Leading Brands and a Commitment to Sustainability

Transcription

1 2012 INTEGRATED REPORT We combine Leading Brands and a Commitment to Sustainability to produce Good Food. Responsibly.

2 OUR OPERATIONS Troug independent operating companies and joint ventures, as well as our stake in Europe s largest packaged meats provider, Smitfield Foods operations extend to 12 countries. UNITED STATES Arkansas California Colorado Georgia Illinois Indiana Iowa Kansas Kentucky Maryland Massacusetts Minnesota Missouri Nebraska New Jersey Nort Carolina Oio Oklaoma Pennsylvania Sout Carolina Sout Dakota Texas Uta Virginia Wisconsin MEXICO BELGIUM FRANCE GERMANY ITALY THE NETHERLANDS POLAND PORTUGAL ROMANIA SPAIN UNITED KINGDOM Joint ventures Wolly owned Smitfield Foods operations Campofrío Food Group, S.A., a publicly traded company of wic Smitfield Foods owns 37 percent

3 TABLE OF CONTENTS Cief Executive Officer Letter 1 Ask te Cief Sustainability Officer 4 Our Business Journey 10 Value Creation 12 Governance & Management 16 Animal Care 20 Employees 24 Environment 27 Food Safety & Quality 32 Helping Communities 34 International Operations 36 Our Family of Companies 40 Management 51 Corporate Information 52 Contact Us 53 MAPS, DIAGRAMS, AND MAJOR TABLES Map of Operations Foldout Key Data Summary 6 Key Commitments 7 Value Creation & Risk Management Year Financial Summary 48 Cumulative Total Return Comparisons 50 Integrated Reporting Index 53 FINANCIAL HIGHLIGHTS Fiscal years ended April 29, 2012 May 1, 2011 May 2, 2010 (in millions, except per sare data) Sales $13,094.3 $12,202.7 $11,202.6 Operating profit , Net income (loss) (101.4) Diluted earnings (loss) per sare (.65) Weigted average diluted sares outstanding Additional Information Capital expenditures $ $ $ Depreciation expense Working capital 2, , ,128.4 Net debt 1 1, , ,556.9 Sareolders equity 3, , ,755.6 Net debt to total capitalization % 33.0% 48.1% 1 Net debt is equal to notes payable and long-term debt and capital lease obligations, including current portion, less cas and cas equivalents. 2 Computed using net debt divided by net debt and sareolders equity.

4 ABOUT THIS REPORT Welcome to te Smitfield Foods Integrated Report our first to combine our annual financial results wit our sustainability reporting. Our sustainability strategy is based on our core values and organized by five pillars tat represent our key areas of sustainability focus: animal care, employees, environment, food safety and quality, and elping communities. In tis summary report, we report on our progress and performance in eac area. We ave also identified and report on a sixt pillar, value creation, recognizing tat tis concept underpins our sustainability strategy and connects it wit our business results. Integrated reporting is rapidly evolving, and tere is not yet a standardized approac. We expect our reporting will continue to progress over time, and we welcome feedback on ow we migt improve our approac. To produce tis report, we used te results of an updated 2012 materiality analysis and te Global Reporting Initiative (GRI) G3 Guidelines, wic provide a recommended sustainability reporting framework and indicators. We also reviewed recommendations publised in 2011 by te International Integrated Reporting Council (IIRC), wic aims to establis a global integrated reporting framework. (See Integrated Reporting Index on inside back cover.) In fiscal 2012, we retained an independent consultancy to conduct tird-party pre-assurance of selected performance data and aderence to te AA1000 Assurance Standard (2008) principles. (See smitfieldcommitments.com for more information.) Unless oterwise indicated, te information and metrics witin tis report pertain to Smitfield Foods independent operating companies and investments in wic we ave a majority (51 percent or more) interest. We also discuss our management approac to contract farming. Altoug contract farms are managed under te same animal care and environmental standards as Smitfield-owned farms, we do not provide performance data for tese operations because tey are independent businesses. We primarily use American measurement metrics and American numbering wen reporting te performance of our U.S. and international operations. FORWARD-LOOKING INFORMATION Tis report contains forward-looking statements witin te meaning of te federal securities laws. Te forward-looking statements include statements concerning our outlook for te future, as well as oter statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters tat are not istorical facts. Our forwardlooking information and statements are subject to risks and uncertainties tat could cause actual results to differ materially from tose expressed in, or implied by, te statements. Tese risks and uncertainties include te availability and prices of live ogs, raw materials, fuel and supplies, food safety, livestock disease, live og production costs, product pricing, te competitive environment and related market conditions, risks associated wit our indebtedness, including cost increases due to rising interest rates or canges in debt ratings or outlook, edging risk, operating efficiencies, canges in foreign currency excange rates, access to capital, te cost of compliance wit and canges to regulations and laws, including canges in accounting standards, tax laws, environmental laws, agricultural laws and occupational, ealt and safety laws, adverse results from ongoing litigation, actions of domestic and foreign governments, labor relations issues, credit exposure to large customers, te ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, our ability to effectively restructure portions of our operations and acieve cost savings from suc restructurings and uncertainties described under Item 1A. Risk Factors in our annual report on Form 10-K for te fiscal year ended April 29, Readers are cautioned not to place undue reliance on forward-looking statements because actual results may differ materially from tose expressed in, or implied by, te statements. Any forward-looking statement tat we make speaks only as of te date of suc statement, and we undertake no obligation to update any forward-looking statements, weter as a result of new information, future events, or oterwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as suc, and sould only be viewed as istorical data. More compreensive sustainability information will be available at smitfieldcommitments.com in October 2012, including full GRI B-level reporting. 1 Smitfield Foods, Inc., is a olding company wit a number of independent operating companies (IOCs). Trougout tis report, te term Smitfield is utilized for ease of reference to indicate one or more of tese independent operating companies. Smitfield sould not be confused wit Te Smitfield Packing Company, Inc., wic is one of Smitfield s IOCs.

5 DEAR SMITHFIELD FOODS STAKEHOLDERS: I m proud to introduce te Smitfield Foods 2012 Integrated Report our first to report on bot our financial and sustainability performance. Tis report aims to demonstrate te value tat Smitfield Foods delivers to all our stakeolders from employees to investors to te communities in wic we operate. To Smitfield, value creation extends well beyond te financial performance of our company. It includes te jobs we create at our farms and our plants. It s te taxes we pay witin our communities. It s te educational programs we sponsor for cildren and te millions of pounds of food we donate to tose in need. It s te work we are doing to convert waste to energy. And it s te good ealt of te animals we raise for our products. Value creation and economic performance ave always been at te eart of our sustainability commitments and performance. But wit tis report, we ave added value creation to te sustainability pillars most material to our business, and we explore te interrelationsip of value creation to te oter pillars and to our broader stakeolder communities. C. Larry Pope President and Cief Executive Officer 2012 Financial Performance Here at Smitfield, we believe tat a strong business yields strong sustainability performance. And tere is no doubt in my mind tat our sustainability strategy strengtens our business. Fiscal 2012 was our company s second most profitable year eclipsed only by fiscal We reported fiscal 2012 net income of $361.3 million, or $2.21 per diluted sare. Sales were at a record ig of $13.1 billion up 7 percent from te previous year. Our back-to-back strong performance underscores our ability to consistently deliver solid earnings to our sareolders. Te recent restructuring of our Pork segment is now allowing us to zero in on te packaged meats side of our business, wic is were we believe we ave te biggest opportunities for earnings growt. Despite iger raw material costs, our packaged meats business grew profitability in fiscal 2012 by more tan $50 million, or $.02 per pound. Te business benefited from an improved product mix, a more coordinated and focused sales strategy, and increased investment in product marketing and consumer advertising. Sustainability will remain a key focus across all aspects of our business and will lend furter value to te company overall, elping us build stronger relationsips wit stakeolders and improve our operations. Tese business improvements allow us, in turn, to invest even more in our sustainability commitments. At te same time, a more consistent management approac across our independent operating companies as resulted in a more strategic approac to sustainability. Tis past year, we made good progress toward many of our sustainability targets, as discussed in tis report. On te sales and marketing side, we are growing our 12 core brands and advertising tem more aggressively tan we ave in te past. For example, we initiated a multi-year, integrated partnersip wit te legendary Ricard Petty Motorsports NASCAR team, underscoring our commitment to activate our brands wit consumer-focused marketing. As part of te agreement, we will utilize a number of our core brands to communicate wit customers to promote future growt and strengten our position in te marketplace. 1

6 PORK SEGMENT FUELING GROWTH & STABILITY Our Pork segment accounted for 71 percent of sales and 75 percent of operating profit in fiscal FISCAL 2012 SALES 20% 9% We are expanding our innovation pipeline to address evolving consumer needs and tastes. We recently completed a $5 million state-of-te-art researc and development facility in Smitfield, Virginia, tat will drive product and volume growt, focusing on te tree elements of our innovation strategy: packaging improvements, convenience, and ealt. 5% 71% Our fres pork and og production businesses remained strong tis past year, profiting from a robust export market. Despite iger costs for raising ogs, margins for our og production business were in our targeted range. Moreover, our international segment increased profitability in te second alf of te year. 20% 75% FISCAL 2012 OPERATING PROFIT In te first alf of fiscal 2012, we completed a plan, wic we announced in 2010, to reduce debt by $1 billion and eliminate $100 million of annual interest and finance expense. As a result, we ave dramatically reduced our interest expense, wic decreased by nearly $70 million, or 28 percent, in fiscal Pork Hog Production International Segment sales before intersegment eliminations; excludes corporate segment. CONSUMER-WINNING BRANDS DRIVING SALES Approximately tree-quarters of our retail packaged meats sales are branded, and our 12 core brands account for 86 percent of branded sales. Our solid and consistent cas flow generation also enabled us to aggressively return capital to our investors troug significant sare repurcases. Over te 12 monts of fiscal 2012, we repurcased 9.2 million sares, or 6 percent of te company, for $189 million. Risks and Opportunities Like oter publicly traded companies, Smitfield is increasingly asked to demonstrate ow we identify te risks we face strategic, financial, and operational, as well as social, etical, and environmental and to explain ow tey are managed to acceptable levels. In 2011, we conducted our first formal Enterprise Risk Management assessment, details of wic are discussed in tis report. By identifying and addressing our risks and opportunities, we believe we are in a stronger position to create value for all of tose wit an interest in Smitfield Foods. Private Label/ Oter 26% Branded 74% Core Brands 64% Non-Core Brands 10% Werever possible, we are looking for ways to turn our biggest risks into opportunities. One good example of tis as been our work to find alternatives to corn as feed for ogs and tereby reduce our exposure to price fluctuations of te corn market. In Nort Carolina, we ve started a program wit local farmers to encourage tem to switc from farming corn to sorgum, wic as better yields tan corn in tat state and requires less fertilizer and water to grow. Tis initiative is providing benefits to local communities and te environment wile elping to mitigate a significant business risk. Tis is wat we mean by value creation, and tese are te kinds of opportunities we are seeking out. Based on fiscal 2012 Pork segment packaged meats retail volume, including deli and direct store delivery. Future Outlook Looking aead, Smitfield is well positioned to execute our brand-focused strategy. We are extremely optimistic about wat te future olds. We re focused on brand activation and product innovations tat we tink will be te future for our company and tat will give us an edge over our competitors. Accordingly, we increased our normalized operating profit range in packaged meats to $.12 to $.17 per pound, up from $.10 to $.15 per pound, and anticipate 2 to 3 percent volume growt in fiscal

7 We expect tat fres pork and og production will be solid contributors to our overall results, wit lower protein supplies and ongoing ealty export demand. Exports ave witnessed strong growt in recent years, bot for our company and for our industry overall. We are working to leverage our vertically integrated business model and develop tis important trade cannel to advance relationsips wit trading partners and furter expand our diverse base of business. In te Hog Production segment, our risk management activities will mitigate, to a significant degree, te impact of iger grain costs for tis fiscal year. Moreover, we remain cautiously optimistic tat og prices will appreciate to largely offset te impact of rising costs. In addition, we remain committed to acieving furter operational efficiencies and improving our cost structure. After nearly exausting our previous sare repurcase autorization totaling $250 million, we announced a new $250 million sare repurcase program tis past June. Tis action reflects our continued confidence in te fundamental strengt of our business and our desire to return capital to sareolders. Going forward, we ave plenty of opportunity to improve and invest in our brands, furter reduce our costs, and improve our margins. At te same time, we see great opportunities to continue to advance our sustainability performance, finding new ways to limit our water use, for example, or exploring more environmentally sustainable crops to feed our ogs. Sustainability will remain a key focus across all aspects of our business and will lend furter value to te company overall, elping us build stronger relationsips wit stakeolders and improve our operations. Our stakeolders ask us wat we are doing to improve everyting from worker safety to animal care. Tey want to know ow we re going to furter reduce packaging and wen our next lower-sodium product will be available. Our customers tell us tat our track record of doing te rigt ting differentiates us from many of our competitors. Looking aead more broadly, we re exploring te role Smitfield can play in te critical global callenge of feeding a growing world population, wic is expected to jump from 7 billion today to 9 billion by As te population expands, pressure on resources will mount. Widespread use of sustainable, intensive agriculture, new tecnologies, and, most of all, unprecedented collaboration will be needed to produce enoug food and make it available were and wen it is needed. We don t yet ave te answers, but we re considering ways we can continue to produce good food responsibly and even more sustainably wile creating greater sareolder and stakeolder value. I encourage you to explore te pages of tis printed report and tose on smitfieldcommitments.com, were tere s even more extensive information on our sustainability performance, impacts, and initiatives. Sincerely, C. Larry Pope President and Cief Executive Officer July 31,

8 ASK THE CHIEF SUSTAINABILITY OFFICER Dennis H. Treacy, Smitfield Foods executive vice president and cief sustainability officer, answers some of te questions we often ear from our stakeolders and talks about ow sustainability creates value for tose witin and outside of our company. Q A How as Smitfield embedded sustainability into its operations? Our sustainability strategy aligns wit our core values and as been organized by five pillars: animal care, employees, environment, food safety and quality, and elping communities. In te process of preparing tis integrated report, we realized tat our commitment to creating value for our sareolders and stakeolders as always been part of our strategy as well. So we added a sixt pillar, value creation, to our strategy and defined broad goals and targets for it. As a result, we ave a very defined program wit measurable goals, targets, internal scorecards, and awards tat permeates all te way troug our business, from our corporate eadquarters to our independent operating companies. Our employees know tat we re serious about tis. Our customers retail supermarkets, restaurant cains, foodservice companies are asking us about sustainability topics all te time, especially sow ousing, antibiotic administration, and employee engagement programs. Several years ago, many of tese issues weren t even on te radar screen. Our strong commitment to sustainability elps us to improve efficiency, mitigate risk, and create value for Smitfield and for tose wit an interest in our business. It also elps our company stay aead of, and better respond to, market demands. Q A How do you define sustainability? I ave discouraged my staff from trying to define it because it s virtually impossible to reac a consensus on te meaning. Instead, we ave set expectations and targets for our company around our six key pillar areas, te results of wic can be seen in te various sections of tis report. Some like to tink of sustainability in terms of people, planet, profit. Oters talk about corporate responsibility issues in te context of sustainable capitalism. Here at Smitfield, we look at our sustainability programs in relation to te value tey create for our business and for our key stakeolders. Watever te name, tese ideas ave moved into te mainstream witin te investor community and beyond. By recognizing te intrinsic interconnections between our business objectives and our sustainability objectives, we believe we can drive better value for our company and for tose wo ave an interest and a stake in wat we do. Q A Wat would you say to tose wo migt accuse Smitfield of pursuing sustainability initiatives only to maximize te company s bottom line? We certainly don t do it only for te bottom line, but I m not asamed to talk about te fact tat sustainability initiatives do indeed benefit our company s overall financial position. For example, we need employees wo are well trained, safe, and appy to work at our plants. To me, tat s a bottom-line benefit of robust employee programs, but tere are clearly also social benefits to treating employees well and providing safety programs and wellness care for tem. Many times, wat is best for our employees and communities is also wat is best for business. 4

9 I tink it s important to talk about te business benefits of sustainability. Making money isn t a bad ting. It s wy our sareolders purcase our stock, and it s wat allows us to invest in innovation and in our employees and communities. Q A How are you sowing progress against your targets, and wat areas are proving to be te most callenging? We re particularly pleased wit te significant improvements we ave seen in our worker safety injury rates, tanks to our robust ealt and safety programs and an increased focus on injury prevention. Our accident rates are muc lower tan te average for tose witin our own industry, and we re now striving for rates tat are lower tan all industries overall not just tose in meat production. Also, tis past year, we didn t ave a single environmental notice of violation (NOV) on any of our company-owned farms. Despite te strong progress on te farms, owever, we re still not were we want to be on environmental compliance in terms of violations overall. In calendar 2011, we ad 38 NOVs company-wide. Our ultimate goal is 100 percent compliance, 100 percent of te time. We ve made a lot of progress, but clearly, we still ave a ways to go to get tere. Q A Smitfield as committed to sow gestation conversion on company-owned farms. Wat is Smitfield s position regarding sow ousing at your contract growing operations? We addressed tis issue wen we first announced our plans to convert to open pens in We said tat we were going to focus initially on company-owned farms. We feel very strongly tat if we are going to make a fundamental cange like tis, we must first do it ourselves so we understand te costs and operational canges involved. Once we complete our company-owned farm objectives by 2017, we will turn our attention to te contract growers. We ave already begun some preliminary discussions wit many of our Q contract farmers so it s on everyone s radar screen for te future. By te end of 2011, you reported tat 30 percent of sows were in converted ousing on companyowned farms. Do you ave year-by-year progress targets? A We are continuing to move forward wit vigor, and we will report our progress at te end of eac calendar year. We ave committed to converting all company-owned farms by te end of 2017, but we ave not broken te conversion down into year-by-year targets. We re able to convert some farms faster tan oters. Tere are a lot of variables involved. Q A How does Smitfield balance wat are often competing interests te need for consumers to pay a certain price for meat, te need for investors to see returns on teir dollars, te need for Smitfield to be profitable, and te needs of tose wo pus for animal care or environmental improvements? It s a very difficult balance, as one migt imagine. It s ard enoug to run a business even witout considering te social concerns tat ave been injected in recent years. Tat s one reason wy we ave identified a sixt sustainability pillar of value creation so we can better understand and measure te returns tat we are getting from our various sustainability investments. I believe tat for a sustainability program to be sustainable, you ave to ave a payback at te end of te day. For example, our workers compensation costs are going down because our employees are getting injured less. We can see te direct cost-benefit correlation wit our enanced employee ealt and safety programs. In many instances, te sustainability payback isn t simply financial; it s about te goodwill engendered witin our communities from te Smitfield programs tat provide food for tose in need, tat sponsor yout education, or tat clean up local waterways. Q A How is sustainability elping to differentiate Smitfield from your competitors? We ear from our customers tat tere are a number of areas were we are moving te needle forward on sustainability issues. In addition to te sow ousing transition, our antibiotics policy leads te industry. Were our own workforce is concerned, we can point to our decreasing rate of worker injuries. Many of our customers and ultimately our consumers want to buy products from companies tat pay attention to tese issues. 5

10 KEY DATA SUMMARY Smitfield believes transparency is central to ensuring accountability. Reporting elps stakeolders understand our performance over time and relative to oters in our industry. Below are some key performance indicators we feel are particularly important to internal and external stakeolders, as well as to Smitfield as a company. Additional domestic data can be found in te relevant sections of tis report and at smitfieldcommitments.com. See pages for data from our operations in Poland and Romania. ANIMAL CARE FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Market Hog Transportation Accidents Market Hog Transportation Fatalities Feed-Grade Antibiotics Used (lbs per cwt 2 ) page CY 2011 CY 2010 CY 2009 CY 2008 CY 2007 Sows in Company-Owned Group Housing (%) page EMPLOYEES CY 2011 CY 2010 CY 2009 CY 2008 CY 2007 Total Case Rate page Days Away, Restricted, Transferred Rate page Days Away from Work Illness and Injury Rate page OSHA Notices of Violation page OSHA Penalties page 26 $117,449 $33,323 $23,725 $38,787 $11,037 ENVIRONMENT 3 FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Water Use (gallons per cwt) page Energy Use (decaterms per cwt) page GHG Emissions (metric tons CO 2 e per cwt) page Solid Waste to Landfill 4 (lbs per cwt) page CY 2011 CY 2010 CY 2009 CY 2008 CY 2007 NOx Emissions (tons) SOx Emissions (tons) Notices of Violation page Significant Fines page 31 $407,779 $164,184 $81,726 $69,616 $266,446 FOOD SAFETY & QUALITY FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Food Safety Expenditures 5 page 33 $5.6 million $5 million $4.2 million $2.3 million $1.9 million Recalls page HELPING COMMUNITIES FY 2012 FY 2011 FY 2010 FY 2009 FY 2008 Smitfield-Luter Foundation Scolarsips page 35 $256,000 $377,500 $196,500 $290,000 $349,979 Learners to Leaders Contributions page 35 $355,779 $288,388 $369,710 $319,415 $383,385 Total Food Donations (servings) 6 page million 8.4 million 11.6 million 16.4 million 13.2 million 1 More information is available at smitfieldcommitments.com pounds of product 3 Data from previous reports were adjusted due to improved data collection and reporting as well as te closures of Smitfield Packing s Ham & Products facility in Smitfield, Virginia, and farming operations in Oklaoma. 4 Total does not include Murpy-Brown. 5 Totals are conservative and do not capture all food safety-related upgrades. 6 Prior to 2010, we counted any food donation as a caritable contribution. Beginning in fiscal 2011, we began to count only tose food donations tat went to feed people in need. 6

11 KEY COMMITMENTS In early 2010, we adopted a new set of goals and sustainability targets for our independent operating companies (IOCs) tat exceed all regulatory guidelines or previous acievements. In 2011, we expanded some of tese targets, and in 2012 we added a new focus area for tis report. As tese targets are still relatively new, we did not expect all facilities and IOCs to attain all of tem in te second year. We consider a facilities-based target acieved for fiscal 2012 if 100 percent of locations ave met te standard. Oter targets are noted as on track if tey are less tan 100 percent acieved but making appropriate progress. GOALS TARGETS RESULTS 1 ANIMAL CARE Remain 100% Pork Quality Assurance Plus (PQA Plus ) compliant at all companyowned and contract farms % of company-owned and contract farms are PQA Plus compliant. Keep our animals safe, comfortable, and ealty Maintain PQA Plus certification for all suppliers and move toward site assessments % of live animals were delivered by PQA Plus certified suppliers. All PVP suppliers will be site assessed by te end of Oter suppliers are surveyed and encouraged to complete site assessments. Maintain 100% USDA Process Verified Program (PVP) certification for all relevant facilities. All company-owned pig farms are 100% PVP certified, and all plants participate in tis program. Complete conversion from individual gestation stalls to group ousing for pregnant sows on company farms by end of Continued progress in sow gestation conversion in fiscal 2012; 30% of sows were in company-owned group ousing as of Dec. 30, Maintain a systematic approac to umane animal andling and dem on strate continuous improve ment. 100% of facilities manage animal andling based on American Meat Institute guidelines. Maintain Transport Quality Assurance (TQA) certification for all live-animal truck drivers. 100% of drivers delivering animals to our plants are TQA certified. EMPLOYEES Meet or beat general manufacturing industry national average for injuries. 77% of locations beat meat industry averages; 42% of locations beat national average for all industries. 3 All safety and operations leadersip trained to 10-our General Industry training. 90% of safety leadersip completed 10-our training. Reduce employee injury rates Regular Safety Roundtable meet ings to be eld at eac facility. 100% of locations eld Safety Roundtable meetings. Increase formal employee en gage ment in safety processes to 25% participation by fiscal % of locations ad formal employee engagement of at least 25%. (continued on next page) 1 All results are for fiscal 2012 unless oterwise noted. 2 Te wording of tis target as been sligtly revised from our previous report. Were PQA Plus compliant is used trougout tis report, we mean tat our farms ave been site assessed and tat specific employees ave been certified according to PQA Plus program guidelines. 3 Based on estimates. National 2011 industry safety data from te Bureau of Labor Statistics ad not yet been released wen tis report was produced. Acieved On Track Needs Improvement 7

12 KEY COMMITMENTS (continued from previous page) GOALS TARGETS RESULTS ENVIRONMENT From fiscal 2008 baseline to 2016 (normalized): Reduce water use 10%. Reduce energy use 10%. Since fiscal 2008 (normalized): Water use down 10%. Energy use down 5%. Reduce natural resource demand Reduce greenouse gas (GHG) emissions 10%. Reduce solid waste sent to landfill 10%. GHG emissions down 11%. Solid waste down 12%. Eliminate NOVs at our facilities By fiscal 2018, eac IOC to establis a zero-waste-to-landfill facility. 1 Not applicable. 100% compliance, 100% of te time Every year, eac IOC to complete one new packaging reduction project. All IOCs introduced new packaging reduction projects. Eac year, reduce notices of violation (NOVs). Calendar 2011: 38 NOVs and $407,779 in fines. 97% of facilities received no NOVs. 2 FOOD SAFETY & QUALITY Obtain 100% Global Food Safety Initiative (GFSI) certification. 100% of relevant facilities are GFSI-certified. Assess nutrition issues suc as salt content and obesity. 100% of IOCs assessed nutritional issues. All packaged product categories include product lines wit lower sodium, reduced fat, or less sugar. Deliver safe, igquality meat products and eliminate recalls Assure wide variety of products for different diets and needs. Increased portfolio of lower-sodium products across te company by approximately 25%. 100% compliance, 100% of te time 95% of facilities ad no recalls. Acieved 1 To be classified as a zero-waste-to-landfill facility, a facility must not send any waste to landfill for a full 12 monts. Because we added tis target in fiscal 2012, it means none of our facilities will be able to qualify until at least fiscal Total number of company-owned facilities and farms equals 532. NOVs break down as follows: 460 farms: None received NOVs. 43 processing facilities: 14 received NOVs. 29 Murpy-Brown support operations: 1 received an NOV. On Track Needs Improvement 8

13 GOALS TARGETS RESULTS HELPING COMMUNITIES Pork Group IOCs to donate 4 million servings of food troug Helping Hungry Homes. Pork Group IOCs donated 6.9 million servings of food. Eac Pork Group IOC to support two Learners to Leaders (LTL) programs. 100% of IOCs supported at least two LTL programs. Provide food to tose in need and enance education in our communities Eac facility to participate in two National FFA Organization or oter education events. Eac facility to sponsor one local community cleanup event. 89% of facilities met FFA/education target. 94% of facilities sponsored local community cleanup events. Eac facility to participate in World Water Monitoring Callenge. 98% of facilities participated in World Water Monitoring Callenge. VALUE CREATION Encourage competitiveness and innovation. Opened a new Innovation Center and pilot plant for researc and development. Integrate business into te community. 88% of locations eld meetings wit stakeolders. Drive growt and improve sareolder and stakeolder value Mitigate operational impact and risks. Reduced workers compensation costs by an estimated 25% between April 2010 and April Saved approximately $12.4 million in operating costs troug environmental improvement projects. Create access to growing influential consumer segment. Launced cause marketing campaigns to benefit a number of social causes. Develop uman capital. 100% of IOCs sponsored one or more employee ealt and wellness programs. Promote sustainable business models. Pork segment recorded fift consecutive year of strong earnings and tripled profitability since Issued a Code of Conduct for suppliers. 9

14 OUR CORE VALUES We will always strive to do te following: OUR BUSINESS JOURNEY Smitfield s financial strategy as evolved significantly. To better appreciate te drivers of our business approac and ow tey relate to our sustainability strategy, it elps to understand some istorical context. OUR MISSION Smitfield Foods is determined to be an etical food industry leader tat excels every day at bringing delicious and nutritious meat products to millions of people around te world in a manner tat sets industry bencmarks for sustainability. Trougout te 1990s and early 2000s, Smitfield Foods grew largely troug acquisitions, wit a steady drumbeat of purcases tat elped us become a global food company wit annual revenues of about $13 billion. But in 2008, as global economies sputtered and te company began to lose money for te first time, we took a step back to evaluate were we were and were we were going. We realized tat we ad been so igly acquisitive, for so long, tat we adn t truly fused all our acquisitions and leveraged teir synergies. Out of tis evaluation came a radical overaul of our Pork segment (te eart of our business) tat fundamentally canged te company and ultimately generated $125 million in annual cost savings. Beginning in early 2009, we reduced our number of independent operating companies (IOCs) from seven to tree. Produce safe, ig-quality, and nutritious food Create value for our stakeolders Be an employer of coice Lead in animal care Protect and reinvigorate te environment Make positive impacts on our communities We suttered six plants. We canged our management structure and consolidated sales functions. And we pruned wat ad grown into a portfolio of well over 100 brands down to just 12 core brands, tree of wic Smitfield, Eckric, and Farmland are billion-dollar brands by temselves. It is troug tese 12 brands tat we are growing te company for te future. More and more today, we are formulating consistent corporate strategies rater tan acting as a number of IOCs tat compete wit one anoter in several product categories. Tis increased coordination is part of our new business strategy to promote te packaged meats side of our business. Te Pork segment overaul came at a time wen we were putting new vigor and empasis on sustainability programs. Greater consistency among our IOCs, in turn, as meant tat we can better manage and armonize our sustainability approac in areas ranging from community engagement to waste-reduction initiatives. Just as tere are improved synergies on a financial basis, so too are tere greater synergies wen it comes to social and environmental programs. New sustainabilityrelated goals and targets we adopted in 2010 ave resulted in increased oversigt and accountability across our operations, as igligted trougout te pillar sections of tis report. PORK SEGMENT ADJUSTED OPERATING PROFIT (in millions) Our Pork segment as produced five consecutive years of strong earnings and nearly tripled profitability since fiscal $800 $600 $400 $200 $0 $219 $449 $483 $573 Fres Pork Packaged Meats Total Pork $753 $624 Results reported by fiscal year and represent management s estimated allocation of total Pork segment results. Fiscal 2009 and 2010 results adjusted for restructuring and impairment carges. Refer to Non-GAAP Measure Reconciliation on page

15 HOG PRODUCTION SEGMENT SUCCESSFULLY EXECUTING GROWTH STRATEGIES Te Pork segment restructuring wasn t our only focus as we looked for ways to consistently deliver solid and more predictable earnings wile maintaining a more competitive cost structure. In 2009, we launced a cost-savings initiative tat will yield a profitability improvement of $90 million annually in our og production operations by te end of fiscal As a vertically integrated business, Smitfield as been relatively protected from fluctuations in te og commodities market. However, we ave significant exposure to feed commodities, especially corn, wic represents 85 percent of a og s typical diet. Beginning in 2005, we began to witness a significant spike in te price of corn, largely resulting from governmental policies related to etanol production. CORN USAGE (millions of busels) Smitfield reduced corn market exposure by more tan 40 percent since fiscal Fiscal 2008: 214 Beef Group divestiture Fiscal 2009: 128 U.S. sow erd reduction Fiscal 2011: Sale of turkey interests Enancing Sareolder Value Solid financial management Competitive cost structure Project 100 Pork segment restructuring Hog Production cost savings initiative Strengtened balance seet and reduced cost profile Profitability improvement of $125 million annually Profitability improvement of $90 million annually Focusing on 12 core brands All values reported by fiscal year. Since 2008, we ave reduced our domestic corn market exposure as we sold our Beef Group and, later, our interests in turkey production. We reduced our sow erd by more tan 10 percent, wic simultaneously lowered our need for corn wile also elping to curtail an oversupply of ogs in te industry. We also sold off pig farming operations tat ad been supplying competitor plants. (Tis means tat most farms operated by Murpy-Brown and its subsidiaries now only supply ogs to company-owned processing facilities.) Additionally, we ave been focused on developing new feed formulations and promoting grain alternatives to furter decrease our reliance on corn. A strong edging program elps us manage og production margins to stabilize earnings and limit any negative impact to overall earnings. Consistently deliver solid and more predictable earnings Focus on growt in packaged meats Reduced commodity exposure Building strong innovation pipeline Investing in advertising to activate brands More closely coordinated sales & marketing team Lowered U.S. corn market exposure by 40% since fiscal 2008 More aggressive edging to lock in margins and og-raising costs 11

16 $ VALUE CREATION efforts, and a core team to drive furter progress. We also set specific goals and targets for te first time relating to te five pillars of our sustainability program: animal care, employees, environment, food safety and quality, and elping communities. For tis year s report Smitfield s first to combine information on our financial and nonfinancial performance we ave set out to articulate a sixt pillar, wic we call value creation. Under tis new pillar, we igligt ways tat Smitfield s sustainability program creates value for all our stakeolders from sareolders to employees, from community members to nongovernmental organizations, from customers to consumers wile simultaneously improving company financial performance. Tis pillar will also elp tie our sustainability progress to overall financial reporting. FEEDING THE WORLD Te world s population is expected to jump from about 7 billion today to 9 billion by Tis growt will put furter pressure on te cost and availability of natural resources including land, water, energy, seed, and fertilizer to produce sufficient food. Just as important, it will callenge global systems of agriculture and food distribution to provide a nutritious diet to tose wo need it wen tey need it and werever tey are located. Smitfield Packing s plant expansion in Kinston, Nort Carolina, will add 350 jobs. As a publicly traded company, Smitfield Foods as a responsibility to drive growt and improve sareolder value. However, we believe tat financial stability and sustainability go and in and. Our sustainability strategies elp us improve our company s performance. Over te past decade, we ave worked to embed sustainable practices and principles systematically trougout our operations. In 2010, we increased our commitment to sustainability by creating a new sustainability management program, including board- and corporate-level oversigt committees, a new executive level position to oversee our At Smitfield, we believe we can play an important role in providing affordable sources of protein tat are produced in responsible ways. Smitfield is working, along wit te rest of te pork industry, not only to provide sustainable food but also to provide enoug of it to feed te rapidly growing population at a reasonable cost. A recent report by te National Academy of Sciences empasized te importance of increasing global food supplies troug sustainable intensification. At Smitfield, we recognize food security as a growing and complex issue tat will require collaboration, creativity, and new approaces to solve. We re engaging wit a number of organizations to come up wit solutions. For example, our cief sustainability officer sits on te National Academies Roundtable on Science and Tecnology for Sustainability and contributed to te recent report. To see our Producing Enoug Sustainable Food video, ceck out youtube.com/smitfieldfoods. 12 VALUE CREATION

17 FISCAL 2012 SALES $13.1 BILLION FISCAL 2012 EXPENDITURES TO COMMUNITIES $4.05 BILLION Wages and benefits $1.9 billion Pork $11.1 billion Hog Production $3.1 billion International $1.5 billion Includes intersegment sales of $2.5 billion. Payments to contract farmers $348 million Capital expenditures $290.7 million Federal and state taxes $301 million U.S. grain purcases $1.2 billion Community donations $11.14 million We are working ard to better understand and identify te connections between te costs and benefits of our sustainability program, and ow tey relate to our bottom line. We believe we can create greater value for eac of our stakeolders by recognizing te intrinsic interconnections between our business objectives and our sustainability objectives. We also understand tat investors and capital markets want to know more about te relationsips and linkages among financial, social, and environmental performance, and ow tey can increase corporate earnings. We believe tat our sustainability programs ave been elping Smitfield Foods build and deliver value for more tan a decade and will do so even more in te future. Now, troug tis sixt pillar, we ave te ability to igligt te specific ways tat tey do. BUYING LOCAL Smitfield Foods spent more tan $290 million on capital improvement projects in fiscal Werever possible and practical, we aim to spend money locally. For tis report, we took a close look at five of te largest capital improvement projects implemented at our facilities. Of te total investments of nearly $28 million, more tan 60 percent was spent witin a 100-mile radius of te facility. Spent locally: 62% Not spent locally: 38% PROJECT 1 PROJECT 2 Spent locally: $4.7 million Not spent locally: $5.5 million Spent locally: $2.6 million Not spent locally: $2.2 million PROJECT 3 Spent locally: $318,000 Not spent locally: $1.5 million PROJECT 4 PROJECT 5 Spent locally: $6.5 million Not spent locally: $803,000 Spent locally: $3.3 million Not spent locally: $431, VALUE CREATION

18 VALUE CREATION & RISK MANAGEMENT VALUE CREATION Encourage competitiveness and innovation Integrate business into te community Mitigate operational impact and risks Create access to growing influential consumer segment Develop uman capital Promote sustainable business models Encourage competitiveness and innovation Since 2004, saved an estimated $285.6 million in operating costs troug environmental improvement awards projects tat cost $57.5 million to implement. (Page 28) Several recent packaging reduction initiatives across our business yielded savings of $2.75 million. (Page 31) Recently opened a new, $5 million R&D center to be more responsive to customer requests. (Page 2) Integrate business into te community Paid $301 million in federal and state taxes in fiscal (Page 13) Spent $27.8 million locally on five major capital improvement projects. (Page 13) 94% of locations eld at least one cleanup event in fiscal (Page 9) Launced ealt and wellness initiative in fiscal 2012 in eadquarters community of Smitfield, Virginia. (Page 35) 88% of locations eld at least two meetings wit stakeolders in fiscal (Page 9) Donated 6.9 million servings of food in te U.S. in fiscal (Page 34) Mitigate operational impact and risks Conducted our first formal Enterprise Risk Management analysis in fiscal 2012, confirming te importance of our focus areas. (Page 17) More tan 95% of locations worldwide are ISO certified. Compliant wit national standards and guidelines for animal care. (Page 7) 100% of relevant facilities certified to Global Food Safety Initiative. (Page 32) Received zero notices of violation at 460 company-owned farms. (Page 31) 14 VALUE CREATION

19 At Smitfield, we use te term value creation broadly and tink of it in ways tat go beyond just our own company s value. Te elements of our sustainability program are designed to create value for a wide range of stakeolders, bot internally and externally. Tis table illustrates ways tat our sustainability program creates value for all our stakeolders wile simultaneously improving Smitfield s own financial performance. Details of te programs can be found witin te pages of tis print report as well as on smitfieldcommitments.com. VALUE CREATION ANIMAL CARE ENVIRONMENT HELPING COMMUNITIES GOVERNANCE & MANAGEMENT EMPLOYEES FOOD SAFETY & QUALITY INTERNATIONAL Create access to growing influential consumer segment Publised first integrated sustainability/ annual report in Increased consumer advertising spending by double digits in fiscal (Page 1) Launced several cause marketing campaigns to benefit a number of social causes. (Page 42) Expanded use of social media cannels. (Page 18) Develop uman capital Furter reduced employee injury rate by 15.7%. (Page 26) Paid $1.9 billion in wages and benefits in fiscal (Page 25) Contributed 1.2 million in education programs to benefit our employees and teir offspring. (Page 35) In Poland, funded 94 scolarsips for cildren from rural areas. (Page 39) Promote sustainable business models Set a new target for eac IOC to ave one zero-waste-to-landfill facility by (Page 27) Our energy/water/waste reduction targets 10% (normalized) reductions by 2016 are driving more sustainable operations. (Page 27) In fiscal 2012, issued a Code of Conduct for our suppliers. (Page 17) Our Code of Conduct and Business Etics applies to all employees, officers, and directors. (Page 19) Working wit growers in Nort Carolina to encourage production of sorgum, wic requires less water to grow tan corn and elps insulate us from commodity price swings. (Page 23) Responding to customer interest and our target to provide a variety of products to suit different tastes and dietary needs. We ad about 100 reduced-sodium products in te marketplace at te end of fiscal 2012, up from about 75 te previous year. (Page 33) 15 VALUE CREATION

20 We developed a list of 34 issues (wit 93 sub-issues), grouped under eigt topics. We ten rated eac issue as low, moderate, or ig for te following: 1) current or potential impact on te company and 2) degree of concern to stakeolders. Based on te most recent analysis, te following issues remained among Smitfield s most material sustainability concerns: umane treatment of animals, food safety and security, te company s economic impact, and contributions to local communities. GOVERNANCE & MANAGEMENT Sound governance and management are foundations for trust, transparency, and progress at our company. Our systems for etical conduct, te way we engage wit stakeolders, our approac to public policy, and our management of supply cain issues are all important elements of our sustainability strategy, cutting across our key pillars and contributing to overall value creation. In recent years, we ave significantly advanced our sustainability strategy and tied it more closely to our overall business strategy. We also ave advanced ow we manage sustainability across our company. In 2010, we formed two sustainability committees (one for our board of directors, te oter for top executives across our company), created a position of cief sustainability officer, and developed a series of goals and performance targets tat we are continuing to update and refine. Smitfield does not currently tie executive pay to sustainability performance. However, we recognize te importance of senior-level involvement in sustainability programs and are exploring te possibility of establising compensationperformance links. MATERIALITY ANALYSIS In 2010, Smitfield Foods conducted our first materiality analysis to gain a better understanding of te key sustainability issues for our company and our stakeolders. In early 2012, we conducted a streamlined update of te materiality analysis to see ow concerns over particular issues may ave evolved over two years. We interviewed a variety of internal and external stakeolders, including regulators and environmental organizations. According to te updated analysis, two issues water quality and manure management no longer appeared witin te top rigt quadrant of our materiality matrix i.e., te area of igest potential impact on Smitfield and of igest concern to stakeolders. Several external stakeolders told us tey weren t as concerned about tese issues as tey once ad been because of Smitfield s recent track record of responsible water and manure management. Tese issues remain of ig importance to Smitfield, owever, and we continue to manage tem as issues of ig potential impact to te company. Climate cange also fell sligtly in te rankings, from ig concern to medium concern for stakeolders. Four new topics emerged as important to stakeolders and to Smitfield: ability to feed a growing global population, affordable food, enterprise risk management, and environmental impacts on local communities. HIGH Potential Impact on Smitfield HIGH Concern to Stakeolders COMMUNITY Economic impact on local communities ANIMAL CARE Humane treatment FOOD Food safety and security Tese issues appear in te upper-rigt quadrant of our latest materiality matrix as of igest concern to Smitfield and to stakeolders. Te full materiality matrix can be found at smitfieldcommitments.com. We used te analysis to guide content development for tis report. As muc as is practical, we ave weigted discussion around te topics tat ave been identified as most material to our business and to our stakeolders. Tese are te issues tat are most critical to our company s ability to create and sustain value today and in te future. As we work toward a truly integrated model of reporting, te materiality analysis will continue to serve as a guide for determining wic topics we discuss and ow we demonstrate te value Smitfield creates for all of our stakeolders. Te analysis is elping Smitfield to focus our strategy as well as our reporting. 16 GOVERNANCE & MANAGEMENT

21 Audit Smitfield Packing Company Sustainability Officer SUSTAINABILITY GOVERNANCE Etics and Compliance Committee BOARD OF DIRECTORS COMMITTEES OF THE BOARD Compensation CEO Jon Morrell Food Group Sustainability Officer Nominating and Governance Cief Sustainability Officer SUSTAINABILITY COUNCIL Farmland Foods, Inc. Sustainability Officer SUPPLY CHAIN MANAGEMENT Sustainability, Community, and Public Affairs Executive Sustainability Committee Murpy-Brown LLC Sustainability Officer Overall responsibility for sustainability governance rests wit te board of directors Sustainability, Community, and Public Affairs Committee. We also ave a corporate-level Sustainability Committee, caired by our cief sustainability officer. For more on sustainability governance and management, visit smitfieldcommitments.com. Our suppliers are integral to our promise to produce good food responsibly. In fiscal 2012, we implemented a Supplier Code of Conduct to elp ensure tat our suppliers continue to meet or exceed our ig standards. Te code, wic is incorporated into all new and renewed contracts wit our largest suppliers, sets fort te business conduct requirements for all suppliers wo do business wit Smitfield Foods. Te degree to wic suppliers comply wit te requirements and te extent of teir sustainability efforts will be a consideration for future business wit Smitfield Foods. Te code outlines expectations around legal compliance, environmental sustainability, and business integrity, as well as labor and uman rigts issues. We monitor our suppliers performance, altoug we do not conduct formal audits. We also survey our largest suppliers to understand wat tey are doing in areas suc as energy reduction, natural resource use, employee safety, and community giving. In fiscal 2012, we distributed a supplier survey for te first time to our independent og producers. Te questions focused on environmental policies and targets, nutrient management plans, and certifications on animal care issues. SUSTAINABILITY TARGETS In 2010, we adopted a series of aspirational goals and corresponding targets in our domestic operations for our five primary sustainability focus areas. Eac of tese is listed in our Key Commitments table (pages 7 9) and discussed in greater detail in te relevant sections of smitfieldcommitments.com. In 2011, we added new targets including greenouse gas (GHG) emissions reductions and packaging reduction projects. In addition, eac independent operating company (IOC) must ave at least one zero-waste-to-landfill facility by fiscal We ave also set specific targets for our IOCs tat range from sponsorsip of community cleanup events to te submission of projects for consideration in external environmental/ sustainability awards programs. Going forward, we are in te process of incorporating tese goals and targets for our international operations. In many areas, we ave already met our targets in te first years of implementation. We continue to monitor our progress and will consider weter we need to reset our targets or add new areas of focus. Because many factors drive performance, wic can vary from year to year, we believe we must monitor our results for several years before revising our initial targets. ENTERPRISE RISK MANAGEMENT Managing risk is not a new concept for Smitfield. In our Form 10-K, we ave already been igligting te most significant risk factors tat could materially impact our operations. Tese include, but are not limited to, fluctuations in te commodity prices for ogs and grains; outbreaks of disease among, or attributed to, livestock; perceived or real ealt risks related to our products or te food industry in general; and environmental regulation and related litigation. In fiscal 2012, Smitfield conducted our first formal Enterprise Risk Management (ERM) assessment as part of an effort to develop an aligned, integrated ERM framework across te entire company. Our ERM program is based on te Committee of Sponsoring Organizations of te Treadway Commission (COSO) 1 ERM Integrated Framework. Our goal troug te ERM program is to proactively understand and deal wit complex business risks bot tangible and intangible, existing 1 COSO defines ERM as a process effected by an entity s board of directors, management, and oter personnel, applied in strategy setting and across te enterprise, designed to identify potential events tat may affect te entity, and manage risk to be witin its risk appetite, to provide reasonable assurance regarding te acievement of entity objectives. 17 GOVERNANCE & MANAGEMENT

22 ENGAGING WITH GRAIN GROWERS Murpy-Brown wanted to understand more about te strengts and weaknesses in our grain purcasing programs. In fiscal 2012, we reaced out to undreds of farmers in Nort Carolina, and 50 participated in personal 30-minute interviews. From tese interviews, we were able to pinpoint some areas were we could improve, suc as reducing turnaround times for trucks to come in and out of our facilities. In addition, we are iring local buyers wo spend more time out on farms in order to understand wat Murpy-Brown can do to better serve te growers. In response to te grain growers comments, we are investing in a new suite of tools to improve te transaction side of teir business. Tese tools give real-time access from a grower s ome office (or even te cab of a tractor) to better information about markets as well as online access to track contracts, deliveries, and working orders. and emerging tat could negatively influence te acievement of te organization s objectives. Our formal ERM process took our company s risk analysis several steps furter and included a more detailed review of te potential risks and teir relative level of significance. Te risk identification pase, conducted during te first alf of fiscal 2012, included interviews wit many of Smitfield s executive leadersip team, led by our cief internal auditor, to determine te key risks facing our business. Following tose interviews, a committee of senior executives met to prioritize te risk areas, vet our company s monitoring and controlling activities, and identify te likeliood and impacts of eac risk. Our cief executive officer reviewed te analysis, as did te board of directors. Commodity markets stood out as te largest risk in terms of impact and likeliood of occurrence. 1 ERM is an ongoing process tat includes continuous risk evaluation. As a result of tis process, we are furter strengtening our reporting practices around risk, internally and to our board of directors. We also ave assigned seniorlevel risk owners to coordinate ERM programs for specific risk areas and, as a result, provide greater accountability and a more coordinated approac. As necessary, we will adjust our framework as our risk profile canges. STAKEHOLDERS We define stakeolders as all persons or organizations tat are affected by te operations or practices of our company. We continuously conduct an internal analysis to identify stakeolders and ave identified and defined te following stakeolders as groups we engage wit regularly: Internal stakeolders, including employees, facility management, and corporate management, among oters. External stakeolders, including sareolders and investors; te customers and suppliers wit wom we do business; te end consumers of our products; federal, state, and local governments and regulatory entities; nongovernmental organizations; and te communities in wic our employees live and work. In recent years, we ave increased our efforts around proactive stakeolder engagement, reacing out to a variety of groups to talk about wo we are, wat we do, and ow we migt be more responsive to eac oter s needs. Tese groups include members of te media, opinion leaders on issues of food production, religious organizations, and student groups. One area we ve focused on is sustainable food production, an increasingly urgent issue as te world s population continues to grow. We engage wit stakeolders in a number of ways and forums, and our communications vary depending on te needs. Examples are detailed at smitfieldcommitments.com. Recently we ve been doing more wit social media, osting Twitter forums online wit our cief sustainability officer. At smitfieldcommitments.com, we also ave an interactive Q&A area tat allows external stakeolders to ask us questions. We engage wit oter stakeolders on an as-needed basis in response to particular issues tat arise. PUBLIC POLICY We participate in legislative and regulatory processes bot as an individual company and troug industry associations. We believe tat engagement in te political process is important in making our views eard on issues of significance to te business. Smitfield representatives participate in many crossindustry boards and commissions at te national and state levels. For example, Murpy-Brown s director of government relations and public affairs was recently appointed to te U.S. Department of Agriculture s Agricultural Tecnical Advisory Committee for animals and animal products. We also value our participation as members of te U.S. Environmental Protection Agency s (EPA s) Farm, Ranc, and Rural Communities Federal 1 Tere is considerable conceptual and content overlap between te ERM risk analysis process and te materiality analysis we conducted for our sustainability strategy and reporting (see page 16). We update te materiality analysis every oter year. For te next analysis, we will consider te results of te ERM process. 18 GOVERNANCE & MANAGEMENT

23 ETHICS & COMPLIANCE Safeguarding integrity remains a critical business priority. Etical and lawful conduct is an essential part of our company s culture, and we are committed to conducting our business wit te igest standards. Smitfield maintains a Code of Conduct and Business Etics applicable to all employees, officers, and directors, and te board s Nominating and Governance Committee reviews it periodically. THIRD-PARTY RECOGNITION 2011/2012 Received 62 environmental and worker safety awards from te American Meat Institute Advisory Committee and of te National Academies Roundtable on Science and Tecnology for Sustainability. Te committee works to strengten relations wit te agriculture community and focuses on te impacts of te EPA s agriculture-related programs, policies, and regulations, including tose regarding climate cange and renewable energy; a compreensive environmental strategy for livestock operations; and areas of common interest between sustainable agriculture and protection of te environment. Claremont McKenna College A+ ranking for sustainability reporting FTSE4Good Index member company We follow several public policy issues tat we believe are important to our company, including tose related to etanol, free trade agreements, immigration, and te U.S. Farm Bill. Discussion of tose issues and our positions on tem is available at smitfieldcommitments.com. Ricard L. Knowlton Innovation Award for CEO Larry Pope POLITICAL CONTRIBUTIONS Troug corporate contributions and donations made by our political action committee (HAMPAC), Smitfield Foods supports political candidates seeking office at te local, state, and federal levels in te United States. We support te election of individuals wo support policies tat are fair to our company and wo sare our concerns about te future of te food production industry. We recognize tat political contributions are not a customary practice outside te United States. Smitfield only makes political contributions in te United States. Ranked 166 t on te Maplecroft Climate Innovation Index McDonald s Corporation 2012 Global Best of Sustainable Supply Cain winner for employee ealt and safety During te 2010/2011 federal election cycle, Smitfield Foods and its affiliated political action committee (PAC) contributed $53,500 to candidates running for te U.S. Congress. In 2011, te company and affiliated PAC also contributed a total of $189,500 to incumbents and candidates seeking elected office in states across te country. Smitfield does not endorse one party over anoter. Te company bases contributions largely on wic party olds te majority in te state or federal legislature and on individual candidates wo sare te values described above. For more information about Smitfield Foods and its PAC, ampac@smitfieldfoods.com. Advanced in Newsweek 2011 Green Rankings Virginia Governor s Environmental Excellence Awards 19 GOVERNANCE & MANAGEMENT

