains and interest expense subsequent to the Transaction.

Twenty-six weeks ended November 23, 2003 compared to twenty-six weeks ended November 24, 2002 (Pro forma).

The information presented below for the twenty-six weeks ended November 23, 2003 compared to the Pro forma twenty-six weeks ended November 24, 2002 is derived from comparing (1) the unaudited results of the Acquired Business for the twenty-six weeks ended November 23, 2003 to (2) the sum of the unaudited historical financial statements of the Predecessor Entity after deducting the results of the businesses not acquired for the 115 day period from May 27, 2002 through September 18, 2002 and including Pro forma adjustments related to the Transaction, plus the results of the Acquired Business for the sixty-seven day period from September 19, 2002 to November 24, 2002.

Net Sales. Net sales of Swift Beef were $3,376.6 million for the twenty-six weeks ended November 23, 2003 compared to $2,833.5 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $543.1 million, or 19%, reflects approximately 24% higher selling prices on slightly reduced sales volume.

Depreciation & Amortization. Depreciation and amortization of Swift Beef was $27.3 million for the twenty-six weeks ended November 23, 2003 compared to $22.5 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $4.8 million, or 21%, resulted primarily from the increase in the depreciable asset base due to the Transaction, and the recording of amortization of related debt issuance costs.

Operating Income. Operating income of Swift Beef was $70.4 million for the twenty-six weeks ended November 23, 2003 compared to $49.6 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $20.8 million, or 42%, primarily reflects increased revenue resulting from higher selling prices due in part to the ban on Canadian cattle imports, combined with improved product optimization, improvement in general market conditions that were partially offset by higher cattle costs and increased labor and other production related costs.

Gross margin percentages were 3.2% for the current twenty-six weeks and 3.5% for the prior twenty-six weeks (Pro forma). The slight decrease in gross margin percentage reflects a reduction in the spread between the gross selling price for finished goods and the raw material cost, as compared to the same period in the prior year. This impact was compounded by an approximately 4% increase in plant operating expenses, principally related to international freight and labor expense as a result of increased focus on food safety.

Net Sales. Net sales of Swift Pork were $917.8 million for the twenty-six weeks ended November 23, 2003 compared to $769.8 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $148.0 million, or 19%, reflects a 15% increase in selling prices and a 4% increase in sales volume. The higher pork selling prices are primarily due to the escalating prices of competing protein products such as beef, which in turn increase the price of pork products.

Depreciation & Amortization. Depreciation and amortization of Swift Pork was $10.2 million for the twenty-six weeks ended November 23, 2003 compared to $8.4 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $1.8 million, or 21%, resulted primarily from the increase in the depreciable asset base due to the Transaction, and the recording of amortization of related debt issuance costs.

Operating Income. Operating income of Swift Pork was $46.8 million for the twenty-six weeks ended November 23, 2003 compared to $21.3 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $25.5 million reflects an increase in the spread between selling price and raw material cost per pound.

Gross margin percentages were 7.1% for the twenty-six weeks ended November 23, 2003 and 3.5% for the prior twenty-six weeks (Pro forma). The increase is a result of an increase in the spread between the gross selling price for finished goods and the raw material cost, some of which are contracted.

Net Sales. Net sales of Swift Australia were $724.2 million for the twenty-six weeks ended November 23, 2003 compared to $573.1 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $151.1 million, or 26%, reflects a 27% higher selling price and relatively unchanged volumes. The increase in net sales was due to the ongoing drought which reduced cattle supplies significantly and drove increased selling prices. The other major contributor was the Australian dollar to US dollar exchange rate movement of an average 21% between the two periods.

Depreciation & Amortization. Depreciation and amortization of Swift Australia was $8.9 million for the twenty-six weeks ended November 23, 2003 compared to $6.6 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The increase of $2.3 million, or 35%, resulted from the increase in asset depreciable basis due to the Transaction and the amortization of related debt issuance costs, coupled with the effects of foreign exchange rate differences. The Australian dollar to US dollar exchange rate increased an average 21% between the two periods.

