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The risks described below are only the risks that the Company currently believes are material to its business. However, additional risks not presently known, or risks that are currently believed to be immaterial, may also impair business operations. General Risks of Food Industry The food industry, and the markets within the food industry in which the Company competes, are subject to various risks, including the following: adverse changes in general economic conditions, evolving consumer preferences, nutritional and health-related concerns, federal, state and local food inspection and processing controls, consumer product liability claims, risks of product tampering, and the availability and expense of liability insurance. The meat and poultry industries are subject to scrutiny due to the association of meat and poultry products with recent outbreaks of illness, and on rare occasions even death, caused by food borne pathogens. Product recalls are sometimes required in the food industries to withdraw contaminated or mislabeled products from the market. These and other risks, if realized by the Company, could have an adverse affect on our operating results and financial position. Risks Relating to Suppliers and Raw Materials The Company purchases large quantities of commodity pork, beef and flour. Historically, market prices for products processed by the Company have fluctuated in response to a number of factors, including changes in the United States government farm support programs, changes in international agricultural and trading policies, weather and other conditions during the growing and harvesting seasons. The Company’s operating results are heavily dependent upon the prices paid for raw materials. The marketing of the Company’s value-added products does not lend itself to instantaneous changes in selling prices. Changes in selling prices are relatively infrequent and do not compare with the volatility of commodity markets. While fluctuations in significant components of our cost structure, such as commodities and fuel prices, have had a significant impact upon our profitability over the last three years, the impact of general price inflation on the Company’s financial position and results of operations has not been significant during the last three years. However, future volatility of general price inflation and raw material cost and availability could adversely affect the Company’s financial results. Risks Relating to Government Regulation The operations of the Company are subject to extensive inspection and regulation by the United States Department of Agriculture (the “USDA”), the Food and Drug Administration (the “FDA”) and by other federal, state and local authorities, regarding the processing, packaging, storage, transportation, distribution and labeling of products that are manufactured, produced and processed by the Company. The Company’s processing facilities and products are subject to continuous inspection by USDA and/or other federal, state and local authorities. On July 25, 1996, the USDA issued strict new policies concerning contamination by food borne pathogens such as E. coli, Listeria Monocytogenes and Salmonella, and established a new system of regulation known as the Hazard Analysis Critical Control Points (“HACCP”) program. The HACCP program requires all meat and poultry processing plants to develop and implement sanitary operating procedures and other program requirements on or before January 26, 1998. The Company believes that it is currently in compliance with governmental laws and regulations (including the January 1998 HACCP requirements), and that it maintains necessary permits and licenses relating to its meat operations. On October 6, 2003, new USDA regulations regarding the control of Listeria Monocytogenes in Ready-To-Eat Meat and Poultry Products took effect. These regulations require environmental and/or finished product testing for harmful bacteria that may be present. This testing could result in products being retained, recalled or destroyed if Listeria Monocytogenes is detected. The Company is in full compliance with these regulations. A failure to obtain or a loss of necessary permits and licenses could delay or prevent us from meeting current product demand and could adversely affect operating performance. Furthermore, the Company is routinely subject to new or modified laws, regulations and accounting standards. If found to be out of compliance with applicable laws and regulations in these or other areas, the Company could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have a significant adverse effect on the Company’s financial results. |
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