24 Tis Iowa farm is among te 2,100 wit wic Murpy-Brown contracts in te United States. OUR ANIMAL CARE GOAL Keep our animals safe, comfortable, and ealty OUR ANIMAL CARE TARGETS Remain 100% Pork Quality Assurance Plus (PQA Plus ) compliant at company-owned and contract farms 2 Maintain PQA Plus certification for all suppliers and move toward site assessments Complete conversion from individual gestation stalls to group ousing for pregnant sows on company farms by end of 2017 raises pigs on approximately 460 farms tat it owns in te United States alone. Murpy-Brown also contracts wit approximately 2,100 contract og farms ( contract producers ) in te United States. In addition, Smitfield s meat processing operations purcase pigs from numerous independent og producers wose numbers fluctuate depending upon market conditions. Over te past year, we ave been working on a number of issues tat are important to our customers and to oter stakeolders, suc as eliminating te use of gestation stalls for pregnant sows on company-owned farms, improving transportation for ogs, and developing markets for alternative feed grains. We also ave recently updated our standard operating procedures for animal andling and care, enanced our training materials, and augmented our auditing systems. ANIMAL CARE Smitfield aims to raise ealty animals by promoting teir safety and overall well-being, and we ave a long istory of industry leadersip in responsible animal production. Our animal care management program guides te care of our animals at every stage of teir lives, from gestation to transport to processing plant. All farm employees and contract og producers must employ te metods and tecniques of te management system, and we take steps to verify teir compliance. As te world s largest producer of pork, Murpy-Brown LLC, 1 our og production independent operating company (IOC), MANAGEMENT SYSTEMS Murpy-Brown created its own animal care management system more tan a decade ago. Developed in consultation wit two of te world s foremost experts in animal beavior and andling, tis system continues to guide our operations today. Te Murpy-Brown Animal Care Policy, wic applies to Murpy-Brown, its subsidiaries, and its contract producers, articulates a commitment to sound animal care and identifies five specific areas of responsible practices. Suppliers tat provide animal products to our facilities are expected to ave similar operating policies and procedures in place to ensure te proper care of teir animals during all stages of production, transportation, and processing. All company-owned and contract farms are subject to random tird-party audits and site assessments under te Pork Quality Assurance Plus (PQA Plus) Program. Te program complements existing procedures at Murpy-Brown, wic are designed to supplement te internal evaluations of our day-to-day practices. Regular evaluation and training allows us to identify any areas 1 Trougout tis report, wen we refer to Murpy-Brown, we mean Murpy-Brown LLC and its subsidiaries. 2 Te wording of tis target as been sligtly revised from our previous report. Were PQA Plus compliant is used trougout tis report, we mean tat our farms ave been site assessed and tat specific employees ave been certified according to PQA Plus program guidelines. 20 ANIMAL CARE

25 VALUE CREATION We recognize tat te ealt of our animals is critical to te success of our products and, terefore, to te success of our business. Our animal care management systems, policies, and procedures are designed to ensure te proper treatment of te ogs tat we raise for fres and packaged meats. Te better we care for our pigs, te better our results as a wole. Sound animal care management systems result in ealtier animals, wic benefits our pigs and also our company s overall financial ealt. Our animal care performance can influence te following: Our reputation Our relationsips wit customers and consumers Production levels (ealty animals gain weigt faster and are more resistant to disease; sows ave larger litters) Our contract growing relationsips provide opportunities for many undreds of farmers to stay on teir family farms, make investments for te future, stabilize teir incomes, and diversify teir operations. We also create markets for tousands of grain farmers across te United States and internationally wo grow corn, weat, sorgum, and oter feed tat we purcase for our ogs. By te Numbers Contract grower payments U.S. grain purcases International grain purcases Fiscal 2012 $348 million $1.2 billion $100 million See page 37 for grain purcases of our international companies. Details on our animal care auditing policies and procedures can be found at smitfieldcommitments.com. Also available online is information on certain animal care management practices, including tail docking, castration, and eutanasia. HOUSING OF PREGNANT SOWS More and more food companies are looking to suppliers to pase out individual gestation stalls for pregnant sows. In early 2012, for example, several of our restaurant customers announced tat tey would require all U.S. pork suppliers to provide plans to eventually pase out te stalls in favor of group ousing. Smitfield remains on track toward our goal of pasing out individual gestation stalls for pregnant sows at all companyowned sow farms by We first announced our plans to transition to group ousing in 2007 but ad to slow our progress in 2009 in difficult economic times. Our decision to move away from gestation stalls and into group ousing as been controversial witin our industry. We ave never argued tat te science suggests one type of ousing is better tan anoter. We decided to move to group ousing after consulting wit many of our customers. Researc we conducted over two years sows tat bot ousing types can work equally well from bot an animal care and a production standpoint. Converting to gestation pens is a complex process tat can t be done overnigt. Group ousing systems require nearly double te square footage of individual pens. To maintain te same number of sows on a farm, we need to eiter build new barns or expand existing ones. Employees must also be retrained. We estimate te total cost of our transition to group pens will be approximately $300 million. Te cost of conversion ranges from $250 per sow to as ig as $650 per sow at older farms wit more complicated barn conversions. Many of our barns require extensive retrofits and reconfigurations to create te new ousing systems. As we implement te new systems, we re simultaneously making oter improvements to te facilities. of concern and make adjustments to procedures before problems occur. Members of our production management staff, many of wom are also PQA Plus-trained auditors, visit every contract and company-owned farm at least once a mont. Our processing plants, our og production subsidiary, and many of our contract growers also participate in te U.S. Department of Agriculture (USDA) Process Verified Program, wic is modeled on ISO 9000 quality management and assurance standards and elps to ensure tat standards are upeld and procedures followed. SOWS IN COMPANY-OWNED GROUP HOUSING GOAL 100% 30.4% 2.6% 3.8% 4.8% 6.6% All values reported by calendar year. 21 ANIMAL CARE

26 EXPERT S PERSPECTIVE Jennifer Woods Livestock Handling Specialist/Consultant I ve ad a relationsip wit Smitfield Foods and Murpy-Brown for about seven years now. I first started working wit tem to enance teir og transportation systems and emergency response procedures. More recently, I ve been working wit tem to evaluate teir overall systems of animal care and look for ways to improve operating procedures, training, and auditing. I was brougt in by Smitfield in December 2010 to evaluate te company s animal care policies and procedures, make recommendations for improvements, and develop new assessment tools. One ting we ave been doing, for example, is calibrating te company s internal auditing systems to make te audits, and te auditors, more effective in teir analyses. Auditing is a lot more tan just sowing up at te farm. It s te details tat are important. As a result of tis work, I believe Smitfield will ave an even stronger animal care program wit improved well-being for te animals. Smitfield s animal care standards will be iger tan wat we currently see across te industry. Tat, in turn, will lead to improvements in production. Animals tat live on farms wit good welfare practices ave lower stress levels, ealtier weigt gains, and reduced mortality rates. Healtier sows also produce larger litters, wic is important for te economics of large-scale production. And, wit proper management tecniques, growers will ave lower expenses for illnesses and injuries, too. Te ting tat as always impressed me about Smitfield is tat tey really are leaders in te industry wen it comes to animal welfare. Tey were te first to take on improved emergency responses, for example. Now, tey re ramping tings up a level and are moving beyond teir industry peers wen it comes to teir animal care auditing programs. I ave not seen any oter og producer take it to te level tat Smitfield as. Tat progressiveness is one of te tings tat draws me to work wit tem. Farming is a part of wo we are. It s wat we do, and it s in our caracter. Becoming a contract producer meant we would ave a consistent source of young pigs and a consistent price for our market ogs. We wouldn t ave to face all te ups and downs of te market, wic meant we would be protected wen prices dropped very low. Jon Langdon, Jon M. Langdon Farms, Benson, Nort Carolina, Murpy-Brown contract producer TRANSPORTATION RESEARCH At Smitfield, we transport ogs during several pases of teir lives from sow farms to nurseries, nurseries to finising barns, and from finising barns to processing plants. Because we do not want to lose any animals during transit, we re investing time and researc into understanding more about og transportation, and into developing ways to predict and reduce animal stress during transit. We are partnering wit a team of researcers from a global animal ealt company. Togeter, we ave implemented a system to provide real-time feedback on transportation data tat is elping employees recognize wen tey need to intervene on bealf of te ogs wit measures suc as additional fans and/or misters to keep te pigs cool. Te project, wic began in 2009, as led to a downward trend in transportation losses. Overall for our industry, te rate of pig mortality during transportation as dropped by 40 percent over te last decade. We re also seeing reductions in te amount of time ogs wait on trucks before tey move into te stockyards at Smitfield plants. (Once ogs do enter te plants, tey spend time in pens were tey can rest under te careful observation of USDA inspectors before being allowed into te food supply.) To address potential risk factors for transportation mortality, Smitfield is evaluating canges suc as scales on trucks to measure te weigt of te load and tereby minimize overcrowding; a new logistics and sceduling program to reduce te amount of time ogs spend on trucks; and misting fans at te plant to minimize te effects of summer eat. ANTIBIOTICS USE Smitfield s commitment to food safety and animal care includes te appropriate administration of antibiotics to prevent, control, and treat diseases and to ensure good ealt in our pigs. 1 At te same time, we strive to limit antibiotics use troug 1 Wen we refer to our pigs, we mean all animals produced by Smitfield s livestock production subsidiary Murpy-Brown, its subsidiaries, and teir contract farms. 22 ANIMAL CARE

27 We were at a point were our buildings eiter needed a lot of money for upgrades, or we ad to build new ones. We needed to ave a secure way of paying for tem witout aving to worry about te og market and te fluctuating market for corn prices. [Contract farming] gave us a guaranteed income. Missy Bice, Golden Circle Pork, Woodward, Iowa, Murpy-Brown contract producer enanced management practices and vaccines intended to improve animal ealt. Aderence to our antibiotics policy, wic as been in place since 2002, is obligatory for anyone wo works wit te animals owned, or managed by, or under contract to our IOCs. We review te policy periodically to confirm tat it is up-to-date wit te best science of te day. Te policy, available at smitfieldcommitments.com, calls for te responsible use of antibiotics for tree specific purposes: to prevent disease, control disease, and treat disease, wit proper diagnostic confirmation. In April 2012, te U.S. Food and Drug Administration (FDA) issued new regulatory guidance wit two key principles on te use of antibiotics in food production. Te principles are consistent wit our existing antibiotics use policy, and Murpy- Brown already follows te FDA s recommendations. Company and contract farmers administer antibiotics only wen it is necessary for te ealt of te animals. Weter treating one individual animal or administering to a group of animals, all antibiotics coices and applications are based on guidance from licensed veterinarians. We believe tat responsible use of antibiotics protects our animals and enances teir quality of life. We track and report our use of feed-grade antibiotics as a result of a first-of-its-kind agreement wit foodservice giant Compass Group Nort America and te Environmental Defense Fund. FEED-GRADE ANTIBIOTICS USE (lbs/cwt) cange % All values reported by fiscal year. Te amount of antibiotics purcased varies from year to year based on a number of factors including weater conditions, emergence of illnesses, inventory decisions, type of antibiotic used (feed, water, or injected), and active ingredient concentration. Te purcases went up sligtly in fiscal 2012 due to erd ealt needs. CREATING VALUE THROUGH THE GRAIN SUPPLY CHAIN No single group of suppliers contributes more directly to our og production operations tan grain farmers. Te more we grow as a business, te greater te demand we put on grain suppliers to increase teir levels of production. In addition to creating a market for tousands of farmers across te United States for teir agricultural products, we also buy grain locally wenever possible. We re working ard to find ways to purcase even more feed locally not only to benefit our own operations, but also to benefit te growers temselves. In fiscal 2012, we kicked off a pilot initiative aimed at developing a new grain market for farmers in te souteastern region of te United States. We believe tat grain sorgum, a drougt-tolerant crop and an excellent source of nutrients required in og feed, olds great promise for farmers in Nort Carolina and neigboring states. Sorgum as a lower water demand tan many oter grain crops and is especially advantageous for arid regions or areas wit water sortages. Its low fertilizer demand reduces te risk of nutrient leacing and, tus, soil and water pollution, as well as making it well-suited for smaller-scale farming. In addition, sorgum as a relatively sort vegetation cycle, wic also elps reduce demand for fertilizers and pesticides. We are encouraging farmers wo do not acieve profitable corn yields to switc to sorgum, wic costs less to grow tan corn and sould produce more consistent yields. We re demonstrating our commitment by increasing te amount we pay for te crop. In calendar 2011, we bougt sorgum at 88 percent of te price of corn for participants in our sorgum pilot program. In 2012, we are paying 95 percent of te arvest cas price of corn for our sorgum growers. Several years ago, only 4,000 to 5,000 acres of sorgum were grown in Nort Carolina. In 2012, we expect it to be around 60,000 acres about 80 percent of wic will be purcased by Murpy-Brown. 23 ANIMAL CARE

28 Jobs in our industry can be demanding. Caring for ogs on farms, driving transport trucks, and processing ogs into food are jobs tat require careful attention, specific skills, and professional commitment. To maintain a supportive work environment for our employees, we empasize safety and training, as well as employee ealt and wellness. DIVERSITY EMPLOYEES We are always seeking new markets for our products, and our company benefits wen our employees reflect our diverse customer base. We aim to cultivate a workforce tat provides a variety of perspectives and experience, enancing our company s competitiveness in an increasingly diverse and interconnected world. MINORITIES AND WOMEN AT SMITHFIELD FOODS cange 66.5% 65.7% 64.1% 63.7% 63.9% 3.9% Minority Employees 22.8% 23.3% 21.1% 21.5% 21.1% 7.5% Minorities in Management 35.3% 34.8% 34.5% 34.4% 35.0% 0.8% Female Employees 17.8% 17.5% 19.1% 19.1% 20.2% 13.5 % Women in Management In Denison, Iowa, Farmland Foods employees receive safety training from te local fire department. Data reported as of September eac year. To determine te representation of women and minorities for reporting to te federal government, eac Smitfield Foods subsidiary wit more tan 50 employees produces te requisite report using a standard metodology. Te information is ten centralized for corporate analysis and te development of future employee programs. Our company s success can be attributed, in large part, to te ard work of our rougly 46,050 employees around te globe. Very often, we re te largest employer in te regions were we operate. Protecting employees ealt and safety is a priority, as is creating a fair and etical workplace environment. Jobs at our farms and processing facilities offer competitive wages and robust benefits packages, including tuition reimbursement and educational scolarsips. Wenever possible, we aim to promote from witin and to give employees te cance to advance teir careers troug training and educational opportunities. OUR HEALTH & SAFETY GOAL Reduce employee injury rates OUR HEALTH & SAFETY TARGETS Meet or beat general manufacturing industry national average for injuries All safety leadersip to participate in 10-our general industry training programs Increase formal employee engagement to 25% by fiscal 2015 Host Safety Roundtable meetings at all locations 24 EMPLOYEES

29 2011 MINORITY BREAKDOWN FOR ALL SMITHFIELD OPERATIONS 5.5% 2.4% 27.6% 28.4% 36.1% HUMAN RIGHTS POLICY Our Human Rigts Policy spells out te expectations we ave in te areas of equal opportunity; ealt, environment, and safety; arassment and violence; te rigts of employees; and oter key topics. We provide copies of te policy to all our employees, including new ires, and encourage our workers to call our toll-free Smitfield otline to report any violations. We also communicate our Human Rigts Policy to all major suppliers and expect tem to comply. In addition, Smitfield as recently released a code of conduct for our suppliers. HEALTH & WELLNESS Wite (36.1%) Hispanic (28.4%) African-American (27.6%) Asian (5.5%) Oter (2.4%) We ave a variety of programs across our locations, provided free of carge to employees, to promote teir ealt and wellness. Wen employees acieve teir ealt goals, everyone wins. Employees feel better and critical ealt issues can be averted. Healtier employees contribute to a more positive work environment and drive down company ealt care costs. VALUE CREATION Smitfield creates value troug our employment of approximately 46,050 people, many of tem in rural areas were tere are limited job opportunities. Our operations also contribute to te economic stability and development of our local communities, were we purcase goods and services and our employees reside. Altoug we ave not quantified our economic impact at every location were we do business, a recent study by te University of Missouri Extension found tat Farmland Foods two facilities in Missouri and Premium Standard Farms og-growing operations located in Nortern Missouri collectively contribute $1.1 billion annually to tat state. Te study credited our operations wit sustaining more tan 5,200 jobs in Missouri. To develop and maintain a skilled workforce, Smitfield invests in employee training, workplace safety, and ealt and wellness activities. Tese programs can ave an impact on our bottom line, particularly around te following issues: Workplace safety Workers compensation costs Absenteeism Employee satisfaction and engagement Turnover rates By te Numbers Fiscal 2012 HEALTH & SAFETY Meat production can be a dangerous business bot for tose wo take care of te animals and for tose wo process te ogs into meat. Ensuring our employees safety is one of our igest company priorities. Our extensive safety systems and programs, wic go well beyond regulatory requirements, yield measurable results and protect employees wile reducing our workers compensation costs. Total salaries and wages Total benefits (including pension) Total compensation expense Amount spent on employee safety training $1.6 billion $337 million $1.9 billion $4.2 million Historically, te meatpacking and processing industry as ranked among te most azardous professions in te U.S. Prior to 2010, our target ad been to meet or beat safety averages for our own industry. But wen we began surpassing tese industry safety averages, we set our sigts even iger. In early 2010, we establised new targets to meet or beat general industry averages for tree performance metrics we report to te U.S. Occupational Safety and Healt Administration (OSHA): Total Case Rate (TCR); Days Away, Restricted, or Transferred (DART); and Days Away From Work Injury and Illness (DAFWII). Tis sift is significant because injury rates are muc lower averaged across all industries tan tey are for te meat industry alone. 25 EMPLOYEES

30 AWARD WINNER Smitfield was selected by McDonald s Corporation as one of te restaurant cain s 2012 Global Best of Sustainable Supply Cain winners for our ongoing efforts to protect te ealt and safety of our employees TCR, DART, AND DAFWII RATES COMPARED WITH NATIONAL AVERAGES cange In calendar 2011, we continued to reduce worker injuries, resulting in te lowest injury and illness rates in te company s istory. Two of our operating companies Smitfield Packing and Farmland Foods ad incident rates tat we believe will fall below te national averages for all industries. 1 Overall as a company, we beat te injury rates for te meat industry and made progress toward our general industry target. Our company-wide TCR and DART rates dropped by 18 percent and 16 percent, respectively, wile our DAFWII rate finised 12 percent lower tan te previous year. On average, U.S. beef and pork processors report 6.9 injuries per 100 employees nearly twice te average for all private industry occupations, according to 2010 data from te U.S. Department of Labor s Bureau of Labor Statistics (te most recent data available prior to tis report s publication). Smitfield s injury rate for 2011 was 3.93 injuries per 100 employees. Our OSHA TCR, DART, and DAFWII rates continued to decline, and 2011 finised at a record low as sown in te cart at rigt Smitfield Foods National averages for animal slaugtering and processing industry National averages for all industries, including state and federal government 42% 31% 42% TCR DART DAFWII Wit te implementation of our Employee Injury Prevention Management System (EIPMS) and oter programs, we ave been pleased to see reductions in te number of worker injuries over te past few years. Now we are finally seeing te financial benefits as well. Wile caution must be used in drawing direct conclusions from undeveloped claims data, incurred costs for te fiscal year completed in April 2012 were 25 percent lower tan in April Our cost per employee dropped 23 percent over te same time frame. In 2011, Smitfield Foods spent $4.2 million to train about 36,500 employees in te United States. Tese employees received a total of more tan 371,000 ours of ealt and safety training, or approximately 10 ours per individual. Tragically, we experienced one employee fatality in calendar 2011 at a company feed mill in Laurinburg, Nort Carolina. We deeply regret te incident and cooperated fully wit an investigation by OSHA. Any time tere is a serious incident, we investigate to understand te cause and ten work toward preventing similar episodes in te future. All values reported by calendar year. We track trends trougout our fiscal year but report te OSHA rates by calendar year. National averages for meat industry and all industries are based on 2010 data from te U.S. Department of Labor s Bureau of Labor Statistics. Data for 2011 were not yet available wen tis report was produced. OSHA INSPECTIONS, NOVS, AND PENALTIES cange % Inspections % Notices of Violation $11,037 $38,787 $23,725 $33,323 $117, % Penalties All values reported by calendar year. Te federal government as been enancing its inspection processes in recent years, leading to a significant increase in notices of violation and penalty amounts in Tis continues to be a national trend for industry enforcement. 1 Based on estimates; national industry averages were not yet released at te time of publication of tis report. 26 EMPLOYEES

31 targets, performance, and management systems is available at smitfieldcommitments.com. ENVIRONMENT In Kinston, Nort Carolina, a wastewater operator cecks te plant s storm water runoff pond. As a wole, our fiscal 2012 environmental performance data demonstrate continued progress. We are particularly proud tat not one of our 460 company-owned farms received a notice of violation (NOV), and our overall company-wide number of NOVs was nearly alf tat of te previous year a sign of te continued effectiveness of our compliance programs. We aspire to reac a point were 100 percent compliance is no longer a goal but a given. OUR ENVIRONMENTAL GOALS Reduce natural resource demand Eliminate notices of violation (NOVs) 100% compliance, 100% of te time OUR ENVIRONMENTAL TARGETS Water: 10% reduction over fiscal 2008 by fiscal 2016 Energy: 10% reduction over fiscal 2008 by fiscal 2016 Greenouse Gas (GHG) Emissions: 10% reduction over fiscal 2008 by fiscal 2016 Solid Waste to Landfill: 10% reduction over fiscal 2008 by fiscal 2016 Packaging: One new packaging reduction project per year per IOC Zero Waste: One zero-waste-to-landfill facility for eac IOC by fiscal 2018 Compliance: Reduce NOVs eac year All water, energy, GHG, and solid waste targets are normalized by production levels. New GHG, packaging, and zero-waste-to-landfill targets were added in fiscal It makes good economic and environmental sense to use all resources including water, energy, and land responsibly. Over te last 10 years, our environmental management systems ave evolved, and our performance as significantly improved. In 2010, we developed a set of callenging targets to furter elevate our performance around water, energy, and solid waste. In 2011, we continued to pus ourselves by adding new targets for greenouse gas (GHG) emissions and packaging reduction projects. In addition, eac independent operating company (IOC) must ave at least one zero-wasteto-landfill facility by fiscal More information about our Environmental Awards Program Yields Cost Savings Eac year we give Environmental Excellence Awards to projects and initiatives undertaken by our facilities tat elp te environment and save money. In fiscal 2012, 167 projects saved over $12 million wit only $7 million in capital expenditures, resulting in a cumulative savings as follows: 220 million gallons of water; nearly 100,500 decaterms of natural gas; 12.8 million kw of electricity; 60,500 tons of solid waste materials not sent to landfill; and 14,670 gallons of fuel oil. (See te Value Creation box on page 28 for more information.) 27 ENVIRONMENT

32 ENVIRONMENTAL PERFORMANCE 1 VALUE CREATION Sound environmental stewardsip creates value for Smitfield, for our sareolders, and for our broader communities. By using resources more efficiently, we minimize our negative environmental impacts, save operating costs, and improve our economic performance. We track te costs and savings associated wit projects submitted for our environmental awards. Since 2004, tese projects ave saved nearly five times as muc in operating costs as our capital investment in tem (see below). Examples include using box assembly macines tat reduce packaging materials and updated control systems for boilers and refrigeration systems. Maintaining compliance wit and going beyond regulatory requirements is a cost to our business but also important to protecting our reputation and building strong relationsips wit our stakeolders. We also ave opportunities to capture additional value by, for example, exploring creative ways to turn our operational byproducts (og manure, solid waste, and bacon grease) and underutilized resources (suc as land not used for og raising or crop production) into valuable assets for our company. We igligt various projects tat exemplify our efforts to capture value wile reducing our environmental footprint at smitfieldcommitments.com. Water Use WATER USE TARGET 10% reduction over fiscal 2008 (normalized) by fiscal 2016 PROGRESS TO DATE Reduced normalized use by 10% Te availability of quality freswater is a growing global concern wit potential implications for agriculture, suc as increased costs and more stringent wastewater standards. Our farms use water to sustain animal ealt (e.g., ydration, sanitation, and cooling) and to keep equipment clean. Our processing facilities use water for cooling, cleaning, sanitizing, and making our products, and used a total of 9.7 billion gallons in fiscal In te United States, our IOCs obtain water from municipal water supplies, from local surface and groundwater sources, private surface water impoundments, private wells, and spring water. See smitfieldcommitments.com for our water management inputs and outputs. WATER USE (gallons/cwt) By te Numbers Savings attributable to environmental award projects Fiscal $285.6 million GOAL 80.0 Capital costs associated wit environmental award projects $57.5 million Fiscal 2012 All values reported by fiscal year. Cardboard purcased Tons of cardboard recycled Cardboard recycling revenue Biogas project revenue $132 million 26,902 $2.2 million $1.6 million In order to compete and succeed in an increasingly waterconstrained world, we are developing more proactive water management systems and closely monitoring water use. Wile we ave met our targets, we continue to pus ourselves to furter improve our water management practices. Wind energy leasing revenue Bacon grease sales revenues $271,000 $13.7 million Cardboard recycling revenue is estimated based on average per-ton income from reporting facilities. Biogas project revenue represents savings from natural gas not purcased and is based on actual cost. Bacon grease revenues are from microwave bacon facilities only and do not include grease extracted by rendering facilities or from wastewater. We monitor water use at eac facility and make every effort to become more efficient. Since 2008, we ave reduced water used per 100 pounds of product at our farms and our processing plants by 10 percent. Te cart above illustrates te impacts of our efforts to produce our products using less water. 1 We combine te performance for farming operations, first processing (i.e., slaugter), and furter processing facilities. Te data are normalized per 100 pounds of product (cwt) raised on te farms and sipped out of eac plant. 28 ENVIRONMENT

33 We are working to assure adequate water supplies. In 2010, we utilized te World Business Council for Sustainable Development s (WBCSD) Global Water Tool to identify facilities located in water-stressed regions and prioritize our efforts. Te most recent analysis projects tat 92 percent of our domestic sites will ave adequate water supplies troug Tis year, we also began using te GEMI Local Water Tool developed by te Global Environmental Management Initiative 1 to examine more closely tose facilities identified by te WBCSD tool as operating in areas of water stress. We are using tis information to develop corrective action plans as needed. See smitfieldcommitments.com for our domestic operations 2025 projected annual renewable water supply results. Energy Use ENERGY USE TARGET 10% reduction over fiscal 2008 (normalized) by fiscal 2016 PROGRESS TO DATE Reduced normalized energy use by 5% To monitor our progress and identify best practices, we track energy use at all our facilities. Our target is to reduce our energy intensity (energy use per 100 pounds of product) to 10 percent below fiscal 2008 levels by fiscal Meeting te target sould also reduce greenouse gas (GHG) emissions. During fiscal 2012, a variety of newly implemented energy reduction efforts significantly lowered our utility bills wile reducing normalized energy use by 5 percent. Tis progress was made despite a continuing sift to te production of resource-intensive, fully cooked (ready-to-eat) products for foodservice customers and consumers. ENERGY USE (decaterms/cwt) GOAL TURNING MANURE INTO RENEWABLE ENERGY Over te last few years tere as been increased interest in te benefits of renewable fuel use. Several states ave legislation encouraging electricity providers to generate power from renewable sources, including og manure. New tecnology is elping to make og manure more suitable for conversion to energy. Murpy-Brown and its contract growers farms ave a ready supply of feedstock manure for renewable energy projects. We believe we can make a strong contribution. Our new barn scraper tecnology produces og manure igly suitable for conversion to energy due to its reduced water content, making our farms attractive partners for energy developers. Smitfield as been exploring manure-to-energy projects for a number of years, wit an aim of supporting growt in te renewable energy field wile creating valuable energy from our byproducts. We ave signed supply agreements wit energy developers to begin work on several projects to turn og manure into energy on company-owned farms. Our larger farms are well-suited to integrating a complete manure-to-energy system utilizing metane gas produced from eac facility s og manure. For example, a project under construction at our company-owned Circle Four Farms in Uta will capture metane gas from og manure and convert it into up to 3.2 megawatts of electrical energy beginning in te fall of Greenouse Gas (GHG) Emissions GHG EMISSIONS TARGET 10% reduction over fiscal 2008 (normalized) by fiscal 2016 PROGRESS TO DATE Reduced normalized GHG emissions by 11% Climate cange, wic as been linked by many scientists to GHG emissions, may ave future impacts on water availability, energy prices, weater patterns, and demand for consumer goods. As in any industry, GHG emissions occur during te production and distribution of our products. For example: All values reported by fiscal year. More tan 90 percent of our facilities report energy data (electricity, natural gas, and propane use). Farms emit GHGs troug animal manure, treatment systems, and crop production. 1 Smitfield s assistant vice president of environmental affairs was elected as cairman of GEMI in ENVIRONMENT

34 Our transportation fleet emits GHGs troug fuel combustion. Processing plants emit GHGs as a result of energy use and as a wastewater treatment byproduct. DIRECT AND INDIRECT GHG EMISSIONS (metric tons CO2e/cwt) GOAL SOLID WASTE TO LANDFILL TARGET 10% reduction over fiscal 2008 (normalized) by fiscal 2016 PACKAGING REDUCTION TARGET One new packaging reduction project per year per IOC ZERO-WASTE-TO-LANDFILL TARGET Eac IOC to ave one facility sending zero waste to landfills by fiscal 2018 PROGRESS TO DATE Reduced normalized solid waste to landfill by 12% All IOCs introduced new packaging reduction projects in fiscal 2012 No facilities acieved zero-waste-to-landfill status in fiscal 2012 All values reported by fiscal year. New packaging reduction and zero-waste-to-landfill targets were added in fiscal To be classified as a zero-waste-to-landfill facility, a facility must not send any waste to landfill for a full 12 monts. Because we added tis target in fiscal 2012, none of our facilities will be able to qualify until at least fiscal As an agriculture-based company, climate cange could affect key inputs to our business troug sifts in temperature, water availability, precipitation, and oter variables. Wile climate cange poses potential risks, it also offers opportunities for Smitfield to develop renewable energy sources. For instance, we leased a section of Murpy-Brown property in Uta to a wind energy developer. Tis year, wind turbines at te site are generating megawatts of electricity enoug to power nearly 4,000 omes. In 2012, we adopted a new GHG reduction target, largely in response to stakeolder requests. We ave lowered our normalized GHG emissions 1 over te past four years by using energy more efficiently and using lower-emission fuels, among oter initiatives. In fiscal 2012, our normalized GHG emissions were 11 percent below 2008 levels. Materials Use & Solid Waste Our waste reduction approac is to divert materials wit a residual value away from our waste streams toward recycling or reuse. We can make te greatest progress in our solid waste reduction and recycling efforts by focusing on eliminating packaging waste, suc as corrugated board and a variety of plastics. We ave reduced solid waste landfill disposal per 100 pounds of product by 12 percent since We are also making efforts to recycle more materials and use packaging wit post-consumer recycled materials. Altoug we ave already surpassed our waste reduction target, we continue to pus for greater efficiencies. To callenge ourselves furter, we introduced a new waste target in fiscal 2012: Eac domestic IOC must ave at least one facility acieve zero-waste-tolandfill status by fiscal SOLID WASTE TO LANDFILL (lbs/cwt) GOAL 2.39 All values reported by fiscal year. Data do not include Murpy-Brown. Solid waste is typically auled away for a fixed fee; reliable weigts are not available. 1 Smitfield reports GHG emissions using te Greenouse Gas Protocol Initiative developed by te World Resources Institute (WRI) and te WBCSD ( Publicly available emission figures are used were no reliable data is available from energy providers. We report on scope 1 emissions (direct) and scope 2 emissions, wic include indirect emissions associated wit te use of purcased electricity. 30 ENVIRONMENT

35 PACKAGING SAVINGS Several of our IOCs implemented packaging reduction initiatives in fiscal 2012 at a combined cost of $860,000 wit a resulting savings of $2.75 million. Cardboard Recycling Many of our plants continue to reduce waste sent to landfills troug improved cardboard and paper recycling. For instance, Farmland Foods Lincoln, Nebraska, location increased cardboard and paper recycling by nearly 725 tons troug a concerted effort to capture tese wastes tat previously were sent to landfills. Te facility also saved more tan $99,000 in disposal fees. Te volume of cardboard recycled eac year as declined 17 percent since 2008 because we ave empasized source reduction before recycling. By focusing on reusing or discontinuing cardboard totes for transferring our product, our recycling rate is at nearly its lowest since we started tracking it despite increased production over te past five years. Instead of disposing of eac tote after it is used, we now inspect eac one and, wenever possible, place a new plastic liner inside. Tis allows us to reuse eac one up to five times before recycling it, reducing costs by undreds of tousands of dollars and diverting tons of cardboard from landfills. We expect cardboard recycling rates to continue to fall as we implement packaging design improvements and expand our waste prevention projects. (Office paper, cardboard, aluminum, and, in some cases, plastic soda bottles are recycled at our offices, but amounts are not tracked.) CARDBOARD RECYCLING (tons in tousands) cange % All values reported by fiscal year. Compliance COMPLIANCE TARGET Reduce NOVs eac year PROGRESS TO DATE 97% of our 532 processing facilities and farms received no NOVs in calendar 2011 (see page 8 footnote for breakdown) NOTICES OF VIOLATION AND FINES AT WHOLLY OWNED FARMS AND PLANTS cange % NOVs $266,446 $69,616 $81,726 $164,184 $407,779 53% Fines All values reported by calendar year. Between 2006 and 2007, $160,000 was voluntarily paid as part of te National Air Emissions Monitoring Study. We seek full compliance wit local, state, and federal environmental requirements at all times and ave compliance management programs tat train and motivate employees to prevent, detect, and correct violations. We track several indicators of compliance, including NOVs and penalties. Most NOVs and penalties since 2009 can be attributed to a few facilities experiencing wastewater pretreatment systems issues. Our environmental team as worked to resolve tose, and te number of NOVs fell by 40 percent in Total fines for domestic facilities increased in 2011 due, in part, to penalties assessed at our Sioux Falls, Sout Dakota, facility. We are pleased to report tat Murpy-Brown, Smitfield s livestock production subsidiary, did not receive NOVs at any of its 460 og-raising operations in te United States in calendar Our domestic contract farms received 58 NOVs from environmental agencies over te same period. Te vast majority of tese were related to alleged record-keeping deficiencies. FARM NOTICES OF VIOLATION: MURPHY-BROWN AND CONTRACT FARMS cange % Murpy-Brown % Contract Farms All values reported by calendar year. Contract farm values are based on reviews of state databases and production staff surveys. 31 ENVIRONMENT

36 Producing safe, ig-quality, and nourising food is te most important ting we do as a business. Wen it comes to food safety, we like to say tat we aim every day to create nonevents. Smitfield and its independent operating companies (IOCs) work togeter to ensure traceability and to provide te igest-quality meats and packaged foods to our customers. Our vertically integrated business model elps to support te safety and quality of our products troug careful management, strict policies, and dedicated food safety professionals. Responsibility for food safety stretces across our company from our corporate Food Safety Council to te employees witin eac of our facilities. Food safety is a complex undertaking tat we take very seriously. We partner wit industry, government, and independent experts to create and implement rigorous food safety and quality practices. We believe our systems lead te industry, and we work ard to adopt te most up-to-date, science-based procedures. All Smitfield companies follow a compreensive approac tat addresses eac pase of production, from farms to processing plants. Our food safety systems are based on te compreensive Hazard Analysis and Critical Control Points system required for all U.S. meat and poultry companies. Tese systems are reviewed and validated annually as part of te Global Food Safety Initiative (GFSI) certification process. FOOD SAFETY & QUALITY OUR FOOD SAFETY & QUALITY GOALS Deliver safe, ig-quality meat products and eliminate recalls 100% compliance, 100% of te time OUR FOOD SAFETY & QUALITY TARGETS Obtain 100% Global Food Safety Initiative (GFSI) certification for all relevant facilities 1 Assure a wide variety for different diets and needs, and include products designed to address ealt and wellness in accordance wit accepted standards Saratoga Specialties in Bolingbrook, Illinois, operates a dry seasoning quality assurance lab. 1 Relevant facilities are tose producing meat for uman consumption. Our original food safety target was to obtain GFSI certification for all relevant facilities. Today, all relevant facilities 37 in total are GFSI certified and subject to GFSI s annual tird-party audits. Our target now is to maintain te certification at all facilities. TRAINING AND AUDITING Maintaining a company-wide culture of safe food requires tat our employees meet our strict food safety requirements and are familiar wit best practices. Our Food Safety and Quality Training Policy outlines required food safety and quality training topics, trainer qualifications, and te frequency of training at all of our subsidiary processing facilities. All employees undergo rigorous training in tese food safety and quality policies and procedures tailored to eac of Smitfield s companies to keep our foods safe. Employees typically undergo one general training a year, plus additional job-specific training. In addition, GFSI verifies employee-training programs as part of teir auditing processes. We developed first-generation, compreensive auditing protocols about 30 years ago to improve our ability to effectively control food safety azards. Since ten, we ave updated and enanced te protocols to meet canging customer and consumer demands, and ensure continuous improvement. Our rigorous microbiological testing programs constitute a significant part of our ready-to-eat food safety programs. We conduct in-ouse researc to test te accuracy of sell by dates and also perform so-called callenge studies in wic patogens are intentionally inoculated on 32 FOOD SAFETY & QUALITY

37 VALUE CREATION Producing safe, ig-quality food builds value for our business, our investors, and our customers, including te restaurants and retail cains tat sell our products. One of our biggest risks as a company is food safety. We ave systems in place designed to monitor food safety risks trougout all stages of our vertically integrated process. However, any perceived or real ealt risks related to our products or to te food industry in general could adversely affect our company s reputation and our ability to sell our products. Virtually all food is susceptible to contamination by disease-producing organisms or patogens tat are found in te environment. Any contamination of our products could subject us to product liability claims, adverse publicity and government scrutiny, investigation, or intervention, resulting in increased costs and decreased sales as customers lose confidence in te safety and quality of our food products. Smitfield invests millions of dollars eac year in capital improvements to facilities and equipment, focusing on te safety of our products and protection of our employees wile simultaneously enancing production at existing and new facilities. Since our last report, Smitfield Foods spent more tan $5.6 million on projects tat were specifically requested to address food safety and quality issues. Tese projects included upgrades to facilities, wasing and sanitizing equipment, and metal detectors. restaurant cains to develop innovative products tat respond to evolving customer needs. In fiscal 2012, we opened a state-of-teart innovation center and pilot plant for new product development. Over te years, we ave developed leaner cuts of pork, and several of our products meet te American Heart Association s certification criteria for foods tat are low in saturated fat and sodium content. All our packaged meat product categories bacons, ams, ot dogs, and sausages include product lines tat are nutritionally improved wit eiter lower sodium, reduced fat, or less sugar. Smitfield Foods ad one domestic product recall during te latest reporting period. In May 2011, Smitfield Packing recalled 216,238 pounds of portobello musroom-flavored pork loins because some of te product may ave contained an undeclared allergen. Te product was prepared using an ingredient blend tat contained wey (from milk), a known allergen tat was not declared on te label. We ave been evaluating te sodium levels in all our products to ensure tat we are offering a balance of coices for a variety of preferences, diets, and lifestyles. At te end of fiscal 2012, we ad about 100 reduced-sodium products in te marketplace, up from about 75 te previous year. Salt is a key ingredient in many of our products and elps us meet customer and consumer demands for quality, autenticity, flavor, and convenience. Smitfield s sodium policy, wic is based on our commitment to producing wolesome food products for our customers, is consistent wit te view tat a ealty lifestyle is not based just on one nutrient, but on a range of factors, including dietary patterns and exercise. Our policy wic we updated in 2011 is available at smitfieldcommitments.com. test samples in labs to elp us determine ow to better protect our products and increase teir self life. We now do our microbiological testing in-ouse at some facilities, saving us more tan $1 million a year in costs tat were previously paid to tird-party laboratories. Our internal labs are all certified according to te American Association for Laboratory Accreditation. NUTRITION Smitfield offers affordable products tat are a significant source of protein. We believe it s important to provide consumers wit a wide range of dietary coices. Some consumers want products wit reduced fats, sugar, and salt, wile oters resist making compromises on flavor or convenience. Our researc and development teams of nutritionists, cefs, and food scientists work wit our customers including supermarkets, public scool systems, and TAME THAT FLAME! Forget wat your moter migt ave told you: It turns out tat cooked pork can be pink in te middle after all. In May 2011, te U.S. Department of Agriculture s Food Safety and Inspection Service announced tat it ad lowered its recommended temperature for cooked pork by 15 degrees. Te decision came as a result of significant food safety improvements in te pork industry in recent years. For example, te parasitic disease tricinosis as been eliminated from te commercial U.S. pork supply. According to te agency, pork can be safely consumed if cooked to an internal temperature of 145 degrees (Fareneit) and allowed to rest for tree minutes rater tan te 160 degrees it previously recommended. Tis means pork is now eld to te same temperature criterion as cuts of beef, veal, and lamb. 33 FOOD SAFETY & QUALITY

38 Farmland Foods employees in Kansas City volunteer teir time to te Harvesters food bank. OUR COMMUNITY GOAL Provide food to tose in need and enance education in our communities OUR COMMUNITY TARGETS: Provide 4 million servings a year of food for tose in need Eac Pork Group IOC to support two Learners to Leaders programs Eac facility to support two FFA Organization or equivalent education events Eac facility to participate in at least one cleanup day efforts, disaster relief, support of first responders and military families, and an emerging area of focus: ealt and wellness. In fiscal 2012, Smitfield companies contributed $3.95 million in cas donations to programs and organizations we support. HUNGER RELIEF As a food company, we believe we ave a responsibility to elp feed families wo are struggling to afford te food tey need. According to te national unger relief nonprofit, Feeding America, more tan one out of six cildren in te United States lives in a food-insecure ouseold, wic means tey do not always know were tey will find teir next meal. HELPING COMMUNITIES Smitfield Foods and its independent operating companies ave a long istory of stocking food banks, supporting afterscool nutrition programs, and providing food relief in te wake of natural disasters. We are especially proud of our partnersips wit our retail grocery customers across te country, wose in-store fundraisers generate dollars tat furter our unger relief efforts. Smitfield values te importance of strong, vibrant communities and strives to make a positive impact in te areas were our employees work and live. In many of te rural areas were we do business, a Smitfield independent operating company (IOC) is te primary employer in te community. Assisting our employees and tose wo live around our farms and our plants elps te community get to know us. Contributing to triving local communities enables us to become a stronger, more vital company. At Smitfield, we focus in particular on programs tat nouris te body and te mind. In addition to unger relief and learning-related initiatives, we and our IOCs also provide support for local and international environmental stewardsip In fiscal 2012, we donated 6.9 million servings of food troug Helping Hungry Homes. In our nation s food banks, sourcing and providing fres meats and oter protein presents a special callenge. Toug it is critical for good ealt, fres protein is more expensive tan self-stable food suc as canned soups, cereals, and pasta. It is also more expensive to transport because it requires refrigeration. Wit food banks facing record demand for services, te need for protein is greater tan ever. In 2008, Smitfield Foods launced a major initiative, Helping Hungry Homes, to elp address te growing problem of food insecurity in te United States and, specifically, to elp address 34 HELPING COMMUNITIES

39 VALUE CREATION Contributing to local communities by offering employment and paying taxes is one of te primary ways we create value for communities, but we also create value troug strengtening te communities surrounding our farms and operating plants by supporting areas suc as unger relief, education, and ealt and wellness. Our activities also support agricultural communities in te regions were we operate (see te Animal Care section of tis report). learning opportunities in te communities were our employees live, work, and raise teir families. One of our company s core values is elping to extend educational opportunities to young people wo will be tomorrow s leaders in our communities. We seek opportunities to engage wit local educators and students, contributing to vibrant and dynamic neigboroods were individuals and businesses can trive. For te last decade, te Smitfield-Luter Foundation as elped to provide an educational foundation for tose wo need it troug educational scolarsips for our employees cildren and grandcildren at select universities. Since te inception of tis program, we ave awarded 127 annual scolarsips wort more tan $2 million. In fiscal 2012, te Smitfield- Luter Foundation awarded 34 scolarsips totaling $256,000. We are interdependent wit our communities in many ways: Strong communities support our ability to recruit and retain good workers and enable us to become a stronger, more vital company. Te economic vitality of our local communities and agricultural communities more broadly provides te basis for a reliable supply of te goods and services we need to operate. Stable, well-governed communities provide a good place for our employees to live. By te Numbers Cas donations Fiscal 2012 $3.95 million Our Learners to Leaders program focuses on students from disadvantaged backgrounds wo ave te desire to succeed but don t yet ave te skills to overcome teir callenges weter academic, social, or economic. We fund six different programs. In fiscal 2012, we provided nearly $356,000 in funding to 350 students. HEALTH & WELLNESS Smitfield recognizes tat supporting te ealt and wellness of individuals makes good business sense. It increases productivity, reduces ealt care costs for all, and contributes to a better quality of life. Increasingly, we are supporting ealt and wellness initiatives in te communities were our operations are located, and our IOCs are also involved in supporting ealt causes tat touc teir consumers and employees. Food donations (cas value) Food donations (servings) Total amount of donations $7.19 million 6.9 million $11.14 million Early in 2012, Smitfield Foods took part in Smitfield on te Move, a community program to encourage ealt and wellness in our eadquarters town of Smitfield, Virginia. A coalition of local government, community groups, and corporate partners, te effort as to date completed a needs assessment and is in te process of developing specific recommendations. te growing need for protein. Since launc, we ave donated 56.5 million servings of pork to food banks and oter organizations tat provide food for people in need. Smitfield delivers te products in refrigerated trucks directly to food banks and organizations tat serve te ungry, greatly reducing te cost of transportation and storage. In fiscal 2012, we worked wit more tan 50 food banks to make food deliveries and donated approximately $7.19 million of product to tose in need. EDUCATION At Smitfield, we believe tat education is te bedrock of any strong community. We ve long supported programs tat offer Meat and oter ig-protein products are in ig demand at our food banks. Meat is one of te most difficult items for Feeding America food banks to obtain in sufficient quantity. We re grateful for te support of Smitfield Foods, wose donations of meat and transportation to member food banks elp us provide critically needed protein to te ungry. Smitfield s commitment extends to te transportation of te meat via refrigerated truck, wic ensures te product is delivered at no cost directly to te food banks. Bill Tomas, Cief Supply Cain Officer, Feeding America 35 HELPING COMMUNITIES

40 Our og-raising operations in Poland and Romania raised approximately 2.4 million market ogs in fiscal Our food processors in tose countries produced more tan 800,000 pounds of fres pork and packaged meat products in te same period. Smitfield Ferme in Romania produced more tan 900,000 ogs in fiscal Our international operations follow te same systems for animal care, environmental management, and food safety as we do in te United States, and tey are currently making efforts to implement employee ealt and safety standards globally. We ave also developed new sustainability goals and targets, like tose in our domestic operations, for our international operations. We will implement tese during fiscal In tis section, we are including four years of data and oter information about our wolly owned Polis and Romanian operations. ANIMAL CARE We take pride in keeping our animals ealty, safe, and comfortable. Since 1998, our og production operations in Europe ave adered to te European Convention for te Protection of Animals Kept for Farming Purposes. All our European operations ave maintained a formal Animal Care Policy consistent wit Murpy-Brown s since INTERNATIONAL OPERATIONS We are forming an International Animal Care committee tat will meet quarterly and improve communication among our European subsidiaries, monitor canges in European Union (EU) and country-specific regulations, and sare best practices among our farming and first processing operations. Neglect or abuse of animals in any form is not tolerated and is grounds for employee or contract grower termination. Offenders may also be subject to criminal prosecution under applicable local laws. Our European og-raising operations are regularly audited to ensure compliance. Housing Pregnant Sows Smitfield Foods wolly owns six international operations, consisting of four subsidiaries in Poland and Romania and two food distribution operations in te United Kingdom and Romania. Agri Plus is one of Poland s largest og producers and provides a substantial portion of its ogs to our Polis meat processing affiliate, Animex. In Romania, Smitfield Ferme raises ogs principally for te pork processor Smitfield Prod. Agroalim, a large food distributor in Romania, supplies meat produced at Smitfield Prod to te Romanian market. Te European Union s Agriculture Council issued a 2001 Directive (Council Directive 2001/88/EC) addressing te ealt of pregnant sows in gestation stalls. Te EU Pigs Directive sets minimum standards tat initially apply to all facilities built or rebuilt after By January 2013, all existing facilities must meet tese provisions. Our company-owned farms in Europe comply wit tese requirements. In Poland and Romania, approximately 90 percent of te raw meats used in our products come from farms tat already meet te pregnantsow ousing requirements. Te remaining contract farms and suppliers are working toward meeting te 2013 scedule for completion. 36 INTERNATIONAL OPERATIONS

41 Safe Transportation VALUE CREATION In addition to employing tousands of local citizens directly and contributing to te agricultural economies in Poland and Romania, Smitfield as supported te culture and traditions of te communities were we operate. Smitfield Foods is one of te largest U.S. investors in tese countries and provides a successful example of te cooperation between Eastern European and U.S. professionals in te agricultural, animal usbandry, and food production industries. Our European og-raising operations almost exclusively purcase locally grown grains to feed te pigs on company-owned farms. By buying locally, we not only reduce our costs to transport grain from oter regions; we also add value to te regional economy. Our European companies continue working to improve teir accident-response procedures. Over te past year, we ave devoted considerable resources to making our live-aul accident-response procedures more consistent wit our domestic operations. We also conduct extensive training for all processing, security, and transportation employees. Altoug rare, accidents do appen. In fiscal 2012, Smitfield Ferme did not report any transportation accidents; Agri Plus contract auler ad one accident involving pigs. EMPLOYEES Smitfield as about 10,000 employees in Europe. We offer good jobs in rural villages wit ig unemployment rates. In many regions were we operate, we are one of te largest employers. Moreover, we are often te largest buyer of local feed grain, supporting family farms in te areas were we operate. By te Numbers Number of local grain suppliers Local grain spending Annual crop purcases (tons) Romania 85 $64 million 274,000 Poland 2,225 $120 million 430,000 WORKFORCE COMPOSITION In 2011, employees at our Polis farms and processing plants were almost uniformly Polis nationals. Of approximately 8,000 employees, 53 percent were women. Women made up 39 percent of senior management. Percent purcased locally All values for fiscal % 100% In Romania, our nearly 2,000 employees were almost uniformly Romanian nationals, and 33 percent were women. Women made up 32 percent of te management team. Antibiotics Use Antibiotics are given strategically wen pigs are sick or injured or wen tey are vulnerable to or exposed to illnesses. In Romania, our operations ave stopped using feed-grade antibiotics and now, as we do in Poland, use only water-based and injected antibiotics. Autorized veterinarians oversee te usage of antibiotics on company-owned and contract farms, monitoring tem on a weekly basis. Our antibiotics administration process is overseen and controlled by regulatory agencies in eac country were we operate. In 2006, te European Union banned te feeding of all antibiotics and related drugs to livestock for growt promotion purposes. Our European farms follow tese strict guidelines and comply wit all antibiotic witdrawal timelines. Toug te international IOCs must first comply wit te ealt and safety regulations and requirements of teir individual ome countries, it is important tat tey also meet Smitfield Foods standards and ave reliable systems in place to identify safety risks and communicate best practices. Our U.S.-based safety experts recently studied te European operations safety policies, training standards, and performance records in order to develop a global program for all of our facilities. Currently, all European locations are conducting montly self audits wit regular follow-up audits by IOC or corporate safety professionals at least once a year. All international operations ave access to te Smitfield Employee Injury Prevention Management System (EIPMS), allowing tem to review Smitfield safety standards, regulatory requirements, and examples of compliance policies and procedures from oter similar business units trougout te company. Eac location as a Healt and Safety Committee in accordance wit local regulations. 37 INTERNATIONAL OPERATIONS