Operating Loss. Operating loss of Swift Australia was $2.2 million for the twenty-six weeks ended November 23, 2003 compared to operating income of $25.3 million for the twenty-six weeks ended November 24, 2002 (Pro forma). The decrease of $27.5 million, resulted primarily from an increase in livestock prices combined with increased selling and general and administrative expenses associated with becoming a stand-alone company (such as insurance). Drought conditions were experienced throughout most of the half-year but cattle prices remained high, supported primarily by sustained processor competition for cattle. In addition, the Australian dollar to US dollar exchange rate increased an average 21% between the two periods.

Gross margin percentages decreased to 1.2% for the current twenty-six weeks compared to 5.3% for the prior twenty-six weeks (Pro forma). The decrease was due to higher raw material costs which more than offset the increased selling price.

The following table presents segment results for the thirteen weeks ended November 24, 2002 and November 23, 2003 (in thousands):


		Twenty-Four Days Ended September 18, 2002															Pro Forma

		ConAgra			Elimination			Adjustments						Sixty-Seven Days			Thirteen Weeks			Thirteen Weeks
		Red Meat			of Businesses			For the						Ended			Ended November 24,			Ended November 23,
		Business			Not Acquired			Transaction (a)			Total			November 24, 2002			2002			2003

Net Sales
	Swift Beef	$	366,521		$	—		$	—		$	366,521		$	1,022,224		$	1,388,745		$	1,676,854
	Swift Pork		94,719			—			—			94,719			291,034			385,753			477,086
	Swift Australia		79,326			—			—			79,326			222,620			301,946			384,377
	Corporate and Other		11,450			(11,642	)		—			(192	)		(3,351	)		(3,543	)		(28	)

Total		$	552,016		$	(11,642	)	$	—		$	540,374		$	1,532,527		$	2,072,901		$	2,538,289

Depreciation and Amortization
	Swift Beef	$	2,734		$	—		$	621		$	3,355		$	8,990		$	12,345		$	13,864
	Swift Pork		1,029			—			356			1,385			3,002			4,387			5,093
	Swift Australia		732			—			199			931			2,671			3,602			4,487
	Corporate and Other		262			(261	)		—			1			(337	)		(336	)		300

Total		$	4,757		$	(261	)	$	1,176		$	5,672		$	14,326		$	19,998		$	23,744

Operating Income (Loss) Before Other Items (b)
	Swift Beef	$	(1,811	)	$	—		$	(1,344	)	$	(3,155	)	$	10,810		$	7,655		$	8,305
	Swift Pork		3,953			—			(771	)		3,182			13,983			17,165			32,146
	Swift Australia		4,709			—			(430	)		4,279			11,338			15,617			(315	)
	Corporate and Other		(9,262	)		9,504			—			242			(310	)		(68	)		(410	)

Total			(2,411	)		9,504			(2,545	)		4,548			35,821			40,369			39,726

Corporate allocations			(3,780	)		143			2,879			(758	)		—			(758	)		—
Translation gains (losses)			—			—			—			—			4,206			4,206			(710	)
Interest expense			—			—			(3,842	)		(3,842	)		(13,591	)		(17,433	)		(15,155	)

Total Income (Loss) Before Income Taxes		$	(6,191	)	$	9,647		$	(3,508	)	$	(52	)	$	26,436		$	26,384		$	23,861

(a)

(b)

Other items include corporate allocations prior to the Transaction; and include translation gains and interest expense subsequent to the Transaction.

Thirteen weeks ended November 23, 2003 compared to thirteen weeks ended November 24, 2002 (Pro forma).

The information presented below for the thirteen weeks ended November 23, 2003 compared to the Pro forma thirteen weeks ended November 24, 2002 is derived from comparing (1) the unaudited results of the Acquired Business for the thirteen weeks ended November 23, 2003 to (2) the sum of the unaudited historical financial statements of the Predecessor Entity after deducting the results of the businesses not acquired for the twenty-four day period from August 26, 2002 through September 18, 2002 and including Pro forma adjustments related to the Transaction, plus the results of the Acquired Business for the sixty-seven day period from September 19, 2002 to November 24, 2002.

Net Sales. Net sales of Swift Beef were $1,676.9 million for the thirteen weeks ended November 23, 2003 compared to $1,388.7 million for the thirteen weeks ended November 24, 2002 (Pro forma). The net sales increase of $288.2 million, or 21%, reflects an approximately 32% increase in sales prices partially offset by reduced volumes of approximately 8%.

Depreciation & Amortization. Depreciation and amortization of Swift Beef was $13.9 million for the thirteen weeks ended November 23, 2003 compared to $12.3 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of $1.6 million, or 13%, resulted primarily from the increase in the depreciable asset base due to the Transaction, and the recording of amortization of related debt issuance costs.

Operating Income. Operating income of Swift Beef was $8.3 million for the thirteen weeks ended November 23, 2003 compared to $7.7 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of $0.6 million, or 8%, is primarily a result of higher selling prices.

Gross margin percentages were 1.7% for the current thirteen weeks and 2.8% for the prior thirteen weeks (Pro forma). The gross margin decrease reflects a reduction in the spread between the gross selling price for finished goods and the raw material cost, as compared to the same period in the prior year. This impact was compounded by an increase in plant operating expenses, principally related to international freight and labor expense as a result of increased focus on food safety.

Net Sales. Net sales of Swift Pork were $477.1 million for the thirteen weeks ended November 23, 2003 compared to $385.8 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of $91.3 million, or 24%, reflects a 17% increase in selling prices and a 5% increase in volume. The higher pork selling prices are primarily due to the escalating prices of competing protein products such as beef, which in turn raise the price of pork products.

Depreciation & Amortization. Depreciation and amortization of Swift Pork was $5.1 million for the thirteen weeks ended November 23, 2003 compared to $4.4 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of $0.7 million, or 16%, resulted primarily from the increase in the depreciable asset base due to the Transaction, and the recording of amortization of related debt issuance costs.

Operating Income. Operating income of Swift Pork was $32.1 million for the thirteen weeks ended November 23, 2003 compared to $17.2 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of $14.9 million, or 87%, reflects an increase in the spread between selling price and raw material cost per pound.

Gross margin percentages were 8.8% for the current thirteen weeks and 4.2% for the prior thirteen weeks (Pro forma). The increase is a result of an increase in the spread between the gross selling price for finished goods and the raw material cost, some of which are contracted.

Net Sales. Net sales of Swift Australia were $384.4 million for the thirteen weeks ended November 23, 2003 compared to $301.9 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase in net sales of $82.5 million, or 27%, primarily reflects a 29% increase in sales prices and relatively flat volumes. The increase in net sales was due to the ongoing drought which reduced cattle supplies significantly and drove increased selling prices, and an Australian dollar to US dollar exchange rate movement of an average 24% between the two periods.

Depreciation & Amortization. Depreciation and amortization of Swift Australia was $4.5 million for the thirteen weeks ended November 23, 2003 compared to $3.6 million for the thirteen weeks ended November 24, 2002 (Pro forma). The increase of $0.9 million, or 25%, resulted in part from the increase in asset depreciable basis due to the Transaction and the amortization of related debt issuance costs for the whole of the current period, coupled with the effects of foreign exchange rate differences. The Australian dollar to US dollar exchange rate increased an average 24% between the two periods.

Operating Loss. Operating loss of Swift Australia was $0.3 million for the thirteen weeks ended November 23, 2003 compared to operating income of $15.6 million for the thirteen weeks ended November 24, 2002 (Pro forma). The decrease of $15.9 million, is primarily a result of an increase in livestock prices combined with increased selling, general and administrative expenses associated with becoming a stand-alone company (such as insurance). The severe drought conditions continued through most of the second quarter but prices remained high with sustained processor competition for cattle. In addition, the Australian dollar to US dollar exchange rate increased an average 24% between the two periods.

Gross margin percentages were 1.5% for the current thirteen weeks compared to 5.9% for the prior thirteen weeks (Pro forma). The decrease was due to higher raw material costs which more than offset the increased selling price.