42 We are working to develop safety metrics for European operations tat are consistent wit tose in te United States. In fiscal 2013, we expect to launc a safety scorecard for our international units to enable meaningful comparison among all Smitfield IOCs. ENVIRONMENT Like our domestic operations, our international companies strive to improve operational efficiency, reduce natural resource consumption, and comply fully wit all relevant environmental laws. Smitfield s international operations manage risks and track teir environmental performance troug regular monitoring, internal audits, and, in some cases, tird-party audits. Tese reviews assess compliance wit all relevant environmental regulations and verify tat te environmental management is effective. Te results of all audits are reported to facility management. Corrective actions are prioritized and addressed as quickly as possible. All our operations in Romania are ISO certified. Our Polis farming operations and feed mills also are ISO certified, and all Polis processing plants are expected to be certified by te end of Contract Growers Our Polis farming operation works wit rougly 700 contract farms, wic supplied approximately alf of te ogs processed by our meat production facilities in fiscal Te processing operations purcase te remaining 50 percent from independent farmers and suppliers. In total, te company puts more tan $37 million in contract payments into te Polis economy. Our Romanian farm group, Smitfield Ferme, began working wit local farmers in te first pase of a wean-to-finis contract farm initiative in To date, tese relationsips ave resulted in te construction of four operational contract farms. In July 2011, construction began on tree additional farms. We do not track te individual performance of our contract growers, but eac must comply wit all relevant environmental laws and permit requirements. Violations may result in contract terminations or te removal of livestock from a grower s farm. Environmental Performance We closely monitor environmental performance at eac European facility and make every effort to improve te efficiency of our operations. Since 2008, we ave reduced water use per 100 pounds of product at our farms and our processing plants by 4 percent. Normalized electricity use fell by nearly 13 percent, DATA COLLECTION AND MANAGEMENT Te data in tis section account for all nine processing plants and 63 og-farming operations managed by our wolly owned European subsidiaries in Romania and Poland. We continue working to collect and report international operations data in a way tat is compatible wit our domestic companies. For te first time, we are reporting te most recent performance metrics according to fiscal year rater tan calendar year. Tis will allow comparisons among companies and elp our international operations join in te efforts to meet our companywide sustainability goals. tanks to continued efficiency improvement projects. We also reduced our normalized greenouse gas (GHG) emissions by 32 percent over te same period. Te amount of waste sent to landfills per 100 pounds of product decreased by 41 percent.. INTERNATIONAL OPERATIONS NORMALIZED INDICATORS CY CY CY FY CY08 FY Cange % Water Use (gallons/cwt) % Energy Use (decaterms/cwt) % Direct and Indirect GHG Emissions (metric tons CO2e/cwt) % Solid Waste to Landfill (lbs/cwt) All values prior to fiscal 2012 reported by calendar year. Most recent values reported by fiscal year. We ave canged reporting to better matc our domestic operations. GHG emissions and solid waste totals do not include farming operations. Smitfield reports GHG emissions using te Greenouse Gas Protocol Initiative developed by te World Resources Institute (WRI) and te World Business Council for Sustainable Development (WBCSD). Publicly available emission figures are used were no reliable data is available from energy providers. We report on scope 1 emissions (direct) and scope 2 emissions, wic include indirect emissions associated wit te use of purcased electricity and steam. In previous reports, waste data erroneously included animal byproducts, wic are not defined as solid waste or disposed of in landfills. Te corrected data now include only solid waste sent to landfills. Environmental Compliance Our wolly owned international subsidiaries, including og production operations, received eigt notices of violation (NOVs) in 2011, up from two te previous year. Our 38 INTERNATIONAL OPERATIONS

43 processing operations ad zero NOVs for te tird year in a row. In 2011, our farms received eigt NOVs and $4,977 in fines. Tis increase was a result of several farms tat surpassed teir permit limits for water use, manure production, and solid waste generation. NOTICES OF VIOLATION AND FINES FOR WHOLLY OWNED FARMS AND PLANTS cange % Plant NOVs $4, % Plant Fines % HELPING COMMUNITIES Our European operations maintain a wide range of programs tat are important to te people wo live in and around our communities, and tat contribute to local economic development. We prioritize funding for unger relief efforts, environmental outreac, and education for local students. We also support cultural awareness programs tat onor te ric eritages of te communities in wic we operate. Some of te igligts from te 2011/2012 reporting period include te following: Our Romanian operations Food for Souls program provides fres meats and ot meals to disadvantaged citizens of Timisoara and te surrounding area. Since te program s 2009 launc, we ave provided rougly 59,500 pounds (238,000 servings) of meat and protein products to people in need. Farm NOVs $17,995 $3,497 0 $4,977 72% Farm Fines All values reported by calendar year. In te last report, farm NOVs for calendar 2010 were erroneously reported as zero. Tey are corrected ere. FOOD SAFETY & QUALITY At Smitfield Prod, Animex, and Agroalim, food safety is a top priority. We use a number of food safety processes and programs, including Hazard Analysis and Critical Control Points (HACCP), ISO 22000, and te Global Food Safety Initiative (GFSI). Our operations also ave cross-functional food safety teams to develop and implement food safety goals and evaluate te efficacy of our food safety practices. We also closely monitor all relevant EU food law canges, wic allows us to better adapt to te canging legal landscape and effectively communicate wit our suppliers. All Smitfield employees undergo extensive facility-specific training in food safety policies and procedures to keep our foods safe. Eac worker is trained upon iring and is retrained on a regular basis, depending on is or er job requirements. Tere were recalls of approximately 13,600 pounds of fres and packaged meat products for microbial or labeling issues by our Polis processing plants during te fiscal 2012 reporting period. Tey were also assessed approximately $5,440 in fines. No significant penalties or fines associated wit food safety were assessed at any of our oter European operations since our last report. Our Polis processing company supports scool lunc campaigns in a number of districts and donates meat products to elp our communities. In 2011, our processing plants delivered 112,000 pounds (448,000 servings) of food products wort $99,900 to provide meals to local cildren and tose in need. Tey also donated more tan $32,000 to carities and to support local emergency services. For seven years, our Romanian og-growing operation as been a primary sponsor of Millions of People, Millions of Trees. As a result of our efforts, more tan 21,000 trees ave been planted around te country. Our Polis og-growing operation continued support for local communities by donating more tan $80,000 to scools for food and supplies and to support local emergency services. Over te past five years, our Romanian farming group as supported more tan 12,000 local students in 91 villages troug its Back to Scool educational program. It supplies backpacks, pencil cases, and oter scool essentials to prescool and primary scool cildren, enancing teir access to education. Our Polis processing company funds scolarsips for cildren of employees and farmers from rural areas. Te program, wic began wit a andful of scolarsips in 2007, grew to 94 scolarsips in te 2011/2012 scool year, totaling about $62,000. Our scolarsip program is aimed at local students and is based, in part, on te assumption tat some of tem will become employees of our company after finising teir studies. 39 INTERNATIONAL OPERATIONS

44 OUR FAMILY OF COMPANIES Tis cart provides an overview of Smitfield Foods organizational structure. Our independent operating companies and joint ventures make us a $13 billion global food company and te world s largest pork processor and og producer. In te United States, te company is also te leader in numerous packaged meats categories wit popular brands including Smitfield, Eckric, Farmland, Armour, and Jon Morrell. PORK FISCAL 2012 SALES: $11.1 BILLION Farmland Foods, Inc. Jon Morrell Food Group Te Smitfield Packing Company, Incorporated Cook s Ham, Inc. Stefano Foods, Inc. Armour Eckric Meats, LLC Curly s Foods, Inc. Patrick Cuday, LLC Cumberland Gap Provision Co. Smitfield Specialty Foods Group HOG PRODUCTION FISCAL 2012 SALES: $3.1 BILLION INTERNATIONAL FISCAL 2012 SALES: $1.5 BILLION Murpy-Brown LLC HOG PRODUCTION MEAT PROCESSING Premium Standard Farms, LLC Agri Plus Poland Smitfield Ferme Romania Granjas Carroll de México 1 Mexico Norson 1 Mexico Animex Poland Smitfield Foods Ltd. United Kingdom Smitfield Prod Romania Norson 1 Mexico Campofrío Food Group, S.A. 2 Europe Fiscal 2012 sales include intersegment sales of $2.5 billion. 1 Joint venture (not included in sales figures). 2 Smitfield Foods owns a 37 percent stake (not included in sales figures). 40

45 Farmland Foods, Inc., provides a broad selection of pork products for retail and foodservice customers in te United States and abroad. Its primary lines of business include fres pork, case ready pork, ams, bacon, fres sausage, processed sausage, luncmeat, and specialty sausage. Since its founding in 1959, Farmland Foods as maintained a proud eritage of working side by side wit American farm families. Smitfield Foods acquired te company in Farmland Foods as a large and growing international business, exporting products to more tan 35 countries across six continents. HEADQUARTERS: Kansas City, MO PRESIDENT: Micael E. Brown EMPLOYEES: 8,700 FISCAL 2012 SALES: $4.4 billion 1 farmlandfoods.com RECENT SUSTAINABILITY ACHIEVEMENTS CORE BRANDS Announced a strategic partnersip wit Harvesters Food Bank and also focused giving on Boys and Girls Clubs of Greater Kansas City, te American Heart Association in Kansas City, and te Susan G. Komen Foundation. Reduced solid waste on a normalized basis by 25 percent from fiscal 2008 troug fiscal 2012 and reduced normalized CO 2 emissions by 15.1 percent over te same period. Installed automatic equipment at Lincoln, Nebraska, facility in 2011, reducing material costs by $320,000. Contributed more tan $350,000 since 2007 to our Learners to Leaders partnersip wit te Denison Community Scool District and Iowa State University s Science Bound program. Te partnersip s first ig scool class graduated in May 2012, wit eigt students attending college in te fall. Troug te Smitfield- Luter Foundation, one graduate received a full scolarsip to Iowa State. Provided employees wit more tan $495,000 in tuition reimbursement in fiscal Farmland Cook s SUPPORTING BRANDS Ember Farms Premium Standard Farms Stefano Foods FACILITIES Carroll, IA Denison, IA Monmout, IL Wicita, KS Kansas City, MO Milan, MO Carlotte, NC Crete, NE Lincoln, NE Arnold, PA Salt Lake City, UT Donated $360,000 to various caritable and community-based organizations. 1 Reflects intercompany sales. 41

46 Te Jon Morrell Food Group traces its roots to te founding of Jon Morrell & Co. in Te company is te oldest continuously operating meat processor in te United States. It consists of national and regional brands tat elp drive profitable growt in meat categories suc as am, smoked sausage, ot dogs, deli meats, bacon, pulled pork, and dry sausage. Wit brands tat define te meat industry, te Jon Morrell Food Group brings expertise to retail, deli, foodservice, direct store delivery, convenience store, club store, military, and co-manufacturing outlets. HEADQUARTERS: Cincinnati, OH PRESIDENT: Josep B. Sebring EMPLOYEES: 9,700 FISCAL 2012 SALES: $3.9 billion 1 jonmorrellfoodgroup.com RECENT SUSTAINABILITY ACHIEVEMENTS CORE BRANDS Continued our Learners to Leaders programs for ig scool students in Sioux Falls, Sout Dakota, and in te Cicago area. For example, Saratoga Specialties in Bolingbrook, Illinois, partnered wit Junior Acievement of Cicago and Taco Bell s Foundation for Teens program to educate students on financial awareness and fiscal responsibility. Donated $200,000 in May 2012 to Operation Homefront troug te Eckric Military Family Support Program. Operation Homefront provides emergency assistance to te families of service members. Partnered wit WomenHeart and te Breast Cancer Researc Foundation troug te Healty Ones brand to elp prevent eart disease and increase breast cancer awareness, donating $50,000 to eac organization. Made progress at turning te Armour-Eckric plant in Peru, Indiana, into Smitfield Foods first zero-waste-tolandfill facility. Te plant made its last landfill sipment in May Joined forces wit te American Red Cross to provide food and oter emergency support to Springfield, Massacusetts, in te wake of a 2011 tornado. Eckric, Armour, Jon Morrell, Kretscmar, Curly s, Carando, Margerita, Healty Ones SUPPORTING BRANDS Patrick Cuday, Krakus, Premium Pet Healt, American Farms, Active Packs FACILITIES San Jose, CA Denver, CO Mason City, IA Sioux Center, IA Sioux City, IA Bolingbrook, IL St. Carles, IL Peru, IN Junction City, KS Springfield, MA St. James, MN Omaa, NE Elizabet, NJ Springdale, OH Sioux Falls, SD Smitfield, VA Cuday, WI 1 Reflects intercompany sales. 42

47 Te Smitfield Packing Company, Incorporated, was founded in 1936 by Josep W. Luter and is son, Josep W. Luter, Jr. Primary lines of business include fres pork, smoked meats, bacon, cooked ams, and ot dogs for retail, foodservice, and deli cannels. Te company exports products to approximately 30 countries. In addition to te Smitfield brand, its Gwaltney, Esskay, and Cumberland Gap products are among te leaders in teir respective markets. Smitfield Specialty Foods Group is ome of te Genuine Smitfield Ham, Te Peanut Sop of Williamsburg, and oter gourmet offerings. HEADQUARTERS: Smitfield, VA PRESIDENT: Timoty O. Scellpeper EMPLOYEES: 12,500 FISCAL 2012 SALES: $4.0 billion 1 smitfield.com RECENT SUSTAINABILITY ACHIEVEMENTS CORE BRANDS Won te Excellence in Sustainability Award at te 2012 Walmart/Sam s Club Packaging Expo for a load optimization project. By maximizing truck capacity for deliveries, te company saved 118,000 gallons of fuel and reduced CO 2 emissions by 1,300 tons. Completed a surface water treatment plant in Tar Heel, Nort Carolina, in early 2012, reducing local groundwater use by approximately 780 million gallons annually. Began operating a grease and protein recovery system at Tar Heel plant tat processes wastewater residuals instead of landfilling tem, eliminating approximately 10,000 tons of landfilled materials eac year. Purcased 1,350 collapsible plastic bins in 2012 to replace corrugated cardboard bins at tree plants in Nort Carolina and Virginia, reducing te number of corrugated bins used annually by 692,000. Sent sludge to te local landfill from Tar Heel and Clinton plants in Nort Carolina to be converted into biogas for electrical turbines. Smitfield Gwaltney SUPPORTING BRANDS Cumberland Gap Esskay FACILITIES Cumming, GA Grayson, KY Middlesboro, KY Landover, MD Clinton, NC Kinston, NC Tar Heel, NC Wilson, NC Portsmout, VA Smitfield, VA Reduced salt in Smitfield Low Sodium Bacon to 50 percent below U.S. Dept. of Agriculture standards. 1 Reflects intercompany sales. 43

48 Te livestock production subsidiary of Smitfield Foods, Inc., Murpy-Brown LLC is te world s largest producer of ogs. Murpy-Brown is committed to producing ig-quality products wile protecting te environment and preserving family farms. In te United States, te company owns approximately 851,000 sows and brougt 15.8 million ogs to market in fiscal Operations include 460 company-owned farms and contractual business relationsips wit approximately 2,100 family farms across 12 states. Its Smitfield Premium Genetics unit, based in Rose Hill, Nort Carolina, is responsible for improving swine genetics across te company s production erd. HEADQUARTERS: Warsaw, NC PRESIDENT: Robert W. Manly EMPLOYEES: 5,000 FISCAL 2012 SALES: $3.1 billion 1 murpybrownllc.com RECENT SUSTAINABILITY ACHIEVEMENTS LOCATIONS Operated approximately 460 company-owned farms in te United States witout receiving a single environmental notice of violation in calendar Completed te installation in 2011 of next-generation tecnologies for manure management at Premium Standard Farms in Missouri. Tis will make it possible to reduce odor and reduce te potential for environmental impacts on te farms. Donated $50,000 in 2012 to upgrade te FFA camp facilities in Wite Lake, Nort Carolina. Tis camp serves tousands of young FFA members annually. Colorado Illinois Iowa Missouri Nort Carolina Oklaoma Pennsylvania Sout Carolina Sout Dakota Texas Uta Virginia Contributed $11,000 in 2012 to complete Project Eagle Fligt in Sampson County, Nort Carolina. Tis Eagle Scout project will be a centrally located and properly equipped landing pad for emergency medical service and Life Fligt elicopters. Cosponsored te 2012 National 4-H Livestock Judging Contest during te 39 t annual Nort American International Livestock Expo in Louisville, Kentucky. Supporting tis event provides meaningful learning opportunities for 4-H yout interested in livestock production. 1 Reflects intercompany sales. 44

49 Animex is Poland s largest producer of fres and packaged meats. Te company is also ome to te prized Krakus Ham. Primary lines of business include fres pork and poultry as well as smoked and cooked ams, sausages, ot dogs, bacon, canned meats, and pâtés. Animex products are available in more tan 50 countries at retail and troug foodservice cannels. Te company operates red meat facilities in Elk, Morliny, Staracowice, and Szczecin; wite meat facilities in Ilawa, Suwalki, Debica, and Opole; and feed mills in Grodkow and Zamosc. HEADQUARTERS: Warsaw, Poland PRESIDENT: Darek Nowakowski EMPLOYEES: 7,400 FISCAL 2012 SALES: $1.2 billion 1 animex.pl RECENT SUSTAINABILITY ACHIEVEMENTS MAJOR BRANDS Implemented cooling-water recycling systems at te Staracowice facility, saving 162 million gallons of water and $55,000 in water and sewer fees in Installed automatic controls at te Ilawa facility to balance incoming and exaust air, reducing natural gas use by 72,000 cubic meters and electricity by 325,000 kw for a combined savings of $68,500 per year. Supported scool lunc campaigns in a number of communities and made oter meat donations totaling 112,000 pounds (448,000 servings) in Funded 94 scolarsips for cildren of employees and farmers from rural areas totaling approximately $62,000 for te 2011/2012 scool year. Sponsored five Polis cefs in August 2011 as part of te tird World Cefs Tour Against Hunger in Sout Africa. More tan 200 cefs from 30 countries participated, raising $970,000 to elp feed impoverised cildren wo live in te slums of Joannesburg, Soweto, and oter cities. Krakus Morliny Morlinki Berlinki Mazury Yano FACILITIES Debica Elk Grodkow Ilawa Morliny Opole Staracowice Suwalki Szczecin Zamosc Financed publication of educational guide for Warsaw Agricultural University SGGW for students considering a career in meat production and processing. 1 Reflects intercompany sales. 45

50 Smitfield Foods entered te Romanian meat products market in Since ten, our Smitfield Prod subsidiary as become te nation s largest producer of fres pork wit a market sare of approximately 30 percent. Smitfield Prod operates one of te most tecnologically advanced meat processing facilities in Europe, and its products are sold primarily to retail customers under te Comtim brand. Following a six-year ban on Romanian pork exports, in early 2012 Smitfield Prod became te country s first pork processor to receive European Union approval to sell products to member countries. HEADQUARTERS: Timisoara, Romania PRESIDENT: Bogdan Miail EMPLOYEES: 940 FISCAL 2012 SALES: $240 million 1 smitfield.ro RECENT SUSTAINABILITY ACHIEVEMENTS MAJOR BRANDS Donated approximately 60,000 pounds of food as part of Food for Souls initiative troug local carities over te past tree years in conjunction wit Smitfield Foods oter Romanian operations. Comtim FACILITIES Donated 10 tons 80,000 servings of fres and packaged meats in February 2012 wit Smitfield s oter Romanian operations to citizens in te Vrancea region wo were stranded in teir communities due to dangerous winter conditions. Timisoara Sponsored Your world? A clean one! program for te tird year in 2011, educating te cildren of employees on environmental protection and waste recycling. Tis initiative also included environmentally oriented art and essay competitions. Helped promote te importance of a ealty lifestyle wit employees participating in a maraton in Timisoara in Expanded te collection of te local scool library in Utvin village troug employee book donations as part of te campaign Be te ero of te story! Offer a book. 1 Reflects intercompany sales. 46

51 INTERNATIONAL HOG PRODUCTION Smitfield Foods international og production division owns more tan 200,000 sows in Mexico, Poland, and Romania troug subsidiaries and joint ventures. Tey brougt a combined total of 4.1 million ogs to market in fiscal Te Mexican operations consist of 50 percent stakes in Granjas Carroll de México and Norson, a vertically integrated og producer and meat processor. Agri Plus is one of Poland s largest og producers and provides a substantial portion of its ogs to Smitfield s Animex meat processing subsidiary. Smitfield Ferme produces ogs in Romania principally for pork processor Smitfield Prod. HEADQUARTERS: Warsaw, NC PRESIDENT: Luis Cerdan EMPLOYEES: 1,600 1 FISCAL 2012 SALES: $454 million 2 Headquarters: Poznan, Poland agriplus.pl Hogs Produced in Fiscal 2012: 1.46 million RECENT SUSTAINABILITY ACHIEVEMENTS Supported local communities by donating more tan $25,000 to scools for food and supplies and to support local emergency services. Sponsored education and sports programs for cildren in many rural areas were te company operates. Participated in World Water Monitoring Callenge events in Zacodniopomorskie and Pólnocnopomorskie. Headquarters: Timisoara, Romania smitfieldferme.ro Hogs Produced in Fiscal 2012: 907,000 RECENT SUSTAINABILITY ACHIEVEMENTS Expanded te Green Campaign to multiple farms and introduced a pilot program at te Bacova village scool to increase paper and plastic recycling rates. Sponsored Millions of People, Millions of Trees for te sixt year, wit volunteers planting over 21,000 trees. Provided supplies to more tan 12,000 students over te past five years troug Back to Scool program. Headquarters: Perote, Mexico granjascarroll.mx Hogs Produced in Fiscal 2012: 1.13 million RECENT SUSTAINABILITY ACHIEVEMENTS Invested more tan $179,000 to support medical staff development and ealt screening in local communities. Launced te Bandera Blanca program, providing all employees wit ealt and wellness screenings to measure blood sugar, colesterol, blood pressure, and general pysical ability. Continued reforestation program stocked from a company-managed tree nursery. 1 Total employees do not include joint ventures GCM and Norson. 2 Reflects intercompany sales. Total sales do not include GCM and Norson. Headquarters: Hermosillo, Mexico norson.net Hogs Produced in Fiscal 2012: 557,000 RECENT SUSTAINABILITY ACHIEVEMENTS Funded more tan 300 scolarsips troug Academic Excellence program, elping prepare students for a university education. Donated more tan tree tons of pork in 2011 to surrounding communities, wit a special focus on scool systems and cildren in underprivileged areas. Maintained support of eigt primary scool systems in te Hermosillo area; provided scools wit supplies and tecnology. 47

52 10-YEAR FINANCIAL SUMMARY Fiscal Years (dollars and sares in millions, except per sare data) OPERATIONS Sales $13,094.3 $12,202.7 $11,202.6 Gross profit 1, , Selling, general, and administrative expenses Operating profit (loss) , Interest expense Income (loss) from continuing operations (101.4) Net income (loss) (101.4) PER DILUTED SHARE Income (loss) from continuing operations $ 2.21 $ 3.12 $ (.65) Net income (loss) (.65) Book value Weigted average sares outstanding FINANCIAL POSITION Working capital $ 2,162.7 $ 2,110.0 $ 2,128.4 Total assets 7, , ,708.9 Net debt 2 1, , ,556.9 Sareolders equity 3, , ,755.6 FINANCIAL RATIOS Current ratio Net debt to total capitalization % 33.0% 48.1% OTHER INFORMATION Capital expenditures $ $ $ Depreciation expense Common sareolders of record ,010 Number of employees 46,050 46,350 48,000 1 Computed using sareolders equity divided by weigted average sares outstanding. 2 Net debt is equal to notes payable and long-term debt and capital lease obligations, including current portion, less cas and cas equivalents. 3 Computed using net debt divided by net debt and sareolders equity. 48

53 $12,487.7 $11,351.2 $9,359.3 $8,828.1 $8,983.6 $6,807.7 $4, , , , , (223.9) (250.9) (26.7) (198.4) $ (1.78) $ 1.04 $ 1.89 $ 1.84 $ 2.81 $ 1.10 $ (.24) (1.41) $ 1,497.7 $ 2,215.3 $ 1,795.3 $1,597.2 $ 1,773.6 $1,346.5 $1, , , , , , , , , , , , , , , , , , , , , , % 55.7% 57.5% 54.9% 53.5% 51.7% 54.8% $ $ $ $ $ $ $ ,074 1,095 1,128 1,196 1,269 1,332 1,195 52,400 58,100 53,100 52,500 51,290 46,400 44,100 49

54 CUMULATIVE TOTAL RETURN COMPARISONS Te following carts compare te five-year performance and 10-year performance, respectively, of Smitfield Foods stock wit te S&P 500 Composite Index and te S&P 500 Packaged Foods & Meats Index. Te return for te five-year period is based on $100 invested on April 29, 2007, and te return for te 10-year period is based on $100 invested on April 28, Bot returns assume tat dividends were reinvested. Data provided by Zacks Investment Researc. Smitfield Foods, Inc. S&P 500 Composite S&P 500 Packaged Foods & Meats $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 FIVE-YEAR CUMULATIVE TOTAL RETURN $ $ $ /29/07 4/27/08 5/03/09 5/02/10 5/01/11 4/29/12 $ $94.09 $28.44 $61.91 $77.83 $ $300 $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 10-YEAR CUMULATIVE TOTAL RETURN $ $ $ /28/02 4/27/03 5/02/04 5/01/05 4/30/06 4/29/07 4/27/08 5/03/09 5/02/10 5/01/11 4/29/12 $ $89.62 $ $ $ $ $ $41.00 $89.24 $ $

55 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Wasington, D.C FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For te fiscal year ended April 29, 2012 Commission file number: SMITHFIELD FOODS, INC. (Exact name of registrant as specified in its carter) Virginia (State or oter jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 Commerce Street Smitfield, Virginia (Address of principal executive offices) (Zip Code) (757) (Registrant s telepone number, including area code) Title of eac class Common Stock, $.50 par value per sare Securities registered pursuant to Section 12(b) of te Act: Securities registered pursuant to Section 12(g) of te Act: None Name of eac excange on wic registered New York Stock Excange Indicate by ceck mark if te registrant is a well-known seasoned issuer, as defined in Rule 405 of te Securities Act. Yes Í No Indicate by ceck mark if te registrant is not required to file reports pursuant to Section 13 or Section 15(d) of te Act. Yes No Í Indicate by ceck mark weter te registrant (1) as filed all reports required to be filed by Section 13 or 15(d) of te Securities Excange Act of 1934 during te preceding 12 monts (or for suc sorter period tat te registrant was required to file suc reports), and (2) as been subject to suc filing requirements for te past 90 days. Yes Í No Indicate by ceck mark weter te registrant as submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T during te preceding 12 monts (or for suc sorter period tat te registrant was required to submit and post suc files). Yes Í No Indicate by ceck mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained erein, and will not be contained, to te best of registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of tis Form 10-K or any amendment to tis Form 10-K. Indicate by ceck mark weter te registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See te definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of te Excange Act. Large accelerated filer Í Accelerated filer Non-accelerated filer Smaller reporting company Indicate by ceck mark weter te registrant is a sell company (as defined in Rule 12b-2 of te Excange Act). Yes No Í Te aggregate market value of te sares of registrant s Common Stock eld by non-affiliates as of October 30, 2011 was approximately $2.9 billion. Tis figure was calculated by multiplying (i) te $23.26 last sales price of registrant s Common Stock as reported on te New York Stock Excange on te last business day of te registrant s most recently completed second fiscal quarter by (ii) te number of sares of registrant s Common Stock not eld by any executive officer or director of te registrant or any person known to te registrant to own more tan five percent of te outstanding Common Stock of te registrant. Suc calculation does not constitute an admission or determination tat any suc executive officer, director or older of more tan five percent of te outstanding sares of Common Stock of te registrant is in fact an affiliate of te registrant. At June 13, 2012, 154,789,292 sares of te registrant s Common Stock were outstanding.

56 DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates certain information by reference from te registrant s definitive proxy statement to be filed wit respect to its Annual Meeting of Sareolders to be eld on September 19, SMITHFIELD FOODS, INC. TABLE OF CONTENTS PAGE PART I ITEM 1. Business... 3 ITEM 1A. Risk Factors ITEM 1B. Unresolved Staff Comments ITEM 2. Properties ITEM 3. Legal Proceedings ITEM 4. Mine Safety Disclosures Executive Officers of te Registrant PART II ITEM 5. Market for Registrant s Common Equity, Related Stockolder Matters and Issuer Purcases of Equity Securities ITEM 6. Selected Financial Data ITEM 7. Management s Discussion and Analysis of Financial Condition and Results of Operations ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk ITEM 8. Financial Statements and Supplementary Data ITEM 9. Canges in and Disagreements wit Accountants on Accounting and Financial Disclosure ITEM 9A. Controls and Procedures ITEM 9B. Oter Information PART III ITEM 10. Directors, Executive Officers and Corporate Governance ITEM 11. Executive Compensation ITEM 12. Security Ownersip of Certain Beneficial Owners and Management and Related Stockolder Matters ITEM 13. Certain Relationsips and Related Transactions, and Director Independence ITEM 14. Principal Accounting Fees and Services PART IV ITEM 15. Exibits and Financial Statement Scedules Signatures

57 ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS PART I Smitfield Foods, Inc., togeter wit its subsidiaries (te Company, we, us or our ), began as a pork processing operation called Te Smitfield Packing Company, founded in 1936 by Josep W. Luter and is son, Josep W. Luter, Jr. Troug a series of acquisitions starting in 1981, we ave become te largest pork processor and og producer in te world. We produce and market a wide variety of fres meat and packaged meats products bot domestically and internationally. We operate in a cyclical industry and our results are affected by fluctuations in commodity prices. Additionally, some of te key factors influencing our business are customer preferences and demand for our products; our ability to maintain and grow relationsips wit customers; te introduction of new and innovative products to te marketplace; accessibility to international markets for our products including te effects of any trade barriers; and operating efficiencies of our facilities. We conduct our operations troug four reportable segments: Pork, Hog Production, International and Corporate, eac of wic is comprised of a number of subsidiaries, joint ventures and oter investments. A fift reportable segment, te Oter segment, contains te results of our former turkey production operations and our previous 49% interest in Butterball, LLC (Butterball), wic were sold in December 2010 (fiscal 2011), as well as our former live cattle operations, wic were sold in te first quarter of fiscal Te Pork segment consists mainly of our tree wolly-owned U.S. fres pork and packaged meats subsidiaries: Te Smitfield Packing Company, Inc. (Smitfield Packing), Farmland Foods, Inc. (Farmland Foods) and Jon Morrell Food Group (Jon Morrell). Te Hog Production segment consists of our og production operations located in te U.S. Te International segment is comprised mainly of our meat processing and distribution operations in Poland, Romania and te United Kingdom, our interests in meat processing operations, mainly in Western Europe and Mexico, our og production operations located in Poland and Romania and our interests in og production operations in Mexico. Te Corporate segment provides management and administrative services to support our oter segments. Pork Segment Restructuring and Strategies for Growt In fiscal 2011, we completed our Pork segment restructuring plan, in wic we consolidated a number of independent operating companies into tree large regional operating companies, increased capacity utilization by closing six inefficient and underutilized packaged meats plants and one fres pork plant, merged our two independent fres pork sales forces, consolidated our export sales organizations, and rationalized our brands (te Restructuring Plan). Te Restructuring Plan resulted in cumulative restructuring and impairment carges of approximately $105.5 million and annual profitability improvement of approximately $125 million. Wit te completion of te Restructuring Plan, we are focused on top and bottom line growt in our base business. Our strategies for growt include: Focus On Twelve Core Brands We are focusing our marketing support on twelve major brand names: Smitfield, Farmland, Jon Morrell, Gwaltney, Armour, Eckric, Margerita, Carando, Kretscmar, Cook s, Curly s and Healty Ones. Approximately tree-quarters of our domestic retail packaged meats sales are branded products, wit nearly 90% of tose branded sales being core brands. Invest in Advertising to Activate Brands We ave begun to invest more eavily in marketing talent and consumer advertising campaigns to drive consumer awareness. In December 2011 (fiscal 2012), we entered into a multi-year sponsorsip agreement wit te Ricard Petty Motorsports NASCAR team to elp activate our brands wit consumer-focused marketing. 3

58 Build a Strong Innovation Pipeline We are driving consumer relevant product innovation by focusing on delivering convenience oriented products suc as our Smitfield marinated pork products, convenient packaging suc as our Smitfield bacon pouc pack and ealtier, reduced sodium products. In fiscal 2012, we opened a 37,000 square foot researc and development center wit tree state of te art kitcens, a dedicated cutting room, multimedia tecnology, and a pilot plant tat simulates full scale manufacturing processes. Tis facility allows us to co-develop prototypes wit customers and make quick product modifications for speed to te market. Coordinated Sales and Marketing Team Te restructured sales groups provide for a more coordinated and focused strategy to access markets and service customers. Portsmout, Virginia Plant In November 2011 (fiscal 2012), we announced tat we would sift te production of ot dogs and luncmeat from Smitfield Packing s Portsmout, Virginia plant to our Kinston, Nort Carolina plant and permanently close te Portsmout facility. Te Kinston facility will be expanded to andle te additional production and will incorporate state of te art tecnology and equipment, wic is expected to produce significant production efficiencies and cost reductions. Te Kinston expansion will require an estimated $85 million in capital expenditures, $32.8 million of wic as been spent as of April 29, Te expansion of te Kinston facility and te closure of te Portsmout facility are expected to be completed by te end of fiscal Missouri Hog Farms In te first alf of fiscal 2011, we began reducing te og population on certain of our farms in Missouri in order to comply wit an amended consent decree. Te amended consent decree allows us to return te farms to full capacity upon te installation of an approved next generation tecnology tat would reduce te level of odor produced by te farms. Te reduced og raising capacity at tese farms was replaced wit tird party contract farmers in Iowa. Based on te favorable og raising performance experienced wit tese tird party contract farmers and te amount of capital required to install next generation tecnology at our Missouri farms, we made te decision in te first quarter of fiscal 2012 to permanently idle certain of te assets on tese farms. Hog Production Cost Savings Initiative In fiscal 2010, we announced a plan to improve te cost structure and profitability of our domestic og production operations (te Cost Savings Initiative). Te plan includes a number of undertakings designed to improve operating efficiencies and productivity. Tese consist of farm reconfigurations and conversions, termination of certain ig cost, tird party og grower contracts and breeding stock sourcing contracts, as well as a number of oter cost reduction activities. Cumulative pre-tax carges from te Cost Savings Initiative were $40.2 million troug fiscal Tere are no significant carges remaining. We anticipate capital expenditures to total approximately $86 million. Capital expenditures incurred troug fiscal 2012 totaled $77.2 million. DESCRIPTION OF SEGMENTS Pork Segment Te Pork segment consists mainly of tree wolly-owned U.S. fres pork and packaged meats subsidiaries: Smitfield Packing, Farmland Foods and Jon Morrell. Te Pork segment produces a wide variety of fres pork and packaged meats products in te U.S. and markets tem nationwide and to numerous foreign markets, including Cina, Japan, Mexico, Russia and Canada. Te Pork segment currently operates approximately 40 processing plants. We process ogs at eigt plants (five in te Midwest and tree in te Souteast), wit an aggregate slaugter capacity of approximately 110,000 ogs per day. In fiscal 2012, te Pork segment processed approximately 27.7 million ogs. 4

59 Te Pork segment sold approximately 3.8 billion pounds of fres pork in fiscal A substantial portion of our fres pork is sold to retail customers as unprocessed, trimmed cuts suc as butts, loins (including roasts and cops), picnics and ribs. Te Pork segment also sold approximately 2.7 billion pounds of packaged meats products in fiscal We produce a wide variety of packaged meats, including smoked and boiled ams, bacon, sausage, ot dogs (pork, beef and cicken), deli and lunceon meats, specialty products suc as pepperoni, dry meat products, and ready-to-eat, prepared foods suc as pre-cooked entrees and pre-cooked bacon and sausage. We market our domestic packaged meats products under a number of labels including te following core brand names: Smitfield, Farmland, Jon Morrell, Gwaltney, Armour, Eckric, Margerita, Carando, Kretscmar, Cook s, Curly s and Healty Ones. We also sell a substantial quantity of packaged meats as private-label products. Our product lines also include leaner fres pork products as well as lower-fat and lower-salt packaged meats. We also market a line of lower-fat value-priced lunceon meats, smoked sausage and ot dogs, as well as fat-free deli ams and 40% lower-fat bacon. Te following table sows te percentages of Pork segment revenues derived from packaged meats products and fres pork for te fiscal years indicated. Fiscal Years Packaged meats... 54% 56% 55% Fres pork (1) % 100% 100% (1) Includes by-products and rendering. In fiscal 2012, export sales comprised approximately 18% of te Pork segment s volumes and approximately 16% of te segment s revenues. Hog Production Segment As a complement to our Pork segment, we ave vertically integrated into og production and are te world s largest og producer. Te Hog Production segment consists of our og production operations located in te U.S. Te Hog Production segment operates numerous og production facilities wit approximately 851,000 sows producing about 15.8 million market ogs annually. Te profitability of og production is directly related to te market price of live ogs and te cost of feed grains suc as corn and soybean meal. Te Hog Production segment generates iger profits wen og prices are ig and feed grain prices are low, and lower profits (or losses) wen og prices are low and feed grain prices are ig. We believe tat te Hog Production segment furters our strategic initiative of vertical integration and reduces our exposure to fluctuations in profitability istorically experienced by te pork processing industry. In addition, wit te importance of food safety to te consumer, our vertically integrated system provides increased traceability from conception of livestock to consumption of te pork product. 5

60 Te following table sows te percentages of Hog Production segment revenues derived from ogs sold internally and externally and oter products for te fiscal years indicated. Fiscal Years Internal og sales... 80% 78% 77% External og sales Oter products (1) % 100% 100% (1) Consists primarily of feed, non-market og sales and gains (losses) on derivatives. Genetics We own certain genetic lines of specialized breeding stock wic are marketed using te name Smitfield Premium Genetics (SPG). Te Hog Production segment makes extensive use of tese genetic lines, wit approximately 838,000 SPG breeding sows. In addition, we ave sublicensed some of tese rigts to some of our strategic og production partners. We believe tat te ogs produced by tese genetic lines are te leanest ogs commercially available and enable us to market igly differentiated pork products. We believe tat te leanness and increased meat yields of tese ogs enance our profitability wit respect to bot fres pork and packaged meats. In fiscal 2012, we produced approximately 15.0 million SPG ogs. Hog production operations We use advanced management tecniques to produce premium quality ogs on a large scale at a low cost. We develop breeding stock, optimize diets for our ogs at eac stage of te growt process, process feed for our ogs and design og containment facilities. We believe our economies of scale and production metods, togeter wit our use of te advanced SPG genetics, make us a low cost producer of premium quality ogs. We also utilize independent farmers and teir facilities to raise ogs produced from our breeding stock. Under multi-year contracts, a farmer provides te initial facility investment, labor and front line management in excange for a service fee. In fiscal 2012, approximately 72% of our market ogs were finised on contract farms. International Segment Te International segment includes our meat processing and distribution operations in Poland, Romania and te United Kingdom, our interests in meat processing operations, mainly in Western Europe and Mexico, our og production operations located in Poland and Romania and our interests in og production operations in Mexico. Our international meat processing operations produce a wide variety of fres pork, beef, poultry and packaged meats products, including cooked ams, sausages, ot dogs, bacon and canned meats. Our noncontrolling interests in international meat processing operations include a 37% interest in te common stock of Campofrío Food Group (CFG), a leading European packaged meats company eadquartered in Madrid, Spain, and one of te largest worldwide wit annual sales of approximately $2.5 billion. Te following table sows te percentages of International segment revenues derived from packaged meats, fres meats and oter products for te fiscal years indicated. Fiscal Years Packaged meats... 47% 47% 48% Fres meats Oter products (1) % 100% 100% (1) Includes external og sales, feed, featers, by-products and rendering 6

61 Te International segment as sales denominated in foreign currencies and, as a result, is subject to certain currency excange risk. See Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Derivative Financial Instruments for a discussion of our foreign currency edging activities. SEGMENTS IN GENERAL Sources and Availability of Raw Materials Feed grains, including corn, soybean meal and weat, are te primary raw materials of our og production operations. Tese grains are readily available from numerous sources at competitive prices. We generally purcase corn and soybean meal troug forward purcase contracts. Historically, grain prices ave been subject to fluctuations and ave escalated in recent years due to increased worldwide demand. Live ogs are te primary raw materials of te Pork segment and our meat processing operations in te International segment. Historically, og prices ave been subject to substantial fluctuations. Hog supplies, and consequently prices, are affected by factors suc as corn and soybean meal prices, weater and farmers access to capital. Hog prices tend to rise seasonally as og supplies decrease during te ot summer monts and tend to decline as supplies increase during te fall. Tis tendency is due to lower farrowing performance during te winter monts and slower animal growt rates during te ot summer monts. Te Pork segment purcased approximately 49% of its U.S. live og requirements from te Hog Production segment in fiscal In addition, we ave establised multi-year agreements wit Maxwell Foods, Inc. and Prestage Farms, Inc., wic provide us wit a stable supply of ig-quality ogs at market-indexed prices. Tese producers supplied approximately 11% of ogs processed by te Pork segment in fiscal We also purcase ogs on a daily basis at our Souteastern and Midwestern processing plants and our company-owned buying stations in five Midwestern states. Like te Pork segment, live ogs are te primary raw materials of our meat processing operations in te International segment wit te primary source of ogs being our og production operations located in Poland and Romania. Our meat processing operations in te International segment purcased approximately 73% of its live og requirements from our og production operations located in Poland and Romania in fiscal We also purcase fres pork from oter meat processors to supplement our processing requirements. Additional purcases include raw beef, poultry and oter meat products tat are added to sausages, ot dogs and lunceon meats. Tose meat products and oter materials and supplies, including seasonings, smoking and curing agents, sausage casings and packaging materials, are readily available from numerous sources at competitive prices. Nutrient Management and Oter Environmental Issues Our og production facilities ave been designed to meet or exceed all applicable zoning and oter government regulations. Tese regulations require, among oter tings, maintenance of separation distances between farms and nearby residences, scools, curces, public use areas, businesses, rivers, streams and wells and aderence to required construction standards. Hog production facilities generate significant quantities of manure, wic must be managed properly to protect public ealt and te environment. We believe tat we use te best tecnologies currently available and economically feasible for te management of swine manure, wic require permits under state, and in some instances, federal law. Te permits impose standards and conditions on te design and operation of te systems to protect public ealt and te environment, and can also impose nutrient management planning requirements depending on te type of system utilized. Te most common system of swine manure management employed by our og production facilities is te lagoon and spray field system, in wic lined earten lagoons are utilized to treat te manure before it is applied to agricultural fields by spray application. Te nitrogen and posporus in te treated manure serve as a crop fertilizer. 7

62 We follow a number of oter policies and protocols to reduce te impact of our og production operations on te environment, including: te employment of environmental management systems; ongoing employee training regarding environmental controls; walk-around inspections at all sites by trained personnel; formal emergency response plans tat are regularly updated; and collaboration wit manufacturers regarding testing and developing new equipment. For furter information see Regulation below. Customers and Marketing Our fundamental marketing strategy is to provide quality and value to te ultimate consumers of our fres pork, packaged meats and oter meat products. We ave a variety of consumer advertising and trade promotion programs designed to build awareness and increase sales distribution and penetration. We also provide sales incentives for our customers troug rebates based on acievement of specified volume and/or growt in volume levels. We ave significant market presence, bot domestically and internationally, were we sell our fres pork, packaged meats and oter meat products to national and regional supermarket cains, wolesale distributors, te foodservice industry (fast food, restaurant and otel cains, ospitals and oter institutional customers), export markets and oter furter processors. We use bot in-ouse salespersons as well as independent commission brokers to sell our products. In fiscal 2012, we sold our products to more tan 3,200 customers, none of wom accounted for as muc as 10% of consolidated revenues. We ave no significant or seasonally variable backlog because most customers prefer to order products sortly before sipment and, terefore, do not enter into formal long-term contracts. Metods of Distribution We use a combination of private fleets of leased tractor trailers and independent common carriers and owner operators to distribute live ogs, fres pork, packaged meats and oter meat products to our customers, as well as to move raw materials between plants for furter processing. We coordinate deliveries and use backauling to reduce overall transportation costs. In te U.S., we distribute products directly from some of our plants and from leased distribution centers primarily in Missouri, Pennsylvania, Nort Carolina, Virginia, Kansas, Wisconsin, Indiana, Illinois, California, Iowa, Nebraska and Texas. We also operate distribution centers adjacent to our plants in Bladen County, Nort Carolina, Sioux Falls, Sout Dakota and Crete, Nebraska. Internationally, we distribute our products troug a combination of leased and owned wareouse facilities. Trademarks We own and use numerous marks, wic are registered trademarks or are oterwise subject to protection under applicable intellectual property laws. We consider tese marks and te accompanying goodwill and customer recognition valuable and material to our business. We believe tat registered trademarks ave been important to te success of our branded fres pork and packaged meats products. In a number of markets, our brands are among te leaders in select product categories. Seasonality Te meat processing business is somewat seasonal in tat, traditionally, te periods of iger sales for ams are te oliday seasons suc as Cristmas, Easter and Tanksgiving, and te periods of iger sales for smoked sausages, ot dogs and lunceon meats are te summer monts. Te Pork segment typically builds substantial inventories of ams in anticipation of its seasonal oliday business. In addition, te Hog Production segment experiences lower farrowing performance during te winter monts and slower animal growt rates during te ot summer monts resulting in a decrease in og supplies in te summer and an increase in og supplies in te fall. 8

63 Competition Te protein industry is igly competitive. Our products compete wit a large number of oter protein sources, including cicken, beef and seafood, but our principal competition comes from oter pork processors. We believe tat te principal competitive factors in te pork processing industry are price, product quality and innovation, product distribution and brand loyalty. Some of our competitors are more diversified tan us, especially now tat we ave sold our beef and turkey operations. To te extent tat teir oter operations generate profits, tese more diversified competitors may be able to support teir meat processing operations during periods of low or negative profitability. Researc and Development We conduct continuous researc and development activities to develop new products and to improve existing products and processes. We incurred expenses on company-sponsored researc and development activities of $75.9 million, $47.0 million and $38.8 million in fiscal 2012, 2011 and 2010, respectively. FINANCIAL INFORMATION ABOUT SEGMENTS Financial information for eac reportable segment, including revenues, operating profit and total assets, is disclosed in Note 17 in Item 8. Financial Statements and Supplementary Data. RISK MANAGEMENT AND HEDGING We are exposed to market risks primarily from canges in commodity prices, as well as interest rates and foreign excange rates. To mitigate tese risks, we utilize derivative instruments to edge our exposure to canging prices and rates. For furter information see Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Derivative Financial Instruments. REGULATION Regulation in General Like oter participants in te industry, we are subject to various laws and regulations administered by federal, state and oter government entities, including te United States Environmental Protection Agency (EPA) and corresponding state agencies, as well as te United States Department of Agriculture, te Grain Inspection, Packers and Stockyard Administration, te United States Food and Drug Administration, te United States Occupational Safety and Healt Administration, te Commodities and Futures Trading Commission and similar agencies in foreign countries. From time to time, we receive notices and inquiries from regulatory autorities and oters asserting tat we are not in compliance wit particular laws and regulations. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. Many of our facilities are subject to environmental permits and oter regulatory requirements, violations of wic are subject to civil and criminal sanction. In some cases, tird parties may also ave te rigt to sue to enforce compliance. We use internationally recognized management systems to manage many of our regulatory programs. For example, we use te International Organization for Standardization (ISO) standard to manage and optimize environmental performance, and we were te first in te industry to acieve ISO certification for our og production and processing facilities. ISO guidelines require a long-term management plan integrating regular tird-party audits, goal setting, corrective action, documentation, and executive review. Our 9

64 Environmental Management System (EMS), wic conforms to te ISO standard, addresses te significant environmental aspects of our operations, provides employee training programs and facilitates engagement wit local communities and regulators. Most importantly, te EMS allows te collection, analysis and reporting of relevant environmental data to facilitate our compliance wit applicable environmental laws and regulations. Water In Marc 2011, te U.S. Court of Appeals for te Fift Circuit overturned EPA s November 2008 rule requiring tat confined animal feeding operations (CAFOs) tat discarge or propose to discarge apply for permit coverage under te Clean Water Act s National Pollutant Discarge Elimination System (NPDES). Te Fift Circuit s decision (wic eld tat only discarging CAFOs ave a duty to apply for NPDES permit coverage) as clarified te extent of our obligations under te NPDES permit program. EPA as not yet proposed or finalized a rule in response to te Fift Circuit s decision, and it is not clear weter any suc action may attempt to impose additional obligations on our og production operations. In a related matter, in October 2011, EPA proposed a rule pursuant to te Clean Water Act and a settlement agreement wit certain activist groups tat would require CAFOs to provide data on teir operations to te agency. Air During calendar year 2002, te National Academy of Sciences (te Academy) undertook a study at EPA s request to assist EPA in considering possible future regulation of air emissions from animal feeding operations. Te Academy s study identified a need for more researc and better information, but also recommended implementing witout delay tecnically and economically feasible management practices to decrease emissions. Furter, our og production subsidiaries ave accepted EPA s offer to enter into an administrative consent agreement and order wit owners and operators of og farms and oter animal production operations. Under te terms of te consent agreement and order, participating owners and operators agreed to pay a penalty, contribute towards te cost of an air emissions monitoring study and make teir farms available for monitoring. In return, participating farms ave been given immunity from federal civil enforcement actions alleging violations of air emissions requirements under certain federal statutes, including te Clean Air Act. Pursuant to our consent agreement and order, we paid a $100,000 penalty to EPA. Premium Standard Farm, Inc. s (PSF) Texas farms and company-owned farms in Nort Carolina also agreed to participate in tis program. Te National Pork Board, of wic we are a member and financial contributor, paid te costs of te air emissions monitoring study on bealf of all og producers, including us, out of funds collected from its members in previous years. Te cost of te study for all og producers was approximately $6.0 million. Monitoring under te study began in te spring 2007 and ended in te winter EPA made te data available to te public in January 2011 and also issued a Call for Information seeking additional emissions data to ensure it considers te broadest range of available scientific data as it develops improved metodologies for estimating emissions. EPA will review te data to develop emissions estimating metodologies were site-specific information is unavailable. Altoug EPA announced in 2010 tat it anticipated making te draft emission estimation metodologies available for public comment by animal type, beginning wit te metodology for broilers in early 2011, to date it as not done so. Te agency anticipates finalizing te metodologies in June 2012 (fiscal 2013). New regulations governing air emissions from animal agriculture operations are likely to emerge from te monitoring program undertaken pursuant to te consent agreement and order. Tere can be no assurance tat any new regulations tat may be proposed to address air emissions from animal feeding operations will not ave a material adverse effect on our financial position or results of operations. Greenouse Gases (GHGs) and Climate Cange In calendar year 2009, EPA finalized its Mandatory Reporting of Greenouse Gases (GHGs) rule, wic requires owners or operators of certain facilities (including facilities tat contain a manure management system) tat emit 10