On December 23, 2003, the USDA reported the first apparent case of bovine spongiform encephalopathy (commonly referred to as “mad cow disease” or BSE) in the United States after performing preliminary tests on a cow slaughtered in Washington. Additional testing of the samples performed in the United Kingdom confirmed the findings on December 25, 2003. Following the announcement, the USDA recalled approximately 10,000 pounds of beef that originated from the Washington slaughter facility, and nearly a dozen countries, including Mexico, Japan, South Korea, Australia, Taiwan, Singapore, Malaysia, Russia and China, have temporarily banned the import of U.S. beef. Mexico, Japan and South Korea are the top three importers of U.S. beef by volume according to the U.S. Meat Export Federation. During fiscal 2003 and the quarter ended November 23, 2003, these three countries collectively accounted for approximately 85% and 87%, respectively, of our U.S. beef exports, representing 11% and 14% of total worldwide beef sales for these periods. This development did not have any impact on the second quarter fiscal 2004 results as inventory turns within three weeks.

We cannot anticipate the duration of these beef import bans or whether additional countries may impose similar restrictions. In addition, we cannot presently assess the full economic impact of this occurrence on the U.S. beef industry or on our operations. Our revenues and net income may be materially adversely affected in the event previously announced import restrictions continue indefinitely, additional countries announce similar restrictions, additional regulatory restrictions are put into effect or domestic consumer demand for beef declines substantially.

Historically, the ConAgra Red Meat Business’ sources of cash were primarily cash flow from operations and advances received from ConAgra Foods. Subsequent to the closing of the Transaction, our ongoing operations require the availability of funds to service debt, fund working capital, invest in our business and pay our obligations. We currently finance and expect to continue to finance these activities through cash flow from operations and from amounts available under our bank facilities. We are no longer able to rely on ConAgra Foods for additional cash funding.

At any time our accounts payable balance includes an overdraft position as a result of accounts payable checks that have been issued but not yet presented for payment. This overdraft position represents approximately five days of activity. Typically, daily cash collections offset the daily funding of payable checks. For more information on bank overdrafts see Note 1 of the “Notes to Consolidated Financial Statements”.

For the 115 days ended September 18, 2002 and the sixty-seven days ended November 24, 2002, we generated $4.0 million and $40.3 million of cash, respectively. During the twenty-six weeks ended November 23, 2003, we generated $47.1 million of cash, which is the net impact of $70.6 million provided by operations, $34.7 million used in investing activities, $10.4 million provided by financing activities and $0.8 million attributable to changes in foreign exchange rates.

Cash provided by operating activities totaled $2.3 million for the 115 days ended September 18, 2002 (Predecessor Entity basis) and $33.2 million and $70.6 million, respectively, for the sixty-seven days ended November 24, 2002 and the twenty-six weeks ended November 23, 2003 for the Acquired Business. The increased amount of cash generated from operating activities was primarily a result of our lower use of trade working capital (accounts receivable plus inventory, less accounts payable and accrued expenses) during the current twenty-six week period as compared to our use of trade working capital during the same period in the prior year. Cash flows from operating activities for the 115 days ended September 18, 2002 were also impacted by changes in working capital related to businesses not acquired of ($14.3) million.

Cash used in investing activities totaled $7.5 million for the 115 days ended September 18, 2002 (Predecessor Entity basis) and $804.8 million and $34.7 million, respectively for the sixty-seven days ended November 24, 2002 and the twenty-six weeks ended November 23, 2003 for the Acquired Business. The decrease from prior year is primarily a result of the purchase of the Acquired Business in the prior year.

Cash provided by financing activities totaled $9.2 million for the 115 days ended September 18, 2002 (Predecessor Entity basis) as compared to cash provided of $811.9 million and $10.4 million, respectively for the sixty-seven days ended November 24, 2002 and the twenty-six weeks ended November 23, 2003 for the Acquired Business. The decrease in cash provided by financing activities is primarily a result of the purchase of the Acquired Business in the prior year.

Our primary financing objective is to maintain a conservative balance sheet that provides the flexibility to pursue our business strategy. To finance our working capital needs, we utilize cash flow from operations and borrow from our existing revolving credit facility. We are currently in compliance with the financial covenants in our senior credit facilities.

We have in place a short-term revolving credit facility of $350.0 million, of which $269.7 million was available for borrowing as of November 23, 2003 (expiring in September 2007) with major domestic and international banks. The interest rates for the revolving credit facility vary based on currency denominations and borrowing rates of our lenders.

At November 23, 2003, we had $636.1 million of total debt outstanding as compared to $624.3 million as of May 25, 2003.

Our current debt structure is secured by substantially all of our current assets, including inventory and accounts receivable, as well as all of our property, plants and equipment. As a result, our future liquidity is dependent on maintaining adequate cash flows from operations as well as maintaining the credit quality of our underlying accounts receivable balances. Although not anticipated by our management, deterioration of the credit quality of our accounts receivable could impact our ability to borrow under our revolving credit facility.

We believe that available borrowings under our senior credit facilities, available cash and internally generated funds will be sufficient to support our working capital, maintenance capital expenditures and debt service requirements for the foreseeable future. Our ability to generate sufficient cash, however, is subject to certain general economic, financial, industry, legislative, regulatory and other factors beyond our control.

In addition, we have hog purchase contracts which require the purchase of a minimum of approximately 25.3 million hogs through 2014. Such contracts vary in nature and stipulate minimum and maximum price commitments, based in part on market prices and in certain circumstances also include price adjustments based on corn prices.

Our senior credit facilities’ financial covenants are based on Adjusted EBITDA as defined in the senior credit facilities. These financial covenants require us to comply with certain ratios calculated using Adjusted EBITDA and determine our ability to meet future debt service, incur additional indebtedness or capital expenditures and assess our working capital requirements. In particular, these financial covenants currently require us not to:

Our leverage ratio, interest coverage ratio and fixed charge coverage ratio are to be calculated each fiscal quarter based on the latest twelve month financial data.

The calculated ratios for the latest twelve months (“LTM”) ended November 23, 2003 are as follows:

additional guidance clarifying the provisions of FIN 46. The revised guidelines of the interpretation apply immediately to variable interests in variable interest entities created after December 31, 2003 and will become applicable for Swift Operating in the fourth quarter of fiscal 2005 for variable interest entities created before December 31, 2003. A variable interest entity is an entity that has: (1) an insufficient amount of equity to absorb the entity’s losses; (2) equity owners that do not have voting rights; or (3) equity that does not absorb the entity’s losses or residual returns. FIN 46 requires a variable interest entity to be consolidated by its primary beneficiary, which is the company that is subject to a majority of the risk of loss from the entity’s activities, or is entitled to receive a majority of the entity’s residual returns, or both. FIN 46 requires current disclosure of the nature, purpose, size and activity of the variable interest entity and the maximum exposure to loss as a result of our involvement with the variable interest entity. Swift Operating believes it is reasonably possible that the domestic cattle feeding business with which Swift Operating has a Live Cattle Supply Agreement (see Note 4), could be deemed a variable interest entity under the recently revised rules. Swift Operating’s maximum exposure to loss, if any, is not expected to be material. Swift Operating believes that adoption of FIN 46 will not have a material impact on its results of operations or financial position.

The principal market risks affecting our business are exposures related to changes in commodity prices, foreign exchange rates and interest rates. We attempt to mitigate these exposures by entering into various hedging transactions, which are intended to decrease the volatility of earnings and cash flows associated with the changes in the applicable rates and prices.

The following table provides the fair value of our open derivative instruments (in thousands):

•

Fair value for cattle and hogs was determined using the quoted fair value and was based on our net derivative fair value by commodity.

•

Fair value of energy was determined by using quoted market prices, if available, and was based on our net derivative fair value by commodity.

•

Fair value of foreign currency was determined using quoted market prices and was based on the net derivative fair value.