65 at least 25,000 metric tons or more of GHGs per year to report teir emissions. Altoug EPA as not been implementing te rule as it applies to manure management systems due to a congressional restriction proibiting te expenditure of funds for tis purpose, tere is no assurance tat tis proibition will not be lifted in te future. Sould tat occur, te rule would impose additional costs on our og production operations; owever, it is not expected tat suc costs would ave a material adverse effect on our og production operations. Te EPA finalized regulations in calendar year 2010 under te Clean Air Act, wic may trigger new source review and permitting requirements for certain sources of GHG emissions. Tese rulemakings are all subject to judicial appeals. Tere may also be canges in applicable state law pertaining to te regulation of GHGs. Several states ave taken steps to require te reduction of GHGs by certain companies and public utilities, primarily troug te planned development of GHG inventories and/or regional GHG cap and trade programs and targeted enforcement. As in virtually every industry, GHG emissions occur at several points across our operations, including production, transportation and processing. Compliance wit future legislation, if any, and compliance wit currently evolving regulation of GHGs by EPA and te states may result in increased compliance costs, capital expenditures, and operating costs. In te event tat any future compliance requirements at any of our facilities require more tan te sustainability measures tat we are currently undertaking to monitor emissions and improve our energy efficiency, we may experience significant increases in our costs of operation. Suc costs may include te cost to purcase offsets or allowances and costs to reduce GHG emissions if suc reductions are required. Tese regulatory canges may also lead to iger cost of goods and services wic may be passed on to us by suppliers. As an agriculture-based company, canges to te climate and weater patterns could also affect key inputs to our business as te result of sifts in temperatures, water availability, precipitation, and oter factors. Bot te cost and availability of corn and oter feed crops, for example, could be affected. Te regulation or taxation of carbon emissions could also affect te prices of commodities, energy, and oter inputs to our business. We believe tere could also be opportunities for us as a result of eigtened interest in alternative energy sources, including tose derived from manure, and participation in carbon markets. However, it is not possible at tis time to predict te complete structure or outcome of any future legislative efforts to address GHG emissions and climate cange, weter EPA s regulatory efforts will survive court callenge, or te eventual cost to us of compliance. Tere can be no assurance tat GHG regulation will not ave a material adverse effect on our financial position or results of operations. E15 Ruling In October 2010, te EPA granted a partial waiver to a statutory bar under te Clean Air Act proibiting fuel manufacturers from introducing fuel additives tat are not substantially similar to tose already approved and in use for veicles of model year (MY) 1975 or later. Te EPA s decision allows fuel manufacturers to increase te etanol content of gasoline to 15 percent (E15) for use in MY 2007 and newer ligt-duty motor veicles, including passenger cars, ligt-duty trucks, and medium-duty passenger veicles. In January 2011, te EPA granted anoter partial waiver autorizing E15 use in MY ligt-duty motor veicles. Prior to EPA s decisions, te etanol content of gasoline in te United States was limited to 10 percent. Tese rulemakings are all subject to judicial appeals and a court decision is anticipated during calendar year Tese agency actions, along wit subsequent evaluations by te EPA, allow te introduction of E15 into commerce and te marketplace by manufacturers. Altoug te long-term impact of E15 is currently unknown, studies ave sown tat expanded corn-based etanol production as driven up te price of livestock feed and led to commodity-price volatility. We cannot presently assess te full economic impact of te proposed regulations on te meat processing industry or on our operations. 11

66 Regulatory and Oter Proceedings From time to time we receive notices from regulatory autorities and oters asserting tat we are not in compliance wit certain environmental laws and regulations. In some instances, litigation ensues. In Marc 2006 (fiscal 2006), we entered into a consent decree tat settled two citizen lawsuits alleging among oter tings violations of certain environmental laws. Te consent decree provides, among oter tings, tat our subsidiary, Murpy-Brown LLC, will undertake a series of measures designed to enance te performance of te swine waste management systems on approximately 244 company-owned farms in Nort Carolina and tereby reduce te potential for surface water or ground water contamination from tese farms. Murpy-Brown as successfully completed a number of te measures called for in te consent decree and expects to fulfill its remaining consent degree obligations over te next year, at wic time it will move for termination of te decree. Prior to our acquisition of PSF, it ad entered into a consent judgment wit te State of Missouri and a consent decree wit te federal government and a citizens group. Te judgment and decree generally required tat PSF pay penalties to settle past alleged regulatory violations, utilize new tecnologies to reduce nitrogen in te material tat it applies to farm fields and researc, and develop and implement Next Generation Tecnology for environmental controls at certain of its Missouri farm operations. PSF as successfully completed measures called for in te state judgment, in part, by installing Next Generation Tecnology and expects to move for termination of te judgment witin calendar year PSF as also completed a number of te measures called for in te federal consent decree and expects to fulfill its remaining consent degree obligations over te next year, at wic time it will move for termination of te decree. Environmental Stewardsip In July 2000, in furterance of our continued commitment to responsible environmental stewardsip, we and our Nort Carolina-based og production subsidiaries voluntarily entered into an agreement wit te Attorney General of Nort Carolina (te Agreement) designed to enance water quality in te State of Nort Carolina troug a series of initiatives to be undertaken by us and our subsidiaries wile protecting access to swine operations in Nort Carolina. One of te features of te Agreement reflects our commitment to preserving and enancing te environment of eastern Nort Carolina by providing a total of $50.0 million to assist in te preservation of wetlands and oter natural areas in eastern Nort Carolina and to promote similar environmental enancement activities. To fulfill our commitment, we made annual contributions of $2.0 million beginning in fiscal 2001 troug fiscal Due to te losses we were experiencing in our Hog Production segment in fiscal 2010, we entered into an agreement wit te Attorney General of Nort Carolina to defer our annual payments in fiscal 2011 and fiscal Tis agreement does not reduce our $50.0 million commitment, and we expect to re-start our annual $2.0 million payment in fiscal Animal Care More tan a decade ago, Smitfield developed and implemented a compreensive, systematic animal care management program to monitor and measure te well-being of pigs on company-owned and contract farms. Developed in consultation wit two of te world s foremost experts in animal beavior and andling, tis system continues to guide our operations today. Our animal care management program guides te proper and umane care of our animals at every stage of teir lives, from gestation to transport to processing plant. All farm employees and contract og producers must employ te metods and tecniques of te management system and take steps to verify teir compliance. Aderence to proper animal welfare management is a condition of our agreements wit contract producers. Our Animal Care Policy underscores te company s commitments to providing te following: selter tat is designed, maintained, and operated to meet te animals needs; access to adequate water and ig-quality feed to meet nutritional requirements; 12

67 umane treatment of animals tat enances teir well-being and complies wit all applicable laws and regulations; identification and appropriate treatment of animals in need of ealt care; and use of umane metods to eutanize sick or injured animals not responding to care and treatment. Several years ago, we volunteered to provide input and recommendations to elp te National Pork Board enance its animal care management program for all pork producers. Tat program, wic includes many of te tenets of our own guidelines, became te National Pork Board s Pork Quality Assurance Plus (PQA Plus ) program. A pork producer becomes PQA Plus certified only after staff attend training sessions on good production practices (wic includes topics suc as responsible animal andling, disease prevention, biosecurity, responsible antibiotic use, and appropriate feeding). Farms entered into te program undergo on-farm site assessments and are subject to random tird-party audits. We obtained certification of all company-owned and contract farms under te PQA Plus program by te end of calendar year Smitfield was also one of te founding adopters of te National Pork Board s We Care program, wic demonstrates tat pork producers are accountable to establised etical principles and animal well-being practices. At all of our slaugter facilities, we also use a systematic approac tat includes te following: an animal welfare and umane andling manual; a compreensive training program; and an auditing system wit internal verification and tird-party audits. Our plants all ave developed quality programs following te standards set in te U.S. Department of Agriculture s Process Verified Program (PVP), as described elsewere in tis report. Our PVP programs monitor aspects of traceability, country of origin, PQA Plus aderence on farms, and Transport Quality Assurance status of drivers. In January 2007 (fiscal 2007), we announced a voluntary, ten-year program to pase out individual gestation stalls at our company-owed sow farms and replace te gestation stalls wit group pens. We currently estimate te total cost of our transition to group pens to be approximately $300.0 million. Tis program represents a significant financial commitment and reflects our desire to be more animal friendly, as well as to address te concerns and needs of our customers. As of te end of calendar year 2011, we completed conversions to group ousing for over 30% of our sows on company-owned farms. We will continue te conversion as planned wit te objective of completing conversions for all sows on company-owned farms by te end of EMPLOYEES Te following table sows te approximate number of our employees and te approximate number of employees covered by collective bargaining agreements or tat are members of labor unions in eac segment, as of April 29, 2012: Segment Employees Employees Covered by Collective Bargaining Agreements (1) Pork... 30,900 17,900 International... 10,000 2,650 Hog Production... 5,000 Corporate Totals... 46,050 20,550 (1) Includes employees tat are members of labor unions. 13

68 Approximately 8,780 are covered by collective bargaining agreements tat expire in fiscal Collective bargaining agreements covering oter employees expire over periods trougout te next several years. We believe tat our relationsip wit our employees is satisfactory. FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS See Note 17 in Item 8. Financial Statements and Supplementary Data for financial information about geograpic areas. See Item 1A. Risk Factors for a discussion of te risks associated wit our international sales and operations. AVAILABLE INFORMATION Our website address is Te information on our website is not part of tis annual report. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to tose reports are available free of carge troug our website as soon as reasonably practicable after filing or furnising te material to te SEC. You may read and copy documents we file at te SEC s Public Reference Room at 100 F Street, N.E., Wasington D.C Please call te SEC at SEC-0330 for information on te public reference room. Te SEC maintains a website tat contains annual, quarterly and current reports, proxy statements and oter information tat issuers (including us) file electronically wit te SEC. Te SEC s website is ITEM 1A. RISK FACTORS Te following risk factors sould be read carefully in connection wit evaluating our business and te forwardlooking information contained in tis Annual Report on Form 10-K. Te risk factors below represent wat we believe are te known material risk factors wit respect to us and our business. Any of te following risks could materially adversely affect our business, operations, industry, financial position or future financial results. Our results of operations are cyclical and could be adversely affected by fluctuations in te commodity prices for ogs and grains. We are largely dependent on te cost and supply of ogs and feed ingredients and te selling price of our products and competing protein products, all of wic are determined by constantly canging and volatile market forces of supply and demand as well as oter factors over wic we ave little or no control. Tese oter factors include: competing demand for corn for use in te manufacture of etanol or oter alternative fuels, environmental and conservation regulations, import and export restrictions suc as trade barriers resulting from, among oter tings, ealt concerns, economic conditions, weater, including weater impacts on our water supply and te impact on te availability and pricing of grains, energy prices, including te effect of canges in energy prices on our transportation costs and te cost of feed, and crop and livestock diseases. We cannot assure you tat all or part of any increased costs experienced by us from time to time can be passed along to consumers of our products, in a timely manner or at all. Hog prices demonstrate a cyclical nature over periods of years, reflecting te supply of ogs on te market. Tese fluctuations can be significant as sown in recent years wit average domestic live og prices going from 14

69 $44 per undredweigt in fiscal 2010 to $65 per undredweigt in fiscal Furter, og raising costs are largely dependent on te fluctuations of commodity prices for corn and oter feed ingredients. For example, our fiscal 2012 results of operations were negatively impacted by iger feed and feed ingredient costs wic increased og raising costs to $64 per undredweigt in fiscal 2012 from $54 per undred weigt in te prior year, or 18%. Wen og prices are lower tan our og production costs wic occurred in bot fiscal 2009 and 2010, our non-vertically integrated competitors may ave a cost advantage. Additionally, commodity pork prices demonstrate a cyclical nature over periods of years, reflecting canges in te supply of fres pork and competing proteins on te market, especially beef and cicken. We attempt to manage certain of tese risks troug te use of our risk management and edging programs. However, tese programs may also limit our ability to participate in gains from favorable commodity fluctuations. For example, we ensured availability of grain supplies in te summer of 2008 troug te end of fiscal 2009 by locking in corn at approximately $6 per busel troug tis period. As a result, our feed costs remained at tese ig levels troug te end of fiscal 2009 despite te decrease in te price of corn on te commodities markets during suc period. Te ig cost of feed, in particular corn, and te impact of tese edges were principal factors in making te Hog Production segment unprofitable during fiscal 2009 and fiscal Additionally, a portion of our commodity derivative contracts are marked-to-market suc tat te related unrealized gains and losses are reported in earnings on a quarterly basis. Tis accounting treatment may cause significant volatility in our quarterly earnings. See Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Derivative Financial Instruments for furter information. Outbreaks of disease among or attributed to livestock can significantly affect production, te supply of raw materials, demand for our products and our business. We take precautions to ensure tat our livestock are ealty and tat our processing plants and oter facilities operate in a sanitary manner. Neverteless, we are subject to risks relating to our ability to maintain animal ealt and control diseases. Livestock ealt problems could adversely impact production, te supply of raw materials and consumer confidence in all of our operating segments. From time to time, we ave experienced outbreaks of certain livestock diseases and we may experience additional occurrences of disease in te future. Disease can reduce te number of offspring produced, amper te growt of livestock to finised size, result in expensive vaccination programs and require in some cases te destruction of infected livestock, all of wic could adversely affect our production or ability to sell or export our products. Adverse publicity concerning any disease or ealt concern could also cause customers to lose confidence in te safety and quality of our food products, particularly as we expand our branded pork products. In addition to risks associated wit maintaining te ealt of our livestock, any outbreak of disease elsewere in te U.S. or in oter countries could reduce consumer confidence in te meat products affected by te particular disease, generate adverse publicity, depress market conditions for our ogs internationally and/or domestically and result in te imposition of import or export restrictions. Outbreaks of disease among or attributed to livestock also may ave indirect consequences tat adversely affect our business. For example, past outbreaks of avian influenza in various parts of te world reduced te global demand for poultry and tus created a temporary surplus of poultry bot domestically and internationally. Tis poultry surplus placed downward pressure on poultry prices wic in turn reduced meat prices including pork bot in te U.S. and internationally. Any perceived or real ealt risks related to our products or te food industry generally or increased regulation could adversely affect our ability to sell our products. We are subject to risks affecting te food industry generally, including risks posed by te following: food spoilage or food contamination, 15

70 evolving consumer preferences and nutritional and ealt-related concerns, consumer product liability claims, product tampering, te possible unavailability and expense of product liability insurance, and te potential cost and disruption of a product recall. Adverse publicity concerning any perceived or real ealt risk associated wit our products could also cause customers to lose confidence in te safety and quality of our food products, wic could adversely affect our ability to sell our products, particularly as we expand our branded products business. We could also be adversely affected by perceived or real ealt risks associated wit similar products produced by oters to te extent suc risks cause customers to lose confidence in te safety and quality of suc products generally and, terefore, lead customers to opt for oter meat options tat are perceived as safe. Te A(H1N1) influenza outbreak tat occurred in late fiscal 2009 and early fiscal 2010 illustrates te adverse impact tat can result from perceived ealt risks associated wit te products we sell. Altoug te CDC and oter regulatory and scientific bodies indicated tat people cannot get A(H1N1) influenza from eating cooked pork or pork products, te perception of some consumers tat te disease could be transmitted in tat manner was te apparent cause of te temporary decline in pork consumption in late fiscal 2009 and early fiscal Our products are susceptible to contamination by disease producing organisms or patogens, suc as Listeria monocytogenes, Salmonella, Campylobacter and generic E. coli. Because tese organisms and patogens are generally found in te environment, tere is a risk tat one or more, as a result of food processing, could be present in our products. We ave systems in place designed to monitor food safety risks trougout all stages of our vertically integrated process. However, we cannot assure you tat suc systems, even wen working effectively, will eliminate te risks related to food safety. Tese organisms and patogens can also be introduced to our products as a result of improper andling at te furter processing, foodservice or consumer level. In addition to te risks caused by our processing operations and te subsequent andling of te products, we may encounter te same risks if any tird party tampers wit our products. We could be required to recall certain of our products in te event of contamination or adverse test results. Any product contamination also could subject us to product liability claims, adverse publicity and government scrutiny, investigation or intervention, resulting in increased costs and decreased sales as customers lose confidence in te safety and quality of our food products. Any of tese events could ave an adverse impact on our operations and financial results. Our manufacturing facilities and products, including te processing, packaging, storage, distribution, advertising and labeling of our products, are subject to extensive federal, state and foreign laws and regulations in te food safety area, including constant government inspections and governmental food processing controls. Loss of or failure to obtain necessary permits and registrations could delay or prevent us from meeting current product demand, introducing new products, building new facilities or acquiring new businesses and could adversely affect operating results. If we are found to be out of compliance wit applicable laws and regulations, particularly if it relates to or compromises food safety, we could be subject to civil remedies, including fines, injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of wic could ave an adverse effect on our financial results. In addition, future material canges in food safety regulations could result in increased operating costs or could be required to be implemented on scedules tat cannot be met witout interruptions in our operations. Environmental regulation and related litigation and commitments could ave a material adverse effect on us. Our past and present business operations and properties are subject to extensive and increasingly stringent federal, state, local and foreign laws and regulations pertaining to protection of te environment, including among oters: te treatment and discarge of materials into te environment, 16

71 te andling and disposition of manure and solid wastes and te emission of greenouse gases. Failure to comply wit tese laws and regulations or any future canges to tem may result in significant consequences to us, including administrative, civil and criminal penalties, liability for damages and negative publicity. Some requirements applicable to us may also be enforced by citizen groups or oter tird parties. Natural disasters, suc as flooding and urricanes, can cause te discarge of effluents or oter waste into te environment, potentially resulting in our being subject to furter liability claims and governmental regulation as as occurred in te past. See Item 1. Business Regulation for furter discussion of regulatory compliance as it relates to environmental risk. We ave incurred, and will continue to incur, significant capital and operating expenditures to comply wit tese laws and regulations. We also face te risk of lawsuits based on te law of nuisance even if we are operating in compliance wit applicable regulations. Before we acquired PSF and subsequent to our acquisition of PSF, certain nuisance suits in Missouri resulted in jury verdicts against PSF. Currently, we are defending a number of additional nuisance suits wit respect to farms in Missouri. See Item 3. Legal Proceedings Missouri litigation. Altoug we ave made substantial progress to toward consummation of a global settlement tat would resolve te vast majority of te nuisance litigation, we cannot assure you tat te settlement will be consummated, tat additional nuisance claims will not arise in te future or tat te accruals for tis litigation will not ave to be substantially increased in te event te settlement is not consummated and our continuing defense of tese claims is not successful. In addition, new environmental issues could arise tat would cause currently unanticipated investigations, assessments or expenditures. Governmental autorities may take furter action restricting our ability to produce and/or sell livestock or adopt new regulations impacting our production or processing operations, wic could adversely affect our business. A number of states, including Iowa and Missouri, ave adopted legislation tat proibits or restricts te ability of meat packers, or in some cases corporations generally, from owning livestock or engaging in farming. In addition, Congress as in te past considered federal legislation tat would ban meat packers from owning livestock. We cannot assure you tat suc or similar legislation affecting our operations will not be adopted at te federal or state levels in te future. Suc legislation, if adopted and applicable to our current operations and not successfully callenged or settled, could ave a material adverse impact on our operations and our financial statements. In fiscal 2008, te State of Nort Carolina enacted a permanent moratorium on te construction of new og farms using te lagoon and sprayfield system. Te moratorium limits us from expanding our Nort Carolina production operations. Tis permanent moratorium replaced a 10-year moratorium on te construction of og farms wit more tan 250 ogs or te expansion of existing large farms. Tis moratorium may over time lead to increased competition for contract growers. Our level of indebtedness and te terms of our indebtedness could adversely affect our business and liquidity position. As of April 29, 2012, we ad: approximately $2.0 billion of indebtedness; guarantees of up to $87.0 million for te financial obligations of certain unconsolidated joint ventures and og farmers; guarantees of $11.3 million for leases tat were transferred to JBS in connection wit te sale of Smitfield Beef; and 17

72 aggregate unused capacity available totaling approximately $1.1 billion under (1) our inventory based revolving credit facility up to $925 million, wit an option to expand up to $1.2 billion (te Inventory Revolver), (2) our accounts receivable securitization facility up to $275 million (te Securitization Facility) and (3) our oter credit facilities, suc total taking into account outstanding borrowings of $64.9 million and $96.1 million of outstanding letters of credit under te Securitization Facility. Because te borrowing capacity under te Inventory Revolver and Securitization Facility depend, in part, on inventory and accounts receivable levels, respectively, tat fluctuate from time to time, suc amounts may not reflect actual borrowing capacity. Our indebtedness may increase from time to time for various reasons, including fluctuations in operating results, working capital needs, capital expenditures and potential acquisitions or joint ventures. In addition, due to te volatile nature of te commodities markets, we may ave to borrow significant amounts to cover any margin calls under our risk management and edging programs. During fiscal 2012, margin deposits posted by us ranged from $(32.9) million to $115.0 million (negative amounts representing margin deposits we ave received from our brokers). Our consolidated indebtedness level could significantly affect our business because: it may, togeter wit te financial and oter restrictive covenants in te agreements governing our indebtedness, limit or impair our ability in te future to obtain financing, refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, wic could cause us to default on our obligations and materially impair our liquidity, a downgrade in our credit rating could restrict or impede our ability to access capital markets at attractive rates and increase te cost of future borrowings, it may reduce our flexibility to respond to canging business and economic conditions or to take advantage of business opportunities tat may arise, a portion of our cas flow from operations must be dedicated to interest payments on our indebtedness and is not available for oter purposes, wic amount would increase if prevailing interest rates rise, substantially all of our assets in te United States secure te Inventory Revolver, te Securitization Facility, our $200.0 million term loan due June 9, 2016 (te Rabobank Term Loan) and our outstanding senior secured notes, all of wic could limit our ability to dispose of suc assets or utilize te proceeds of suc dispositions and, upon an event of default under any suc secured indebtedness, te lenders tereunder could foreclose upon our pledged assets, and it could make us more vulnerable to downturns in general economic or industry conditions or in our business. Furter, our debt agreements restrict te payment of dividends to sareolders and, under certain circumstances, may limit additional borrowings, investments, te acquisition or disposition of assets, mergers and consolidations, transactions wit affiliates, te creation of liens and te repayment of certain debt. Sould market conditions deteriorate, or our operating results be depressed in te future, we may ave to request amendments to our covenants and restrictions. Tere can be no assurance tat we will be able to obtain suc relief sould it be needed in te future. A breac of any of tese covenants or restrictions could result in a default tat would permit our senior lenders, including lenders under te Inventory Revolver, te Securitization Facility, te Rabobank Term Loan, te olders of our senior secured notes or te olders of our senior unsecured notes, as te case may be, to declare all amounts outstanding under te Inventory Revolver, te Securitization Facility, te Rabobank Term Loan, te senior secured notes or te senior unsecured notes to be due and payable, togeter wit accrued and unpaid interest, and te commitments of te relevant lenders to make furter extensions of credit under te Inventory Revolver and te Securitization Facility could be terminated. If we were unable to repay our secured indebtedness to our lenders, tese lenders could proceed against te collateral securing tat indebtedness, wic could include substantially all of our assets. Our future ability to comply wit financial 18

73 covenants and oter conditions, make sceduled payments of principal and interest, or refinance existing borrowings depends on future business performance tat is subject to economic, financial, competitive and oter factors, including te oter risks set fort in tis Item 1A. We may not be successful in implementing and executing on our og production cost savings initiative. In fiscal 2010, we announced a plan to improve te cost structure and profitability of our domestic og production operations. Te Cost Savings Initiative includes a number of undertakings designed to improve operating efficiencies and productivity. Tese consist of farm reconfigurations and conversions, and termination of certain ig cost, tird party og grower contracts and breeding stock sourcing contracts, as well as a number of oter cost reduction activities. We can provide no assurance, owever, tat te Cost Savings Initiative will result in te expected profitability improvement in our Hog Production segment. Our operations are subject to te risks associated wit acquisitions and investments in joint ventures. From time to time we review opportunities for strategic growt troug acquisitions. We ave also pursued and may in te future pursue strategic growt troug investment in joint ventures. Tese acquisitions and investments may involve large transactions or realignment of existing investments. Tese transactions present financial, managerial and operational callenges, including: diversion of management attention from oter business concerns, difficulty wit integrating businesses, operations, personnel and financial and oter systems, lack of experience in operating in te geograpical market of te acquired business, increased levels of debt potentially leading to associated reduction in ratings of our debt securities and adverse impact on our various financial ratios, te requirement tat we periodically review te value at wic we carry our investments in joint ventures, and, in te event we determine tat te value at wic we carry a joint venture investment as been impaired, te requirement to record a non-cas impairment carge, wic carge could substantially affect our reported earnings in te period of suc carge, would negatively impact our financial ratios and could limit our ability to obtain financing in te future, potential loss of key employees and customers of te acquired business, assumption of and exposure to unknown or contingent liabilities of acquired businesses, potential disputes wit te sellers, and for our investments, potential lack of common business goals and strategies wit, and cooperation of, our joint venture partners. In addition, acquisitions outside te U.S. may present unique difficulties and increase our exposure to tose risks associated wit international operations. We could experience financial or oter setbacks if any of te businesses tat we ave acquired or may acquire in te future ave problems of wic we are not aware or liabilities tat exceed expectations. Our numerous equity investments in joint ventures, partnersips and oter entities, bot witin and outside te U.S., are periodically involved in modifying and amending teir credit facilities and loan agreements. Te ability of tese entities to refinance or amend teir facilities on a successful and satisfactory basis, and to comply wit te covenants in teir financing facilities, affects our assessment of te carrying value of any individual investment. As of April 29, 2012, none of our equity investments represented more tan 6% of our total consolidated assets. If we determine in te future tat an investment is impaired, we would be required to record a non-cas impairment carge, wic could substantially affect our reported earnings in te period of suc 19

74 carge. In addition, any suc impairment carge would negatively impact our financial ratios and could limit our ability to obtain financing in te future. See Item 8. Notes to Consolidated Financial Statements Note 6: Investments for a discussion of te accounting treatment of our equity investments. We are subject to risks associated wit our international sales and operations. Sales to international customers accounted for approximately 24% of our net sales in fiscal We conduct foreign operations in Poland, Romania and te United Kingdom and export our products to more tan 40 countries. In addition, we are engaged in joint ventures in Mexico and ave a significant investment in Western Europe. As of April 29, 2012, approximately 28% of our long-lived assets were associated wit our foreign operations. Because of te growing market sare of U.S. pork products in te international markets, U.S. exporters are increasingly being affected by measures taken by importing countries to protect local producers. Our international sales, operations and investments are subject to various risks related to economic or political uncertainties including among oters: general economic and political conditions, imposition of tariffs, quotas, trade barriers and oter trade protection measures imposed by foreign countries, te closing of borders by foreign countries to te import of our products due to animal disease or oter perceived ealt or safety issues, difficulties and costs associated wit complying wit, and enforcing remedies under, a wide variety of complex domestic and international laws, treaties and regulations, different regulatory structures and unexpected canges in regulatory environments, tax rates tat may exceed tose in te United States and earnings tat may be subject to witolding requirements and incremental taxes upon repatriation, potentially negative consequences from canges in tax laws, and distribution costs, disruptions in sipping or reduced availability of freigt transportation. Furtermore, our foreign operations are subject to te risks described above as well as additional risks and uncertainties including among oters: fluctuations in currency values, wic ave affected, among oter tings, te costs of our investments in foreign operations, translation of foreign currencies into U.S. dollars, and foreign currency excange controls. Negative consequences relating to tese risks and uncertainties could jeopardize or limit our ability to transact business in one or more of tose markets were we operate or in oter developing markets and could adversely affect our financial results. Our operations are subject to te general risks of litigation. We are involved on an ongoing basis in litigation arising in te ordinary course of business or oterwise. Trends in litigation may include class actions involving consumers, sareolders, employees or injured persons, and claims related to commercial, labor, employment, antitrust, securities or environmental matters. Moreover, te process of litigating cases, even if we are successful, may be costly, and may approximate te cost of damages sougt. Tese actions could also expose us to adverse publicity, wic migt adversely affect our brands, 20

75 reputation and/or customer preference for our products. Litigation trends and expenses and te outcome of litigation cannot be predicted wit certainty and adverse litigation trends, expenses and outcomes could adversely affect our financial results. We depend on availability of, and satisfactory relations wit, our employees. As of April 29, 2012, we ad approximately 46,050 employees, 20,550 of wom are covered by collective bargaining agreements or are members of labor unions. Our operations depend on te availability, retention and relative costs of labor and maintaining satisfactory relations wit employees and te labor unions. Furter, employee sortages can and do occur, particularly in rural areas were some of our operations are located. Labor relations issues arise from time to time, including issues in connection wit union efforts to represent employees at our plants and wit te negotiation of new collective bargaining agreements. If we fail to maintain satisfactory relations wit our employees or wit te labor unions, we may experience labor strikes, work stoppages or oter labor disputes. Negotiation of collective bargaining agreements also could result in iger ongoing labor costs. In addition, te discovery by us or governmental autorities of undocumented workers, as as occurred in te past, could result in our aving to attempt to replace tose workers, wic could be disruptive to our operations or may be difficult to do. Immigration reform continues to attract significant attention in te public arena and te U.S. Congress. If new immigration legislation is enacted, suc laws may contain provisions tat could increase our costs in recruiting, training and retaining employees. Also, altoug our iring practices comply wit te requirements of federal law in reviewing employees citizensip or autority to work in te U.S., increased enforcement efforts wit respect to existing immigration laws by governmental autorities may disrupt a portion of our workforce or our operations at one or more of our facilities, tereby negatively impacting our business. We cannot assure you tat tese activities or consequences will not adversely affect our financial results in te future. Te continued consolidation of customers could negatively impact our business. Our ten largest customers represented approximately 29% of net sales for fiscal We do not ave long-term sales agreements (oter tan to certain tird-party og customers) or oter contractual assurances as to future sales to tese major customers. In addition, continued consolidation witin te retail industry, including among supermarkets, wareouse clubs and food distributors, as resulted in an increasingly concentrated retail base and increased our credit exposure to certain customers. Our business could be materially adversely affected and suffer significant set backs in sales and operating income from te loss of some of our larger customers or if our larger customers plans, markets, and/or financial condition sould cange significantly. An impairment in te carrying value of goodwill could negatively impact our consolidated results of operations and net wort. Goodwill is recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more frequently if impairment indicators arise. In evaluating te potential for impairment of goodwill, we make assumptions regarding future operating performance, business trends, and market and economic conditions. Suc analyses furter require us to make judgmental assumptions about sales, operating margins, growt rates, and discount rates. Tere are inerent uncertainties related to tese factors and to management s judgment in applying tese factors to te assessment of goodwill recoverability. Goodwill reviews are prepared using estimates of te fair value of reporting units based on market multiples of EBITDA (earnings before interest, taxes, depreciation and amortization) and/or on te estimated present value of future discounted cas flows. We could be required to evaluate te recoverability of goodwill prior to te annual assessment if we experience disruptions to te business, unexpected significant declines in operating results, divestiture of a significant component of our business or market capitalization declines. For example, at te end of te tird quarter of fiscal 2009, we performed an interim test of te carrying amount of goodwill related to our U.S. og production 21

76 operations. We undertook tis test due to te significant losses incurred in our og production operations and decline in te market price of our common stock at tat time. We determined tat te fair value of our U.S. og production reporting unit exceeded its carrying value by more tan 20%. Terefore goodwill was not impaired. However, tese types of events and te resulting analyses could result in non-cas goodwill impairment carges in te future. Impairment carges could substantially affect our reported earnings in te periods of suc carges. In addition, impairment carges would negatively impact our financial ratios and could limit our ability to obtain financing in te future. As of April 29, 2012, we ad $768.2 million of goodwill, wic represented approximately 10% of total assets. Deterioration of economic conditions could negatively impact our business. Our business may be adversely affected by canges in national or global economic conditions, including inflation, interest rates, availability of and access to capital markets, consumer spending rates, energy availability and costs (including fuel surcarges) and te effects of governmental initiatives to manage economic conditions. Any suc canges could adversely affect te demand for our products or te cost and availability of our needed raw materials, cooking ingredients and packaging materials, tereby negatively affecting our financial results. Disruptions and instability in credit and oter financial markets and deterioration of national and global economic conditions, could, among oter tings: make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in te future; cause our lenders to depart from prior credit industry practice and make more difficult or expensive te granting of any tecnical or oter waivers under our credit agreements to te extent we may seek tem in te future; impair te financial condition of some of our customers, suppliers or counterparties to our derivative instruments, tereby increasing customer bad debts, non-performance by suppliers or counterparty failures negatively impacting our treasury operations; negatively impact global demand for protein products, wic could result in a reduction of sales, operating income and cas flows; decrease te value of our investments in equity and debt securities, including our company-owned life insurance and pension plan assets, wic could result in iger pension cost and statutorily mandated funding requirements; and impair te financial viability of our insurers. ITEM 1B. UNRESOLVED STAFF COMMENTS None 22

77 ITEM 2. PROPERTIES Te following table lists our material plants and oter pysical properties. Based on a five day week, our weekly domestic pork slaugter capacity was 549,000 ead, and our domestic packaged meats capacity was 63.7 million pounds, as of April 29, During fiscal 2012, te average weekly capacity utilization for pork slaugter and packaged meats was 97% and 82%, respectively. We believe tese properties are adequate and suitable for our needs. Location (1) Segment Operation Smitfield Packing Plant Pork Slaugtering and cutting ogs Bladen County, Nort Carolina Smitfield Packing Plant Smitfield, Virginia Smitfield Packing Plant Kinston, Nort Carolina Smitfield Packing Plant Clinton, Nort Carolina Smitfield Packing Plant (2) Landover, Maryland Smitfield Packing Plant Wilson, Nort Carolina Smitfield Packing Plant Portsmout, Virginia Jon Morrell Plant Sioux Falls, Sout Dakota Jon Morrell Plant Springdale, OH Curly s Foods, Inc. Plant (operated by Jon Morrell) Sioux City, Iowa Armour-Eckric Meats (operated by Jon Morrell) St. Carles, Illinois Armour-Eckric Meats (operated by Jon Morrell) Omaa, Nebraska Armour-Eckric Meats (operated by Jon Morrell) Peru, Indiana Armour-Eckric Meats (operated by Jon Morrell) Junction City, Kansas Armour-Eckric Meats (operated by Jon Morrell) Mason City, Iowa Pork Pork Pork Pork Pork Pork Pork Pork Pork Pork Pork Pork Pork Pork Slaugtering and cutting ogs; fres and packaged pork products Production of boneless cooked ams, deli ams and sliced deli products Slaugtering and cutting ogs; fres and packaged pork products Production of smoked ams Production of bacon Production of ot dogs and lunceon meats Slaugtering and cutting ogs; fres and packaged pork products Production of ot dogs and lunceon meats Production of raw and cooked ribs and oter BBQ items Production of bulk and sliced dry sausages Production of bulk and sliced dry sausages Production of pre-cooked bacon Production of smoked sausage Production of boneless bulk and sliced am products 23

78 Location (1) Segment Operation Armour-Eckric Meats (operated by Jon Morrell) St. James, Minnesota Pork Production of sliced lunceon meats Farmland Plant Crete, Nebraska Farmland Plant Monmout, Illinois Farmland Plant Denison, Iowa Farmland Plant Milan, Missouri Farmland Plant Wicita, Kansas Cook s Hams Plant (operated by Farmland Foods) Lincoln, Nebraska Cook s Hams Plant (operated by Smitfield Packing) Grayson, Kentucky Cook s Hams Plant (operated by Farmland Foods) Martin City, Missouri Patrick Cuday Plant (operated by Jon Morrell) Cuday, Wisconsin Animex Plant Szczecin, Poland Animex Plant Ilawa, Poland Animex Plant Staracowice, Poland Animex Plant Elk, Poland Animex Plant Morliny, Poland Smitfield Prod Plants Timisoara, Romania Corporate Headquarters Smitfield, Virginia Pork Pork Pork Pork Pork Pork Pork Pork Pork Slaugtering and cutting ogs; fres and packaged pork products Slaugtering and cutting ogs; fres and packaged pork products Slaugtering and cutting ogs; fres and packaged pork products Slaugtering and cutting ogs; fres pork Production of ot dogs and lunceon meats Production of smoked ams and oter smoked meats Production of spiral ams and smoked am products Production of spiral ams Production of bacon, dry sausage and refinery products International Slaugtering and deboning ogs; production of packaged and oter pork products International Production of fres meat and packaged products International Slaugtering and deboning ogs; production of packaged and oter pork products International Slaugtering and deboning ogs; production of packaged and oter pork products International Production of packaged and oter pork and beef products International Deboning, slaugtering and rendering ogs Corporate Management and administrative support services for oter segments (1) Substantially all of our Pork segment facilities are pledged as collateral under our credit facilities. (2) Facility is leased. 24

79 Te Hog Production segment owns and leases numerous og production and grain storage facilities, as well as feedmills, mainly in Nort Carolina, Uta, Missouri and Virginia, wit additional facilities in Oklaoma, Colorado, Texas, Iowa, Illinois, Sout Carolina and Pennsylvania. A substantial number of tese owned facilities are pledged under our credit facilities. Also, te International segment owns and leases numerous og production and grain storage facilities, as well as feedmills, in Poland and Romania. ITEM 3. LEGAL PROCEEDINGS We and certain of our subsidiaries are parties to te environmental litigation matters discussed in Item 1. Business Regulation above. Apart from tose matters and te matters listed below, we and our affiliates are parties to various lawsuits arising in te ordinary course of business. In te opinion of management, any ultimate liability wit respect to te ordinary course matters will not ave a material adverse effect on our financial position or results of operations. MISSOURI LITIGATION PSF is a wolly-owned subsidiary tat we acquired on May 7, 2007 wen a wolly-owned subsidiary of ours merged wit and into PSF. As a result of our acquisition of PSF and troug oter separate acquisitions by Continental Grain Company (CGC) of our common stock, CGC beneficially owned approximately 7.9% of our common stock as of June 15, 2010 (based on a Scedule 13D/A filed by CGC on June 16, 2010). Pursuant to a pre-existing arrangement, PSF is obligated to indemnify CGC for certain liabilities, if any, resulting from te Missouri litigation. In 2002, lawsuits based on te law of nuisance were filed against PSF and CGC in te Circuit Court of Jackson County, Missouri entitled Steven Adwell, et al. v. PSF, et al. and Micael Adwell, et al. v. PSF, et al. In November 2006, a jury trial involving six plaintiffs in te Adwell cases resulted in a jury verdict of compensatory damages for tose six plaintiffs in te amount of $750,000 eac for a total of $4.5 million. Te jury also found tat CGC and PSF were liable for punitive damages; owever, te parties agreed to settle te plaintiffs claims for te amount of te compensatory damages, and te plaintiffs waived punitive damages. On Marc 1, 2007, te court severed te claims of te remaining Adwell plaintiffs into separate actions and ordered tat tey be consolidated for trial by ouseold. In te second Adwell trial, a jury trial involving tree plaintiffs resulted in a jury verdict in December 2007 in favor of PSF and CGC as to all claims. On July 8, 2008, te court reconsolidated te claims of te remaining 49 Adwell plaintiffs for trial by farm. On Marc 4, 2010, a jury trial involving 15 plaintiffs wo live near Homan farm resulted in a jury verdict of compensatory damages for tose plaintiffs for a total of $11,050,000. Tirteen of te Homan farm plaintiffs received damages in te amount of $825,000 eac. One of te plaintiffs received damages in te amount of $250,000, wile anoter plaintiff received $75,000. PSF appealed te jury verdict but was unsuccessful. Te next Adwell trial, wic will resolve te claims of up to 28 plaintiffs wo live near Scott Colby farm, as been sceduled to commence on February 4, 2013, and discovery is ongoing. In May 2004, te same attorneys representing te Adwell plaintiffs filed two additional nuisance lawsuits in te Circuit Court of Jackson County, Missouri entitled Fred Torrey, et al. v. PSF, et al. and Doyle Bounds, et al. v. PSF, et al. Tere are seven plaintiffs in bot suits combined, eac of wom claims to live near swine farms owned or under contract wit PSF. Plaintiffs allege tat tese farms interfered wit te plaintiffs use and enjoyment of teir respective properties. Plaintiffs in te Torrey suit also allege trespass. In May 2004, an additional nuisance suit was filed in te Circuit Court of Daviess County, Missouri entitled Steve Hanes, et al. v. PSF, et al. Plaintiffs asserted personal injury and property damage claims and sougt 25

80 recovery of an unspecified amount of compensatory and punitive damages, costs and attorneys fees, as well as injunctive relief. On Marc 7, 2012, te Steve Hanes case was dismissed by te court for lack of prosecution. Te dismissal was witout prejudice, so te case may be re-filed. Also in May 2004, te same lead lawyer wo filed te Adwell, Bounds and Torrey lawsuits filed a putative class action lawsuit entitled Daniel Herrold, et al. and Oters Similarly Situated v. ContiGroup Companies, Inc., PSF, and PSF Group Holdings, Inc. in te Circuit Court of Jackson County, Missouri. Tis action originally sougt to create a class of plaintiffs living witin ten miles of PSF s farms in nortern Missouri, including contract grower farms, wo were alleged to ave suffered interference wit teir rigt to use and enjoy teir respective properties. On January 22, 2007, plaintiffs in te Herrold case filed a Second Amended Petition in wic tey abandoned all class action allegations and efforts to certify te action as a class action and added an additional 193 named plaintiffs to join te seven prior class representatives to pursue a one count claim to recover monetary damages, bot actual and punitive, for temporary nuisance. On June 28, 2007, te court entered an order granting defendants motion to transfer venue to te nortern Missouri counties in wic te alleged injuries occurred. As a result of tose rulings, te claims of all but seven of te plaintiffs ave been transferred to te appropriate venues in nortern Missouri. Following te initial transfers, plaintiffs filed motions to transfer eac of te cases back to Jackson County. Tose motions were denied in all nine cases, but seven cases were transferred to neigboring counties pursuant to Missouri s venue rules. Following all transfers, Herrold cases were pending in Cariton, Clark, DeKalb, Harrison, Jackson, Linn, and Nodaway counties. Pursuant to notices of dismissal filed by plaintiffs on January 27, February 23 and April 10, 2009, all cases in Nodaway County ave been dismissed. In Amended Petitions filed in Cariton, Linn and DeKalb counties, plaintiffs added claims of negligence and also claim tat defendants are liable for te alleged negligence of several contract grower farms. Trial for one of te Herrold cases pending in Harrison County, Engel, et al. v. PSF, et al., wic involves te claims of four plaintiffs, as been sceduled to commence on October 9, 2012, and discovery is now proceeding in te Engel case as well as several oter Herrold cases. In February 2006, te same lawyer wo represents te plaintiffs in Hanes filed a nuisance lawsuit entitled Garold McDaniel, et al. v. PSF, et al. in te Circuit Court of Daviess County, Missouri. In te Second Amended Petition, wic was filed on February 2008, plaintiffs seek recovery of an unspecified amount of compensatory and punitive damages, costs and injunctive relief. Two of te four plaintiffs settled teir claims; PSF purcased teir property for $285,000 in excange for a full release. A tird plaintiff is deceased, leaving a single plaintiff in te case. Te remaining parties are conducting discovery, and no trial date as been set. In May 2007, te same lead lawyer wo filed te Adwell, Bounds, Herrold and Torrey lawsuits filed a nuisance lawsuit entitled Jake Cooper, et al. v. Smitfield Foods, Inc., et al. in te Circuit Court of Vernon County, Missouri. Murpy-Brown, LLC, Murpy Farms, LLC, Murpy Farms, Inc. and we ave all been named as defendants. Te oter seven named defendants include Murpy Family Ventures, LLC, DM Farms of Rose Hill, LLC, and PSM Associates, LLC, wic are entities affiliated wit Wendell Murpy, a director of ours, and/or is family members. Initially tere were 13 plaintiffs in te lawsuit, but te claims of two plaintiffs were voluntarily dismissed witout prejudice. All remaining plaintiffs are current or former residents of Vernon and Barton Counties, Missouri, eac of wom claims to live or ave lived near swine farms presently or previously owned or managed by te defendants. Plaintiffs allege tat odors from tese farms interfered wit te use and enjoyment of teir respective properties. Plaintiffs seek recovery of an unspecified amount of compensatory and punitive damages, costs and attorneys fees. Trial for te claims of te 11 plaintiffs remaining in te Cooper case as been sceduled to commence on May 1, 2013, and discovery is ongoing. In July 2008, te same lawyers wo filed te Adwell, Bounds, Herrold, Torrey and Cooper lawsuits filed a nuisance lawsuit entitled Jon Arnold, et al. v. Smitfield Foods, Inc., et al. in te Circuit Court of Daviess County, Missouri. Te Company and two of our subsidiaries, PSF and KC2 Real Estate LLC were named as 26

81 defendants. In August 2008, plaintiffs filed a second Petition adding one employee as a defendant. Tere were tree plaintiffs in te lawsuit, wo are residents of Daviess County and wo claimed to live near swine farms owned or operated by defendants. Plaintiffs alleged tat odors from tese farms cause nuisances tat interfere wit te use and enjoyment of teir properties. On April 20, 2009, plaintiffs voluntarily dismissed tis case witout prejudice. Plaintiffs refiled te case on April 20, 2010, adding CGC as a defendant. Defendants ave filed responsive pleadings, including a motion to dismiss all claims against te employee-defendant. During fiscal 2012 and continuing in te first quarter of fiscal 2013, we engaged in global settlement negotiations wit counsel representing nearly all of te plaintiffs in te nuisance litigation and numerous carriers of commercial general liability and pollution liability policies. Te parties to te litigation ave made substantial progress toward consummation of a global settlement tat would resolve te vast majority of te nuisance litigation, including all pending cases described above wit te exception of te McDaniel case. However, tere are significant contingencies tat must be fulfilled before te settlement is consummated, and we cannot make any assurance tat tose contingencies will be satisfied. In addition, we ave agreements wit te insurance carriers under wic we receive payments tat we contribute to pay a portion of te settlement, most of wic are contingent on te consummation of te global settlement. See Item 8. Financial Statements and Supplementary Data Note 16: Regulation and Contingencies for a furter discussion. In te event tat te global settlement is not consummated, we believe we ave good defenses to all of te actions described above and intend to defend vigorously tese suits. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 27

82 EXECUTIVE OFFICERS OF THE REGISTRANT Te following table sows te name and age, position and business experience during te past five years of eac of our executive officers. Te board of directors elects executive officers to old office until te next annual meeting of te board of directors, until teir successors are elected or until teir resignation or removal. Name and Age Position Business Experience During Past Five Years C. Larry Pope (57) President and Cief Executive Officer Robert W. Manly, IV (59) Executive Vice President and Cief Financial Officer Mr. Pope was elected President and Cief Executive Officer in June 2006, effective September 1, Mr. Pope served as President and Cief Operating Officer from October 2001 to September Mr. Manly was elected Executive Vice President in August 2006 and was named to te additional position of Cief Financial Officer, effective July 1, He also served as Interim Cief Financial Officer from January 2007 to June Prior to August 2006, e was President since October 1996 and Cief Operating Officer since June 2005 of PSF. Mr. Manly will also assume te role of President of Murpy-Brown in July Josep W. Luter, IV (47) Executive Vice President Mr. Luter was elected Executive Vice President in April 2008 concentrating on sales and marketing. He served as President of Smitfield Packing from November 2004 to April Mr. Luter is te son of Josep W. Luter, III, Cairman of te Board of Directors. Damu Tamodaran (57) Dennis H. Treacy (57) George H. Ricter (67) Executive Vice President and Cief Commodity Hedging Officer Executive Vice President, Corporate Affairs, and Cief Sustainability Officer President and Cief Operating Officer, Pork Group Mr. Tamodaran was elected Executive Vice President and Cief Commodity Hedging Officer in July He was named Senior Vice President and Cief Commodity Hedging Officer in June Prior to tese appointments, Mr. Tamodaran served as Vice President, Price Risk Management. Mr. Treacy was elected Executive Vice President, Corporate Affairs, and Cief Sustainability Officer in October He was named Senior Vice President of Corporate Affairs and Cief Sustainability Officer in February Prior to tese appointments, Mr. Treacy served as Vice President, Environmental and Corporate Affairs. Mr. Ricter was elected President and Cief Operating Officer, Pork Group in April Mr. Ricter served as President of Farmland Foods from October 2003 to April Micael E. Brown (53) President of Farmland Foods Mr. Brown was elected President of Farmland Foods in October He served as President of Armour-Eckric and Executive Vice President of Jon Morrell Food Group from 2006 to October

83 Name and Age Position Business Experience During Past Five Years Timoty O. Scellpeper (47) President of Smitfield Packing Mr. Scellpeper was elected President of Smitfield Packing in April He was Senior Vice President of Operations at Farmland Foods from August 2005 to April Josep B. Sebring (65) President of Jon Morrell Mr. Sebring as served as President of Jon Morrell since May Jerry H. Godwin (65) President of Murpy-Brown Mr. Godwin as served as President of Murpy- Brown since April Mr. Godwin will retire from te Company in July

84 PART II ITEM 5. MARKET FOR REGISTRANT S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Our common stock trades on te New York Stock Excange under te symbol SFD. Te following table sows te ig and low sales price of our common stock for eac quarter of fiscal 2012 and fiscal Hig Low Hig Low First quarter... $ $ $ $ Second quarter Tird quarter Fourt quarter HOLDERS As of June 13, 2012 tere were approximately 885 record olders of our common stock. DIVIDENDS We ave never paid a cas dividend on our common stock. In addition, te terms of certain of our debt agreements limit te payment of any cas dividends on our common stock. We would only pay cas dividends from assets legally available for tat purpose, and payment of cas dividends would depend on our financial condition, results of operations, current and anticipated capital requirements, restrictions under ten existing debt instruments and oter factors ten deemed relevant by te board of directors. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS Issuer Purcases of Equity Securities Period (a) Total Number of Sares Purcased (b) Average Price Paid per Sare (c) Total Number of Sares Purcased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Sares tat May Yet Be Purcased Under te Plans or Programs (1) January 30, 2012 to February 29, n/a n/a $139,437,442 Marc 1, 2012 to Marc 29, ,733,527 (2) $ ,724,834 $101,004,176 Marc 30, 2012 to April 29, ,936,327 $ ,936,327 $ 60,702,809 Total... 3,669,854 $ ,661,161 $ 60,702,809 (1) On June 16, 2011, we announced tat our board of directors ad approved a sare repurcase program autorizing te Company to buy up to $150,000,000 of its common stock. In September 2011, our board of directors approved a $100,000,000 increase to te autorized amount. Tis sare repurcase program is set to expire on June 16, In June 2012 our board of directors approved a new sare repurcase program to buy up to $250 million of te Company s stock in addition to te previous autorizations. See Note 20 in Item 8. Financial Statements and Supplementary Data for additional information. (2) Purcases of 8,693 sares were made in open market transactions by Wells Fargo, as trustee, and tese 8,693 sares are eld in a rabbi trust for te benefit of participants in te Smitfield Foods, Inc Incentive Compensation Plan director fee deferral program. Te 2008 Incentive Compensation Plan was approved by our sareolders on August 27,

85 ITEM 6. SELECTED FINANCIAL DATA Te following table sows selected consolidated financial data and oter operational data for te fiscal years indicated. Te financial data was derived from our audited consolidated financial statements. You sould read te information in conjunction wit Item 8. Financial Statements and Supplementary Data and Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations. Fiscal Years (in millions, except per sare data) Statement of Income Data: Sales... $13,094.3 $12,202.7 $11,202.6 $12,487.7 $11,351.2 Cost of sales... 11, , , , ,202.8 Gross profit... 1, , ,148.4 Selling, general and administrative expenses Gain on fire insurance recovery... (120.6) Loss (income) from equity metod investments (50.1) (38.6) 50.1 (62.0) Operating profit (loss) , (223.9) Interest expense Oter loss (income) (63.5) Income (loss) from continuing operations before income taxes (214.6) (382.2) Income tax expense (benefit) (113.2) (131.3) 72.8 Income (loss) from continuing operations (101.4) (250.9) Income (loss) from discontinued operations, net of tax (10.3) Net income (loss)... $ $ $ (101.4) $ (198.4) $ Net Income (Loss) Per Diluted Sare: Continuing operations... $ 2.21 $ 3.12 $ (.65) $ (1.78) $ 1.04 Discontinued operations (.08) Net income (loss) per diluted common sare... $ 2.21 $ 3.12 $ (.65) $ (1.41) $.96 Weigted average diluted sares outstanding Balance Seet Data: Working capital... $ 2,162.7 $ 2,110.0 $ 2,128.4 $ 1,497.7 $ 2,215.3 Total assets... 7, , , , ,867.9 Long-term debt and capital lease obligations... 1, , , , ,474.4 Sareolders equity... 3, , , , ,048.2 Oter Consolidated Operational Data: Total ogs processed (1) Packaged meats sales (pounds) (1)... 3, , , , ,363.4 Fres pork sales (pounds) (1)... 4, , , , ,356.7 Total ogs sold (2) (1) Comprised of Pork segment and International segment. (2) Comprised of Hog Production segment and International segment and includes intercompany og sales. Notes to Selected Financial Data: Fiscal 2012 Includes our sare of carges related to te CFG Consolidation Plan of $38.7 million. Includes net carges of $22.2 million related to te Missouri litigation. 31