•

Fair value of the interest rate swap was determined using the quoted market price.

We require various raw materials in our operations, including cattle, hogs and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. We consider these raw materials generally available from a number of different sources and believe we can obtain them to meet our requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. We generally hedge these commodities when and to the extent management determines conditions are appropriate. While this may tend to limit our ability to participate in gains from commodity price fluctuations, it also tends to reduce the risk of loss from changes in commodity prices.

We reflect commodity contract gains and losses as adjustments to the basis of underlying commodities purchased; gains or losses are recognized in the statements of earnings as a component of costs of goods sold, or as a component of other comprehensive income, upon change in fair value. Generally, we hedge a portion of our anticipated consumption of commodity inputs for periods of up to 12 months. We may enter into longer-term derivatives on particular commodities if deemed appropriate.

We purchase cattle and hogs for use in our processing businesses. The commodity price risk associated with these activities can be hedged by selling or buying the underlying commodity, or by using an appropriate commodity derivative instrument. We typically utilize exchange-traded futures and options as well as non-exchange-traded derivatives, in which case we monitor the amount of associated counterparty credit risk. We also enter into live cattle forward purchase contracts in order to establish margins on sales we have agreed to make, but have not yet delivered upon. These contracts do not qualify for hedge accounting under SFAS No. 133. Accordingly, changes in the market values of these contracts are recognized immediately as unrealized income or expense in the statements of earnings each period as fluctuations in the fair value of the contracts change with the change in the underlying value of the commodity. As we deliver on our sales and the related live cattle forward contracts are closed, the unrealized income or expense is reversed and the actual transaction is realized. Therefore, on any given day, our reported operating results can be impacted from the non-cash gain or loss due to the accounting for these contracts.

As of November 23, 2003, we had firm contracts to purchase approximately 36% of our anticipated need for cattle and hogs, and we had derivative positions for less than 1% of our anticipated need for cattle and hogs.

We incur energy costs in our facilities and incur higher operating expenses as a result of increases in energy costs. We take positions in commodities used in our operations to partially offset adverse price movements in energy costs, such as natural gas and electricity. We use exchange-traded derivative commodity instruments and non-exchange-traded swaps and options. We monitor the amount of associated counterparty credit risk for non-exchange-traded transactions.

Gains and losses from these contracts are recognized in the period in which the hedged transaction affects earnings. As of November 23, 2003, we had contracts to purchase 100% of our anticipated annual need for natural gas and diesel fuel, and we had hedge positions for approximately 26% of our annual needs for natural gas.

Transactions denominated in a currency other than an entity’s functional currency are generally hedged to reduce market risk, primarily those of Swift Australia. In order to reduce exposures related to changes in foreign currency exchange rates, we use foreign currency forward exchange or option contracts for transactions denominated in a currency other than the applicable functional currency. This includes, but is not limited to, hedging foreign currency risk in sales of finished goods, future settlement of foreign denominated assets and liabilities and firm commitments.

Gains and losses from these contracts are recognized in the period in which the hedged transaction affects earnings. We principally use non-exchange-traded contracts to affect this coverage. Typically the maximum length of time over which we hedge exposure to foreign currency risk is three months or less.

We are exposed to interest rate movements on our floating rate debt. This risk is managed by monitoring our percentage mix of fixed rate and variable rate debt and reviewing other business and financial risks.

In July 2003, we entered into a $100.0 million notional amount interest rate swap related to our fixed rate senior debt in order to change the characteristics of a portion of our senior debt from fixed rate debt to variable rate debt. This action was taken in order to achieve a fixed/floating rate debt target deemed appropriate for our business. The maturity date of the interest rate swap is October 2007 and the floating rate is calculated based on the six-month USD LIBOR set on the last day of each calculation period plus a fixed spread. This interest rate swap does not qualify for hedge accounting and therefore changes in the market value of these contracts are recognized immediately as unrealized income or expense in the statements of earnings. The decrease in fair value, net of interest income recorded, of $0.6 million associated with the change in market value for the current year is recorded within interest expense on the statements of earnings. We can not provide any assurance that we will not incur additional expenses related to changes in the fair value of the interest rate swap.