86 Includes losses of $12.2 million on debt extinguisment. Includes accelerated depreciation carges associated wit te idling of certain Missouri og farm assets of $8.2 million. Includes accelerated depreciation and oter carges associated wit te planned closure of our Portsmout facility of $4.7 million. Includes $3.1 million of carges related to te Cost Savings Initiative. Fiscal 2011 Includes an involuntary conversion gain on fire insurance recovery of $120.6 million. Includes losses of $92.5 million on debt extinguisment. Includes $28.0 million of carges related to te Cost Savings Initiative. Includes a net benefit of $19.1 million related to te Missouri litigation. Includes net gains of $18.7 million on te sale of og farms. Fiscal 2010 Includes $34.1 million of impairment carges related to certain og farms. Includes restructuring and impairment carges totaling $17.3 million related to te Restructuring Plan. Includes $13.1 million of impairment and severance costs primarily related to te Sioux City plant closure. Includes $11.0 million of carges for te write-off of amendment fees and costs associated wit te U.S. Credit Facility and te Euro Credit Facility. Includes $9.1 million of carges related to te Cost Savings Initiative. Fiscal 2009 Fiscal 2009 was a 53 week year. Includes a pre-tax write-down of assets and oter restructuring carges totaling $88.2 million related to te Restructuring Plan. Includes a $56.0 million pre-tax gain on te sale of Groupe Smitfield. Includes a $54.3 million gain on te sale of Smitfield Beef, Inc., net of tax of $45.4 million (discontinued operations). Includes carges related to inventory write-downs totaling $25.8 million. Fiscal 2008 Includes a pre-tax impairment carge on our suttered Kinston, Nort Carolina plant of $8.0 million. Includes a loss on te disposal of te assets of Smitfield Bioenergy, LLC of $9.6 million, net of tax of $5.4 million (discontinued operations). Includes pre-tax inventory write-down and disposal costs of $13.0 million associated wit outbreaks of classical swine fever in Romania. 32

87 ITEM 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You sould read te following information in conjunction wit te audited consolidated financial statements and te related notes in Item 8. Financial Statements and Supplementary Data. Our fiscal year consists of 52 or 53 weeks and ends on te Sunday nearest April 30. All fiscal years presented in tis discussion consisted of 52 weeks. Unless oterwise stated, te amounts presented in te following discussion are based on continuing operations for all fiscal periods included. Certain prior year amounts ave been reclassified to conform to current year presentations. EXECUTIVE OVERVIEW We are te largest og producer and pork processor in te world. We are also te leader in numerous packaged meats categories wit popular brands including Farmland, Smitfield, Eckric, Armour and Jon Morrell. We are committed to providing good food in a responsible way and maintaining robust animal care, community involvement, employee safety, environmental, and food safety and quality programs. We produce and market a wide variety of fres meat and packaged meats products bot domestically and internationally. We operate in a cyclical industry and our results are significantly affected by fluctuations in commodity prices for livestock (primarily ogs) and grains. Some of te factors tat we believe are critical to te success of our business are our ability to: maintain and expand market sare, particularly in packaged meats, develop and maintain strong customer relationsips, continually innovate and differentiate our products, manage risk in volatile commodities markets, and maintain our position as a low cost producer of live ogs, fres pork and packaged meats. We conduct our operations troug four reportable segments: Pork, Hog Production, International and Corporate, eac of wic is comprised of a number of subsidiaries, joint ventures and oter investments. A fift reportable segment, te Oter segment, contains te results of our former turkey production operations and our previous 49% interest in Butterball, LLC (Butterball), wic were sold in December 2010 (fiscal 2011), as well as our former live cattle operations, wic were sold in te first quarter of fiscal Te Pork segment consists mainly of our tree wolly-owned U.S. fres pork and packaged meats subsidiaries: Te Smitfield Packing Company, Inc. (Smitfield Packing), Farmland Foods, Inc. and Jon Morrell Food Group. Te Hog Production segment consists of our og production operations located in te U.S. Te International segment is comprised mainly of our meat processing and distribution operations in Poland, Romania and te United Kingdom, our interests in meat processing operations, mainly in Western Europe and Mexico, our og production operations located in Poland and Romania and our interests in og production operations in Mexico. Te Corporate segment provides management and administrative services to support our oter segments. Fiscal 2012 Summary Net income was $361.3 million, or $2.21 per diluted sare, in fiscal 2012, compared to net income of $521.0 million, or $3.12 per diluted sare, in fiscal Te following explains te significant canges in fiscal 2012 results compared to fiscal 2011: Pork segment operating profit decreased $129.7 million from last year s record $753.4 million due to significantly iger og costs, wic reduced fres pork cutout margins. Hog Production segment operating profit decreased $58.3 million driven principally by litigation carges and iger feed costs. 33

88 International segment operating profit decreased $73.1 million primarily as a result of carges at CFG, of wic our sare was $38.7 million, iger feed costs and currency losses in our Mexican joint ventures, and iger raw material costs in our Polis meat processing operations. See Significant Events Affecting Results of Operations below for furter discussion. Corporate segment results decreased $113.7 million, primarily due to a $120.6 million gain in te prior year on te final settlement of our insurance claim related to te fire tat occurred at our Cuday, Wisconsin facility. Interest expense decreased $68.7 million, or 28%, as a result of our Project 100 initiative, wic is described below. Losses on debt extinguisment were $12.2 million in te current year compared to $92.5 million in te prior year. Project 100 In te latter alf of fiscal 2010, we developed a plan to reduce te level of debt on our balance seet by $1 billion and eliminate $100 million of annual interest and finance expense from our statement of income (Project 100). Tis project was intended to improve our credit metrics, extend and smoot maturities of our various debt obligations and utilize idle cas on and, wile at te same time, maintaining ample liquidity. Project 100 was completed in te first alf of fiscal As a result, we ave dramatically reduced our leverage and interest expense. Our net debt (long-term debt and capital lease obligations including current portion, net of cas) to total capitalization (net debt plus sareolders equity) as decreased from 48% at te end of fiscal 2010 to 33% as of April 29, Our goal is to maintain a net debt to total capitalization ratio of approximately 40% or lower wit a ceiling of 50%. Sare Repurcase Program In June 2011 (fiscal 2012), we announced tat our board of directors ad approved a sare repurcase program autorizing us to buy up to $150.0 million of our common stock over te subsequent 24 mont period (te Sare Repurcase Program). In September 2011 (fiscal 2012), our board of directors approved an increase of $100.0 million to te autorized amount of te Sare Repurcase Program. In June 2012 (fiscal 2013), our board of directors approved a new sare repurcase program autorizing us to buy up to $250 million of our common stock over te subsequent 24 mont period in addition to te amounts previously autorized under te Sare Repurcase Program. We intend to fund sare repurcases from cas on and. Sare repurcases may be made on te open market, or in privately negotiated transactions. Te number of sares repurcased, and te timing of any buybacks, will depend on corporate cas balances, business and economic conditions, and oter factors, including investment opportunities. Te program may be discontinued at any time. Since te Sare Repurcase Program was autorized, we ave repurcased a total of 11,795,489 sares of our common stock for $241.7 million troug June 13, Strategies for Growt Wit te completion of te Restructuring Plan in fiscal 2011, wic is furter described under Significant Events Affecting Results of Operations below, we are focused on top and bottom line growt in our base business. Our strategies for growt include: Focus On Twelve Core Brands In connection wit our Pork segment restructuring plan, we rationalized our large brand portfolio and began to focus our marketing support on twelve major brand names: Smitfield, Farmland, Jon Morrell, Gwaltney, Armour, Eckric, Margerita, Carando, Kretscmar, Cook s, Curly s and Healty Ones. Approximately tree-quarters of our domestic retail packaged meats sales are branded products, wit nearly 90% of tose branded sales being core brands. 34

89 Invest in Advertising to Activate Brands We ave begun to invest more eavily in marketing talent and consumer advertising campaigns to drive consumer awareness. In December 2011 (fiscal 2012), we entered into a multi-year sponsorsip agreement wit te Ricard Petty Motorsports NASCAR team to elp activate our brands wit consumer-focused marketing. Build a Strong Innovation Pipeline We are driving consumer relevant product innovation by focusing on delivering convenience oriented products suc as our Smitfield marinated pork products, convenient packaging suc as our Smitfield bacon pouc pack and ealtier, reduced sodium products. In fiscal 2012, we opened a 37,000 square foot researc and development center wit tree state of te art kitcens, a dedicated cutting room, multimedia tecnology, and a pilot plant tat simulates full scale manufacturing processes. Tis facility allows us to co-develop prototypes wit customers and make quick product modifications for speed to te market. Coordinated Sales and Marketing Team In connection wit te Pork segment restructuring plan, we merged two independent fres pork sales forces and consolidated our international sales organizations for our U.S. pork companies into one group responsible for exports. Te restructured sales groups provide for a more coordinated and focused strategy to access markets and service customers. Outlook Te commodity markets affecting our business are often volatile and fluctuate on a daily basis. In tis unpredictable operating environment, it is very difficult to make meaningful forecasts of industry trends and conditions. Te outlook statements tat follow must be viewed in tis context. Pork Fres pork margins ave been strong over te last two fiscal years. Margins for fiscal 2012 averaged above te normalized range of $3-$7 per ead for muc of te year before coming under pressure late in te year. Favorable weater and ideal growing conditions contributed to iger pork supplies tis spring. At te same time, relatively ig retail prices and te specter of $4/gallon gas prices dampened consumer demand. Te confluence of tese factors weakened margins in te fres pork complex in Q and early into Q Notwitstanding te current weakness, we believe te fundamentals support solid profitability in fres pork for te full fiscal year. Margins sould get a lift as te oversupply situation resulting from accelerated slaugter levels in te spring corrects itself and te spread between wolesale and retail prices normalizes. Moreover, lower supplies of competing proteins, continued strengt in export demand and relatively ig pork prices around te world sould support ealty fres pork profitability witin te normalized range of $3-$7 per ead for fiscal Operating margins in our packaged meats business improved in fiscal 2012, despite iger raw material costs. Te business benefited from an improved product mix, a more coordinated and focused sales strategy, and increased investment in marketing talent and consumer advertising. Altoug packaged meats volumes were uncanged from last year, we improved our sales mix by successfully growing our retail packaged meats volume in our core brands, despite competing in product categories tat are down industry-wide. We are executing our strategy to grow our packaged meats business by continuing to coordinate our sales and marketing team approac, focus on our twelve core brands, invest in consumerfocused advertising, and build a strong product innovation pipeline to grow sare and distribution. In summary, we are optimistic about our packaged meats business for fiscal Based on te focus and momentum we ave generated in tis part of te business, we are increasing our view of te normalized operating profit range in packaged meats by $.02 per pound to $.12 to $.17 per pound from $.10 to $.15 per pound. We expect packaged meats operating margins to be in te top alf of te new normalized range in fiscal Hog Production Balanced U.S. pork fundamentals and tigter global protein supplies supported live og market prices in fiscal Domestic live og prices were up 15% year over year, but were pressured in te fourt quarter of fiscal 2012 as favorable weater and growing conditions accelerated growt rates 35

90 and, ultimately, og supplies. However, wit no significant erd expansion expected and te forecasted contraction of oter protein supplies, segment fundamentals sould be supportive of ealty og prices going forward. In fiscal 2013, we expect raising costs to average in te mid $60s per undredweigt in te first quarter before moving lower in te fall as ceaper corn moves troug our feeding complex. Lower corn prices sould continue to reduce raising costs to te ig $50s per undredweigt by te fourt quarter of fiscal In summary, we believe a balance domestically, between restrained supply of pork and oter proteins, coupled wit ealty exports, is supportive of og production profitability going forward. We expect operating margins will be at te low end of our normalized range of $10-$15 per ead in te first quarter of fiscal 2013 and for te full fiscal year. Wile te current futures strip does not yet support tese profitability levels, te relative ealt of US pork fundamentals, existing risk management positions, lower expected raising costs, and recent momentum in live og prices provide te basis for our outlook for te full fiscal year. International Our European live swine operations sould benefit from tigtening og supplies on te continent. Industry forecasters predict eigtened environmental and welfare regulations in Europe will cause producers to contract, improving an already favorable production environment for our Polis and Romanian og farms. Our Mexican live swine joint ventures are currently operating in a callenging production environment. We expect modest improvements in fiscal However, before meaningful contributions to segment profitability can be expected, improvements in live og prices and/or feed grain cost will be needed. On te meat processing side of our international business, we expect improved results from our Polis meat operations in fiscal 2013 after a disappointing fiscal Recent approval to export pork products out of Romania to European Union member countries sould also improve results from our Romanian meat operations in fiscal We also expect modest contributions from our Mexican meat operations. Finally, in te tird quarter of fiscal 2012, CFG announced a multi-year compreensive plan to consolidate and streamline its manufacturing operations, wic sould improve operating results over te long-term. In te near-term, we expect only modest positive contributions from CFG. In total, we anticipate operating profits from tis segment will move to te upper end of te normalized range of $50 million to $125 million in fiscal RESULTS OF OPERATIONS Significant Events Affecting Results of Operations CFG Consolidation Plan In December 2011 (fiscal 2012), te board of CFG approved a multi-year plan to consolidate and streamline its manufacturing operations to improve operating efficiencies and increase utilization (te CFG Consolidation Plan). Te CFG Consolidation Plan includes te disposal of certain assets, employee redundancy costs and te contribution of CFG s Frenc cooked am business into a newly formed joint venture. As a result, we recorded our sare of CFG s carges totaling $38.7 million in equity in loss (income) of affiliates witin te International segment in te tird quarter of fiscal Missouri Litigation PSF, te Company and certain of our oter subsidiaries and affiliates are parties to litigation in Missouri involving a number of claims alleging tat og farms owned or under contract wit te defendants interfered wit te plaintiffs use and enjoyment of teir properties. Tese claims are more fully described in Item 3. Legal Proceedings Missouri Litigation. 36

91 During fiscal 2012 and continuing in te first quarter of fiscal 2013, we engaged in global settlement negotiations wit counsel representing nearly all of te plaintiffs in te nuisance litigation and numerous carriers of commercial general liability and pollution liability policies. Te parties to te litigation ave made substantial progress toward consummation of a global settlement tat would resolve te vast majority of te nuisance litigation, including all pending cases wit te exception of one case. However, tere are significant contingencies tat must be fulfilled before te settlement is consummated, and we cannot make any assurance tat tose contingencies will be satisfied. In addition, we ave agreements wit te insurance carriers under wic we receive payments tat we contribute to pay a portion of te settlement, most of wic are contingent on te consummation of te global settlement. Due to te recent developments discussed above including te substantial progress toward te consummation of a global settlement and te settlements wit certain insurance carriers, we recognized $22.2 million in net carges to selling, general and administrative expenses in te Hog Production segment associated wit te Missouri litigation in fiscal In November 2010 (fiscal 2011), we reaced a settlement wit one of our insurance carriers regarding te reimbursement of certain past and future defense costs associated wit our Missouri litigation. Related to tis matter, we recognized a net benefit of $19.1 million in selling, general and administrative expenses in te Hog Production segment in fiscal Fire Insurance Settlement In July 2009 (fiscal 2010), a fire occurred at te primary manufacturing facility of our subsidiary, Patrick Cuday, Inc. (Patrick Cuday), in Cuday, Wisconsin. Te fire damaged a portion of te facility s production space and required te temporary cessation of operations, but did not consume te entire facility. Sortly after te fire, we resumed production activities in undamaged portions of te plant, including te distribution center, and took steps to address te supply needs for Patrick Cuday products by sifting production to oter Company and tird-party facilities. We maintain compreensive general liability and property insurance, including business interruption insurance. In December 2010 (fiscal 2011), we reaced an agreement wit our insurance carriers to settle te claim for a total of $208.0 million, of wic $70.0 million ad been advanced to us in fiscal We allocated tese proceeds to first recover te book value of te property lost, out-of-pocket expenses incurred and business interruption losses tat resulted from te fire. Te remaining proceeds were recognized as an involuntary conversion gain of $120.6 million in te Corporate segment in te tird quarter of fiscal Te involuntary conversion gain was classified in a separate line item on te consolidated statement of income. Based on an evaluation of business interruption losses incurred, we recognized $15.8 million and $31.8 million in fiscal 2011 and fiscal 2010, respectively, of te insurance proceeds in cost of sales in our Pork segment to offset business interruption losses incurred. Debt Extinguisment During fiscal 2012, we repurcased $59.7 million of our 2014 Notes for $68.3 million and recognized losses on debt extinguisment of $11.0 million in fiscal 2012, including te write-off of related unamortized discounts and debt costs. During fiscal 2011, we repurcased $522.2 million of our 7% senior unsecured notes due August 2011 (2011 Notes) for $543.1 million and recognized losses on debt extinguisment of $21.4 million in fiscal 2011, including te write-off of related unamortized premiums and debt costs. In January 2011 (fiscal 2011), we commenced a Dutc auction cas tender offer to purcase for $450.0 million in cas (te January Tender Offer) te maximum aggregate principal amount of our outstanding 7.75% senior 37

92 unsecured notes due May 2013 (2013 Notes) and our outstanding 10% senior secured notes due July 2014 (2014 Notes). As a result of te January Tender Offer, we paid $450.0 million to repurcase 2013 Notes and 2014 Notes wit face values of $190.0 million and $200.9 million, respectively, and recognized a losses on debt extinguisment of $71.1 million in te fourt quarter of fiscal 2011, including te write-off of related unamortized discounts and debt costs. Hog Production Cost Savings Initiative In fiscal 2010, we announced a plan to improve te cost structure and profitability of our domestic og production operations (te Cost Savings Initiative). Te plan includes a number of undertakings designed to improve operating efficiencies and productivity. Tese consist of farm reconfigurations and conversions, termination of certain ig cost, tird party og grower contracts and breeding stock sourcing contracts, as well as a number of oter cost reduction activities. We incurred carges related to tese activities totaling $3.1 million, $28.0 million and $9.1 million in fiscal 2012, 2011 and 2010, respectively. All carges ave been recorded in cost of sales in te Hog Production segment. We expect te Cost Savings Initiative to be substantially complete by te end of fiscal Pork Segment Restructuring In February 2009 (fiscal 2009), we announced a plan to consolidate and streamline te corporate structure and manufacturing operations of our Pork segment (te Restructuring Plan). Te plan included te closure of six plants. Tis restructuring as made us more competitive by improving operating efficiencies and increasing plant utilization. We completed te Restructuring Plan in te first alf of fiscal 2011 wit cumulative pre-tax restructuring and impairment carges of approximately $105.5 million, of wic $17.3 million was recognized in fiscal No material carges were incurred in fiscal All carges were recorded in te Pork segment. Impairment and Disposal of Long-lived Assets Portsmout, Virginia Plant In November 2011 (fiscal 2012), we announced tat we would sift te production of ot dogs and luncmeat from Smitfield Packing s Portsmout, Virginia plant to our Kinston, Nort Carolina plant and permanently close te Portsmout facility. Te Kinston facility will be expanded to andle te additional production and will incorporate state of te art tecnology and equipment, wic is expected to produce significant production efficiencies and cost reductions. Te Kinston expansion will require an estimated $85 million in capital expenditures. Te expansion of te Kinston facility and te closure of te Portsmout facility are expected to be completed by te end of fiscal As a result of tis decision, we performed an impairment analysis of te related assets at te Portsmout facility in te second quarter of fiscal 2012 and determined tat te net cas flows expected to be generated over te anticipated remaining useful life of te plant are sufficient to recover its book value. As suc, no impairment exists. However, we ave revised depreciation estimates to reflect te use of te related assets at te Portsmout facility over teir sortened useful lives. As a result, we recognized accelerated depreciation carges of $3.3 million in cost of sales during fiscal We expect to recognize accelerated depreciation carges totaling $4.7 million during fiscal Also, in connection wit tis decision, we wrote-down inventory by $0.8 million in cost of sales and accrued $0.6 million for employee severance in selling, general and administrative expenses in te second quarter of fiscal All of tese carges are reflected in te Pork segment. Hog Farms Texas In te first quarter of fiscal 2010, we ceased og production operations and closed te farms related to our Dalart, Texas operation. In connection wit tis event, we recorded an impairment carge of $23.6 million to 38

93 write-down te assets to teir estimated fair value of $20.9 million. Te estimate of fair value was based on our assessment of te facts and circumstances at te time of te write-down, wic indicated tat te igest and best use of te assets by a market participant was for crop farming. In January 2011 (fiscal 2011), we sold a portion of te Dalart, Texas operation to a crop farmer for net proceeds of $9.1 million and recognized a loss on te sale of $1.8 million in selling, general and administrative expenses in our Hog Production segment in te tird quarter of fiscal Also, in January 2011 (fiscal 2011), we received a non-binding letter of intent from a prospective buyer for te purcase of our remaining Dalart, Texas assets. Te prospective buyer ad indicated tat it intended to utilize te farms for og production after reconfiguring te assets to meet teir specific business purposes. In April 2011 (fiscal 2011), we completed te sale of te remaining Dalart, Texas assets and received net proceeds of $32.5 million. As a result of te sale, we recognized a gain of $13.6 million, after allocating $8.5 million in goodwill to te asset group, in selling, general and administrative expenses in our Hog Production segment in te fourt quarter of fiscal Oklaoma and Iowa In January 2011 (fiscal 2011), we completed te sale of certain og production assets located in Oklaoma and Iowa. As a result of tese sales, we received total net proceeds of $70.4 million and recognized gains totaling $6.9 million, after allocating $17.0 million of goodwill to tese asset groups. Te gains were recorded in selling, general and administrative expenses in our Hog Production segment in te tird quarter of fiscal Missouri In te first quarter of fiscal 2010, we entered into negotiations to sell certain og farms in Missouri, wic we believed would result in a completed sale witin te subsequent twelve mont period. We recorded total impairment carges of $10.5 million, including a $6.0 million allocation of goodwill, in te first quarter of fiscal 2010 to write-down te og farm assets to teir estimated fair value. Te impairment carges were recorded in cost of sales in te Hog Production segment. In te first alf of fiscal 2011, we began reducing te og population on certain oter og farms in Missouri in order to comply wit an amended consent decree. Te amended consent decree allows us to return te farms to full capacity upon te installation of an approved next generation tecnology tat would reduce te level of odor produced by te farms. Te reduced og raising capacity at tese farms was replaced wit tird party contract farmers in Iowa. In te first quarter of fiscal 2011, in connection wit te anticipated reduction in finising capacity, we performed an impairment analysis of tese og farms and determined tat te book value of te assets was recoverable and tus, no impairment existed. Based on te favorable og raising performance experienced wit tese tird party contract farmers and te amount of capital required to install next generation tecnology at our Missouri farms, we made te decision in te first quarter of fiscal 2012 to permanently idle certain of te assets on tese farms. Depreciation estimates ave been revised to reflect te sortened useful lives of te assets. As a result, we recognized accelerated depreciation carges of $8.2 million in fiscal Tese carges are reflected in te Hog Production segment. Butterball, LLC (Butterball) In June 2010 (fiscal 2011), we announced tat we ad made an offer to purcase our joint venture partner s 51% ownersip interest in Butterball and our partner s related turkey production assets. In accordance wit Butterball s operating agreement, our partner ad to eiter accept te offer to sell or be required to purcase our 49% interest and our related turkey production assets. In September 2010 (fiscal 2011), we were notified of our joint venture partner s decision to purcase our 49% interest in Butterball and our related turkey production assets. In December 2010 (fiscal 2011), we completed te sale of tese assets for $167.0 million and recognized a gain of $0.2 million. 39

94 RMH Foods, LLC (RMH) In October 2009 (fiscal 2010), we entered into an agreement to sell substantially all of te assets of RMH, a subsidiary witin te Pork segment. As a result of tis sale, we recorded pre-tax carges totaling $3.5 million, including $0.5 million of goodwill impairment, in cost of sales in te Pork segment in te second quarter of fiscal 2010 to write-down te assets of RMH to teir fair values. In December 2009 (fiscal 2010), we completed te sale of RMH for $9.1 million, plus $1.4 million of liabilities assumed by te buyer. Sioux City, Iowa Plant Closure In January 2010 (fiscal 2010), we announced tat we would close our fres pork processing plant located in Sioux City, Iowa. Te Sioux City plant was one of our oldest and least efficient plants. Te plant design severely limited our ability to produce value-added packaged meats products and maximize production trougput. A portion of te plant s production was transferred to oter nearby Smitfield plants. We closed te Sioux City plant in April 2010 (fiscal 2010). As a result of te planned closure, we recorded carges of $13.1 million in te tird quarter of fiscal Tese carges consisted of $3.6 million for te write-down of long-lived assets, $2.5 million of unusable inventories and $7.0 million for estimated severance benefits pursuant to contractual and ongoing benefit arrangements. Substantially all of tese carges were recorded in cost of sales in te Pork segment. Consolidated Results of Operations Te tables presented below compare our results of operations for fiscal years 2012, 2011 and As used in te tables, NM means not meaningful. Sales and Cost of Sales Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Sales... $ 13,094.3 $ 12, % $12,202.7 $ 11, % Cost of sales... 11, , , ,472.5 Gross profit... $ 1,549.4 $ 1,714.1 (10) $ 1,714.1 $ Gross profit margin... 12% 14% 14% 7% Te following items explain te significant canges in sales and gross profit: 2012 vs Te increase in consolidated sales was primarily driven by a 6% increase in average unit selling prices coupled wit a 2% increase in volume in te Pork segment. Te improvements were attributable to iger market prices for fres pork, supported by export demand, and an improved sales mix in packaged meats to iger margin core brands. Gross margin declined from prior year levels as a result of significantly iger raw material costs in all segments. Domestic live og market prices increased approximately 15% to $65 per undredweigt from $57 per undredweigt, and domestic raising costs increased 18% to $64 per undredweigt from $54 per undredweigt as a result of iger feed prices. Cost of sales in te prior year included $28.0 million of carges associated wit te Cost Savings Initiative compared to $3.1 million in te current year. Also, cost of sales in te current year includes $8.2 million and $4.7 million of accelerated depreciation and oter carges related to te idling of certain of our Missouri og farm assets and te planned closure of our Portsmout, Virginia meat processing plant, respectively. 40

95 2011 vs Te increase in consolidated sales was driven primarily by an 18% increase in average unit selling prices in te Pork segment, wic was partially offset by a 7% decline in volume, as a result of lower supplies of pork products and stable demand. Te improvement in gross profit margin was led by a substantial turnaround in og production profitability resulting from tigtened industry supplies, wic led to substantially iger live og market prices, and sligtly lower raising costs on a per pig basis. In addition, iger fres pork market values relative to live og prices, and iger average unit selling prices in te Pork segment contributed to te improvement. Cost of sales in fiscal 2011 included $28.0 million of carges associated wit te Cost Savings Initiative. Cost of sales in fiscal 2010 included $72.4 million of carges related to og farm and plant write-downs, te Cost Savings Initiative and te Restructuring Plan. Selling, General and Administrative Expenses (SG&A) Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Selling, general and administrative expenses... $ $ % $ $ % Te following items explain te significant canges in SG&A: 2012 vs Fiscal 2012 includes $22.2 million in net carges associated wit te Missouri litigation compared to a $19.1 million net benefit in fiscal Te Missouri litigation is more fully described under Significant Items Affecting Results of Operations above. Fiscal 2011 included a net gain of $18.7 million on te sale of og farms, wic is more fully explained under Significant Events Affecting Results of Operations above. Losses on foreign currency denominated transactions increased $7.0 million. Fiscal 2012 includes $6.4 million in professional fees related to te potential acquisition of a controlling interest in CFG. In June 2011 (fiscal 2012), we terminated negotiations to purcase te additional interest. Variable compensation expense was $29.9 million lower due primarily to lower profitability levels in fiscal Expense for pension and oter postretirement benefits decreased $19.6 million vs Variable compensation expense increased by $65.6 million due to iger overall profitability; variable compensation programs were severely curtailed in fiscal A reduction in te amount of government subsidies recognized for our Romanian og production operations increased SG&A by $32.2 million. Contract services and professional fees increased $13.8 million, primarily due to outsourced information tecnology support costs. Fiscal 2010 included a gain of $4.5 million on te sale of our investment in Farasia Corporation, a 50/50 Cinese joint venture, (Farasia). 41

96 Losses on foreign currency denominated transactions increased by $4.1 million. Fiscal 2011 included a $19.1 million benefit related primarily to an insurance settlement associated wit te Missouri litigation. Fiscal 2011 included a net gain of $18.7 million on te sale of og farms, wic is more fully explained under Significant Events Affecting Results of Operations above. Loss (Income) from Equity Metod Investments Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) CFG (1)... $ 25.0 $ (17.0) (247)% $ (17.0) $ (4.5) 278% Mexican joint ventures... (13.4) (29.6) (55) (29.6) (13.2) 124 Butterball... (1.3) NM (1.3) (18.8) (93) All oter equity metod investments... (1.7) (2.2) (23) (2.2) (2.1) 5 Loss (income) from equity metod investments... $ 9.9 $ (50.1) (120) $ (50.1) $ (38.6) 30 (1) CFG prepares its financial statements in accordance wit International Financial Reporting Standards. Our sare of CFG s results reflects U.S. GAAP adjustments and tus, tere may be differences between te amounts we report for CFG and te amounts reported by CFG. Te following items explain te significant canges in loss (income) from equity metod investments: 2012 vs CFG s results for fiscal 2012 include $38.7 million of carges related to te CFG Consolidation Plan, wic is more fully described under Significant Events Affecting Results of Operations above. Results from our Mexican joint ventures were negatively impacted by iger feed costs and unfavorable canges in foreign excange rates vs Fiscal 2010 results for CFG included a $10.4 million debt restructuring carge and a $1.3 million carge related to its discontinued Russian operation. Equity income from our Mexican joint ventures increased significantly as a result of iger og prices. Te decrease in equity income from Butterball reflects our sale of te investment in te tird quarter of fiscal 2011, wic is more fully explained under Significant Events Affecting Results of Operations above. Interest Expense Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Interest expense... $ $ (28)% $ $ (8)% Interest expense decreased as a result of our Project 100 initiative, under wic we redeemed more tan $1 billion of debt since te first quarter of fiscal 2011, including $600 million of our 7% senior unsecured notes due August 2011, $260.6 million of our 10% senior secured notes due July 2014 and $190 million of our 7.75% senior unsecured notes due May

97 Loss on Debt Extinguisment Fiscal Years % Fiscal Years Cange % Cange (in millions) (in millions) Loss on debt extinguisment... $ 12.2 $ 92.5 (87)% $ 92.5 $ 11.0 NM Te following items explain te significant canges in loss on debt extinguisment: 2012 vs In fiscal 2012, we recognized losses of $11.0 million on te repurcase of $59.7 million of our 10% senior secured notes due July We recognized a loss on debt extinguisment of $1.2 million in te first quarter of fiscal 2012 associated wit te refinancing of our working capital facilities in June 2011 (fiscal 2012), wic is more fully described in Liquidity and Capital Resources below vs As described more fully under Liquidity and Capital Resources below, we repurcased $913.1 million of our senior unsecured and senior secured notes in fiscal 2011 and recognized losses on debt extinguisment of $92.5 million. In fiscal 2010, we recognized losses of $11.0 million related to te write-off of amendment fees and costs associated wit te extinguisment of our ten existing secured revolving credit facility (te U.S. Credit Facility) and our ten existing European secured revolving credit facility (te Euro Credit Facility). Income Tax (Benefit) Expense Fiscal Years Income tax (benefit) expense (in millions)... $ $ $ (113.2) Effective tax rate... 32% 31% 53% Te decrease in te effective tax rate from 2010 to 2011 was due primarily to te mix of foreign earnings (wic ave lower effective tax rates) and domestic earnings in fiscal 2011 compared to fiscal 2010, te benefit of te Federal manufacturer s deduction, te utilization of foreign tax credits in te fiscal 2011, and te legislative retroactive reinstatement of te Credit for Increasing Researc Activities. 43

98 Segment Results Te following information reflects te results from eac respective segment prior to eliminations of intersegment sales. Pork Segment Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Sales: Fres pork (1)... $ 5,089.4 $ 4, % $ 4,542.7 $ 4, % Packaged meats... 6, , , , Total... $ 11,093.0 $ 10, $ 10,263.9 $ 9, Operating profit: (2) Fres pork (1)... $ $ (45)% $ $ % Packaged meats (27) Total... $ $ (17) $ $ Sales volume: Fres pork... 4% (8)% Packaged meats... (4) Total... 2 (7) Average unit selling price: Fres pork... 8% 18% Packaged meats Total Hogs processed... 1% (10)% Average domestic live og prices (per undred weigt) (3)... $ $ % $ $ % (1) Includes by-products and rendering. (2) Fres pork and packaged meats operating profits represent management s estimated allocation of total Pork segment operating profit. (3) Represents te average live og market price as quoted by te Iowa-Soutern Minnesota og market. In addition to information provided in te table above, te following items explain te significant canges in Pork segment sales and operating profit: 2012 vs Sales and operating profit were positively impacted by iger average unit selling prices for bot fres pork and packaged meats driven supported by strong export demand, an improved mix in packaged meats to more core brand product sales, and strong pricing discipline. Fres pork volumes increased primarily as a result of stronger export demand. Fres pork operating profit decreased to $8 per ead from a record $15 per ead as live og prices increased significantly more tan fres meat prices. Packaged meats operating profit increased to $.15 per pound from $.13 per pound as a result of strong pricing discipline, an improved product mix to more ig margin core brands and lower variable compensation and pension related expenses, wic more tan offset te impact of iger raw material costs. 44

99 Operating profit for packaged meats in fiscal 2012 includes $4.7 million in carges associated wit te anticipated closure of our Portsmout plant vs Sales and operating profit were positively impacted by substantially iger average unit selling prices for bot fres pork and packaged meats driven by a reduction in te supply of pork products and stable demand. Fres pork sales volume declined due to te closure of our Sioux City, Iowa plant in April 2010 (fiscal 2010). Fres pork operating profit increased to $15 per ead from $2 per ead as a result of substantially iger fres pork market prices relative to live og prices. Packaged meats operating profit declined to $.13 per pound from $.17 per pound, reflecting substantially iger raw material costs, wic we were unable to pass on fully to consumers. Operating profit in fiscal 2010 included $30.4 million in carges associated wit te Restructuring Plan and te Sioux City plant closure. Hog Production Segment Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Sales... $ 3,052.6 $ 2, % $ 2,705.1 $ 2, % Operating profit (loss) (539.2) 142 Head sold (4)% (6)% Average domestic live og prices (per undred weigt) (1)... $ $ % $ $ % Raising costs (per undred weigt) (2).. $ $ % $ $ (1)% (1) Represents te average live og market price as quoted by te Iowa-Soutern Minnesota og market. (2) Includes te effects of grain derivative contracts designated in edging relationsips. In addition to te information provided in te table above, te following items explain te significant canges in Hog Production segment sales and operating profit: 2012 vs Sales and operating profit were positively impacted by significantly iger live og market prices. Volume declined due to temporary disruptions from te Cost Savings Initiative and te sale of our Oklaoma og farms at te end of te tird quarter of fiscal Raising costs increased primarily as a result of iger feed costs. Fiscal 2012 operating profit includes $22.2 million in net carges associated wit te Missouri litigation compared to a $19.1 million net benefit in fiscal Te Missouri litigation is more fully described under Significant Items Affecting Results of Operations above. Operating profit in fiscal 2011 included a net gain of $18.7 million on te sale of og farms in Oklaoma, Iowa and Texas. Fiscal 2012 operating profit includes accelerated depreciation carges of $8.2 million due to our decision in te first quarter of fiscal 2012 to permanently idle certain Missouri farm assets. 45

100 Fiscal 2012 operating profit includes $3.1 million in carges associated wit te Cost Savings Initiative compared to $28.0 million in fiscal Certain derivative contracts are not reflected in te average live og prices and raising costs presented in te table above; primarily commodity derivative contracts tat are not designated in edging relationsips for accounting purposes as well as lean og derivative contracts tat are designated in edging relationsips for accounting purposes. Gains on tese contracts increased by $36.4 million vs Sales and operating profit were positively impacted by substantially iger live og prices due to a reduction in te supply of market ogs. Operating loss in fiscal 2010 included $34.1 million in impairment carges related to certain og farms, wic is more fully explained under Significant Events Affecting Results of Operations above. Operating profit in fiscal 2011 included a benefit of $19.1 million related primarily to an insurance settlement associated wit te Missouri litigation, wic is more fully described under Significant Items Affecting Results of Operations above. Operating profit in fiscal 2011 includes a net gain of $18.7 million on te sales of og farms in Oklaoma, Iowa and Texas. Operating profit in fiscal 2011 included carges associated wit te Cost Savings Initiative of $28.0 million compared to $9.1 million in fiscal

101 International Segment Fiscal Years % Fiscal Years Cange % Cange (in millions) (in millions) Sales: Poland... $ 1,128.3 $ 1, % $ 1,040.0 $ % Romania Oter (9) (1) Total... $ 1,466.7 $ 1, $ 1,340.7 $ 1, Operating profit (loss): Poland... $ 49.7 $ 64.0 (22)% $ 64.0 $ 75.7 (15)% Romania (14) (74) Oter (1)... (14.8) 42.7 (135) Total... $ 42.8 $ (63) $ $ (9) Poland: Sales volume (pounds) (2).. (4)% 12% Average unit selling price (2) (7) Hogs processed... (6) 24 Raising costs (per undred weigt) Romania: Sales volume (pounds) (2).. 10% 22% Average unit selling price (2)... 9 (10) Hogs processed Raising costs (per undred weigt) (12) (1) Includes te results from our equity metod investments in Mexico and our investment in CFG. (2) Excludes te sale of live ogs and includes te impact of foreign currency translation. In addition to te information provided in te table above, te following items explain te significant canges in International segment sales and operating profit: 2012 vs Sales and operating profit in Poland were positively impacted by iger average unit selling prices primarily due to a sift in product mix to more packaged meats and our ability to pass along iger raw material costs, particularly in te second alf of fiscal Operating profit in Poland declined primarily as a result of iger raw material costs in our meat processing operations. Improvements in Polis og production fundamentals partially offset te decline in profit. Sales and operating profit in our Romania fres pork operation was positively impacted by our recently received approval to export pork products out of Romania to European Union member countries. As a result, we saw average unit selling prices, excluding te impact of foreign currency translation, increase 7%. Our Romanian fres pork and og production operations bot saw improvements in operating results. However, tese improvements were more tan offset by increased losses in our distribution operations and an unfavorable $8.4 million impact from foreign currency exposure. 47

102 Fiscal 2012 operating profit includes $38.7 million of carges related to te CFG Consolidation Plan, wic is more fully described above in Significant Events Affecting Results of Operations. Equity income from our Mexican joint ventures decreased $16.2 million, primarily due to iger feed costs and unfavorable canges in foreign excange rates vs Te increases in sales volumes were primarily due to capacity expansion in semi-processed and sausage products in Poland and te expansion of og production operations in Romania. Te decline in average unit selling prices reflects adverse economic conditions in Europe. In Romania, we recognized $32.2 million less in government subsidies for og production tan te prior year due to te expiration of te subsidy program in te second alf of fiscal Equity income from our equity metod investments increased $29.3 million primarily driven by iger og prices in Mexico. Also, equity income from CFG in fiscal 2010 was negatively impacted by $10.4 million of debt restructuring carges and $1.3 million of carges related to its discontinued Russian operation. Oter Segment Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Sales... $ $ 74.7 NM $ 74.7 $ (51)% Operating (loss) profit... (2.4) NM (2.4) 3.6 (167) Te following items explain te significant canges in Oter segment sales and operating profit: Te decrease in sales and operating profit reflects te sale of our turkey operations, including our investment in Butterball, in December 2010 (fiscal 2011), wic is more fully explained under Significant Events Affecting Results of Operations above. Fiscal 2010 included te sale of our remaining live cattle inventory totaling $33.3 million. Corporate Segment Fiscal Years % Fiscal Years % Cange Cange (in millions) (in millions) Operating profit (loss)... $ (110.0) $ 3.7 NM $ 3.7 $ (68.2) 105% Te following items explain te significant canges in Corporate segment operating profit (loss): 2012 vs Fiscal 2011 included a gain of $120.6 million on te final settlement wit our insurance carriers of our claim related to te fire tat occurred at our Cuday, Wisconsin facility in fiscal Fiscal 2012 includes $6.4 million of professional fees related to te potential acquisition of a controlling interest in CFG. In June 2011, we terminated negotiations to purcase te additional interest. 48

103 Variable compensation cost declined $9.0 million due to lower consolidated profit levels in fiscal Expense for pension and oter postretirement benefits decreased $4.1 million vs Fiscal 2011 included a gain of $120.6 million on te final settlement wit our insurance carriers of our claim related to te fire tat occurred at our Cuday, Wisconsin facility in fiscal Compensation expenses increased $31.1 million driven by substantially improved consolidated operating results. Fiscal 2010 included a $4.5 million gain on te sale of our investment in Farasia. Gains on company-owned life insurance policies were lower by $3.6 million. Cange in foreign currency transaction losses negatively impacted operating profit by $2.3 million. LIQUIDITY AND CAPITAL RESOURCES Summary Our cas requirements consist primarily of te purcase of raw materials used in our og production and pork processing operations, long-term debt obligations and related interest, lease payments for real estate, macinery, veicles and oter equipment, and expenditures for capital assets, oter investments and oter general business purposes. Our primary sources of liquidity are cas we receive as payment for te products we produce and sell, as well as our credit facilities. We believe tat our current liquidity position is strong and tat our cas flows from operations and availability under our credit facilities will be sufficient to meet our working capital needs and financial obligations for at least te next twelve monts. As of April 29, 2012, our liquidity position was approximately $1.5 billion, comprised of approximately $1.1 billion in availability under our credit facilities and $324.3 million in cas and cas equivalents. Additionally, we ave no substantial debt obligations coming due until fiscal Sources of Liquidity We ave available a variety of sources of liquidity and capital resources, bot internal and external. Tese sources provide funds required for current operations, acquisitions, integration costs, debt retirement and oter capital requirements. Accounts Receivable and Inventories Te meat processing industry is caracterized by ig sales volume and rapid turnover of inventories and accounts receivable. Because of te rapid turnover rate, we consider our meat inventories and accounts receivable igly liquid and readily convertible into cas. Te Hog Production segment also as rapid turnover of accounts receivable. Altoug inventory turnover in te Hog Production segment is slower, mature ogs are readily convertible into cas. Borrowings under our credit facilities are used, in part, to finance increases in te levels of inventories and accounts receivable resulting from seasonal and oter market-related fluctuations in raw material costs. 49

104 Credit Facilities Facility Capacity Borrowing Base Adjustment April 29, 2012 Outstanding Letters of Credit Outstanding Borrowings Amount Available (in millions) Inventory Revolver... $ $ $ $ $ Securitization Facility (96.1) International facilities (64.9) 40.7 Total credit facilities... $1,305.6 $ $ (96.1) $ (64.9) $1,144.6 In June 2011 (fiscal 2012), we refinanced our asset-based revolving credit agreement totaling $1.0 billion tat supported sort-term funding needs and letters of credit (te ABL Credit Facility) into two separate facilities: (1) an inventory based revolving credit facility up to $925.0 million, wit an option to expand up to $1.2 billion (te Inventory Revolver), and (2) an accounts receivable securitization facility up to $275.0 million (te Securitization Facility). We may request working capital loans and letters of credit under bot facilities. Availability under te Inventory Revolver is a function of te level of eligible inventories, subject to reserves. Te Inventory Revolver matures in June However, it will mature on Marc 15, 2014 if te outstanding principal balance of our senior secured notes due July 2014 (2014 Notes), net of te amount of cas in excess of $75 million, exceeds $300 million on tat date. Te unused commitment fee and te interest rate spreads are a function of our leverage ratio (as defined in te Second Amended and Restated Credit Agreement). As of April 29, 2012, te unused commitment fee and interest rate were 0.375% and LIBOR plus 2.5%, respectively. Te Inventory Revolver includes financial covenants. Te ratio of our funded debt to capitalization (as defined in te Second Amended and Restated Credit Agreement) may not exceed 0.5 to 1.0, and our EBITDA to interest expense ratio (as defined in te Second Amended and Restated Credit Agreement) may not be less tan 2.5 to 1.0. Obligations under te Inventory Revolver are guaranteed by our material U.S. subsidiaries and are secured by (i) a first priority lien on certain personal property, including cas and cas equivalents, deposit accounts, inventory, intellectual property, and certain equity interests (te Inventory Revolver Collateral), and (ii) a second priority lien on substantially all of te guarantors real property, fixtures and equipment (te Non-Inventory Revolver Collateral). Te term of te Securitization Facility is tree years. As part of te arrangement, all accounts receivable of our major Pork segment subsidiaries are sold to a wolly-owned bankruptcy remote special purpose veicle (SPV). Te SPV pledges te receivables as security for loans and letters of credit. Te SPV is included in our consolidated financial statements and terefore, te accounts receivable owned by it are included in our consolidated balance seet. However, te accounts receivable owned by te SPV are separate and distinct from our oter assets and are not available to our oter creditors sould we become insolvent. Te SPV eld $390.3 million of accounts receivable as of April 29, Te unused commitment fee and te interest rate spreads under te Securitization Facility are a function of our leverage ratio (as defined in te Second Amended and Restated Credit Agreement). As of April 29, 2012, te unused commitment fee and interest rate were 0.375% and te lender s cost of funds of 0.28% plus 1.25%, respectively. Securities We ave a self registration statement filed wit te Securities and Excange Commission to register sales of debt, stock and oter securities from time to time. We would use te net proceeds from te possible sale of tese securities for acquisitions, repayment of existing debt or general corporate purposes. 50

105 Cas Flows Operating Activities Fiscal Years (in millions) Net cas flows from operating activities... $570.1 $ $ Te following items explain te significant canges in cas flows from operating activities over te past tree fiscal years: 2012 vs Cas paid to outside og suppliers was iger due to a 15% increase in average live og market prices. Fiscal 2012 included net domestic tax payments of $225.7 million compared to net refunds of $34.8 million in te prior year. Cas paid for grain purcased by te Hog Production segment was approximately $111.3 million iger tan te prior year due to increased feed prices. Variable compensation paid in fiscal 2012 related to te prior year s performance was iger tan te corresponding amount paid in fiscal We contributed $142.8 million to our qualified and non-qualified pension plans in fiscal 2012 compared to $128.5 million in fiscal Cas received from customers increased primarily as a result of iger selling prices. Cas received for te settlement of commodity derivative contracts and for margin requirements increased $82.0 million vs Cas received from customers increased due to iger selling prices on fres pork, packaged meats and live ogs. Cas received for te settlement of commodity derivative contracts and for margin requirements increased $315.9 million. We received cas dividends from CFG of approximately $3.4 million in fiscal 2011 compared to $16.6 million in fiscal Cas paid to outside og suppliers was significantly iger tan te prior year due to a 29% increase in average domestic live og market prices. Cas paid for grain purcased by te Hog Production segment was approximately $139.1 million iger tan te prior year due to increased feed prices. We contributed $128.5 million to our qualified and non-qualified pension plans in fiscal 2011 compared to $73.9 million in fiscal In fiscal 2011, we transferred a total $27.2 million of cas to our workers compensation service providers to replace letters of credit previously eld as collateral in tese arrangements. 51

106 Investing Activities Fiscal Years (in millions) Capital expenditures... $(290.7) $ (176.8) $ (174.7) Dispositions Insurance proceeds Net (additions) proceeds of breeding stock... (2.3) 26.2 (8.0) Proceeds from sale of property, plant and equipment Oter Net cas flows from investing activities... $(286.6) $ $ (133.8) Te following items explain te significant investing activities for eac of te past tree fiscal years: 2012 Capital expenditures included $32.8 million related to our Kinston, Nort Carolina plant expansion project and $30.9 million related to te Cost Savings Initiative. Te remaining capital expenditures primarily related to plant and og farm improvement projects 2011 Capital expenditures primarily related to plant and og farm improvement projects, including approximately $44.0 million related to te Cost Savings Initiative. Dispositions included proceeds from te sale of our investment in Butterball, LLC and our related turkey production assets and proceeds from te sale of og operations in Texas, Oklaoma and Iowa. Te insurance proceeds represent te gain on involuntary conversion of property, plant and equipment due to te Patrick Cuday fire upon te final settlement of claims wit our insurance carriers in te tird quarter of fiscal Proceeds from te sale of property, plant and equipment includes $9.1 million from te sale of farm land in Texas Capital expenditures were primarily related to te Restructuring Plan, te purcase of property and equipment previously leased and plant and og farm improvement projects. Dispositions included $14.2 million in proceeds from te sale of our interest in Farasia and $9.1 million in proceeds from te sale of RMH, a subsidiary in te Pork segment. Te insurance proceeds represent te portion of total insurance proceeds tat were attributable to te destruction of property, plant and equipment due to te fire tat occured at our Patrick Cuday facility. 52

107 Financing Activities Fiscal Years (in millions) Principal payments on long-term debt and capital lease obligations... $ (152.7) $ (944.5) $ (333.3) Net (repayments) borrowings on revolving credit facilities and notes payables... (0.3) 21.6 (491.6) Proceeds from te issuance of long-term debt Repurcase of common stock... (189.5) Net proceeds from te issuance of common stock and stock option exercises Cange in cas collateral (23.9) Purcase of redeemable noncontrolling interest... (38.9) Debt issuance costs and oter... (11.1) (64.6) Net cas flows from financing activities... $ (328.4) $ (945.6) $ Te following items explain te significant financing activities for eac of te past tree fiscal years: 2012 We redeemed te remaining $77.8 million of our 7% senior unsecured notes due August 2011 and repurcased $59.7 million of our 10% senior secured notes due July We repurcased 9,176,704 sares of our common stock for $189.5 million as part of te sare repurcase program approved by our board of directors in June 2011 (fiscal 2012), wic is more fully explained under Additional Matters Affecting Liquidity. We received $20.0 million of cas previously eld in a deposit account to serve as collateral for overdrafts on certain of our bank accounts and $3.9 million of cas from te counterparty of our interest rate swap contract wic expired in August 2011 (fiscal 2012). We paid $11.0 million of debt issuance costs in connection wit te refinancing of te ABL Credit Facility We repurcased $522.2 million of our 7% senior unsecured notes due August 2011 troug open market purcases as well as a tender offer. Also, we repurcased $190.0 million and $200.9 million of our 7.75% senior unsecured notes due May 2013 and our 10% senior secured notes due July 2014, respectively, as a result of a tender offer tat expired on February 9, We repaid $16.2 million in outstanding notes payable and received $40.4 million from draws on credit facilities in te International segment. We repaid $30.1 million on outstanding loans in te International segment. We transferred $20.0 million of cas into a deposit account to serve as collateral for overdrafts on certain of our bank accounts in place of letters of credit previously used under our banking agreement and $3.9 million of cas to te counterparty of our interest rate swap contract to serve as collateral and replace letters of credit previously provided under te contract In July 2009, we issued $625 million aggregate principal amount of 10% senior secured notes at a price equal to % of teir face value. In August 2009, we issued an additional $225 million aggregate 53