The following sensitivity analysis estimates our exposure to market risk of commodity prices, foreign exchange rates and interest rates. The sensitivity analysis reflects the impact of a hypothetical 10% adverse change in the fair value of applicable commodity prices, foreign exchange rates and interest rates and excludes the underlying items that are being hedged.


		May 25, 2003			November 23, 2003

		(in thousands)			(in thousands)
Fair Value:
Cattle and hogs		$	799		$	6,439
Energy			2,381			(2,278	)
Foreign currency			982			(1,024	)
Interest rate swap			—			(1,239	)

	Total	$	4,162		$	1,898

Estimated Fair Value Volatility (-10%)
Cattle and hogs		$	(2,737	)	$	(7,052	)
Energy			1,038			(3,224	)
Foreign currency			884			(1,126	)
Interest rate swap			—			(2,556	)

	Total	$	(815	)	$	(13,958	)

We maintain a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) under supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, as of the end of the period covered by this Quarterly Report on Form 10-Q our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 are effective in timely alerting them to material information required to be included in our periodic Securities and Exchange Commission filings. As of November 23, 2003, we completed our separation of certain back office accounting, treasury and financial reporting functions from our former parent, including the implementation of a new accounting package. This process included establishment of policies and procedures and an independent, stand-alone control environment. No significant changes were made to our internal controls or in other factors that have materially affected or are reasonably likely to materially affect these controls during our most recent fiscal year except as previously discussed above. The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events.

For information regarding legal proceedings, see Note 5, “Legal Proceedings” to our consolidated financial statements included in Part 1- Item 1 of this Form 10-Q.


3.1		Certificate of Incorporation of S&C Holdco 3, Inc. (1)

3.2		Bylaws of S&C Holdco 3, Inc. (2)

10.1	*	By-Products Marketing Agreement, dated as of October 8, 2003, by and between ConAgra Trade Group, Inc. and Swift & Company (3)

10.2	*	By-Products Marketing Agreement, dated as of October 8, 2003, by and between ConAgra Trade Group Pty. Ltd., ConAgra Trade Group, Inc. and Australia Meat Holdings Pty. Limited (4)

31.1		Certification of the Chief Executive Officer of S&C Holdco 3, Inc. pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer of S&C Holdco 3, Inc. pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer of S&C Holdco 3, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Financial Officer of Swift & Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended November 23, 2003

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to .


Delaware (State of incorporation)		81-0557245 (IRS Employer Identification No.)

1770 Promontory Circle, Greeley, CO (Address of principal executive offices)		80634 (Zip Code)


	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EX-31.1 Certification of the CEO - Section 302
EX-31.2 Certification of the CFO - Section 302
EX-32.1 Certification of the CEO - Section 906
EX-32.2 Certification of the CFO - Section 906


		May 25, 2003		November 23, 2003

Livestock		$	57,503	$	74,184
Product inventories:
	Work in progress		38,620		46,993
	Finished goods		338,974		385,379
Supplies			29,366		26,712

		$	464,463	$	533,268


	May 25, 2003			November 23, 2003

Land	$	10,972		$	11,481
Buildings, machinery and equipment		568,093			596,034
Property and equipment under capital lease		21,515			22,029
Furniture, fixtures, office equipment and other		36,593			48,769
Construction in progress		25,318			31,198

		662,491			709,511
Less accumulated depreciation		(53,016	)		(89,889	)

	$	609,475		$	619,622


				Write-offs/		Translation
		May 25, 2003		Impairments		Gains/(Losses)		November 23, 2003

Swift Beef		$	16,857	$	—	$	—	$	16,857
Swift Pork			21,765		—		—		21,765
Swift Australia			28,095		—		2,666		30,761

	Total	$	66,717	$	—	$	2,666	$	69,383


		Thirteen Weeks Ended		Twenty-Six Weeks Ended
		November 23, 2003		November 23, 2003