108 principal amount of 10% senior secured notes at a price equal to 104% of teir face value, plus accrued interest from July 2, 2009 to August 14, Collectively, tese notes, wic mature in July 2014, are referred to as te 2014 Notes. Interest payments are due semi-annually on January 15 and July 15. Te 2014 Notes are guaranteed by substantially all of our U.S. subsidiaries. We used te net proceeds from te issuance of te 2014 Notes, togeter wit oter available cas, to repay borrowings and terminate commitments under te U.S. Credit Facility, to repay te outstanding balance under te Euro Credit Facility, to repay and/or refinance oter indebtedness and for oter general corporate purposes. In July 2009, we entered into a $200.0 million term loan due August 29, 2013 (te Rabobank Term Loan), wic replaced our ten existing $200.0 million term loan tat was sceduled to mature in August In June 2011 (fiscal 2012), we refinanced te Rabobank Term Loan and extended its maturity to June 9, Under te new terms, we are obligated to repay $25.0 million on June 9, We may elect to prepay te loan at any time, subject to te payment of certain prepayment fees in respect of any voluntary prepayment prior to June 9, 2013 and oter customary breakage costs. In September 2009, we issued 21,660,649 sares of common stock in a registered public offering at $13.85 per sare. In October 2009, we issued an additional 598,141 sares of common stock at $13.85 per sare to cover over-allotments from te offering. We incurred costs of $13.5 million associated wit te offering. Te net proceeds from te offering were used to repay our $206.3 million senior unsecured notes, wic matured in October 2009, and for working capital and oter general corporate purposes. We paid debt issuance costs totaling $64.6 million related to te 2014 Notes, te Rabobank Term Loan and te ABL Credit Facility. Te debt issuance costs were capitalized and are being amortized into interest expense over te life of eac instrument or ave been expensed as part debt extinguisment. In November 2009, te noncontrolling interest olders of Premium Pet Healt, LLC (PPH), a subsidiary in our Pork segment, notified us of teir intention to exercise teir put option, requiring us to purcase all of teir ownersip interests in te subsidiary. In December 2009, we acquired te remaining 49% interest in PPH for $38.9 million. PPH is a leading protein by-product processor tat supplies many of te leading pet food processors in te United States. Capitalization April 29, 2012 May 1, 2011 (in millions) 10% senior secured notes, due July 2014, including unamortized discounts of $7.0 million and $11.2 million... $ $ % senior secured notes, due July 2014, including unamortized premiums of $4.4 million and $6.1 million % senior unsecured notes, due July % senior unsecured Convertible Notes, due June 2013, including unamortized discounts of $26.8 million and $47.3 million % senior unsecured notes, due May % senior unsecured notes, due August 2011, including unamortized premiums of $0.2 million Floating rate senior secured term loan, due June Various, interest rates from 0% to 7.47%, due May 2012 troug Marc Total debt... 1, ,094.7 Current portion... (62.5) (143.2) Total long-term debt... $1,874.8 $1,951.5 Total sareolders equity... $3,387.3 $3,

109 Interest Rate Spread Altoug we ad no borrowings on te Inventory Revolver or te Securitization Facility as of April 29, 2012, te applicable interest rates would ave been LIBOR plus 2.5% and te lender s cost of funds of 0.28% plus 1.25%, respectively. Bot interest rate spreads are based on pricing-level grids in te respective agreements and determined by our Funded Debt to EBITDA ratio (as defined in te Second Amended and Restated Credit Agreement). Guarantees As part of our business, we are party to various financial guarantees and oter commitments as described below. Tese arrangements involve elements of performance and credit risk tat are not included in te consolidated balance seet. We could become liable in connection wit tese obligations depending on te performance of te guaranteed party or te occurrence of future events tat we are unable to predict. If we consider it probable tat we will become responsible for an obligation, we will record te liability in our consolidated balance seet. We (togeter wit our joint venture partners) guarantee financial obligations of certain unconsolidated joint ventures. Te financial obligations are: up to $87.0 million of debt borrowed by Agroindustrial del Noroeste (Norson), of wic $58.0 million was outstanding as of April 29, 2012, and up to $3.5 million of liabilities wit respect to currency swaps executed by anoter of our unconsolidated Mexican joint ventures, Granjas Carroll de Mexico. Te covenants in te guarantee relating to Norson s debt incorporate our covenants under te Inventory Revolver. In addition, we continue to guarantee a lease obligation of $11.3 million tat was assumed by JBS in connection wit te sale of Smitfield Beef, Inc. Tis lease guarantee may remain in place until te lease expires in February Additional Matters Affecting Liquidity Capital Projects As of April 29, 2012, we anticipate capital expenditures of approximately $167 million during fiscal 2013, including approximately $52 million related to our Kinston, Nort Carolina plant expansion project, wic is more fully explained under Significant Events Affecting Results of Operations above. Tese expenditures are expected to be funded wit cas flows from operations and/or borrowings under credit facilities. Sare Repurcase Program In June 2011 (fiscal 2012), we announced tat our board of directors ad approved a sare repurcase program autorizing us to buy up to $150.0 million of our common stock over te subsequent 24 mont period (te Sare Repurcase Program). Tis autorization replaced our previous sare repurcase program. In September 2011 (fiscal 2012), our board of directors approved an increase of $100.0 million to te autorized amount of te Sare Repurcase Program. Sare repurcases may be made on te open market or in privately negotiated transactions. Te number of sares repurcased, and te timing of any buybacks, depend on corporate cas balances, business and economic conditions and oter factors, including investment opportunities. Te Sare Repurcase Program may be discontinued at any time. In connection wit te Sare Repurcase Program, we entered into an agreement wit a broker (te Trading Plan) wic autorized it to purcase our common stock on our bealf based on certain parameters, in accordance wit te applicable requirements of Rule 10b5-1(c)(1)(i) and Rule 10b-18 under te Securities Excange Act of During fiscal 2012, we repurcased 9,176,704 sares of our common stock for $189.5 million, including related fees. 55

110 Subsequent to April 29, 2012 and troug June 13, 2012, our broker purcased on our bealf an additional 2,618,785 sares of our common stock under te Trading Plan for $52.2 million, including related fees. All sare repurcases were funded from cas on and. In June 2012 (fiscal 2013), we announced tat our board of directors ad approved a new sare repurcase program autorizing us to buy up to $250 million of our common stock over te next 24 monts in addition to tose amounts previously autorized under te Sare Repurcase Program. We intend to fund sare repurcases from cas on and. Sare repurcases may be made on te open market, or in privately negotiated transactions. Te number of sares repurcased, and te timing of any buybacks, will depend on corporate cas balances, business and economic conditions, and oter factors, including investment opportunities. Te program may be discontinued at any time. Group Pens In January 2007 (fiscal 2007), we announced a voluntary, ten-year program to pase out individual gestation stalls at our company-owed sow farms and replace te gestation stalls wit group pens. We currently estimate te total cost of our transition to group pens to be approximately $300.0 million. Tis program represents a significant financial commitment and reflects our desire to be more animal friendly, as well as to address te concerns and needs of our customers. As of te end of calendar year 2011, we ad completed conversions to group ousing for over 30% of our sows on company-owned farms. We will continue te conversion as planned wit te objective of completing conversions for all sows on company-owned farms by te end of Risk Management Activities We are exposed to market risks primarily from canges in commodity prices, and to a lesser degree, interest rates and foreign excange rates. To mitigate tese risks, we utilize derivative instruments to edge our exposure to canging prices and rates, as more fully described under Derivative Financial Instruments below. Our liquidity position may be positively or negatively affected by canges in te underlying value of our derivative portfolio. Wen te value of our open derivative contracts decrease, we may be required to post margin deposits wit our brokers to cover a portion of te decrease. Conversely, wen te value of our open derivative contracts increase, our brokers may be required to deliver margin deposits to us for a portion of te increase. During fiscal 2012, margin deposits posted by us ranged from $(32.9) million to $115.0 million (negative amounts representing margin deposits we received from our brokers). Te average daily amount on deposit wit brokers during fiscal 2012 was $27.1 million. As of April 29, 2012, te net amount on deposit wit us was $9.5 million. Te effects, positive or negative, on liquidity resulting from our risk management activities tend to be mitigated by offsetting canges in cas prices in our core business. For example, in a period of rising grain prices, gains resulting from long grain derivative positions would generally be offset by iger cas prices paid to farmers and oter suppliers in spot markets. Tese offsetting canges do not always occur, owever, in te same amounts or in te same period, wit lag times of as muc as twelve monts. Pension Plan Funding Funding requirements for our pension plans are determined based on te funded status measured at te end of eac year. Te values of our pension obligation and related assets may fluctuate significantly, wic may in turn lead to a larger underfunded status in our pension plans and a iger funding requirement. We contributed $142.8 million to our qualified pension plans in fiscal Our expected minimum funding requirement in fiscal 2013 is $44.8 million. Litigation Costs PSF, certain of our oter subsidiaries and affiliates and we are parties to litigation in Missouri involving a number of claims alleging tat og farms owned or under contract wit te defendants interfered wit te 56

111 plaintiffs use and enjoyment of teir properties. Tese claims, and an update of recent developments, including substantial progress in te consummation of a global settlement and settlements wit certain insurance carriers, are more fully described in Item 3. Legal Proceedings Missouri Litigation. We establised a reserve estimating our liability for tese and similar potential claims on te opening balance seet for our acquisition of PSF. Consequently, expenses and oter liabilities associated wit tese claims will not affect our profits or losses unless our reserve proves to be insufficient or excessive. Te global settlement, if consummated on te terms contemplated, would not be materially different tan te accrual. However, payments made under te global settlement, if consummated, will negatively impact our cas flows and liquidity position. In addition, in te event te global settlement is not consummated, legal expenses incurred in our and our subsidiaries defense of tese claims and any payments made to plaintiffs troug unfavorable verdicts or oterwise will also negatively impact our cas flows and our liquidity position. In any event, we do not expect suc payments to ave a material adverse impact on our overall financial position or liquidity. Contractual Obligations and Commercial Commitments Te following table provides information about our contractual obligations and commercial commitments as of April 29, Payments Due By Period Total < 1 Year 1-3 Years 3-5 Years > 5 Years (in millions) Long-term debt... $ 1,937.3 $ 62.5 $ 1,157.5 $ $ Interest Capital lease obligations, including interest Operating leases Capital expenditure commitments Purcase obligations: Hog procurement (1)... 6, , , , ,107.6 Contract og growers (2)... 1, Grain procurement (3) Oter Total... $10,248.3 $ 2,355.0 $ 3,737.8 $ 2,112.7 $ 2,042.8 (1) Troug te Pork and International segments, we ave purcase agreements wit certain og producers. Some of tese arrangements obligate us to purcase all of te ogs produced by tese producers. Oter arrangements obligate us to purcase a fixed amount of ogs. Due to te uncertainty of te number of ogs tat we are obligated to purcase and te uncertainty of market prices at te time of og purcases, we ave estimated our obligations under tese arrangements. Future payments were estimated using current live og market prices, available futures contract prices and internal projections adjusted for istorical quality premiums. (2) Troug te Hog Production segment, we use independent farmers and teir facilities to raise ogs produced from our breeding stock. Under multi-year contracts, te farmers provide te initial facility investment, labor and front line management in excange for a performance-based service fee payable upon delivery. We are obligated to pay tis service fee for all ogs delivered. We ave estimated our obligation based on expected ogs delivered from tese farmers. (3) Includes fixed price forward grain purcase contracts totaling $117.5 million. Also includes unpriced forward grain purcase contracts wic, if valued as of April 29, 2012 market prices, would be $111.2 million. Tese forward grain contracts are accounted for as normal purcases. As a result, tey are not recorded in te balance seet. OFF-BALANCE SHEET ARRANGEMENTS We do not ave any off-balance seet arrangements tat ave a material current effect, or tat are reasonably likely to ave a material future effect, on our financial condition, canges in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 57

112 DERIVATIVE FINANCIAL INSTRUMENTS We are exposed to market risks primarily from canges in commodity prices, as well as interest rates and foreign excange rates. To mitigate tese risks, we utilize derivative instruments to edge our exposure to canging prices and rates. Derivative instruments are recorded in te balance seet as eiter assets or liabilities at fair value. For derivatives tat qualify and ave been designated as cas flow or fair value edges for accounting purposes, canges in fair value ave no net impact on earnings, to te extent te derivative is considered perfectly effective in acieving offsetting canges in fair value or cas flows attributable to te risk being edged, until te edged item is recognized in earnings (commonly referred to as te edge accounting metod). For derivatives tat do not qualify or are not designated as edging instruments for accounting purposes, canges in fair value are recorded in current period earnings (commonly referred to as te mark-to-market metod). Under tis guidance, we may elect eiter metod of accounting for our derivative portfolio, assuming all te necessary requirements are met. We ave in te past availed ourselves of eiter acceptable metod and expect to do so in te future. We believe all of our derivative instruments represent economic edges against canges in prices and rates, regardless of teir designation for accounting purposes. Wen available, we use quoted market prices to determine te fair value of our derivative instruments. Tis may include excange prices, quotes obtained from brokers, or independent valuations from external sources, suc as banks. In some cases were market prices are not available, we make use of observable market based inputs to calculate fair value. Te size and mix of our derivative portfolio varies from time to time based upon our analysis of current and future market conditions. Te following table presents te fair values of our open derivative financial instruments in te consolidated balance seets (1). April 29, 2012 May 1, 2011 (in millions) Grains... $ 33.8 $ 75.0 Livestock (12.9) Energy... (12.2) 0.9 Interest rates... (2.3) Foreign currency (1.4) (1) Negative amounts represent net liabilities Sensitivity Analysis Te following table presents te sensitivity of te fair value of our open derivative contracts to a ypotetical 10% cange in market prices or in interest rates and foreign excange rates, as of April 29, 2012 and May 1, April 29, 2012 May 1, 2011 (in millions) Grains... $ 49.4 $ 33.1 Livestock Energy Interest rates... Foreign currency

113 Commodities Risk Our meat processing and og production operations use various raw materials, mainly corn, lean ogs, live cattle, pork bellies, soybeans and weat, wic are actively traded on commodity excanges. We edge tese commodities wen we determine conditions are appropriate to mitigate te inerent price risks. Wile tis edging may limit our ability to participate in gains from favorable commodity fluctuations, it also tends to reduce te risk of loss from adverse canges in raw material prices. Commodities underlying our derivative instruments are subject to significant price fluctuations. Any requirement to mark-to-market te positions tat ave not been designated or do not qualify for edge accounting could result in volatility in our results of operations. We attempt to closely matc te edging instrument terms wit te edged item s terms. Gains and losses resulting from our commodity derivative contracts are recorded in cost of sales except for lean og contracts tat are designated in cas flow edging relationsips, wic are recorded in sales, and are offset by increases and decreases in cas prices in our core business (wit suc increases and decreases also reflected in cost of sales). For example, in a period of rising grain prices, gains resulting from long grain derivative positions would generally be offset by iger cas prices paid to farmers and oter suppliers in spot markets. However, under te mark-to-market metod described above, tese offsetting canges do not always occur in te same period, wit lag times of as muc as twelve monts. Interest Rate and Foreign Currency Excange Risk We periodically enter into interest rate swaps to edge our exposure to canges in interest rates on certain financial instruments and to manage te overall mix of fixed rate and floating rate debt instruments. We also periodically enter into foreign excange forward contracts to edge exposure to canges in foreign currency rates on foreign denominated assets and liabilities as well as forecasted transactions denominated in foreign currencies. Te following tables present te effects on our consolidated financial statements from our derivative instruments and related edged items: Cas Flow Hedges Gain (Loss) Recognized in Oter Compreensive Income (Loss) on Derivative (Effective Portion) Gain (Loss) Reclassified from Accumulated Oter Compreensive Loss into Earnings (Effective Portion) Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion) (in millions) (in millions) (in millions) Commodity contracts: Grain contracts... $ 5.5 $ $ (4.0) $ 75.1 $ 80.7 $ (85.4) $ (0.2) $ 1.9 $ (7.2) Lean og contracts (82.8) (22.8) 32.3 (44.5) 1.9 (0.5) (1.0) (0.5) Interest rate contracts... (1.2) (4.6) (2.4) (7.0) (6.8) Foreign excange contracts... (2.5) (4.1) 6.1 (4.1) (2.6) (8.0) Total... $ $ $ (25.3) $ $ 26.6 $ (98.3) $ (0.7) $ 0.9 $ (7.7) Fair Value Hedges Gain (Loss) Recognized in Earnings on Derivative Gain (Loss) Recognized in Earnings on Related Hedged Item (in millions) (in millions) Commodity contracts... $ 21.9 $ (4.2) $ (36.2) $(16.7) $ 5.4 $32.4 Interest rate contracts (0.6) Foreign excange contracts (1.5) Total... $ 21.9 $ (4.2) $ (32.2) $(16.7) $ 5.4 $

114 Mark-to-Market Metod Fiscal Years (in millions) Commodity contracts... $ 6.4 $63.4 $ (92.4) Foreign excange contracts (9.0) (11.1) Total... $14.1 $54.4 $(103.5) 60

115 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Te preparation of consolidated financial statements requires us to make estimates and assumptions. Tese estimates and assumptions affect te reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at te date of te consolidated financial statements and te reported amounts of revenues and expenses during te reporting period. Tese estimates and assumptions are based on our experience and our understanding of te current facts and circumstances. Actual results could differ from tose estimates. Te following is a summary of certain accounting policies and estimates we consider critical. Our accounting policies are more fully discussed in Note 1 in Item 8. Financial Statements and Supplementary Data. Description Contingent liabilities We are subject to lawsuits, investigations and oter claims related to te operation of our farms, labor, livestock procurement, securities, environmental, product, taxing autorities and oter matters, and are required to assess te likeliood of any adverse judgments or outcomes to tese matters, as well as potential ranges of probable losses and fees. A determination of te amount of reserves and disclosures required, if any, for tese contingencies are made after considerable analysis of eac individual issue. We accrue for contingent liabilities wen an assessment of te risk of loss is probable and can be reasonably estimated. We disclose contingent liabilities wen te risk of loss is reasonably possible or probable. Judgments and Uncertainties Our contingent liabilities contain uncertainties because te eventual outcome will result from future events, and determination of current reserves requires estimates and judgments related to future canges in facts and circumstances, differing interpretations of te law and assessments of te amount of damages or fees, and te effectiveness of strategies or oter factors beyond our control. Effect if Actual Results Differ From Assumptions We ave not made any material canges in te accounting metodology used to establis our contingent liabilities during te past tree fiscal years. We establised an accrual wit respect to te Missouri nuisance suits, described in Item 3. Legal Proceedings above, on te opening balance seet for our acquisition of PSF in fiscal 2008 and we ave periodically adjusted tat accrual as developments ave occurred. Te accrual, as adjusted from time to time, represents our best estimate of te probable loss for tese suits. In response to recent developments, including substantial progress in te consummation of a global settlement, we recognized $22.2 million in net carges in fiscal We do not believe tere is a reasonable likeliood tere will be a material cange in te estimates or assumptions used to calculate our contingent liabilities. However, if actual results are not consistent wit our estimates or assumptions, we may be exposed to gains or losses tat could be material. 61

116 Description Marketing and advertising costs We incur advertising, customer incentive and consumer incentive costs to promote products troug marketing programs. Tese programs include cooperative advertising, volume discounts, in-store display incentives, coupons and oter programs. Advertising costs are carged in te period incurred except for certain production costs, wic are expensed upon te first airing of te advertisement. We accrue customer and consumer incentive costs based on te estimated performance, istorical utilization and redemption of eac program. Except for certain amounts related to cooperative advertising arrangements, cas consideration given to customers is considered a reduction in te price of our products, tus recorded as a reduction to sales. Te remainder of marketing and advertising costs is recorded as a selling, general and administrative expense. Accrued self insurance We are self insured for certain losses related to ealt and welfare, workers compensation, auto liability and general liability claims. We use an independent tird-party actuary to assist in te determination of certain of our self-insurance liabilities. We and te actuary consider a number of factors wen estimating our self-insurance liability, including claims experience, demograpic factors, severity factors and oter actuarial assumptions. We periodically review our estimates and assumptions wit our tird-party actuary to assist us in determining te adequacy of our self-insurance liability. Judgments and Uncertainties Recognition of te costs related to tese programs contains uncertainties due to judgment required in estimating te potential performance and redemption of eac program. Tese estimates are based on many factors, including experience of similar promotional programs. Our self-insurance liabilities contain uncertainties due to assumptions required and judgment used. Costs to settle our obligations, including legal and ealtcare costs, could increase or decrease causing estimates of our self- insurance liabilities to cange. Incident rates, including frequency and severity, could increase or decrease causing estimates in our self-insurance liabilities to cange. 62 Effect if Actual Results Differ From Assumptions We ave not made any material canges in te accounting metodology used to establis our marketing accruals during te past tree fiscal years. We do not believe tere is a reasonable likeliood tere will be a material cange in te estimates or assumptions used to calculate our marketing accruals. However, if actual results are not consistent wit our estimates or assumptions, we may be exposed to gains or losses tat could be material. We ave not made any material canges in te accounting metodology used to establis our self-insurance liabilities during te past tree fiscal years. We do not believe tere is a reasonable likeliood tere will be a material cange in te estimates or assumptions used to calculate our self-insurance liabilities. However, if actual results are not consistent wit our estimates or assumptions, we may be exposed to gains or losses tat could be material. A 10% increase in te estimates as of April 29, 2012, would result in an increase in te amount we recorded for our insurance liabilities of approximately $10.8 million.

117 Description Impairment of long-lived assets Long-lived assets are evaluated for impairment wenever events or canges in circumstances indicate te carrying value may not be recoverable. Examples include a current expectation tat a long-lived asset will be disposed of significantly before te end of its previously estimated useful life, a significant adverse cange in te extent or manner in wic we use a long-lived asset or a cange in its pysical condition. Wen evaluating long-lived assets for impairment, we compare te carrying value of te asset to te asset s estimated undiscounted future cas flows. Impairment is recorded if te estimated future cas flows are less tan te carrying value of te asset. Te impairment is te excess of te carrying value over te fair value of te long-lived asset. We recorded impairment carges related to long-lived assets of $2.9 million, $9.2 and $48.1 million (including $6.5 million of goodwill) in fiscal 2012, 2011 and 2010, respectively. Judgments and Uncertainties Our impairment analysis contains uncertainties due to judgment in assumptions and estimates surrounding undiscounted future cas flows of te long-lived asset, including forecasting useful lives of assets and selecting te discount rate tat reflects te risk inerent in future cas flows. Effect if Actual Results Differ From Assumptions We ave not made any material canges in te accounting metodology used to evaluate te impairment of long-lived assets during te last tree years. We do not believe tere is a reasonable likeliood tere will be a material cange in te estimates or assumptions used to calculate impairments of long- lived assets. However, if actual results are not consistent wit our estimates and assumptions used to calculate estimated future cas flows, we may be exposed to future impairment losses tat could be material. Impairment of goodwill and oter non-amortized intangible assets Goodwill and indefinite-lived intangible assets are tested for impairment annually in te fourt quarter, or sooner if impairment indicators arise. In te evaluation of goodwill for impairment, we may perform a qualitative assessment to determine if it is more likely tan not tat te fair value of a reporting unit is less tan its carrying amount. If it is not, no furter analysis is required. If it is, a prescribed two-step goodwill impairment test is performed to identify potential goodwill impairment and measure te amount of goodwill impairment loss We estimate te fair value of our reporting units by applying valuation multiples and/or estimating future discounted cas flows. Te selection of multiples and cas flows is dependent upon assumptions regarding future levels of operating performance as well as business trends and prospects, and industry, market and economic conditions. A discounted cas flow analysis requires us to make various judgmental assumptions about 63 We ave not made any material canges in te accounting metodology used to evaluate impairment of goodwill and oter intangible assets during te last tree years. As of April 29, 2012, we ad $768.2 million of goodwill and $346.2 million of oter nonamortized intangible assets. Our goodwill is included in te following segments: $215.7 million Pork $132.5 million International

118 Description to be recognized for tat reporting unit, if any. Te first step in te two-step impairment test is to identify if a potential impairment exists by comparing te fair value of a reporting unit wit its carrying amount, including goodwill. If te fair value of a reporting unit exceeds its carrying amount, goodwill of te reporting unit is not considered to ave a potential impairment and te second step of te impairment test is not necessary. However, if te carrying amount of a reporting unit exceeds its fair value, te second step is performed to determine if goodwill is impaired and to measure te amount of impairment loss to recognize, if any. Te second step compares te implied fair value of goodwill wit te carrying amount of goodwill. If te implied fair value of goodwill exceeds te carrying amount, goodwill is not considered impaired. However, if te carrying amount of goodwill exceeds te implied fair value, an impairment loss is recognized in an amount equal to tat excess. Te implied fair value of goodwill is determined in te same manner as te amount of goodwill recognized in a business combination (i.e., te fair value of te reporting unit is allocated to all te assets and liabilities, including any unrecognized intangible assets, as if te reporting unit ad been acquired in a business combination and te fair value of te reporting unit was te purcase price paid to acquire te reporting unit). Judgments and Uncertainties sales, operating margins, growt rates and discount rates. Wen estimating future discounted cas flows, we consider te assumptions tat ypotetical marketplace participants would use in estimating future cas flows. In addition, were applicable, an appropriate discount rate is used, based on our cost of capital or location- specific economic factors. We experienced significant losses in our domestic og production operations in fiscal 2009 and fiscal 2010 resulting primarily from record ig grain prices and an oversupply of ogs in te market. Our Hog Production segment returned to profitability in fiscal Te fair value estimates of our Hog Production reporting units assume normalized operating margin assumptions based on longterm expectations and margins istorically realized in te og production industry. Te fair values of trademarks ave been calculated using a royalty rate metod. Assumptions about royalty rates are based on te rates at wic similar brands and trademarks are licensed in te marketplace. Our impairment analysis contains uncertainties due to uncontrollable events tat could positively or negatively impact te anticipated future economic and operating conditions. Effect if Actual Results Differ From Assumptions $420.0 million Hog Production As a result of te first step of our 2012 goodwill impairment analysis, te fair value of eac reporting unit exceeded its carrying value. Terefore, te second step was not necessary. A ypotetical 10% decrease in te estimated fair value of our reporting units would not result in an impairment. Our fiscal 2012 oter nonamortized intangible asset impairment analysis did not result in an impairment carge. A ypotetical 10% decrease in te estimated fair value of our intangible assets would not result in a material impairment. 64

119 Description For our oter non-amortized intangible assets, if te carrying value of te intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to tat excess. We ave elected to make te first day of te fourt quarter te annual impairment assessment date for goodwill and oter intangible assets. However, we could be required to evaluate te recoverability of goodwill and oter intangible asset sprior to te required annual assessment if we experience disruptions to te business, unexpected significant declines in operating results, divestiture of a significant component of te business or a decline in market capitalization. For example, in fiscal 2009, we performed an interim test of te carrying amount of goodwill related to our U.S. og production operations due to significant losses incurred in our og production operations, te deteriorating macro-economic environment, te continued market volatility and te decrease in our market capitalization. Income taxes We estimate total income tax expense based on statutory tax rates and tax planning opportunities available to us in various jurisdictions in wic we earn income. Federal income taxes include an estimate for taxes on earnings of foreign subsidiaries expected to be remitted to te United States and be taxable, but not for earnings considered indefinitely invested in te foreign subsidiary. Deferred income taxes are recognized for te future tax effects of temporary differences between financial and income tax reporting using tax rates Judgments and Uncertainties Canges in tax laws and rates could affect recorded deferred tax assets and liabilities in te future. Canges in projected future earnings could affect te recorded valuation allowances in te future. Our calculations related to income taxes contain uncertainties due to judgment used to calculate tax liabilities in te application of complex tax regulations across te tax jurisdictions were we operate. Our analysis of unrecognized tax benefits contain uncertainties based on judgment used to apply te more likely tan not 65 Effect if Actual Results Differ From Assumptions We do not believe tere is a reasonable likeliood tere will be a material cange in te tax related balances or valuation allowances. However, due to te complexity of some of tese uncertainties, te ultimate resolution may result in a payment tat is materially different from te current estimate of te tax liabilities. To te extent we prevail in matters for wic liabilities ave been establised, or are required to pay amounts in excess of our recorded liabilities, our effective tax rate in a given financial statement period could be materially affected. An

120 Description in effect for te years in wic te differences are expected to reverse. Valuation allowances are recorded wen it is likely a tax benefit will not be realized for a deferred tax asset. We record unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of weter, and te extent to wic, additional taxes will be due. Tis analysis is performed in accordance wit te applicable accounting guidance. Pension Accounting We provide te majority of our U.S. employees wit pension benefits. We account for our pension plans in accordance wit te applicable accounting guidance, wic requires us to recognize te funded status of our pension plans in our consolidated balance seets and to recognize, as a component of oter compreensive income (loss), te gains or losses and prior service costs or credits tat arise during te period, but are not recognized in net periodic benefit cost. We use an independent tird-party actuary to assist in te determination of our pension obligation and related costs. We generally contribute te minimum amount required under government regulations to our qualified pension plans. We funded $142.8 million, $95.1 million and $62.6 million to our qualified pension plans during fiscal 2012, 2011 and 2010, respectively. We expect to fund at least $44.8 million in fiscal Judgments and Uncertainties recognition and measurement tresolds. Te measurement of our pension obligation and costs is dependent on a variety of assumptions regarding future events. Te key assumptions we use include discount rates, salary growt, retirement ages/mortality rates and te expected return on plan assets. Tese assumptions may ave an effect on te amount and timing of future contributions. Te discount rate assumption is based on investment yields available at yearend on corporate bonds rated AA and above wit a maturity to matc our expected benefit payment stream. Te salary growt assumption reflects our long- term actual experience, te near-term outlook and assumed inflation. Retirement rates are based primarily on actual plan experience. Mortality rates are based on mandated mortality tables, wic ave flexibility to consider industry specific groups, suc as blue collar or wite collar. Te expected return on plan assets reflects asset allocations, investment strategy and istorical returns of te asset categories. Te effects of actual results differing from tese assumptions are 66 Effect if Actual Results Differ From Assumptions unfavorable tax settlement may require use of our cas and result in an increase in our effective tax rate in te period of resolution. A favorable tax settlement could be recognized as a reduction in our effective tax rate in te period of resolution. If actual results are not consistent wit our estimates or assumptions, we may be exposed to gains or losses tat could be material. For example, te discount rate used to measure our projected benefit obligation decreased from 5.85% as of May 1, 2011 to 4.75% as of April 29, 2012, wic is te primary cause for a $213.6 million decline in funded status and an expected increase in net pension cost of $38.9 million in fiscal An additional 0.50% decrease in te discount rate used to measure our projected benefit obligation would ave furter reduced te funded status by $111.9 million as of April 29, 2012, and would ave resulted in an additional $12.9 million in net pension cost above our expected amount for fiscal A 0.50% decrease in expected return on plan assets would ave resulted in an additional $5.1 million in net pension cost above our expected amount for in fiscal In addition to iger net pension cost, a significant decrease in te

121 Description Judgments and Uncertainties accumulated and amortized over future periods and, terefore, generally affect our recognized expense in suc future periods. Te following weigted average assumptions were used to determine our benefit obligation and net benefit cost for fiscal 2012: 5.85% Discount rate to determine net benefit cost 4.75% Discount rate to determine pension benefit obligation 7.75% Expected return on plan assets 4.00% Salary growt Effect if Actual Results Differ From Assumptions funded status of our pension plans caused by eiter a devaluation of plan assets or a decline in te discount rate would result in iger pension funding requirements. Derivatives Accounting See Derivative Financial Instruments above for a discussion of our derivative accounting policy. 67

122 Recent Accounting Pronouncements See Note 1 in Item 8. Financial Statements and Supplementary Data for information about recently issued accounting standards not yet adopted by us, including teir potential effects on our financial statements. FORWARD-LOOKING INFORMATION Tis report contains forward-looking statements witin te meaning of te federal securities laws. Te forward-looking statements include statements concerning our outlook for te future, as well as oter statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters tat are not istorical facts. Our forward-looking information and statements are subject to risks and uncertainties tat could cause actual results to differ materially from tose expressed in, or implied by, te statements. Tese risks and uncertainties include te availability and prices of live ogs, raw materials, fuel and supplies, food safety, livestock disease, live og production costs, product pricing, te competitive environment and related market conditions, risks associated wit our indebtedness, including cost increases due to rising interest rates or canges in debt ratings or outlook, edging risk, operating efficiencies, canges in foreign currency excange rates, access to capital, te cost of compliance wit and canges to regulations and laws, including canges in accounting standards, tax laws, environmental laws, agricultural laws and occupational, ealt and safety laws, adverse results from on-going litigation, actions of domestic and foreign governments, labor relations issues, credit exposure to large customers, te ability to make effective acquisitions and successfully integrate newly acquired businesses into existing operations, our ability to effectively restructure portions of our operations and acieve cost savings from suc restructurings and uncertainties described under Item 1A. Risk Factors. Readers are cautioned not to place undue reliance on forward-looking statements because actual results may differ materially from tose expressed in, or implied by, te statements. Any forward-looking statement tat we make speaks only as of te date of suc statement, and we undertake no obligation to update any forward-looking statements, weter as a result of new information, future events or oterwise. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as suc, and sould only be viewed as istorical data. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about our exposure to market risk is included in Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations Derivative Financial Instruments of tis Annual Report on Form 10-K. All statements oter tan istorical information required by tis item are forward-looking statements. Te actual impact of future market canges could differ materially because of, among oters, te factors discussed in tis Annual Report on Form 10-K. 68

123 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements Consolidated Statements of Income for te Fiscal Years 2012, 2011 and Consolidated Statements of Compreensive Income for te Fiscal Years 2012, 2011 and Consolidated Balance Seets as of April 29, 2012 and May 1, Consolidated Statements of Cas Flows for te Fiscal Years 2012, 2011 and Consolidated Statements of Sareolders Equity for te Fiscal Years 2012, 2011 and Notes to Consolidated Financial Statements Scedule II Valuation and Qualifying Accounts PAGE 69

124 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING Te Board of Directors and Sareolders of Smitfield Foods, Inc. We ave audited Smitfield Foods, Inc. and subsidiaries internal control over financial reporting as of April 29, 2012 based on criteria establised in Internal Control-Integrated Framework issued by te Committee of Sponsoring Organizations of te Treadway Commission (te COSO criteria). Smitfield Foods, Inc and subsidiaries management is responsible for maintaining effective internal control over financial reporting, and for its assessment of te effectiveness of internal control over financial reporting included in te accompanying Management s Annual Report on Internal Control over Financial Reporting in Item 9A. Our responsibility is to express an opinion on te company s internal control over financial reporting based on our audit. We conducted our audit in accordance wit te standards of te Public Company Accounting Oversigt Board (United States). Tose standards require tat we plan and perform te audit to obtain reasonable assurance about weter effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing te risk tat a material weakness exists, testing and evaluating te design and operating effectiveness of internal control based on te assessed risk, and performing suc oter procedures as we considered necessary in te circumstances. We believe tat our audit provides a reasonable basis for our opinion. A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding te reliability of financial reporting and te preparation of financial statements for external purposes in accordance wit generally accepted accounting principles. A company s internal control over financial reporting includes tose policies and procedures tat (1) pertain to te maintenance of records tat, in reasonable detail, accurately and fairly reflect te transactions and dispositions of te assets of te company; (2) provide reasonable assurance tat transactions are recorded as necessary to permit preparation of financial statements in accordance wit generally accepted accounting principles, and tat receipts and expenditures of te company are being made only in accordance wit autorizations of management and directors of te company; and (3) provide reasonable assurance regarding prevention or timely detection of unautorized acquisition, use or disposition of te company s assets tat could ave a material effect on te financial statements. Because of its inerent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to te risk tat controls may become inadequate because of canges in conditions, or tat te degree of compliance wit te policies or procedures may deteriorate. In our opinion, Smitfield Foods, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of April 29, 2012, based on te COSO criteria. We also ave audited, in accordance wit te standards of te Public Company Accounting Oversigt Board (United States), te consolidated balance seets of Smitfield Foods, Inc. and subsidiaries as of April 29, 2012 and May 1, 2011, and te related consolidated statements of income, compreensive income, sareolders equity and cas flows for eac of te tree years in te period ended April 29, 2012 of Smitfield Foods, Inc. and subsidiaries and our report dated June 15, 2012 expressed an unqualified opinion tereon. /s/ Ernst & Young LLP Ricmond, Virginia June 15,

125 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL STATEMENTS Te Board of Directors and Sareolders of Smitfield Foods, Inc. We ave audited te accompanying consolidated balance seets of Smitfield Foods, Inc. and subsidiaries as of April 29, 2012 and May 1, 2011, and te related consolidated statements of income, compreensive income, sareolders equity, and cas flows for eac of te tree years in te period ended April 29, Our audits also included te financial statement scedule listed in te Index at Item 15. Tese financial statements and scedule are te responsibility of te Company s management. Our responsibility is to express an opinion on tese financial statements and scedule based on our audits. We conducted our audits in accordance wit te standards of te Public Company Accounting Oversigt Board (United States). Tose standards require tat we plan and perform te audit to obtain reasonable assurance about weter te financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting te amounts and disclosures in te financial statements. An audit also includes assessing te accounting principles used and significant estimates made by management, as well as evaluating te overall financial statement presentation. We believe tat our audits provide a reasonable basis for our opinion. In our opinion, te financial statements referred to above present fairly, in all material respects, te consolidated financial position of Smitfield Foods, Inc. and subsidiaries at April 29, 2012 and May 1, 2011, and te consolidated results of teir operations and teir cas flows for eac of te tree years in te period ended April 29, 2012, in conformity wit U.S. generally accepted accounting principles. Also, in our opinion, te related financial statement scedule, wen considered in relation to te basic financial statements taken as a wole, presents fairly in all material respects te information set fort terein. We also ave audited, in accordance wit te standards of te Public Company Accounting Oversigt Board (United States), Smitfield Foods, Inc. and subsidiaries internal control over financial reporting as of April 29, 2012, based on criteria establised in Internal Control-Integrated Framework issued by te Committee of Sponsoring Organizations of te Treadway Commission and our report dated June 15, 2012 expressed an unqualified opinion tereon. /s/ Ernst & Young LLP Ricmond, Virginia June 15,

126 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in millions, except per sare data) Fiscal Years Sales... $ 13,094.3 $ 12,202.7 $ 11,202.6 Cost of sales... 11, , ,472.5 Gross profit... 1, , Selling, general and administrative expenses Gain on fire insurance recovery... (120.6) Loss (income) from equity metod investments (50.1) (38.6) Operating profit , Interest expense Loss on debt extinguisment Income (loss) before income taxes (214.6) Income tax expense (benefit) (113.2) Net income (loss)... $ $ $ (101.4) Net income (loss) per sare: Basic... $ 2.23 $ 3.14 $ (.65) Diluted... $ 2.21 $ 3.12 $ (.65) Weigted average sares outstanding: Basic Effect of dilutive sares Diluted See Notes to Consolidated Financial Statements 72

127 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in millions) Fiscal Years Net income (loss)... $ $ $ (101.4) Oter compreensive income (loss): Foreign currency translation: Translation adjustment... (185.7) Tax benefit Pension accounting: Net actuarial (losses) gains... (326.1) 60.8 (179.9) Reclassification of losses into net income (loss) Tax benefit (expense) (37.1) 63.1 Hedge accounting: Net derivative gains (losses) (26.6) Reclassification of (gains) losses into net income (loss)... (100.9) (26.6) 98.3 Tax expense... (1.6) (45.7) (19.1) Total oter compreensive income (loss)... (341.7) (39.0) Total compreensive income (loss)... $ 19.6 $ $ (140.4) See Notes to Consolidated Financial Statements 73

128 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except sare data) April 29, 2012 May 1, 2011 ASSETS Current assets: Cas and cas equivalents... $ $ Accounts receivable, net Inventories... 2, ,019.9 Prepaid expenses and oter current assets Total current assets... 3, ,337.9 Property, plant and equipment, net... 2, ,309.1 Goodwill Investments Intangible assets, net Oter assets Total assets... $ 7,422.2 $ 7,611.8 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations Accounts payable Accrued expenses and oter current liabilities Total current liabilities... 1, ,227.9 Long-term debt and capital lease obligations... 1, ,978.6 Net long-term pension liability Oter liabilities Redeemable noncontrolling interests Commitments and contingencies Equity: Sareolders equity: Preferred stock, $1.00 par value, 1,000,000 autorized sares... Common stock, $.50 par value, 500,000,000 autorized sares; 157,408,077 and 166,080,231 issued and outstanding Additional paid-in capital... 1, ,638.7 Stock eld in trust... (67.9) (66.7) Retained earnings... 2, ,059.7 Accumulated oter compreensive loss... (510.9) (169.2) Total sareolders equity... 3, ,545.5 Noncontrolling interests Total equity... 3, ,546.6 Total liabilities and sareolders equity... $ 7,422.2 $ 7,611.8 See Notes to Consolidated Financial Statements 74

129 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) Fiscal Years Cas flows from operating activities: Net income (loss)... $ $ $ (101.4) Adjustments to reconcile net cas flows from operating activities: Loss (income) from equity metod investments (50.1) (38.6) Depreciation and amortization Gain on fire insurance recovery... (120.6) Deferred income taxes Impairment of assets (Gain) loss on sale of property, plant and equipment, including breeding stock... (25.2) (53.0) 22.7 Pension expense Gain on sale of investments... (4.5) Pension contributions... (142.8) (128.5) (73.9) Canges in operating assets and liabilities and oter, net: Accounts receivable (63.8) (12.6) Inventories... (89.8) (178.4) 46.5 Prepaid expenses and oter current assets... (68.1) (209.6) Accounts payable (12.6) Accrued expenses and oter current liabilities (72.6) Oter Net cas flows from operating activities Cas flows from investing activities: Capital expenditures... (290.7) (176.8) (174.7) Dispositions Insurance proceeds Net (additions) proceeds of breeding stock... (2.3) 26.2 (8.0) Proceeds from sale of property, plant and equipment Oter Net cas flows from investing activities... (286.6) (133.8) Cas flows from financing activities: Principal payments on long-term debt and capital lease obligations... (152.7) (944.5) (333.3) Net (repayments) borrowings on revolving credit facilities and notes payables... (0.3) 21.6 (491.6) Proceeds from te issuance of long-term debt Repurcase of common stock... (189.5) Net proceeds from te issuance of common stock and stock option exercises Cange in cas collateral (23.9) Purcase of redeemable noncontrolling interest... (38.9) Debt issuance costs and oter... (11.1) (64.6) Net cas flows from financing activities... (328.4) (945.6) Effect of foreign excange rate canges on cas... (5.5) (1.6) (1.1) Net cange in cas and cas equivalents... (50.4) (76.5) Cas and cas equivalents at beginning of period Cas and cas equivalents at end of period... $ $ $ See Notes to Consolidated Financial Statements 75

130 SMITHFIELD FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (in millions) Common Stock (Sares) Common Stock (Amount) Additional Paid-in Capital Stock Held in Trust Retained Earnings Accumulated Oter Compreensive Loss Total Sareolders Equity Noncontrolling Interests Total Equity Balance, May 3, $71.8 $1,353.8 $(64.8) $1,640.1 $(388.5) $2,612.4 $ 4.1 $2,616.5 Common stock issued Issuance of common stock for sare based payments Stock compensation expense Adjustment for redeemable noncontrolling interests... (19.4) (19.4) (19.4) Purcase of stock for trust... (0.7) (0.7) (0.7) Distributions to noncontrolling interest... (1.6) (1.6) Oter Compreensive loss: Net (loss) income... (101.4) (101.4) 0.1 (101.3) Oter compreensive loss, netoftax... (39.0) (39.0) (39.0) Balance, May 2, ,626.9 (65.5) 1,538.7 (427.5) 2, ,758.2 Issuance of common stock for sare based payments Stock compensation expense Purcase of stock for trust... (1.2) (1.2) (1.2) Oter... (0.7) (0.7) 0.4 (0.3) Compreensive loss: Net income (loss) (1.9) Oter compreensive income, net of tax Balance, May 1, ,638.7 (66.7) 2,059.7 (169.2) 3, ,546.6 Common stock repurcased... (9.2) (4.6) (90.3) (94.6) (189.5) (189.5) Issuance of common stock for sare based payments (5.0) (4.7) (4.7) Stock compensation expense Purcase of stock for trust... (1.6) (1.6) (1.6) Oter Compreensive loss: Net income (loss) (0.8) Oter compreensive loss, netoftax... (341.7) (341.7) (341.7) Balance, April 29, $78.7 $1,561.0 $(67.9) $2,326.4 $(510.9) $3,387.3 $ 0.7 $3,388.0 See Notes to Consolidated Financial Statements 76

131 SMITHFIELD FOODS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unless oterwise stated, amounts presented in tese notes to our consolidated financial statements for all fiscal periods included. Certain prior year amounts ave been reclassified to conform to current year presentation. Principles of Consolidation Te consolidated financial statements include te accounts of all wolly-owned subsidiaries, as well as all majority-owned subsidiaries and oter entities for wic we ave a controlling interest. Entities tat are 50% owned or less are accounted for under te equity metod wen we ave te ability to exercise significant influence. We use te cost metod of accounting for investments in wic our ability to exercise significant influence is limited. All intercompany transactions and accounts ave been eliminated. Consolidating te results of operations and financial position of variable interest entities for wic we are te primary beneficiary does not ave a material effect on sales, net income (loss), or net income (loss) per diluted sare, or on our financial position for te fiscal periods presented. Foreign currency denominated assets and liabilities are translated into U.S. dollars using te excange rates in effect at te balance seet date. Results of operations and cas flows in foreign currencies are translated into U.S. dollars using te average excange rate over te course of te fiscal year. Te effect of excange rate fluctuations on te translation of assets and liabilities is included as a component of sareolders equity in accumulated oter compreensive loss and included in oter compreensive income (loss) for eac period. Gains and losses tat arise from excange rate fluctuations on transactions denominated in a currency oter tan te functional currency are included in selling, general and administrative expenses as incurred. We recorded net losses on foreign currency transactions of $7.4 million and $0.4 million in fiscal 2012 and fiscal 2011, respectively, and net gains on foreign currency transactions of $3.7 million in fiscal Our Polis operations ave different fiscal period end dates. As suc, we ave elected to consolidate te results of tese operations on a one-mont lag. We do not believe te impact of reporting te results of tese entities on a one-mont lag is material to te consolidated financial statements. Te consolidated financial statements are prepared in conformity wit accounting principles generally accepted in te U.S., wic require us to make estimates and use assumptions tat affect te amounts reported in te consolidated financial statements and accompanying notes. Actual results could differ from tose estimates. Our fiscal year consists of 52 or 53 weeks and ends on te Sunday nearest April 30. Fiscal 2012, 2011 and 2010 consisted of 52 weeks. Cas and Cas Equivalents We consider all igly liquid investments wit original maturities of 90 days or less to be cas equivalents. Te majority of our cas is concentrated in demand deposit accounts or money market funds. Te carrying value of cas equivalents approximates market value. In fiscal 2011, we began utilizing cas, in addition to letters of credit under our working capital facilities, as collateral for various banking and workers compensation agreements. As of April 29, 2012, we ad $7.8 million of cas eld as collateral by our workers compensation providers. As of May 1, 2011, we ad $20.0 million on deposit wit our cas management service provider, $27.2 million eld by our workers compensation service providers and $3.9 million eld by te counterparty of an interest rate swap contract. We ave reclassified te cas on deposit wit our cas management service provider to prepaid expenses and oter current assets and te remaining amounts to oter assets on te consolidated balance seets as of April 29, 2012 and May 1,

132 Accounts Receivable Accounts receivable are recorded net of te allowance for doubtful accounts. We regularly evaluate te collectibility of our accounts receivable based on a variety of factors, including te lengt of time te receivables are past due, te financial ealt of te customer and istorical experience. Based on our evaluation, we record reserves to reduce te related receivables to amounts we reasonably believe are collectible. Our reserve for uncollectible accounts receivable was $9.0 million and $9.2 million as of April 29, 2012 and May 1, 2011, respectively. Inventories Inventories consist of te following: April 29, 2012 May 1, 2011 (in millions) Livestock... $ $ Fres and packaged meats Grains Manufacturing supplies Oter Total inventories... $2,072.4 $2,019.9 Livestock are generally valued at te lower of first-in, first-out cost or market, adjusted for canges in te fair value of livestock tat are edged. Costs include purcase costs, feed, medications, contract grower fees and oter production expenses. Fres and packaged meats are valued based on USDA and oter market prices and adjusted for te cost of furter processing. Costs for packaged products include meat, labor, supplies and overead. Average costing is primarily utilized to account for fres and packaged meats and grains. Manufacturing supplies are principally ingredients and packaging materials. Derivative Financial Instruments and Hedging Activities See Note 5 Derivative Financial Instruments for our policy. Property, Plant and Equipment, Net Property, plant and equipment is generally stated at istorical cost, wic includes te ten fair values of assets acquired in business combinations, and depreciated on a straigt-line basis over te estimated useful lives of te assets. Assets eld under capital leases are classified in property, plant and equipment, net and amortized over te lease term. Te amortization of assets eld under capital leases is included in depreciation expense. Te cost of assets eld under capital leases was $34.0 million and $37.4 million at April 29, 2012 and May 1, 2011, respectively. Te assets eld under capital leases ad accumulated amortization of $1.7 million and $3.7 million at April 29, 2012 and May 1, 2011, respectively. Depreciation expense is included in eiter cost of sales or selling, general and administrative expenses, as appropriate. Depreciation expense totaled $238.6 million, $227.4 million and $236.9 million in fiscal 2012, 2011 and 2010, respectively. Interest is capitalized on property, plant and equipment over te construction period. Total interest capitalized was $2.8 million, $1.6 million and $2.8 million in fiscal 2012, 2011 and 2010, respectively. 78

133 Property, plant and equipment, net, consists of te following: Useful Life April 29, 2012 May 1, 2011 (in Years) (in millions) Land and improvements $ $ Buildings and improvements , ,717.8 Macinery and equipment , ,714.0 Breeding stock Computer ardware and software Oter Construction in progress , ,186.7 Accumulated depreciation... (1,992.7) (1,877.6) Property, plant and equipment, net... $2,277.2 $ 2,309.1 Goodwill and Oter Intangible Assets Goodwill represents te excess of te purcase price over te fair value of identifiable net assets of businesses acquired. Intangible assets wit finite lives are amortized over teir estimated useful lives. Te useful life of an intangible asset is te period over wic te asset is expected to contribute directly or indirectly to future cas flows. Goodwill and indefinite-lived intangible assets are tested for impairment annually in te fourt quarter, or sooner if impairment indicators arise. In te evaluation of goodwill for impairment, we may perform a qualitative assessment to determine if it is more likely tan not tat te fair value of a reporting unit is less tan its carrying amount. If it is not, no furter analysis is required. If it is, a prescribed two-step goodwill impairment test is performed to identify potential goodwill impairment and measure te amount of goodwill impairment loss to be recognized for tat reporting unit, if any. Te first step in te two-step impairment test is to identify if a potential impairment exists by comparing te fair value of a reporting unit wit its carrying amount, including goodwill. Te fair value of a reporting unit is estimated by applying valuation multiples and/or estimating future discounted cas flows. Te selection of multiples is dependent upon assumptions regarding future levels of operating performance as well as business trends and prospects, and industry, market and economic conditions. Wen estimating future discounted cas flows, we consider te assumptions tat ypotetical marketplace participants would use in estimating future cas flows. In addition, were applicable, an appropriate discount rate is used, based on an industry-wide average cost of capital or location-specific economic factors. If te fair value of a reporting unit exceeds its carrying amount, goodwill of te reporting unit is not considered to ave a potential impairment and te second step of te impairment test is not necessary. However, if te carrying amount of a reporting unit exceeds its fair value, te second step is performed to determine if goodwill is impaired and to measure te amount of impairment loss to recognize, if any. Te second step compares te implied fair value of goodwill wit te carrying amount of goodwill. Te implied fair value of goodwill is determined in te same manner as te amount of goodwill recognized in a business combination (i.e., te fair value of te reporting unit is allocated to all te assets and liabilities, including any unrecognized intangible assets, as if te reporting unit ad been acquired in a business combination and te fair value of te reporting unit was te purcase price paid to acquire te reporting unit). If te implied fair value of goodwill exceeds te carrying amount, goodwill is not considered impaired. However, if te carrying amount of goodwill exceeds te implied fair value, an impairment loss is recognized in an amount equal to tat excess. Based on te results of our annual goodwill impairment tests, as of our testing date, no impairment indicators were noted for all te periods presented. 79