Net income:
	As reported	$	15,378	$	50,073
	Pro forma	$	15,327	$	50,005


		May 25, 2003		November 23, 2003

Total Assets
	Swift Beef	$	843,213	$	878,986
	Swift Pork		257,409		276,101
	Swift Australia		403,414		487,362
	Corporate, Other and Eliminations		116,427		159,592

	Total	$	1,620,463	$	1,802,041


		Latest Twelve
		Months
		Ended
		November 23,
		2003 (d)

Leverage Ratio:
Consolidated Debt/		$	636,109
Adjusted EBITDA(a)	÷	$	236,627

			=2.69	x
Interest Coverage Ratio:
Adjusted EBITDA(a)/		$	236,627
Consolidated Interest Expense	÷	$	59,425

			=3.98	x
Fixed Charge Ratio:
Fixed Charge Numerator(b)/		$	119,238
Fixed Charge Denominator(c)	÷	$	63,326

			=1.88	x

(a)		The term “Adjusted EBITDA” is a defined term in our senior credit facilities. Adjusted EBITDA is calculated by adding to EBITDA certain items of income and expense. Amounts required to be added back to EBITDA to arrive at Adjusted EBITDA, as defined, for the LTM period presented above include: retiree pension plan not assumed, elimination of historical corporate allocation, the impact of mark-to-market accounting from certain derivative contracts, the impact of non-cash predecessor entity stock option expense recognized, and the deduction for certain standalone incremental costs.

(b)		The numerator for the fixed charge ratio is calculated as defined in our senior credit facilities as: Adjusted EBITDA, less capital expenditures for the preceding four quarters, less total federal income tax liability payable.

(c)		The denominator for the fixed charge ratio is calculated as defined in our senior credit facilities using estimated amounts of annualized consolidated interest expense, plus an annualized principal amount of consolidated financial covenant debt due, plus annualized cash dividends, plus other annualized restricted payments. The terms “annualized consolidated interest expense” and “consolidated financial covenant debt” are defined in our senior credit facilities, filed as Exhibit 10.1 to our Annual Report on Form 10-K.

(d)		LTM EBITDA includes translation gains for all periods presented. The LTM ended November 23, 2003 includes our gain on business interruption recovery and translation gains.


		May 25, 2003		November 23, 2003

Fair Value:
Cattle and hogs		$	799	$	6,439
Energy			2,381		(2,278	)
Foreign currency			982		(1,024	)
Interest rate swap			—		(1,239	)

	Total	$	4,162	$	1,898


*		Certain portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission under a confidential treatment request pursuant to Rule 406 of the Securities Act of 1933.

(1)		Previously filed as Exhibit 3.1 to the Annual Report on Form 10-K for the year-ended May 25, 2003 of S&C Holdco 3, Inc. filed with the Securities and Exchange Commission on August 22, 2003. (File Number 333-100717)

(2)		Previously filed as Exhibit 3.2 to the Annual Report on Form 10-K for the year-ended May 25, 2003 of S&C Holdco 3, Inc. filed with the Securities and Exchange Commission on August 22, 2003. (File Number 333-100717)

(3)		Previously filed as Exhibit 10.8 to the Registration Statement on Form S-4 of Swift & Company (File Number 333-100717)

(4)		Previously filed as Exhibit 10.44 to the Registration Statement on Form S-4 of Swift & Company (File Number 333-100717)

(B)		Reports on Form 8-K

		We filed a Current Report on Form 8-K dated October 3, 2003, pursuant to Item 12 of Form 8-K with respect to an announcement of earnings for the quarter ended August 24, 2003.


	S & C HOLDCO 3, INC

	By:	/s/ JOHN N. SIMONS, JR. John N. Simons, Jr. Chief Executive Officer, President and Director (Principal Executive Officer)

	By:	/s/ DANNY C. HERRON Danny C. Herron Chief Financial Officer, Executive Vice President - Finance & Controls (Principal Financial and Accounting Officer)

Date: January 6, 2004


2004	$	2,958
2005		5,042
2006		4,755
2007		4,755
2008		4,755