134 Te carrying amount of goodwill includes cumulative impairment losses of $6.0 million as of April 29, 2012 and May 1, Intangible assets consist of te following: Useful Life April 29, 2012 May 1, 2011 (in Years) (in millions) Amortized intangible assets: Customer relations assets $ 13.3 $ 13.3 Patents, rigts and leaseold interests Contractual relationsips Accumulated amortization... (22.6) (19.6) Amortized intangible assets, net Unamortized intangible assets: Trademarks... Indefinite Permits... Indefinite Intangible assets, net... $ $ Te fair values of trademarks are calculated using a royalty rate metod. Assumptions about royalty rates are based on te rates at wic similar brands and trademarks are licensed in te marketplace. If te carrying value of our indefinite-lived intangible assets exceeds teir fair value, an impairment loss is recognized in an amount equal to tat excess. Intangible assets wit finite lives are reviewed for recoverability wen indicators of impairment are present using estimated future undiscounted cas flows related to tose assets. We ave determined tat no impairments of our intangible assets existed for any of te periods presented. Amortization expense for intangible assets was $3.0 million, $3.2 million and $3.1 million in fiscal 2012, 2011 and 2010, respectively. As of April 29, 2012, te estimated amortization expense associated wit our intangible assets for eac of te next five fiscal years is expected to be $2.6 million. Debt Issuance Costs, Premiums and Discounts Debt issuance costs, premiums and discounts are amortized into interest expense over te terms of te related loan agreements using te effective interest metod or oter metods wic approximate te effective interest metod. Investments See Note 6 Investments for our policy. Income Taxes Income taxes are accounted for under te asset and liability metod. Deferred tax assets and liabilities are recognized for te estimated future tax consequences attributable to differences between te financial statement carrying amounts of existing assets and liabilities and teir respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for te year in wic tose temporary differences are expected to be recovered or settled. Te effect on deferred tax assets and liabilities of a cange in tax rate is recognized in earnings in te period tat includes te enactment date. Valuation allowances are establised wen necessary to reduce deferred tax assets to amounts more likely tan not to be realized. Te determination of our provision for income taxes requires significant judgment, te use of estimates, and te interpretation and application of complex tax laws. Significant judgment is required in assessing te timing and amounts of deductible and taxable items. 80

135 We record unrecognized tax benefit liabilities for known or anticipated tax issues based on our analysis of weter, and te extent to wic, additional taxes will be due. We accrue interest and penalties related to unrecognized tax benefits as oter liabilities and recognize te related expense as income tax expense. Pension Accounting We recognize te funded status of our defined benefit pension plans in te consolidated balance seets. We also recognize in oter compreensive income, te net of tax results of te gains or losses and prior service costs or credits tat arise during te period but are not recognized in net periodic benefit cost. Tese amounts are adjusted out of accumulated oter compreensive loss as tey are subsequently recognized as components of net periodic benefit cost. We measure our pension and oter postretirement benefit plan obligations and related plan assets as of te last day of our fiscal year. Te measurement of our pension obligations and related costs is dependent on te use of assumptions and estimates. Tese assumptions include discount rates, salary growt, mortality rates and expected returns on plan assets. Canges in assumptions and future investment returns could potentially ave a material impact on our expenses and related funding requirements. Self-Insurance Programs We are self-insured for certain levels of general and veicle liability, property, workers compensation, product recall and ealt care coverage. Te cost of tese self-insurance programs is accrued based upon estimated settlements for known and anticipated claims. Any resulting adjustments to previously recorded reserves are reflected in current period earnings. Contingent Liabilities We are subject to lawsuits, investigations and oter claims related to te operation of our farms, labor, livestock procurement, securities, environmental, product, taxing autorities and oter matters, and are required to assess te likeliood of any adverse judgments or outcomes to tese matters, as well as potential ranges of probable losses and fees. A determination of te amount of accruals and disclosures required, if any, for tese contingencies is made after considerable analysis of eac individual issue. We accrue for contingent liabilities wen an assessment of te risk of loss is probable and can be reasonably estimated. We disclose contingent liabilities wen te risk of loss is at least reasonably possible or probable. Our contingent liabilities contain uncertainties because te eventual outcome will result from future events. Our determination of accruals and any reasonably possible losses in excess of tose accruals require estimates and judgments related to future canges in facts and circumstances, interpretations of te law, te amount of damages or fees, and te effectiveness of strategies or oter factors beyond our control. If actual results are not consistent wit our estimates or assumptions, we may be exposed to gains or losses tat could be material. Revenue Recognition We recognize revenues from product sales upon delivery to customers or wen title passes. Revenue is recorded at te invoice price for eac product net of estimated returns and sales incentives provided to customers. Sales incentives include various rebate and trade allowance programs wit our customers, primarily discounts and rebates based on acievement of specified volume or growt in volume levels. Advertising and Promotional Costs Advertising and promotional costs are expensed as incurred except for certain production costs, wic are expensed upon te first airing of te advertisement. Promotional sponsorsip costs are expensed as te 81

136 promotional events occur. Advertising costs totaled $122.9 million, $120.1 million and $111.3 million in fiscal 2012, 2011 and 2010, respectively, and were included in selling, general and administrative expenses. Sipping and Handling Costs Sipping and andling costs are reported as a component of cost of sales. Researc and Development Costs Researc and development costs are expensed as incurred. Researc and development costs totaled $75.9 million, $47.0 million and $38.8 million in fiscal 2012, 2011 and 2010, respectively. Net Income (Loss) per Sare We present dual computations of net income (loss) per sare. Te basic computation is based on weigted average common sares outstanding during te period. Te diluted computation reflects te potentially dilutive effect of common stock equivalents, suc as stock options and convertible notes, during te period. We excluded stock options for approximately 1.7 million, 1.8 million and 1.7 million sares in fiscal 2012, 2011 and 2010, respectively, from te diluted computation because teir effect would ave been anti-dilutive. NOTE 2: NEW ACCOUNTING GUIDANCE In September 2011, te Financial Accounting Standards Board (FASB) issued new accounting guidance on testing goodwill for impairment. Te new guidance provides an entity te option to first perform a qualitative assessment to determine if it is more likely tan not tat te fair value of a reporting unit is less tan its carrying amount. If it is not, no furter analysis is required. If it is, te previously prescribed two-step goodwill impairment test is performed to identify potential goodwill impairment and measure te amount of goodwill impairment loss to be recognized for tat reporting unit, if any. We adopted tis new guidance in conjunction wit our annual goodwill impairment analysis during te fourt quarter of fiscal Te adoption of tis guidance did not ave an impact our consolidated financial statements. In June 2011, FASB issued new accounting guidance related to te presentation of compreensive income. Te new guidance provides companies te coice of presenting items of net income, items of oter compreensive income (OCI) and total compreensive income in one continuous statement of compreensive income or two separate consecutive statements. Companies will no longer ave te option to present OCI solely in te statement of stockolders equity. Te new guidance is effective for fiscal years, and interim periods witin tose years, beginning after December 15, Te guidance is required to be applied retrospectively upon adoption and early adoption is permitted. We adopted tis new guidance during te fourt quarter of fiscal Te adoption of tis guidance did not ave an impact our consolidated financial statements. NOTE 3: IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS Portsmout, Virginia Plant In November 2011 (fiscal 2012), we announced tat we would sift te production of ot dogs and luncmeat from Te Smitfield Packing Company, Inc. s (Smitfield Packing) Portsmout, Virginia plant to our Kinston, Nort Carolina plant and permanently close te Portsmout facility. Te Kinston facility will be expanded to andle te additional production and will incorporate state of te art tecnology and equipment, wic is expected to produce significant production efficiencies and cost reductions. Te Kinston expansion will require an estimated $85 million in capital expenditures. Te expansion of te Kinston facility and te closure of te Portsmout facility are expected to be completed by te end of fiscal

137 As a result of tis decision, we performed an impairment analysis of te related assets at te Portsmout facility in te second quarter of fiscal 2012 and determined tat te net cas flows expected to be generated over te anticipated remaining useful life of te plant are sufficient to recover its book value. As suc, no impairment exists. However, we ave revised depreciation estimates to reflect te use of te related assets at te Portsmout facility over teir sortened useful lives. As a result, we recognized accelerated depreciation carges of $3.3 million in cost of sales during fiscal We expect to recognize accelerated depreciation carges totaling $4.7 million during fiscal Also, in connection wit tis decision, we wrote-down inventory by $0.8 million in cost of sales and accrued $0.6 million for employee severance in selling, general and administrative expenses in te second quarter of fiscal All of tese carges are reflected in te Pork segment. Hog Farms Texas In te first quarter of fiscal 2010, we ceased og production operations and closed te farms related to our Dalart, Texas operation. In connection wit tis event, we recorded an impairment carge of $23.6 million to write-down te assets to teir estimated fair value of $20.9 million. Te estimate of fair value was based on our assessment of te facts and circumstances at te time of te write-down, wic indicated tat te igest and best use of te assets by a market participant was for crop farming. Te estimated fair value was determined using te initial valuation of te property in connection wit our acquisition of te farms, relevant market data based on recent transactions for similar real property and tird party estimates. In January 2011 (fiscal 2011), we sold land included in our Dalart, Texas operation to a crop farmer for net proceeds of $9.1 million and recognized a loss on te sale of $1.8 million in selling, general and administrative expenses in our Hog Production segment in te tird quarter of fiscal Also, in January 2011 (fiscal 2011), we received a non-binding letter of intent from a prospective buyer for te purcase of our remaining Dalart, Texas assets. Te prospective buyer ad indicated tat it intended to utilize te farms for og production after reconfiguring te assets to meet teir specific business purposes. In April 2011 (fiscal 2011), we completed te sale of te remaining Dalart, Texas assets and received net proceeds of $32.5 million. As a result of te sale, we recognized a gain of $13.6 million in selling, general and administrative expenses in our Hog Production segment in te fourt quarter of fiscal 2011, after allocating $8.5 million in goodwill to te asset group. Goodwill was allocated to tis business based on its fair value relative to te estimated fair value of our domestic og production reporting unit. Te operating results and cas flows from tese asset groups were not considered material for separate disclosure. Oklaoma and Iowa In January 2011 (fiscal 2011), we completed te sale of certain og production assets located in Oklaoma and Iowa. As a result of tese sales, we received total net proceeds of $70.4 million and recognized gains totaling $6.9 million, after allocating $17.0 million of goodwill to tese asset groups. Goodwill was allocated to tis business based on its fair value relative to te estimated fair value of our domestic og production reporting unit. Te gains were recorded in selling, general and administrative expenses in our Hog Production segment in te tird quarter of fiscal Te operating results and cas flows from tese asset groups were not considered material for separate disclosure. Missouri In te first quarter of fiscal 2010, we entered into negotiations to sell certain og farms located in Missouri, wic we believed would result in a completed sale witin te subsequent twelve mont period. We recorded total impairment carges of $10.5 million, including a $6.0 million allocation of goodwill, in te first quarter of fiscal 2010 to write-down te og farm assets to teir estimated fair value. Te impairment carges were recorded in cost of sales in te Hog Production segment. We determined te fair value of te assets by probability-weigting an estimated range of sales proceeds based on price negotiations between us and te prospective buyer, wic included consideration of recent market multiples. We allocated goodwill to te asset 83

138 disposal group based on its estimated fair value relative to te estimated fair value of our domestic og production reporting unit. In te tird quarter of fiscal 2010, negotiations for te sale of tese properties stalled indefinitely as we were unwilling to meet certain demands of te prospective buyer. Tese properties are classified as eld and used in te consolidated balance seets as of April 29, 2012 and May 1, 2011, as it is not probable tat a sale of tese properties will occur and be completed witin one year. In te first alf of fiscal 2011, we began reducing te og population on certain oter ogs farms in Missouri in order to comply wit an amended consent decree. Te amended consent decree allows us to return te farms to full capacity upon te installation of an approved next generation tecnology tat would reduce te level of odor produced by te farms. Te reduced og raising capacity at tese farms was replaced wit tird party contract farmers in Iowa. In te first quarter of fiscal 2011, in connection wit te anticipated reduction in finising capacity, we performed an impairment analysis of tese og farms and determined tat te book value of te assets was recoverable and tus, no impairment existed. Based on te favorable og raising performance experienced wit tese tird party contract farmers and te amount of capital required to install next generation tecnology at our Missouri farms, we made te decision in te first quarter of fiscal 2012 to permanently idle certain of te assets on tese farms. Depreciation estimates were revised to reflect te sortened useful lives of te assets. As a result, we recognized accelerated depreciation carges of $8.2 million in fiscal Tese carges are reflected in te Hog Production segment. Butterball, LLC (Butterball) In June 2010 (fiscal 2011), we announced tat we ad made an offer to purcase our joint venture partner s 51% ownersip interest in Butterball and our partner s related turkey production assets. In accordance wit Butterball s operating agreement, our partner ad to eiter accept te offer to sell or be required to purcase our 49% interest and our related turkey production assets, wic we refer to below as our turkey operations. In September 2010 (fiscal 2011), we were notified of our joint venture partner s decision to purcase our 49% interest in Butterball and our related turkey production assets. In December 2010 (fiscal 2011), we completed te sale of tese assets for $167.0 million and recognized a gain of $0.2 million. Te gain was calculated as te cas selling price, net of costs to sell, less te carrying amount of te asset disposal group. Te operating results and cas flows from our turkey operations were not considered material for separate disclosure. Sioux City, Iowa Plant In January 2010 (fiscal 2010), we announced tat we would close our fres pork processing plant located in Sioux City, Iowa. Te Sioux City plant was one of our oldest and least efficient plants. Te plant design severely limited our ability to produce value-added packaged meats products and maximize production trougput. A portion of te plant s production was transferred to oter nearby Smitfield plants. We closed te Sioux City plant in April 2010 (fiscal 2010). As a result of te planned closure, we recorded carges of $13.1 million in fiscal Tese carges consisted of $3.6 million for te write-down of long-lived assets, $2.5 million of unusable inventories and $7.0 million for estimated severance benefits pursuant to contractual and ongoing benefit arrangements. Substantially all of tese carges were recorded in cost of sales in te Pork segment. RMH Foods, LLC (RMH) In October 2009 (fiscal 2010), we entered into an agreement to sell substantially all of te assets of RMH, a subsidiary witin te Pork segment. As a result of tis sale, we recorded pre-tax carges totaling $3.5 million, including $0.5 million of goodwill impairment, in cost of sales in te Pork segment in fiscal 2010 to write-down te assets of RMH to teir fair values. In December 2009 (fiscal 2010), we completed te sale of RMH for $9.1 million, plus $1.4 million of liabilities assumed by te buyer. 84

139 NOTE 4: HOG PRODUCTION COST SAVINGS INITIATIVE In fiscal 2010, we announced a plan to improve te cost structure and profitability of our domestic og production operations (te Cost Savings Initiative). Te plan includes a number of undertakings designed to improve operating efficiencies and productivity. Tese consist of farm reconfigurations and conversions, termination of certain ig cost, tird party og grower contracts and breeding stock sourcing contracts, as well as a number of oter cost reduction activities. We expect te activities associated wit te Cost Savings Initiative to be substantially complete by te end of fiscal Te following presents te cumulative expenses incurred in eac of te last tree fiscal years related to te Cost Savings Initiative by major type of cost. All of te carges presented ave been recorded in cost of sales in te Hog Production segment. Tere are no significant expenses remaining and tere were no accrued liabilities for carges incurred under te Cost Savings Initiative as of April 29, Fiscal Years Cumulative (in millions) Cost savings activities: Contract terminations... $ 0.5 $ 19.4 $ 2.8 $ 22.7 Oter associated costs Accelerated depreciation Impairment Total carges... $ 3.1 $ 28.0 $ 9.1 $ 40.2 In addition to te carges presented in te table above, we expect capital expenditures associated wit te Cost Savings Initiative to total approximately $86 million. As of April 29, 2012 we ad incurred $77.2 million in capital expenditures. NOTE 5: DERIVATIVE FINANCIAL INSTRUMENTS Our meat processing and og production operations use various raw materials, primarily live ogs, corn and soybean meal, wic are actively traded on commodity excanges. We edge tese commodities wen we determine conditions are appropriate to mitigate price risk. Wile tis edging may limit our ability to participate in gains from favorable commodity fluctuations, it also tends to reduce te risk of loss from adverse canges in raw material prices. We attempt to closely matc te commodity contract terms wit te edged item. We also periodically enter into interest rate swaps to edge exposure to canges in interest rates on certain financial instruments and foreign excange forward contracts to edge certain exposures to fluctuating foreign currency rates. We record all derivatives in te balance seet as eiter assets or liabilities at fair value. Accounting for canges in te fair value of a derivative depends on weter it qualifies and as been designated as part of a edging relationsip. For derivatives tat qualify and ave been designated as edges for accounting purposes, canges in fair value ave no net impact on earnings, to te extent te derivative is considered perfectly effective in acieving offsetting canges in fair value or cas flows attributable to te risk being edged, until te edged item is recognized in earnings (commonly referred to as te edge accounting metod). For derivatives tat do not qualify or are not designated as edging instruments for accounting purposes, canges in fair value are recorded in current period earnings (commonly referred to as te mark-to-market metod). We may elect eiter metod of accounting for our derivative portfolio, assuming all te necessary requirements are met. We ave in te past availed ourselves of eiter acceptable metod and expect to do so in te future. We believe all of our derivative instruments represent economic edges against canges in prices and rates, regardless of teir designation for accounting purposes. 85

140 We do not offset te fair value of derivative instruments wit cas collateral eld wit or received from te same counterparty under a master netting arrangement. As of April 29, 2012, prepaid expenses and oter current assets included $4.6 million representing cas on deposit wit brokers to cover losses on our open derivative instruments and accrued expenses and oter current liabilities included $14.1 million representing cas deposits received from brokers to cover gains on our open derivative instruments. Canges in commodity prices could ave a significant impact on cas deposit requirements under our broker and counterparty agreements. Additionally, certain of our derivative contracts contain credit risk related contingent features, wic would require us to post additional cas collateral to cover net losses on open derivative instruments if our credit rating was downgraded. As of April 29, 2012, te net liability position of our open derivative instruments tat are subject to credit risk related contingent features was not material. We are exposed to losses in te event of nonperformance or nonpayment by counterparties under financial instruments. Altoug our counterparties primarily consist of financial institutions tat are investment grade, tere is still a possibility tat one or more of tese companies could default. However, a majority of our financial instruments are excange traded futures contracts eld wit brokers and counterparties wit wom we maintain margin accounts tat are settled on a daily basis, tereby limiting our credit exposure to non-excange traded derivatives. Determination of te credit quality of our counterparties is based upon a number of factors, including credit ratings and our evaluation of teir financial condition. As of April 29, 2012, we ad credit exposure of $10.6 million on non-excange traded derivative contracts, excluding te effects of netting arrangements. As a result of netting arrangements, we ad no significant credit exposure as of April 29, No significant concentrations of credit risk existed as of April 29, Te size and mix of our derivative portfolio varies from time to time based upon our analysis of current and future market conditions. All grain contracts, livestock contracts and foreign excange contracts are recorded in prepaid expenses and oter current assets or accrued expenses and oter current liabilities witin te consolidated balance seets, as appropriate. Interest rate contracts are recorded in oter liabilities. Te following table presents te fair values of our open derivative financial instruments in te consolidated balance seets on a gross basis. April 29, 2012 Assets May 1, 2011 April 29, 2012 Liabilities May 1, 2011 (in millions) (in millions) Derivatives using te edge accounting metod: Grain contracts... $ 35.3 $ 46.2 $ 9.6 $ 4.8 Livestock contracts Interest rate contracts Foreign excange contracts Total Derivatives using te mark-to-market metod: Grain contracts Livestock contracts Energy contracts Foreign excange contracts Total Total fair value of derivative instruments... $ 79.0 $ $ 30.7 $

141 Hedge Accounting Metod Cas Flow Hedges We enter into derivative instruments, suc as futures, swaps and options contracts, to manage our exposure to te variability in expected future cas flows attributable to commodity price risk associated wit te forecasted sale of live ogs and fres pork, and te forecasted purcase of corn and soybean meal. In addition, we enter into interest rate swaps to manage our exposure to canges in interest rates associated wit our variable interest rate debt, and we enter into foreign excange contracts to manage our exposure to te variability in expected future cas flows attributable to canges in foreign excange rates associated wit te forecasted purcase or sale of assets denominated in foreign currencies. As of April 29, 2012, we ad no cas flow edges for forecasted transactions beyond September Wen cas flow edge accounting is applied, derivative gains or losses are recognized as a component of oter compreensive income (loss) and reclassified into earnings in te same period or periods during wic te edged transactions affect earnings. Derivative gains and losses, wen reclassified into earnings, are recorded in cost of sales for grain contracts, sales for lean og contracts, interest expense for interest rate contracts and selling, general and administrative expenses for foreign excange contracts. Gains and losses on derivatives designed to edge price risk associated wit fres pork sales are recorded in te Hog Production segment. During fiscal 2012, te range of notional volumes associated wit open derivative instruments designated in cas flow edging relationsips was as follows: Minimum Maximum Metric Commodities: Corn... 26,705,000 56,230,000 Busels Soybean meal , ,722 Tons Lean Hogs ,000, ,360,000 Pounds Interest rate ,000,000 U.S. Dollars Foreign currency (1)... 20,634,871 60,895,614 U.S. Dollars (1) Amounts represent te U.S. dollar equivalent of various foreign currency contracts. Te following table presents te effects on our consolidated financial statements of pre-tax gains and losses on derivative instruments designated in cas flow edging relationsips for te fiscal years indicated: Gain (Loss) Recognized in Oter Compreensive Income (Loss) on Derivative (Effective Portion) Gain (Loss) Reclassified from Accumulated Oter Compreensive Loss into Earnings (Effective Portion) Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion) (in millions) (in millions) (in millions) Commodity contracts: Grain contracts... $ 5.5 $232.9 $ (4.0) $ 75.1 $ 80.7 $(85.4) $(0.2) $ 1.9 $(7.2) Lean og contracts (82.8) (22.8) 32.3 (44.5) 1.9 (0.5) (1.0) (0.5) Interest rate contracts... (1.2) (4.6) (2.4) (7.0) (6.8) Foreign excange contracts... (2.5) (4.1) 6.1 (4.1) (2.6) (8.0) Total... $105.8 $144.8 $(25.3) $100.9 $ 26.6 $(98.3) $(0.7) $ 0.9 $(7.7) For te fiscal periods presented, foreign excange contracts were determined to be igly effective. We ave excluded from te assessment of effectiveness differences between spot and forward rates, wic we ave determined to be immaterial. During fiscal 2012 and 2011, we discontinued cas flow edge accounting on certain grain contracts as it became probable tat te original forecasted transactions would not transpire. As a result of tis cange, te table above 87

142 for fiscal 2012 includes gains of $12.0 million on grain contracts de-designated from edging relationsips tat were reclassified from accumulated oter compreensive loss into earnings in fiscal Te related impact of discontinued cas flow edges in fiscal 2011 was immaterial. As of April 29, 2012, tere were deferred net gains of $51.2 million, net of tax of $32.0 million, in accumulated oter compreensive loss. We expect to reclassify $37.6 million ($23.0 million net of tax) of te deferred net gains on closed commodity contracts into earnings in fiscal We are unable to estimate te gains or losses to be reclassified into earnings in fiscal 2013 related to open contracts as teir values are subject to cange. Fair Value Hedges We enter into derivative instruments (primarily futures contracts) tat are designed to edge canges in te fair value of live og inventories and firm commitments to buy grains. Wen fair value edge accounting is applied, derivative gains and losses are recognized in earnings currently along wit te cange in fair value of te edged item attributable to te risk being edged. Te gains or losses on te derivative instruments and te offsetting losses or gains on te related edged items are recorded in cost of sales for commodity contracts, interest expense for interest rate contracts and selling, general and administrative expenses for foreign excange contracts. During fiscal 2012, te range of notional volumes associated wit open derivative instruments designated in fair value edging relationsips was as follows: Minimum Maximum Metric Commodities: Lean ogs ,680,000 Pounds Corn... 2,245,000 7,250,000 Busels Te following table presents te effects on our consolidated statements of income of gains and losses on derivative instruments designated in fair value edging relationsips and te related edged items for te fiscal years indicated: Gain (Loss) Recognized in Earnings on Derivative Gain (Loss) Recognized in Earnings on Related Hedged Item (in millions) (in millions) Commodity contracts... $ 21.9 $ (4.2) $ (36.2) $ (16.7) $ 5.4 $ 32.4 Interest rate contracts (0.6) Foreign excange contracts (1.5) Total... $ 21.9 $ (4.2) $ (32.2) $ (16.7) $ 5.4 $ 30.3 We recognized gains of $6.0 million in fiscal 2012 and losses of $24.9 million and $3.1 million in fiscal 2011 and fiscal 2010, respectively, on closed commodity derivative contracts as te underlying cas transactions affected earnings. For fair value edges of og inventory, we elect to exclude from te assessment of effectiveness differences between te spot and futures prices. Tese differences are recorded directly into earnings as tey occur. Tese differences resulted in gains of $5.1 million and $0.2 million in fiscal 2012 and fiscal 2011, respectively, and losses of $4.4 million in fiscal Mark-to-Market Metod Derivative instruments tat are not designated as a edge, ave been de-designated from a edging relationsip, or do not meet te criteria for edge accounting are marked-to-market wit te unrealized gains and losses togeter wit actual realized gains and losses from closed contracts being recognized in current period earnings. 88

143 Under te mark-to-market metod, gains and losses are recorded in cost of sales for commodity contracts, and selling, general and administrative expenses for interest rate contracts and foreign excange contracts. During fiscal 2012, te range of notional volumes associated wit open derivative instruments using te mark-to-market metod was as follows: Minimum Maximum Metric Commodities: Lean ogs , ,320,000 Pounds Corn... 4,985,000 22,810,000 Busels Soybean meal ,000 Tons Soybeans , ,000 Busels Weat... 1,820,000 Busels Live cattle ,000 Pounds Natural gas... 1,750,000 11,260,000 Million BTU Heating oil... 1,008,000 Gallons Crude oil... 53,000 Barrels Foreign currency (1)... 29,400, ,191,820 U.S. Dollars (1) Amounts represent te U.S. dollar equivalent of various foreign currency contracts. Te following table presents te amount of gains (losses) recognized in te consolidated statements of income on derivative instruments using te mark-to-market metod by type of derivative contract for te fiscal years indicated: Fiscal Years (in millions) Commodity contracts... $ 6.4 $63.4 $ (92.4) Foreign excange contracts (9.0) (11.1) Total... $14.1 $54.4 $(103.5) Te table above reflects gains and losses from bot open and closed contracts including, among oter tings, gains and losses related to contracts designed to edge price movements tat occur entirely witin a fiscal year. Te table includes amounts for bot realized and unrealized gains and losses. Te table is not, terefore, a simple representation of unrealized gains and losses recognized in te income statement during any period presented. NOTE 6: INVESTMENTS Investments consist of te following: Equity Investment Segment % Owned April 29, 2012 May 1, 2011 (in millions) Campofrío Food Group (CFG)... International 37% $ $ Mexican joint ventures... International 50% All oter equity metod investments... Various Various Total investments... $ $ We record our sare of earnings and losses from our equity metod investments in loss (income) from equity metod investments. Some of tese results are reported on a one-mont lag wic, in our opinion, does not 89

144 materially impact our consolidated financial statements. Eac quarter, we review te carrying value of our investments and consider weter indicators of impairment exist. Examples of impairment indicators include a istory or expectation of future operating losses and declines in a quoted sare price, among oter factors. If an impairment indicator exists, we must evaluate te fair value of our investment to determine if a loss in value, wic is oter tan temporary, as occurred. If we consider any suc decline to be oter tan temporary (based on various factors, including istorical financial results, product development activities and te overall ealt of te affiliate s industry), ten a write-down of te investment to its estimated fair value would be recorded. We ave determined tat no write-down was necessary for all periods presented. As of April 29, 2012, we eld 37,811,302 sares of CFG common stock. Sares of CFG are publicly traded on te Bolsa de Madrid excange (Madrid Excange). However, we do not believe te quoted sare price on te Madrid Excange is, by itself, reflective of te fair value of our investment in CFG for te following reasons: te minority sares traded on te Madrid Excange confer no special rigts or privileges to buyers. In contrast, te sares comprising our 37% stake in CFG contractually entitle us to two seats on CFG s 9-person board of directors, giving us te ability to exert significant influence over te strategic and operational decisions of our investee. te stock is very tinly traded. CFG is a closely eld company, wit te tree largest sareolders owning approximately 74% of te outstanding sares. We are CFG s largest sareolder, wit a 37% stake. Te average daily trading volume during te fourt quarter of fiscal 2012 represents just 0.009% of te total outstanding sares (average trading volume of 9,800 sares wile te total number of sares outstanding is in excess of 102 million). Te lack of an active market can cause significant fluctuations and volatility in te stock price tat are not commensurate wit fundamental canges in te underlying business and te fair value of our olding in CFG. Sares trading on te Madrid Excange ave ranged from a ig of 9.28 ($13.77) to a low 5.28 ($7.35) per sare during fiscal 2012, wit fluctuations in between. Te table below sows CFG s intra-day ig sare price and Smitfield s carrying value, expressed in euro per sare, on various dates relevant to our disclosures. Date Sare Price Carrying Value February 17, April 29, 2012 (1) (1) Sare prices on year-end dates reflect te last trading day in te fiscal year. As te table above sows, te carrying value of our investment in CFG was above te quoted market price on te Madrid Excange at te end of fiscal 2012, indicating a possible impairment of our investment in CFG. However, as noted above, we do not consider te sare price on te Madrid Excange, by itself, to be determinative of fair value. In assessing te fair value of our investment, we considered a variety of information, including an independent tird party valuation report, wic incorporates generally accepted valuation tecniques, CFG s istory of positive cas flows, expectations about te future cas flows of CFG, market multiples for comparable businesses, and an influence premium applied to te market price of CFG s sares on te Madrid Excange to adjust for our contractual rigt to two board seats and our ability to exert significant influence over te operational and strategic decisions of te company. Based on an evaluation of all tese factors, we concluded te fair value of our investment in CFG, as of April 29, 2012, exceeded its carrying amount. 90

145 Loss (income) from equity metod investments consists of te following: Fiscal Years Equity Investment Segment (in millions) CFG (1)... International $ 25.0 $ (17.0) $ (4.5) Mexican joint ventures... International (13.4) (29.6) (13.2) Butterball (2)... Oter (1.3) (18.8) All oter equity metod investments... Various (1.7) (2.2) (2.1) Loss (income) from equity metod investments... $ 9.9 $ (50.1) $ (38.6) (1) CFG prepares its financial statements in accordance wit International Financial Reporting Standards. Our sare of CFG s results reflects U.S. GAAP adjustments and tus, tere may be differences between te amounts we report for CFG and te amounts reported by CFG. (2) In te tird quarter of fiscal 2011, we completed te sale of Butterball. See Note 3 Impairment and Disposal of Long-lived Assets for furter discussion. CFG In December 2011 (fiscal 2012), te board of CFG approved a multi-year plan to consolidate and streamline its manufacturing operations to improve operating efficiencies and increase utilization (te CFG Consolidation Plan). Te CFG Consolidation Plan includes te disposal of certain assets, employee redundancy costs and te contribution of CFG s Frenc cooked am business into a newly formed joint venture. As a result, we recorded our sare of CFG s carges totaling $38.7 million in loss (income) from equity metod investments witin te International segment in fiscal In fiscal 2010, as part of a debt restructuring, CFG redeemed certain of its debt instruments and, as a result, we recorded $10.4 million of carges in loss (income) from equity metod investments. Te following summarized financial information for CFG is based on CFG s financial statements and translated into U.S. Dollars: Fiscal Years (in millions) Income statement information: Sales... $2,536.1 $2,433.3 $2,593.8 Gross profit Net income (loss)... (71.2) April 29, 2012 May 1, 2011 (in millions) Balance seet information: Current assets... $ $1,025.6 Long-term assets... 1, ,856.1 Current liabilities Long-term liabilities... 1, Farasia Corporation (Farasia) In November 2009 (fiscal 2010), we completed te sale of our investment in Farasia, a 50/50 Cinese joint venture formed in 2001, for RMB 97.0 million ($14.2 million at te time of te transaction). We recorded, in selling, general and administrative expenses, a $4.5 million pre-tax gain on te sale of tis investment. 91

146 NOTE 7: ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and oter current liabilities consist of te following: April 29, 2012 May 1, 2011 (in millions) Payroll and related benefits... $ $ Customer incentives Insurance reserves Accrued interest Oter Total accrued expenses and oter current liabilities... $ $ NOTE 8: DEBT Long-term debt consists of te following: April 29, 2012 May 1, 2011 (in millions) 10% senior secured notes, due July 2014, including unamortized discounts of $7.0 million and $11.2 million... $ $ % senior secured notes, due July 2014, including unamortized premiums of $4.4 million and $6.1 million % senior unsecured notes, due July % senior unsecured Convertible Notes, due June 2013, including unamortized discounts of $26.8 million and $47.3 million % senior unsecured notes, due May % senior unsecured notes, due August 2011, including unamortized premiums of $0.2 million Floating rate senior secured term loan, due June Various, interest rates from 0% to 7.47%, due May 2012 troug Marc Total debt... 1, ,094.7 Current portion... (62.5) (143.2) Total long-term debt... $ 1,874.8 $ 1,951.5 Sceduled maturities of long-term debt are as follows: Fiscal Year (in millions) $ Tereafter Total debt... $1,937.3 Working Capital Facilities In June 2011 (fiscal 2012), we refinanced our asset-based revolving credit agreement totaling $1.0 billion tat supported sort-term funding needs and letters of credit (te ABL Credit Facility) into two separate facilities: 92

147 (1) an inventory-based revolving credit facility totaling $925.0 million, wit an option to expand up to $1.2 billion (te Inventory Revolver), and (2) an accounts receivable securitization facility totaling $275.0 million (te Securitization Facility). We may request working capital loans and letters of credit under bot facilities. As a result of te refinancing, we recognized a loss on debt extinguisment of $1.2 million in te first quarter of fiscal 2012 for te write-off of unamortized debt issuance costs associated wit te ABL Credit Facility. Availability under te Inventory Revolver is a function of te level of eligible inventories, subject to reserves. Te Inventory Revolver matures in June However, it will mature on Marc 15, 2014 if te outstanding principal balance of our 2014 Notes, net of te amount of cas in excess of $75 million, exceeds $300 million on tat date. Te unused commitment fee and te interest rate spreads are a function of our leverage ratio (as defined in te Second Amended and Restated Credit Agreement). As of April 29, 2012, te unused commitment fee and interest rate were 0.375% and LIBOR plus 2.5%, respectively. Te Inventory Revolver includes financial covenants. Te ratio of our funded debt to capitalization (as defined in te Second Amended and Restated Credit Agreement) may not exceed 0.5 to 1.0, and our EBITDA to interest expense ratio (as defined in te Second Amended and Restated Credit Agreement) may not be less tan 2.5 to 1.0. Obligations under te Inventory Revolver are guaranteed by our material U.S. subsidiaries and are secured by (i) a first priority lien on certain personal property, including cas and cas equivalents, deposit accounts, inventory, intellectual property, and certain equity interests (te Inventory Revolver Collateral), and (ii) a second priority lien on substantially all of te guarantors real property, fixtures and equipment (te Non-Inventory Revolver Collateral). We incurred approximately $9.7 million in transaction fees in connection wit te Inventory Revolver, wic are being amortized over its five-year life. Te term of te Securitization Facility is tree years. As part of te arrangement, all accounts receivable of our major Pork segment subsidiaries are sold to a wolly-owned bankruptcy remote special purpose veicle (SPV). Te SPV pledges te receivables as security for loans and letters of credit. Te SPV is included in our consolidated financial statements and terefore, te accounts receivable owned by it are included in our consolidated balance seet. However, te accounts receivable owned by te SPV are separate and distinct from our oter assets and are not available to our oter creditors sould we become insolvent. As of April 29, 2012, te SPV eld $390.3 million of accounts receivable and we ad no outstanding borrowings on te Securitization Facility. Te unused commitment fee and te interest rate spreads under te Securitization Facility are a function of our leverage ratio (as defined in te Second Amended and Restated Credit Agreement). As of April 29, 2012, te unused commitment fee and interest rate were 0.375% and te lender s cost of funds of 0.28% plus 1.25%, respectively. We incurred approximately $1.3 million in transaction fees in connection wit te Securitization Facility, wic are being amortized over its tree-year life. As of April 29, 2012, we ad aggregate credit facilities and credit lines totaling $1.3 billion. Our unused capacity under tese credit facilities and credit lines was $1.1 billion. Tese facilities and lines are generally at prevailing market rates. We pay commitment fees on te unused portion of te facilities. Average borrowings under credit facilities and credit lines were $99.8 million, $81.6 million and $163.7 million at average interest rates of 4.9%, 4.8% and 4.9% during fiscal 2012, 2011 and 2010, respectively. Maximum borrowings were $245.3 million, $256.9 million and $609.3 million in fiscal 2012, 2011 and 2010, respectively. Total outstanding borrowings were $64.9 million as of April 29, 2012 and $76.9 million as of May 1, 2011 wit average interest rates of 5.7% and 5.2%, respectively. Rabobank Term Loan In June 2011 (fiscal 2012), we refinanced our $200.0 million term loan (te Rabobank Term Loan). As a result, te maturity date canged from August 29, 2013 to June 9, We are obligated to repay $25.0 million of te principal under te Rabobank Term Loan on June 9, We may elect to prepay te loan at any time, subject 93

148 to te payment of certain prepayment fees in respect of any voluntary prepayment prior to June 9, 2013 and oter customary breakage costs. Interest accrues, at our option, at LIBOR plus 3.75% or a base rate (te greater of Rabobank s prime rate and te Federal funds rate plus 0.5%) plus 2.75%. Obligations under te Rabobank Term Loan are guaranteed by our material U.S. subsidiaries and are secured by a first priority lien on te Non-Inventory Revolver Collateral and a second priority lien on te Inventory Revolver Collateral Notes In July 2009 (fiscal 2010), we issued $625 million aggregate principal amount of 10% senior secured notes at a price equal to % of teir face value. In August 2009 (fiscal 2010), we issued an additional $225 million aggregate principal amount of 10% senior secured notes at a price equal to 104% of teir face value, plus accrued interest from July 2, 2009 to August 14, Collectively, tese notes, wic mature in July 2014 are referred to as te 2014 Notes. Te 2014 Notes are guaranteed by substantially all of our U.S. subsidiaries. Te 2014 Notes are secured by firstpriority liens on te te Non-Inventory Revolver Collateral and by second-priority liens on te Inventory Revolver Collateral. Te 2014 Notes will rank equally in rigt of payment to all of our existing and future senior debt and senior in rigt of payment to all of our existing and future subordinated debt. Te guarantees will rank equally in rigt of payment wit all of te guarantors existing and future senior debt and senior in rigt of payment to all of te guarantors existing and future subordinated debt. In addition, te 2014 Notes are structurally subordinated to te liabilities of our non-guarantor subsidiaries. Debt Extinguisments 2011 Notes During fiscal 2011, we repurcased $522.2 million of our 7% senior unsecured notes due August 2011 (2011 Notes) for $543.1 million and recognized losses on debt extinguisment of $21.4 million, including te write-off of related unamortized premiums and debt costs. During fiscal 2012, we redeemed te remaining $77.8 million of our 7% senior unsecured notes due August Notes and 2014 Notes In January 2011 (fiscal 2011), we commenced a Dutc auction cas tender offer to purcase for $450.0 million in cas (te January Tender Offer) te maximum aggregate principal amount of our outstanding 7.75% senior unsecured notes due May 2013 (2013 Notes) and our outstanding 10% senior secured notes due July 2014 (2014 Notes). As a result of te January Tender Offer, we paid $450.0 million to repurcase 2013 Notes and 2014 Notes wit face values of $190.0 million and $200.9 million, respectively, and recognized losses on debt extinguisment of $71.1 million in te fourt quarter of fiscal 2011, including te write-off of related unamortized discounts and debt costs. During fiscal 2012, we repurcased $59.7 million of our 2014 Notes for $68.3 million and recognized losses on debt extinguisment of $11.0 million, including te write-off of related unamortized discounts and debt costs. Credit Facilities In fiscal 2010, we recognized $11.0 million of losses on debt extinguisment related to te termination of various debt agreements, including our ten existing $1.3 billion secured revolving credit agreement (te U.S. Credit Facility) and 300 million European secured revolving credit facility. 94

149 Convertible Notes In July 2008 (fiscal 2009), we issued $400 million aggregate principal amount of 4% convertible senior notes due June 30, 2013 (te Convertible Notes) in a registered offering. Te Convertible Notes are senior unsecured obligations. Te Convertible Notes are payable wit cas and, at certain times, are convertible into sares of our common stock based on an initial conversion rate, subject to adjustment, of sares per $1,000 principal amount of Convertible Notes (wic represents an initial conversion price of approximately $22.68 per sare). Upon conversion, a older will receive cas up to te principal amount of te Convertible Notes and sares of our common stock for te remainder, if any, of te conversion obligation. Prior to April 1, 2013, olders may convert teir notes into cas and sares of our common stock, if any, at te applicable conversion rate under te following circumstances: during any fiscal quarter if te last reported sale price of our common stock is greater tan or equal to 120% of te applicable conversion price for at least 20 trading days during te period of 30 consecutive trading days ending on te last trading day of te preceding fiscal quarter; during te five business-day period after any ten consecutive trading-day period in wic te trading price per $1,000 principal amount of notes was less tan 98% of te last reported sale price of our common stock multiplied by te applicable conversion rate; or upon te occurrence of specified corporate transactions. On or after April 1, 2013, olders may convert teir Convertible Notes at any time prior to te close of business on te tird sceduled trading day immediately preceding te maturity date, regardless of te foregoing circumstances. On te date of issuance of te Convertible Notes, our nonconvertible debt borrowing rate was determined to be 10.2%. Based on tat rate of interest, te equity component of te Convertible Notes was determined to be $95.8 million. In connection wit te issuance of te Convertible Notes, we entered into separate convertible note edge transactions wit respect to our common stock to reduce potential economic dilution upon conversion of te Convertible Notes, and separate warrant transactions (collectively referred to as te Call Spread Transactions). We purcased call options tat permit us to acquire up to approximately 17.6 million sares of our common stock, subject to adjustment, wic is te number of sares initially issuable upon conversion of te Convertible Notes. In addition, we sold warrants permitting te purcasers to acquire up to approximately 17.6 million sares of our common stock, subject to adjustment. See Note 13 Equity for more information on te Call Spread Transactions. NOTE 9: LEASE OBLIGATIONS, COMMITMENTS AND GUARANTEES Lease Obligations We lease facilities and equipment under non-cancelable operating leases. Te terms of eac lease agreement vary and may contain renewal or purcase options. Rental payments under operating leases are carged to expense on te straigt-line basis over te period of te lease. Rental expense under operating leases of real estate, macinery, veicles and oter equipment was $46.5 million, $42.3 million and $49.3 million in fiscal 2012, 2011 and 2010, respectively. 95

150 Future rental commitments under non-cancelable operating leases as of April 29, 2012 are as follows: Fiscal Year (in millions) $ Tereafter Total... $169.0 As of April 29, 2012, future minimum lease payments under capital leases were approximately $27.6 million. Te present value of te future minimum lease payments was $27.1 million. Te long-term portion of capital lease obligations was $26.1 million and $27.1 million as of April 29, 2012 and May 1, 2011, respectively, and te current portion was $1.0 million and $0.5 million as of April 29, 2012 and May 1, 2011, respectively. Commitments We ave agreements, expiring troug fiscal 2022, to use cold storage wareouses owned by partnersips, of wic we are 50% partners. We ave agreed to pay prevailing competitive rates for use of te facilities, subject to aggregate guaranteed minimum annual fees. In fiscal 2012, 2011 and 2010, we paid $14.0 million, $18.2 million and $19.7 million, respectively, in fees for use of te facilities. We ad investments in te partnersips of $2.2 million as of April 29, 2012, and $2.3 million as of May 1, 2011, respectively. We ave purcase commitments wit certain livestock producers tat obligate us to purcase all te livestock tat tese producers deliver. Oter arrangements obligate us to purcase a fixed amount of livestock. We also use independent farmers and teir facilities to raise ogs produced from our breeding stock in excange for a performance-based service fee payable upon delivery. We estimate te future obligations under tese commitments based on available commodity livestock futures prices and internal projections about future og prices, expected quantities delivered and anticipated performance. Our estimated future obligations under tese commitments are as follows: Fiscal Year (in millions) $1, , , As of April 29, 2012, we were also committed to purcase approximately $228.7 million under forward grain contracts payable in fiscal As of April 29, 2012, we ad total estimated remaining capital expenditures of $101.8 million on approved projects. Tese projects are expected to be funded wit cas flows from operations and/or borrowings under credit facilities. Guarantees As part of our business, we are a party to various financial guarantees and oter commitments as described below. Tese arrangements involve elements of performance and credit risk tat are not included in te consolidated balance seets as of April 29, We could become liable in connection wit tese obligations 96

151 depending on te performance of te guaranteed party or te occurrence of future events tat we are unable to predict. If we consider it probable tat we will become responsible for an obligation, we will record te liability on our consolidated balance seet. We (togeter wit our joint venture partners) guarantee financial obligations of certain unconsolidated joint ventures. Te financial obligations are: up to $87.0 million of debt borrowed by Agroindustrial del Noroeste (Norson), of wic $58.0 million was outstanding as of April 29, 2012, and up to $3.5 million of liabilities wit respect to currency swaps executed by anoter of our unconsolidated Mexican joint ventures, Granjas Carroll de Mexico. Te covenants in te guarantee relating to Norson s debt incorporate our covenants under te Inventory Revolver. In addition, we continue to guarantee a lease obligation of $11.3 million tat was assumed by JBS in connection wit te sale of Smitfield Beef, Inc. Tis lease guarantee may remain in place until te lease expires in February NOTE 10: INCOME TAXES Income tax expense (benefit) consists of te following: Fiscal Years (in millions) Current income tax expense (benefit): Federal... $ 72.7 $ 57.6 $ (150.2) State Foreign (0.8) (148.5) Deferred income tax expense (benefit): Federal State (23.1) Foreign... (3.1) Total income tax expense (benefit)... $ $ $ (113.2) A reconciliation of taxes computed at te federal statutory rate to te provision for income taxes is as follows: Fiscal Years Federal income taxes at statutory rate % 35.0% 35.0% State income taxes, net of federal tax benefit Foreign income taxes... (0.2) (1.2) 9.6 Unremitted earnings Net cange in uncertain tax positions... (2.4) (0.3) (1.3) Net cange in valuation allowance... (0.9) (3.4) (0.4) Tax credits... (1.0) (1.1) 2.3 Manufacturer s deduction... (1.7) (1.8) Adjustment to goodwill Oter... (1.2) (1.4) Effective tax rate % 31.2% 52.7% Te unremitted earnings impact to te effective tax rate resulted primarily from te CFG Consolidation Plan. 97

152 We ad income taxes receivable of $101.7 million as of April 29, 2012 in prepaid expenses and oter current assets and income taxes payable of $18.8 million as of May 1, 2011 in accrued expenses and oter current liabilities. Te tax effects of temporary differences consist of te following: April 29, 2012 May 1, 2011 (in millions) Deferred tax assets: Pension liabilities... $256.4 $138.6 Tax credits, carryforwards and net operating losses Accrued expenses Employee benefits Oter Valuation allowance... (54.6) (66.8) Total deferred tax assets... $371.4 $261.0 Deferred tax liabilities: Property, plant and equipment... $385.6 $337.4 Intangible assets Derivatives Employee benefits Investments in subsidiaries Total deferred tax liabilities... $601.6 $544.1 Te following table presents te classification of deferred taxes in our balance seets as of April 29, 2012 and May 1, 2011: April 29, 2012 May 1, 2011 (in millions) Oter current assets... $ 57.4 $ 39.3 Oter assets Accrued expenses and oter current liabilities Oter liabilities Management makes an assessment to determine if its deferred tax assets are more likely tan not to be realized. Valuation allowances are establised in te event tat management believes te related tax benefits will not be realized. Te valuation allowance primarily relates to state credits, state net operating loss carryforwards and losses in foreign jurisdictions for wic no tax benefit was recognized. During fiscal 2012, te valuation allowance decreased by $12.2 million resulting primarily from currency translation and deferred tax adjustments wit an immaterial amount impacting te effective tax rate. Te tax credits, carryforwards and net operating losses expire from fiscal 2013 to Tere were foreign subsidiary net earnings tat were considered permanently reinvested of $123.6 million and $97.8 million as of April 29, 2012 and May 1, 2011, respectively. It is not reasonably determinable as to te amount of deferred tax liability tat would need to be provided if suc earnings were not reinvested. 98

153 A reconciliation of te beginning and ending liability for unrecognized tax benefits is as follows: (in millions) Balance, May 2, $43.2 Additions for tax positions taken in te current year Additions for tax positions taken in prior years Settlements wit taxing autorities... (7.3) Lapse of statute of limitations... (8.1) Balance, May 1, Additions for tax positions taken in te current year Reduction for tax positions taken in prior years... (10.8) Settlements wit taxing autorities... (9.3) Lapse of statute of limitations... (0.6) Balance, April 29, $15.3 We operate in multiple taxing jurisdictions, bot witin te U.S. and outside of te U.S., and are subject to examination from various tax autorities. Te liability for unrecognized tax benefits included $4.7 million and $10.4 million of accrued interest as of April 29, 2012 and May 1, 2011, respectively. We recognized $3.5 million and $0.1 million of net interest income during fiscal 2012 and 2011, respectively, and $0.4 million of net interest expense during fiscal 2010 in income tax expense (benefit). Te liability for unrecognized tax benefits included $14.1 million as of April 29, 2012 and $32.6 million as of May 1, 2011, tat if recognized, would impact te effective tax rate. We are currently being audited in several tax jurisdictions and remain subject to examination until te statute of limitations expires for te respective tax jurisdiction. Witin specific countries, we may be subject to audit by various tax autorities, or subsidiaries operating witin te country may be subject to different statute of limitations expiration dates. We ave concluded all U.S. federal income tax matters troug fiscal We are currently in appeals for te 2011 tax year and under U.S federal examination for te 2012 tax year. Based upon te expiration of statutes of limitations and/or te conclusion of tax examinations in several jurisdictions as of April 29, 2012, we believe it is reasonably possible tat te total amount of previously unrecognized tax benefits may decrease by up to $2.0 million witin twelve monts of April 29, NOTE 11: PENSION AND OTHER RETIREMENT BENEFIT PLANS Company Sponsored Defined Benefit Pension Plans We provide te majority of our U.S. employees wit pension benefits. Salaried employees are provided benefits based on years of service and average salary levels. Hourly employees are provided benefits of stated amounts for eac year of service. 99

154 Te following table presents a reconciliation of te pension benefit obligation, plan assets and te funded status of tese pension plans. April 29, 2012 May 1, 2011 (in millions) Cange in benefit obligation: Benefit obligation at beginning of year... $1,329.9 $1,283.9 Service cost Interest cost Benefits paid... (63.2) (69.3) Actuarial loss Oter Benefit obligation at end of year... 1, ,329.9 Cange in plan assets: (1) Fair value of plan assets at beginning of year Actual return on plan assets... (16.0) Employer contributions Benefits paid... (59.7) (56.2) Oter Fair value of plan assets at end of year... 1, Funded status... $ (587.1) $ (373.5) Amounts recognized in te consolidated balance seet: Net long-term pension liability... $ (581.9) $ (369.6) Accrued expenses and oter current liabilities... (5.2) (4.5) Oter assets Net amount recognized at end of year... $ (587.1) $ (373.5) (1) Excludes te assets and related activity of our non-qualified defined benefit pension plans. Te fair value of assets related to our non-qualified plans was $107.1 million and $117.7 million as of April 29, 2012 and May 1, 2011, respectively. We made cas contributions of $33.4 million in fiscal In fiscal 2011, we also contributed company-owned life insurance policies wit cas surrender values totaling $29.4 million on te date of contribution. We made no contributions to our non-qualified plans in fiscal Benefits paid for our non-qualified plans were $3.5 million and $13.1 million for fiscal 2012 and fiscal 2011, respectively. Te accumulated benefit obligation for all defined benefit pension plans was $1.5 billion and $1.3 billion as of April 29, 2012 and May 1, 2011, respectively. Te accumulated benefit obligation for all of our defined benefit pension plans exceeded te fair value of plan assets for bot periods presented. Te following table sows te pre-tax unrecognized items included as components of accumulated oter compreensive loss related to our defined benefit pension plans as of te dates indicated. April 29, 2012 May 1, 2011 (in millions) Unrecognized actuarial loss... $(665.4) $(365.3) Unrecognized prior service credit We expect to recognize $52.9 million of te actuarial loss and prior service cost as net periodic pension cost in fiscal

155 Te following table presents te components of te net periodic pension costs for te periods indicated: Fiscal Years (in millions) Service cost... $ 37.4 $ 37.0 $ 22.6 Interest cost Expected return on plan assets... (79.6) (63.9) (49.3) Net amortization Net periodic pension cost... $57.2 $ 82.0 $ 67.3 Te following table sows our weigted-average assumptions for te periods indicated. Fiscal Years Discount rate to determine net periodic benefit cost % 6.00% 8.25% Discount rate to determine benefit obligation Expected long-term rate of return on plan assets Rate of compensation increase We use an independent tird-party actuary to assist in te determination of assumptions used and te measurement of our pension obligation and related costs. We review and select te discount rate to be used in connection wit our pension obligation annually. In determining te discount rate, we use te yield on corporate bonds (rated AA or better) tat coincides wit te cas flows of te plans estimated benefit payouts. Te model uses a yield curve approac to discount eac cas flow of te liability stream at an interest rate specifically applicable to te timing of eac respective cas flow. Using imputed interest rates, te model sums te present value of eac cas flow stream to calculate an equivalent weigted average discount rate. We use tis resulting weigted average discount rate to determine our final discount rate. To determine te expected long-term return on plan assets, we consider te current and anticipated asset allocations, as well as istorical and estimated returns on various categories of plan assets. Long-term trends are evaluated relative to market factors suc as inflation, interest rates and fiscal and monetary polices in order to assess te capital market assumptions. Over te 5-year period ended April 29, 2012 and May 1, 2011, te average rate of return on plan assets was approximately 1.40% and 3.87% percent, respectively. Actual results tat differ from our assumptions are accumulated and amortized over future periods and, terefore, affect expense in future periods. Pension plan assets may be invested in cas and cas equivalents, equities, debt securities, insurance contracts and real estate. Our investment policy for te pension plans is to balance risk and return troug a diversified portfolio of ig-quality equity and fixed income securities. Equity targets for te pension plans are as indicated in te following table. Maturity for fixed income securities is managed suc tat sufficient liquidity exists to meet near-term benefit payment obligations. Te plans retain outside investment advisors to manage plan investments witin parameters establised by our plan trustees. 101

156 Te following table presents te fair value of our qualified pension plan assets by major asset category as of April 29, 2012 and May 1, Te allocation of our pension plan assets is based on te target range presented in te following table. April 29, 2012 May 1, 2011 Target Range (in millions) Asset category: Cas and cas equivalents, net of unsettled transactions... $ 24.7 $ % Equity securities % Debt securities % Alternative assets % Total... $1,023.5 $956.4 See Note 14 Fair Value Measurements for additional information about te fair value of our pension assets. As of April 29, 2012 and May 1, 2011, te amount of our common stock included in plan assets was 4,154,344 and 4,757,066 sares, respectively, wit market values of $88.2 million and $112.1 million, respectively. We generally contribute te minimum amount required under government regulations to our qualified pension plans, plus amounts necessary to maintain an 80% funded status in order to avoid benefit restrictions under te Pension Protection Act. Minimum employer contributions to our qualified pension plans are expected to be $44.8 million for fiscal Expected future benefit payments for our defined benefit pension plans are as follows: Fiscal Year (in millions) $ Multiemployer Defined Benefit Pension Plans In addition to our Company sponsored defined benefit pension plans, we contribute to several multiemployer defined benefit pension plans under collective bargaining agreements tat cover certain of our union-represented employees. Te risks of participating in suc plans are different from te risks of single-employer plans, in te following respects: Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of oter participating employers. If a participating employer ceases to contribute to a multiemployer plan, te unfunded obligation of te plan may be borne by te remaining participating employers. If we were to witdraw from a multiemployer plan, we may be required to pay te plan an amount based on te underfunded status of te plan and on te istory of our participation in te plan prior to witdrawal. Tis is referred to as a witdrawal liability. Eac multiemployer plan in wic we participate as a certified zone status as currently defined by te Pension Protection Act of Te zone status is based on information provided to us and oter participating employers by eac plan and is certified by te plan s actuary. Te following are descriptions of te zone status types based on criteria establised under te Internal Revenue Code (IRC): Red Zone Plan as been determined to be in critical status and is generally less tan 65% funded. A reabilitation plan, as required under te IRC, must be adopted by plans in te red zone. Plan 102

157 participants may be responsible for te payment of surcarges, in addition to te contribution rate specified in te applicable collective bargaining agreement, for a plan in critical status, in accordance wit te requirements of te IRC. Yellow Zone Plan as been determined to be in endangered status and is generally less tan 80% funded. A funding improvement plan, as required under te IRC, must be adopted. Green Zone Plan as been determined to be neiter in critical status nor in endangered status, and is generally at least 80% funded. All plans in wic we participate were in te green zone for te two most recent benefit plan years tat ave been certified. Te following table summarizes our contributions to multiemployer plans (1). Fiscal Years Plan EIN / PN (2) Expiration Dates of Collective Bargaining Agreements (in millions) United Food and Commercial Workers International Union Industry Pension Fund / 001 $1.1 $1.4 $1.7 Multiple (3) Central Pension Fund of te International Union of Operating Engineers and Participating Employers / October 2013 IAM National Pension Fund National Pension Plan / February 2014 Total contributions to multiemployer plans... $1.4 $1.7 $2.0 (1) Contributions represent te amounts we contributed to te plans during te fiscal periods ending in te specified year. Our contributions to eac plan did not exceed 5% of total plan contributions for any plan year presented. (2) Represents te Employer Identification Number and te tree-digit plan number assigned to a plan by te Internal Revenue Service. (3) We ave multiple collective bargaining agreements associated wit te United Food and Commercial Workers International Union Industry Pension Fund. Tese agreements are currently sceduled to expire in May 2012, December 2013, January 2014 and October Oter Employee Benefit Plans We sponsor defined contribution pension plans (401(k) plans) covering substantially all U.S. employees. Our contributions vary depending on te plan but are based primarily on eac participant s level of contribution and cannot exceed te maximum allowable for tax purposes. Total contributions were $13.9 million for eac of te last tree fiscal years. We also provide ealt care and life insurance benefits for certain retired employees. Tese plans are unfunded and generally pay covered costs reduced by retiree premium contributions, co-payments and deductibles. We retain te rigt to modify or eliminate tese benefits. We consider disclosures related to tese plans immaterial to te consolidated financial statements and related notes. NOTE 12: REDEMPTION OF NONCONTROLLING INTERESTS Prior to fiscal 2010, we eld a 51% ownersip interest in Premium Pet Healt, LLC (PPH), a leading protein by-product processor tat supplies many of te leading pet food processors in te United States. Te partnersip agreement afforded te noncontrolling interest olders an option to require us to redeem teir ownersip interests beginning in November 2009 (fiscal 2010). Te redemption value was determinable from a specified formula based on te earnings of PPH. 103

158 In fiscal 2010, as a result of discussions wit te noncontrolling interest olders, we determined tat te noncontrolling interests were probable of becoming redeemable. As suc, in fiscal 2010, we recorded an adjustment to increase te carrying amount of te redeemable noncontrolling interests by $32.2 million wit an offsetting decrease of $19.4 million to additional paid-in capital and $12.8 million to deferred tax assets. In November 2009 (fiscal 2010), te noncontrolling interest olders exercised teir put option. In December 2009 (fiscal 2010), we acquired te remaining 49% interest in PPH for $38.9 million. Because PPH was previously consolidated into our financial statements, te acquisition of te remaining 49% interest in PPH was accounted for as an equity transaction. NOTE 13: EQUITY Sare Repurcase Program In June 2011 (fiscal 2012), we announced tat our board of directors ad approved a sare repurcase program autorizing us to buy up to $150.0 million of our common stock over te subsequent 24 monts (te Sare Repurcase Program). Tis autorization replaced our previous sare repurcase program. In September 2011 (fiscal 2012), our board of directors approved an increase of $100.0 million to te autorized amount under te Sare Repurcase Program. Sare repurcases may be made on te open market or in privately negotiated transactions. Te number of sares repurcased, and te timing of any buybacks, depend on corporate cas balances, business and economic conditions and oter factors, including investment opportunities. Te Sare Repurcase Program may be discontinued at any time. In connection wit te Sare Repurcase Program, we entered into an agreement wit a broker (te Trading Plan) wic autorized it to purcase our common stock on our bealf based on certain parameters, in accordance wit te applicable requirements of Rule 10b5-1(c)(1)(i) and Rule 10b-18 under te Securities Excange Act of During fiscal 2012, we repurcased 9,176,704 sares of our common stock for $189.5 million, including related fees. Te price of te repurcased sares as been allocated between common stock, additional paid-in capital and retained earnings in our consolidated balance seet in accordance wit applicable accounting guidance. Subsequent to April 29, 2012 and troug June 13, 2012, our broker purcased on our bealf an additional 2,618,785 sares of our common stock under te Trading Plan for $52.2 million, including related fees. All sare repurcases were funded from cas on and. See Note 20 Subsequent Event for additional discussion of sare repurcase autorization. Preferred Stock We ave 1,000,000 sares of $1.00 par value preferred stock autorized, none of wic are issued. Te board of directors is autorized to issue preferred stock in series and to fix, by resolution, te designation, dividend rate, redemption provisions, liquidation rigts, sinking fund provisions, conversion rigts and voting rigts of eac series of preferred stock. Stock-Based Compensation During fiscal 2009, we adopted te 2008 Incentive Compensation Plan (te Incentive Plan), wic replaced te 1998 Stock Incentive Plan and provides for te issuance of non-statutory stock options and oter awards to employees, non-employee directors and consultants. Tere are 12,543,397 sares reserved under te Incentive Plan. As of April 29, 2012, tere were 8,850,128 sares available for grant under tis plan. 104

159 Stock Options Under te Incentive Plan, we grant options for periods not exceeding 10 years, wic eiter cliff vest five years after te date of grant or vest ratably over a tree-year period wit an exercise price of not less tan 100% of te fair market value of te common stock on te date of grant. Compensation expense for stock options was $6.1 million, $3.8 million and $3.5 million for fiscal 2012, 2011 and 2010, respectively. Te related income tax benefit recognized was $2.4 million, $1.5 million and $1.4 million, for fiscal 2012, 2011 and 2010, respectively. Tere was no compensation expense capitalized as part of inventory or fixed assets during fiscal 2012, 2011 and Te fair value of eac option grant is estimated on te date of grant using te Black-Scoles option pricing model. Te expected annual volatility is based on te istorical volatility of our stock and oter factors. We use istorical data to estimate option exercises and employee termination witin te pricing model. Te expected term of options granted represents te period of time tat options are expected to be outstanding. Te following table summarizes te assumptions made in determining te fair value of stock options granted in te fiscal years indicated: Fiscal Years Expected annual volatility... 55% 54% 52% Dividend yield... % % % Risk free interest rate % 1.62% 1.92% Expected option life (years) Te options granted in fiscal 2012, 2011 and 2010 were valued in separate trances according to te expected life of eac trance. Te above table reflects te weigted average risk free interest rate and expected option life of eac trance. Te expected annual volatility and dividend yield were te same for all options granted in fiscal 2012, 2011 and We ave never paid a cas dividend on our common stock. Te following table summarizes stock option activity under te Incentive Plan as of April 29, 2012, and canges during te year ten ended: Number of Sares Weigted Average Exercise Price Weigted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in millions) Outstanding as of May 1, ,476, Granted , Exercised... (364,986) Forfeited... (54,004) Outstanding as of April 29, ,826, $6.9 Exercisable as of April 29, ,154, $3.4 Te weigted average grant-date fair value of options granted during fiscal 2012, 2011 and 2010 was $9.36, $6.61 and $5.62, respectively. Te total intrinsic value of options exercised during fiscal 2012, 2011 and 2010 was $0.9 million, $0.4 million and $1.0 million, respectively. As of April 29, 2012, tere was $4.6 million of total unrecognized compensation cost related to nonvested stock options granted under te Incentive Plan. Tat cost is expected to be recognized over a weigted average period of 1.3 years. Te total fair value of stock options vested during fiscal 2012, 2011 and 2010 was $5.7 million, $1.9 million and $2.4 million, respectively. 105

160 Performance Sare Units Te Incentive Plan also provides for te issuance of performance sare units to reward employees for te acievement of performance goals. Eac performance sare unit represents and as a value equal to one sare of our common stock. Payment of vested performance sare units is generally in our common stock. In June 2011 (fiscal 2012), we granted a total of 395,000 performance sare units under te Incentive Plan. Tese performance sare units vest ratably over a two-year service period provided tat we acieve a certain earnings target in eiter fiscal 2012 or fiscal 2013, wic we acieved in fiscal Te fair value of tese performance sare units was determined based on our closing stock price on te date of grant of $ Te fair value is being recognized over te expected vesting period of eac award. In June 2010 (fiscal 2011) and June 2011 (fiscal 2012), we granted a number of performance sare units to certain employees in our Pork Group. Te actual number of performance sare units were based on te acievement of certain sales volume growt targets for te Pork segment in fiscal 2011 and fiscal 2012, respectively. All of tese awards were forfeited as te sales volume growt targets were not met. In June 2010 (fiscal 2011), we granted a total of 370,000 performance sare units under te Incentive Plan. Tese performance sare units vest ratably over a two-year service period provided tat we acieve a certain earnings target in eiter fiscal 2011 or fiscal 2012, wic we acieved in fiscal Te fair value of tese performance sare units was determined based on our closing stock price on te date of grant of $ Te fair value is being recognized over te expected vesting period of eac award. In December 2009 (fiscal 2010), we granted a total of 100,000 performance sare units under te Incentive Plan. Tese performance sare units vested in December 2011 (fiscal 2012). Te fair value of tese performance sare units was determined based on our closing stock price on te date of grant of $ Te fair value of eac performance sare unit was recognized as compensation expense over te two-year requisite service period. In July 2009 (fiscal 2010), we granted a total of 622,000 performance sare units under te Incentive Plan. Tese performance sare units vest ratably over a tree-year service period provided tat we acieve a certain earnings target in any of fiscal years 2010, 2011 or 2012, wic we acieved in fiscal Te fair value of tese performance sare units was determined based on our closing stock price on te date of grant of $ Te fair value is being recognized over te expected vesting period eac award. In fiscal 2009, we granted a total of 160,000 performance sare units. Te performance sare units ave a fiveyear term and eac performance sare unit represents and as a value equal to one sare of our common stock. Te performance sare units vest in 20% increments once te volume-weigted average of te closing price of our common stock for 15 consecutive trading days equals or exceeds $26, $32, $38, $44 and $50. In addition to tese vesting requirements, a participant must generally be employed by us one year from te date of grant for te performance sare units granted to suc participant to vest. Payment of te vested performance sare units sall be in our common stock. Te fair value of te performance sare units was estimated on te date of grant using a Monte-Carlo Simulation tecnique. Te weigted average grant-date fair value of te performance sare units was $ Te number of performance sare units outstanding as of April 29, 2012 was 901,500. Te number of performance sare units tat vested during fiscal 2012 and fiscal 2011 was 429,833 and 253,167, respectively. Compensation expense related to all outstanding performance sare units was $8.3 million, $7.5 million and $3.1 million in fiscal 2012, 2011 and 2010, respectively. Te related income tax benefit recognized was $3.2 million, $2.9 million and $1.2 million for fiscal 2012, 2011 and 2010, respectively. As of April 29, 2012, tere was approximately $3.4 million of total unrecognized compensation cost related to te performance sare units, substantially all of wic is expected to be recognized in fiscal

161 Executive Stock Purcase Plan As part of te Incentive Plan, we maintain a nonqualified deferred compensation plan tat permits executive officers to voluntarily defer up to 25% of te payouts under teir annual cas incentive awards beginning wit fiscal 2012 in excange for a performance award payable in te form of Company stock at suc time in te future as elected by te officers, but not less tan tree years from te end of te performance period. Te Company will provide a 100% matc to te officers deferral in te form of restricted stock under te Incentive Plan. Te matc is subject to tree-year cliff vesting and will be forfeited if te officer voluntarily terminates employment before vesting. We recognized compensation expense of $4.9 million in fiscal 2012 for te portion of cas incentive awards tat were subsequently excanged for performance awards in te first quarter of fiscal We expect to recognize te Company matc of $3.9 million for tese awards over te tree-year vesting period beginning in te first quarter of fiscal Call Spread Transactions In connection wit te issuance of te Convertible Notes (see Note 8 Debt), we entered into separate convertible note edge transactions wit respect to our common stock to minimize te impact of potential economic dilution upon conversion of te Convertible Notes, and separate warrant transactions. We purcased call options in private transactions tat permit us to acquire up to approximately 17.6 million sares of our common stock at an initial strike price of $22.68 per sare, subject to adjustment, for $88.2 million. In general, te call options allow us to acquire a number of sares of our common stock initially equal to te number of sares of common stock issuable to te olders of te Convertible Notes upon conversion. Tese call options will terminate upon te maturity of te Convertible Notes. We also sold warrants in private transactions for total proceeds of approximately $36.7 million. Te warrants permit te purcasers to acquire up to approximately 17.6 million sares of our common stock at an initial exercise price of $30.54 per sare, subject to adjustment. Te warrants expire on various dates from October 2013 (fiscal 2014) to December 2013 (fiscal 2014). Te Call Spread Transactions, in effect, increase te initial conversion price of te Convertible Notes from $22.68 per sare to $30.54 per sare, tus reducing te potential future economic dilution associated wit conversion of te notes. Te Convertible Notes and te warrants could ave a dilutive effect on our earnings per sare to te extent tat te price of our common stock during a given measurement period exceeds te respective exercise prices of tose instruments. Te call options are excluded from te calculation of diluted earnings per sare as teir impact is anti-dilutive. We ave analyzed te Call Spread Transactions and determined tat tey meet te criteria for classification as equity instruments. As a result, we recorded te purcase of te call options as a reduction to additional paid-in capital and te proceeds of te warrants as an increase to additional paid-in capital. Subsequent canges in fair value of tose instruments are not recognized in te financial statements as long as te instruments continue to meet te criteria for equity classification. Stock Held in Trust We maintain a non-qualified defined Supplemental Pension Plan (te Supplemental Plan) te purpose of wic is to provide supplemental retirement income benefits for tose eligible employees wose benefits under te tax-qualified plans are subject to statutory limitations. A grantor trust as been establised for te purpose of satisfying te obligations under te plan. As of April 29, 2012, te Supplemental Plan eld 2,616,687 sares of our common stock at an average cost of $

162 As part of te Incentive Plan director fee deferral program, we purcase sares of our common stock on te open market for te benefit of te plan s participants. Tese sares are eld in a rabbi trust until tey are transferred to te participants. As of April 29, 2012, te rabbi trust eld 291,635 sares of our common stock at an average cost of $ Accumulated Oter Compreensive (Loss) Income Accumulated oter compreensive (loss) income consists of te following: April 29, 2012 May 1, 2011 (in millions) Foreign currency translation... $(159.4) $ 0.4 Pension accounting... (402.7) (217.7) Hedge accounting Accumulated oter compreensive loss... $(510.9) $(169.2) NOTE 14: FAIR VALUE MEASUREMENTS Fair value is defined as te price tat would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at te measurement date. We are required to consider and reflect te assumptions of market participants in fair value calculations. Tese factors include nonperformance risk (te risk tat an obligation will not be fulfilled) and credit risk, bot of te reporting entity (for liabilities) and of te counterparty (for assets). We use, as appropriate, a market approac (generally, data from market transactions), an income approac (generally, present value tecniques), and/or a cost approac (generally, replacement cost) to measure te fair value of an asset or liability. Tese valuation approaces incorporate inputs suc as observable, independent market data tat we believe are predicated on te assumptions market participants would use to price an asset or liability. Tese inputs may incorporate, as applicable, certain risks suc as nonperformance risk, wic includes credit risk. Te FASB as establised a tree-level fair value ierarcy tat prioritizes te inputs used to measure fair value. Te fair value ierarcy gives te igest priority to quoted market prices (Level 1) and te lowest priority to unobservable inputs (Level 3). Te tree levels of inputs used to measure fair value are as follows: Level 1 quoted prices in active markets for identical assets or liabilities accessible by te reporting entity. Level 2 observable inputs oter tan quoted prices included in Level 1, suc as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets tat are not active; or oter inputs tat are observable or can be corroborated by observable market data. Level 3 unobservable for an asset or liability. Unobservable inputs sould only be used to te extent observable inputs are not available. We ave classified assets and liabilities measured at fair value based on te lowest level of input tat is significant to te fair value measurement. 108

163 Assets and Liabilities Measured at Fair Value on a Recurring Basis Te following tables set fort, by level witin te fair value ierarcy, our non-pension financial assets and liabilities tat were measured at fair value on a recurring basis as of April 29, 2012 and May 1, 2011: April 29, 2012 May 1, 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (in millions) (in millions) Assets Derivatives: Commodity contracts... $52.0 $ 1.3 $ $ 53.3 $45.2 $34.6 $ $ 79.8 Foreign excange contracts Open-ended mutual funds Insurance contracts Total... $64.2 $56.9 $ $121.1 $62.6 $84.5 $ $147.1 Liabilities Derivatives: Commodity contracts... $ $ 8.6 $ $ 8.6 $16.8 $ $ $ 16.8 Interest rate contracts Foreign excange contracts Total... $ $ 9.3 $ $ 9.3 $16.8 $ 4.2 $ $ 21.0 Te following are descriptions of te valuation metodologies and key inputs used to measure financial assets and liabilities recorded at fair value on a recurring basis: Derivatives Derivatives classified witin Level 1 are valued using quoted market prices. In some cases were quoted market prices are not available, we value te derivatives using pricing models based on te net present value of estimated future cas flows to calculate fair value, in wic case te measurements are classified witin Level 2. Tese valuation models make use of market-based observable inputs, including market prices and rates, yield curves, credit curves, and measures of volatility. Open-ended mutual funds Open-ended mutual funds are valued at teir net asset value (NAV), wic approximates fair value, and classified as Level 1. Insurance contracts Insurance contracts are valued at teir cas surrender value using te daily asset unit value (AUV) wic is based on te quoted market price of te underlying securities and classified witin Level 2. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition; tat is, te assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, wen tere is evidence of impairment. During fiscal 2012 and fiscal 2011, we ad no significant assets or liabilities tat were measured and recorded at fair value on a nonrecurring basis. 109

164 Pension Plan Assets Te following table summarizes our pension plan assets measured at fair value on a recurring basis (at least annually) as of April 29, 2012 and May 1, 2011: April 29, 2012 May 1, 2011 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (in millions) (in millions) Cas and cas equivalents... $ 22.4 $ $ $ 22.4 $ 3.0 $ 87.5 $ $ 90.5 Equity securities: Preferred stock U.S. common stock: Healt care Utilities Financial Consumer staples Consumer discretionary Materials Energy Information tecnology Industrials Telecommunication service International common stock Mutual funds: International Domestic small cap Domestic large cap Balanced Fixed income: Mutual funds Asset-backed securities Corporate debt securities Government debt securities Limited partnersips Insurance contracts Total fair value... $358.7 $585.9 $76.6 1,021.2 $600.0 $327.6 $ Unsettled transactions, net (6.6) Total plan assets... $1,023.5 $956.4 Te following are descriptions of te valuation metodologies and key inputs used to measure pension plan assets recorded at fair value: Cas and cas equivalents Cas equivalents include igly liquid investments wit original maturities of tree monts or less. Due to teir sort-term nature, te carrying amount of tese instruments approximates te estimated fair value. Actively traded money market funds are measured at teir NAV, wic approximates fair value, and classified as Level 1. Te fair value of certain money market funds for wic quoted prices are available but traded less frequently ave been classified as Level 2. Equity securities Wen available, te fair value of equity securities are based on quoted prices in active markets and classified as Level 1. Level 1 financial instruments include igly liquid instruments wit quoted prices, suc as equities and mutual funds traded in active markets. 110

165 If quoted prices are not available, fair values are obtained from pricing services, broker quotes or oter model-based valuation tecniques wit observable inputs and classified as Level 2. Te nature of tese equity securities include securities for wic quoted prices are available but traded less frequently, securities wose fair value as been derived using a model were inputs to te model are directly observable in te market, or can be derived principally from or corroborated by observable market data and securities tat are valued using oter financial instruments, te parameters of wic can be directly observed. Level 2 equity securities include preferred stock and mutual funds not actively traded. Fixed income Wen available, te fair value of fixed income instruments are based on quoted prices in active markets and classified as Level 1. Level 1 fixed income instruments include mutual funds and government debt securities. If quoted prices are not available, fair values are obtained from pricing services, broker quotes or oter model-based valuation tecniques wit observable inputs and classified as Level 2. Te nature of tese fixed income instruments include instruments for wic quoted prices are available but traded less frequently, instruments wose fair value as been derived using a model were inputs to te model are directly observable in te market, or can be derived principally from or corroborated by observable market data and securities tat are valued using oter financial instruments, te parameters of wic can be directly observed. Level 2 fixed income instruments include mutual funds, asset-backed securities, corporate debt securities and government debt securities. Limited partnersips Te valuation of limited partnersip investments requires te use of significant unobservable inputs due to te absence of quoted market prices, inerent lack of liquidity and long-term nature of suc assets and are classified as Level 3. Tese investments are initially valued at cost wit quarterly valuations performed utilizing available market data to determine te fair value of tese investments. Suc market data consists primarily of te observations of trading multiples of public companies considered comparable to te investments wit adjustments for investment-specific issues, te lack of liquidity and oter items. Insurance contracts Te valuation of tese guaranteed annuity insurance contracts is primarily based on quoted prices in active markets wit adjustments for unobservable inputs caused by te unique nature of applying investment earnings as part of te participation guarantee. Due to tese unobservable inputs and te long-term nature of tese investments, te contracts are classified as Level 3. Te following table summarizes te canges in our Level 3 pension plan assets for te year-ended April 29, 2012 and May 1, 2011: Insurance Contracts Limited Partnersips (in millions) Balance, May 2, $ 1.8 $ 29.2 Actual return on plan assets:... Related to assets eld at te reporting date Related to assets sold during te period Purcases, sales and settlements, net Balance, May 1, Actual return on plan assets:... Related to assets eld at te reporting date... (2.7) Related to assets sold during te period Purcases, sales and settlements, net... (0.2) 42.5 Balance, April 29, $ 1.6 $

166 Oter Financial Instruments We determine te fair value of public debt using Level 2 inputs based on quoted market prices. Te carrying amount of all oter debt approximates fair value as tose instruments are based on variable interest rates. Te following table presents te fair value and carrying value of long-term debt, including te current portion of longterm debt as of April 29, 2012 and May 1, Fair Value April 29, 2012 May 1, 2011 Carrying Value Fair Value Carrying Value (in millions) Total Debt... $ 2,176.5 $ 1,937.3 $ 2,418.0 $ 2,094.7 Te carrying amounts of cas and cas equivalents, accounts receivable, notes payable and accounts payable approximate teir fair values because of te relatively sort-term maturity of tese instruments. NOTE 15: RELATED PARTY TRANSACTIONS Te following table presents amounts owed from and to related parties as of April 29, 2012 and May 1, 2011: April 29, 2012 May 1, 2011 (in millions) Current receivables from related parties... $ 6.6 $ 10.2 Long-term receivables from related parties Total receivables from related parties... $ 6.6 $ 13.0 Current payables to related parties... $ 7.1 $ 9.6 Long-term payables to related parties... Total payables to related parties... $ 7.1 $ 9.6 Wendell Murpy, a director of ours, or is immediate family members old ownersip interests in Arrowead Farms, Inc., BAZ, LLC, Crusader Farms, LLC, DM Farms, LLC, Enviro-Tec Farms, Inc., Golden Farms, Inc., Ironside Investment Management, LLC, Lisbon 1 Farm, Inc. (Lisbon), Murpy Family Ventures, Murpy- Honour Farms, Inc., Murpy Milling Company, Quarter M Ranc, Inc., PSM Associates LLC, Pure Country Farms, LLC, Stantonsburg Farm, Inc., Triump Associates, LLC, and Webber Farms, Inc. A vice president of our Hog Production segment also olds an ownersip interest in Lisbon. Tese farms eiter produce ogs for us or produce and sell feed ingredients to us. In fiscal 2012, 2011 and 2010, we paid $52.2 million, $70.4 million and $53.4 million, respectively, to tese entities for ogs, feed ingredients and reimbursement of associated farm and oter support costs. Te cief executive officer and a vice president of our Hog Production segment old ownersip interests in JCT LLC (JCT). JCT owns certain farms tat produce ogs under contract wit te Hog Production segment. In fiscal 2012, 2011 and 2010, we paid $7.9 million, $7.8 million and $8.0 million, respectively, to JCT for te production of ogs. In fiscal 2012, 2011 and 2010, we received $3.1 million, $3.3 million and $3.1 million, respectively, from JCT for reimbursement of associated farm and oter support costs. One of our vice presidents of te Hog Production segment as an ownersip interest in Seacoast, LLC and is te sole owner of Advantage Farms, LLC. Anoter vice president of our Hog Production segment is te sole owner of Old Oak Farms LLC. Tese companies produce and raise ogs for us under contractual arrangements tat are consistent wit tird party grower contracts. In fiscal 2012, 2011 and 2010, we paid service fees of $1.5 million, $1.7 million and $1.6 million, respectively, to tese companies. In fiscal 2012, 2011 and 2010, we received $0.4 million, $0.5 million and $0.5 million, respectively, from tese companies for reimbursement of associated farm and oter support costs. 112

167 We believe tat te terms of te foregoing arrangements were no less favorable to us tan if entered into wit unaffiliated companies. NOTE 16: REGULATION AND CONTINGENCIES Like oter participants in te industry, we are subject to various laws and regulations administered by federal, state and oter government entities, including te United States Environmental Protection Agency (EPA) and corresponding state agencies, as well as te United States Department of Agriculture, te Grain Inspection, Packers and Stockyard Administration, te United States Food and Drug Administration, te United States Occupational Safety and Healt Administration, te Commodities and Futures Trading Commission and similar agencies in foreign countries. We from time to time receive notices and inquiries from regulatory autorities and oters asserting tat we are not in compliance wit suc laws and regulations. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. Missouri Litigation Premium Standard Farms, Inc. (PSF), te Company and certain of our oter subsidiaries and affiliates are parties to litigation in Missouri involving a number of claims alleging tat og farms owned or under contract wit te defendants interfered wit te plaintiffs use and enjoyment of teir properties. Additional supplemental information regarding tese claims is found in Item 3. Legal Proceedings Missouri Litigation. During fiscal 2012 and continuing in te first quarter of fiscal 2013, we engaged in global settlement negotiations wit counsel representing nearly all of te plaintiffs in te nuisance litigation and numerous carriers of commercial general liability and pollution liability policies. Te parties to te litigation ave made substantial progress toward consummation of a global settlement tat would resolve te vast majority of te nuisance litigation. However, tere are significant contingencies tat must be fulfilled before te settlement is consummated, and we cannot make any assurance tat tose contingencies will be satisfied. In addition, we ave agreements wit te insurance carriers under wic we receive payments tat we contribute to pay a portion of te settlement, most of wic are contingent on te consummation of te global settlement. In te event tat te global settlement is not consummated, we believe we ave good defenses to all of te actions described above and intend to defend vigorously tese suits. Altoug we recognize te uncertainties of litigation, based on our istorical experience and our understanding of te facts and circumstances underlying tese claims, in te event te global settlement is not consummated, we believe tat tese claims will not ave a material adverse effect on our results of operations or financial condition. Our policy for establising accruals and disclosures for contingent liabilities is contained in Note 1 Summary of Significant Accounting Policies. We establised an accrual wit respect to te Missouri nuisance suits on te opening balance seet for our acquisition of PSF in fiscal 2008 and we ave periodically adjusted tat accrual as developments ave occurred. Te accrual, as adjusted from time to time, represents our best estimate of te probable loss for tese suits. Due to te recent developments discussed above including te substantial progress toward te consummation of a global settlement and te settlements wit certain insurance carriers, we recognized $22.2 million in net carges to selling, general and administrative expenses in te Hog Production segment associated wit te Missouri litigation in fiscal In November 2010 (fiscal 2011), we reaced a settlement wit one of our insurance carriers regarding te reimbursement of certain past and future defense costs associated wit our Missouri litigation. Related to tis matter, we recognized a net benefit of $19.1 million in selling, general and administrative expenses in te Hog Production segment in fiscal Expenses and oter liabilities associated wit te Missouri litigation will not affect our profits or losses unless our accrual proves to be insufficient or excessive. Te global settlement, if consummated on te terms contemplated, would not be materially different tan te accrual. However, payments made under te global 113

168 settlement, if consummated, will negatively impact our cas flows and liquidity position. In addition, in te event te global settlement is not consummated, legal expenses incurred in our and our subsidiaries defense of tese claims and any payments made to plaintiffs troug unfavorable verdicts or oterwise will also negatively impact our cas flows and our liquidity position. In any event, we do not expect suc payments to ave a material adverse impact on our overall financial position or liquidity. If te global settlement is not consummated, given te uncertainty of te outcome of te Missouri nuisance suits, it is possible tat te total costs incurred related to tese and similar potential claims could exceed our current estimates. As of April 29, 2012, if te global settlement is not consummated, we cannot reasonably estimate te maximum potential exposure or te range of possible loss in excess of amounts accrued for tese contingencies. We will continue to review te amount of any necessary accruals or oter related expenses and record carges in te period in wic te determination is made tat an adjustment is required. Fire Insurance Settlement In July 2009 (fiscal 2010), a fire occurred at te primary manufacturing facility of our subsidiary, Patrick Cuday, Inc. (Patrick Cuday), in Cuday, Wisconsin. Te fire damaged a portion of te facility s production space and required te temporary cessation of operations, but did not consume te entire facility. Sortly after te fire, we resumed production activities in undamaged portions of te plant, including te distribution center, and took steps to address te supply needs for Patrick Cuday products by sifting production to oter Company and tird-party facilities. We maintain compreensive general liability and property insurance, including business interruption insurance. In December 2010 (fiscal 2011), we reaced an agreement wit our insurance carriers to settle te claim for a total of $208.0 million, of wic $70.0 million ad been advanced to us in fiscal We allocated tese proceeds to first recover te book value of te property lost, out-of-pocket expenses incurred and business interruption losses tat resulted from te fire. Te remaining proceeds were recognized as an involuntary conversion gain of $120.6 million in te Corporate segment in te tird quarter of fiscal Te involuntary conversion gain was classified in a separate line item on te consolidated statement of income. Based on an evaluation of business interruption losses incurred, we recognized $15.8 million and $31.8 million in fiscal 2011 and fiscal 2010, respectively, of te insurance proceeds in cost of sales in our Pork segment to offset business interruption losses incurred. Of te $208.0 million in insurance proceeds received to settle te claim, $120.6 million and $9.9 million as been classified in net cas flows from investing activities in te consolidated statements of cas flows for fiscal 2011 and fiscal 2010, respectively, wic represents te portion of proceeds related to destruction of te facility. Te remainder of te proceeds was recorded in net cas flows from operating activities in te consolidated statements of cas flows and was attributed to business interruption recoveries and reimbursable costs covered under our insurance policy. NOTE 17: REPORTING SEGMENTS Our operating segments are determined on te basis of ow we internally report and evaluate financial information used to make operating decisions. For external reporting purposes, we aggregate operating segments wic ave similar economic caracteristics, products, production processes, types or classes of customers and distribution metods into reportable segments based on a combination of factors, including products produced and geograpic areas of operations. Our reportable segments are: Pork, Hog Production, International Oter and Corporate, eac of wic is comprised of a number of subsidiaries, joint ventures and oter investments. Pork Segment Te Pork segment consists mainly of our tree wolly-owned U.S. fres pork and packaged meats subsidiaries: Smitfield Packing, Farmland Foods, Inc. and Jon Morrell Food Group. Te Pork segment produces a wide 114

169 variety of fres pork and packaged meats products in te U.S. and markets tem nationwide and to numerous foreign markets, including Cina, Japan, Mexico, Russia and Canada. Fres pork products include loins, butts, picnics and ribs, among oters. Packaged meats products include smoked and boiled ams, bacon, sausage, ot dogs (pork, beef and cicken), deli and lunceon meats, specialty products suc as pepperoni, dry meat products, and ready-to-eat, prepared foods suc as pre-cooked entrees and pre-cooked bacon and sausage. Te following table sows te percentages of Pork segment revenues derived from packaged meats and fres pork for te fiscal years indicated. Fiscal Years Packaged meats... 54% 56% 55% Fres pork (1) % 100% 100% (1) Includes by-products and rendering. Hog Production Segment Te Hog Production segment consists of our og production operations located in te U.S. Te Hog Production segment operates numerous facilities wit approximately 851,000 sows producing about 15.8 million market ogs annually. Te Hog Production segment produces approximately 49% of te Pork segment s live og requirements. We own certain genetic lines of specialized breeding stock wic are marketed using te name Smitfield Premium Genetics (SPG). All SPG ogs are processed internally. Te following table sows te percentages of Hog Production segment revenues derived from ogs sold internally and externally, and oter products for te fiscal years indicated. Fiscal Years Internal og sales... 80% 78% 77% External og sales Oter products (1) % 100% 100% (1) Consists primarily of feed, non-market og sales and gains (losses) on derivatives. International Segment Te International segment includes our meat processing and distribution operations in Poland, Romania and te United Kingdom, our interests in meat processing operations, mainly in Western Europe and Mexico, our og production operations located in Poland and Romania and our interests in og production operations in Mexico. Our international meat processing operations produce a wide variety of fres pork, beef, poultry and packaged meats products, including cooked ams, sausages, ot dogs, bacon and canned meats. 115

170 Te following table sows te percentages of International segment revenues derived from packaged meats, fres meats and oter products for te fiscal years indicated. Fiscal Years Packaged meats... 47% 47% 48% Fres meats Oter products (1) % 100% 100% (1) Includes external og sales, feed, featers, by-products and rendering. Oter Segment Te Oter segment, contains te results of several recently disposed businesses, including our former turkey production operations and our previous 49% interest in Butterball, LLC (Butterball), wic were sold in December 2010 (fiscal 2011), as well as our former live cattle operations, wic were sold in te first quarter of fiscal Corporate Segment Te Corporate segment provides management and administrative services to support our oter segments. 116

171 Segment Results Te following tables present information about te results of operations and te assets of our reportable segments for te fiscal years presented. Te information contains certain allocations of expenses tat we deem reasonable and appropriate for te evaluation of results of operations. We do not allocate income taxes to segments. Segment assets exclude intersegment account balances as we believe teir inclusion would be misleading or not meaningful. We believe all intersegment sales are at prices tat approximate market. Fiscal Years (in millions) Segment Profit Information Sales: Segment sales... Pork... $11,093.0 $10,263.9 $ 9,326.3 Hog Production... 3, , ,207.8 International... 1, , ,277.2 Oter Total segment sales... 15, , ,964.6 Intersegment sales... Pork... (37.1) (30.5) (31.5) Hog Production... (2,444.6) (2,113.0) (1,695.0) International... (36.3) (38.2) (35.5) Total intersegment sales... (2,518.0) (2,181.7) (1,762.0) Consolidated sales... $13,094.3 $12,202.7 $11,202.6 Depreciation and amortization: Pork... $ $ $ Hog Production International Oter Corporate Consolidated depreciation and amortization... $ $ $ Interest expense: Pork... $ 28.7 $ 42.4 $ 48.9 Hog Production International Oter Corporate... (13.6) Consolidated interest expense... $ $ $ Loss (income) from equity metod investments Pork... $ (2.7) $ (2.0) $ (3.6) Hog Production (0.4) 0.7 International (46.5) (17.2) Oter... (1.2) (18.5) Consolidated loss (income) from equity metod investments... $ 9.9 $ (50.1) $ (38.6) 117

172 Fiscal Years (in millions) Operating profit: Pork... $ $ $ Hog Production (539.2) International Oter... (2.4) 3.6 Corporate... (110.0) 3.7 (68.2) Consolidated operating profit... $722.6 $1,095.0 $ 62.8 April 29, 2012 May 1, 2011 May 2, 2010 (in millions) Segment Asset Information Total assets: Pork... $2,245.6 $2,620.2 $2,579.3 Hog Production... 2, , ,020.9 International... 1, , ,670.1 Oter Corporate... 1, , ,269.2 Consolidated total assets... $7,422.2 $7,611.8 $7,708.9 Investments: Pork... $ 18.6 $ 17.4 $ 17.1 Hog Production International Oter Corporate Consolidated investments... $ $ $ Capital expenditures: Pork... $ $ 81.3 $ Hog Production International Corporate Consolidated capital expenditures... $ $ $ Te following table sows te cange in te carrying amount of goodwill by reportable segment: Pork International Hog Production Oter Total (in millions) Balance, May 2, $ $ $ $ 19.5 $ Disposals (1)... (25.5) (19.5) (45.0) Oter goodwill adjustments (2)... (0.4) Balance, May 1, Oter goodwill adjustments (2)... (0.4) (24.7) (25.1) Balance, April 29, $ $ $ $ $ (1) See Note 3 Impairment and Disposal of Long-lived Assets for discussion of disposals and impairments. (2) Oter goodwill adjustments primarily include te effects of foreign currency translation. 118

173 Te following table presents our consolidated sales and long-lived assets attributed to operations by geograpic area for te fiscal years ended April 29, 2012, May 1, 2011 and May 2, 2010: Fiscal Years (in millions) Sales: U.S.... $11,663.9 $10,900.2 $ 9,960.9 International... 1, , ,241.7 Total sales... $13,094.3 $12,202.7 $11,202.6 April 29, 2012 May 1, 2011 May 2, 2010 (in millions) Long-lived assets: U.S.... $ 2,969.1 $ 2,905.7 $ 3,142.1 International... 1, , ,246.5 Total long-lived assets... $ 4,123.2 $ 4,273.9 $ 4,388.6 NOTE 18: SUPPLEMENTAL CASH FLOW INFORMATION Fiscal Years Supplemental disclosures of cas flow information: Interest paid, including capitalized interest... $ (149.6) $ (223.3) $ (210.6) Income taxes (paid) refunded, net... (225.7) Non-cas investing and financing activities: Capital lease... $ $ $

174 NOTE 19: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) First Second Tird Fourt Fiscal Year (in millions, except per sare data) Fiscal 2012 Sales... $ 3,094.2 $ 3,312.6 $ 3,478.3 $ 3,209.2 $ 13,094.3 Gross profit ,549.4 Operating profit Net income Net income per sare: (1) Basic... $.50 $.74 $.49 $.50 $ 2.23 Diluted... $.49 $.74 $.49 $.49 $ 2.21 Fiscal 2011 Sales... $ 2,901.3 $ 2,998.8 $ 3,186.2 $ 3,116.4 $ 12,202.7 Gross profit ,714.1 Operating profit ,095.0 Net income Net income per sare: (1) Basic... $.46 $.87 $ 1.22 $.59 $ 3.14 Diluted... $.46 $.86 $ 1.21 $.59 $ 3.12 (1) Per common sare amounts for te quarters and full years ave eac been calculated separately. Accordingly, quarterly amounts may not add to te annual amounts because of differences in te weigted average common sares outstanding during eac period. Te following significant infrequent or unusual items impacted our quarterly results in fiscal 2012 and fiscal 2011: Fiscal 2012 Net income in te first, second and tird quarters included losses on debt extinguisment of $1.2 million, $6.4 million and $4.6 million, respectively. Operating profit in te first and fourt quarters included carges of $39.0 million and a net benefit of $16.8 million, respectively, related to te Missouri litigation. Gross profit in te first, second and tird quarters included accelerated depreciation carges associated wit te idling of certain Missouri og farm assets of $4.3 million, $3.2 million, and $0.7 million, respectively. Operating profit in te second, tird and fourt quarters included carges associated wit te planned closure of our Portsmout facility of $1.8 million, $1.7 million, and $1.2 million, respectively. Operating profit in te first and second quarters included professional fees related to te potential acquisition of a controlling interest in CFG of $5.7 million and $0.7 million, respectively. In June 2011 (fiscal 2012), we terminated negotiations to purcase te additional interest. Operating profit in te tird quarter included our sare of carges related to te CFG Consolidation Plan of $38.7 million. Fiscal 2011 Gross profit in te first, second, tird and fourt quarters included carges associated wit te Cost Savings Initiative of $0.5 million, $15.3 million, $10.9 million and $1.3 million, respectively. 120

175 Net income in te second, tird and fourt quarters included losses on debt extinguisment of $7.3 million, $p14.1 million and $71.1 million, respectively. Operating profit in te tird quarter included an involuntary conversion gain on fire insurance recovery of $120.6 million and a net benefit of $19.1 million related to te Missouri litigation. Operating profit in te tird and fourt quarters included net gains of $5.1 million and $13.6 million, respectively, on te sale of og farms. NOTE 20: SUBSEQUENT EVENT Sare Repurcase Autorization In June 2012 (fiscal 2013), we announced tat our board of directors ad approved a new sare repurcase program autorizing us to buy up to $250 million of our common stock over te next 24 monts in addition to tose amounts previously autorized under te Sare Repurcase Program. We intend to fund sare repurcases from cas on and. Sare repurcases may be made on te open market, or in privately negotiated transactions. Te number of sares repurcased, and te timing of any buybacks, will depend on corporate cas balances, business and economic conditions, and oter factors, including investment opportunities. Te program may be discontinued at any time. 121

176 SMITHFIELD FOODS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED APRIL 29, 2012 (in millions) Scedule II Column A Column B Column C Additions Column D Column E Description Balance at Beginning of Year Carged to costs and expenses Carged to oter accounts (1) Deductions Balance at End of Year Reserve for uncollectible accounts receivable: Fiscal year ended April 29, $ 9.2 $ 1.5 $ (1.2) $ (0.5) $ 9.0 Fiscal year ended May 1, (0.3) (2.1) 9.2 Fiscal year ended May 2, (3.2) 8.1 Reserve for obsolete inventory: Fiscal year ended April 29, $ 14.8 $ 3.2 $ (0.6) $ (1.9) $ 15.5 Fiscal year ended May 1, (4.6) 14.8 Fiscal year ended May 2, (10.1) 17.4 Deferred tax valuation allowance: Fiscal year ended April 29, $ 66.8 $ $ (8.0) $ (4.2) $ 54.6 Fiscal year ended May 1, (30.8) 66.8 Fiscal year ended May 2, (7.5) (2.0) 91.5 (1) Activity primarily includes te reserves recorded in connection wit te creation of te opening balance seets of entities acquired and currency translation adjustments. 122

177 ITEM 9. None. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A.CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES An evaluation was performed under te supervision and wit te participation of management, including te Cief Executive Officer (CEO) and te Cief Financial Officer (CFO), regarding te effectiveness of te design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under te Securities Excange Act of 1934, as amended) as of April 29, Based on tat evaluation, management, including te CEO and CFO, as concluded tat our disclosure controls and procedures were effective as of April 29, MANAGEMENT S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establising and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) of te Securities Excange Act of Our internal control system was designed to provide reasonable assurance to management and te board of directors regarding te preparation and fair presentation of publised financial statements. Because of its inerent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to te risk tat controls may become inadequate because of canges in conditions, or te degree of compliance wit te policies or procedures may deteriorate. Management conducted an evaluation of te effectiveness of our internal control over financial reporting as of April 29, In making tis assessment, we used criteria set fort by te Committee of Sponsoring Organizations of te Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on tis evaluation under te framework in Internal Control Integrated Framework issued by COSO, management concluded tat our internal control over financial reporting was effective as of April 29, Our independent registered public accounting firm, Ernst & Young LLP, as audited te financial statements included in tis Form 10-K and as issued an attestation report on our internal control over financial reporting. Teir attestation report on our internal control over financial reporting and teir attestation report on te audit of te consolidated financial statements are included in Item 8. Financial Statements and Supplementary Data of tis Annual Report on Form 10-K. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING In te quarter ended April 29, 2012, tere were no canges in our internal control over financial reporting tat ave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION Not applicable. 123

178 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information required by tis Item regarding our executive officers is included in Part I of tis Annual Report on Form 10-K. All oter information required by tis Item is incorporated by reference to our definitive proxy statement to be filed wit respect to our Annual Meeting of Sareolders to be eld on September 19, 2012 under te eadings entitled Nominees for Election to Tree-Year Terms, Directors wose Terms do not Expire tis Year, Section 16(a) Beneficial Ownersip Reporting Compliance and Corporate Governance. ITEM 11. EXECUTIVE COMPENSATION Information required by tis Item is incorporated by reference to our definitive proxy statement to be filed wit respect to our Annual Meeting of Sareolders to be eld on September 19, 2012 under te eadings (including te narrative disclosures following a referenced table) entitled Compensation Discussion and Analysis, Fiscal 2012 Executive Compensation, Director Compensation, Compensation Committee Report, and Compensation Committee Interlocks and Insider Participation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information required by tis Item is incorporated by reference to our definitive proxy statement to be filed wit respect to our Annual Meeting of Sareolders to be eld on September 19, 2012 under te eadings entitled Principal Sareolders, Common Stock Ownersip of Executive Officers and Directors and Equity Compensation Plan Information. ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Information required by tis Item is incorporated by reference to our definitive proxy statement to be filed wit respect to our Annual Meeting of Sareolders to be eld on September 19, 2012 under te eadings entitled Related Party Transactions and Corporate Governance. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information required by tis Item is incorporated by reference to our definitive proxy statement to be filed wit respect to our Annual Meeting of Sareolders to be eld on September 19, 2012 under te eadings entitled Audit Committee Report and Ratification of Selection of Independent Auditors. 124

179 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Te following documents are filed as part of tis report: 1. Financial Statements: Consolidated Statements of Income for te Fiscal Years 2012, 2011 and 2010 Consolidated Statements of Compreensive Income for te Fiscal Years 2012, 2011 and 2010 Consolidated Balance Seets as of April 29, 2012 and May 1, 2011 Consolidated Statements of Cas Flows for te Fiscal Years 2012, 2011 and 2010 Consolidated Statements of Sareolders Equity for te Fiscal Years 2012, 2011 and 2010 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements 2. Financial Statement Scedule Scedule II Valuation and Qualifying Accounts Certain financial statement scedules are omitted because tey are not applicable or te required information is included erein or is sown in te consolidated financial statements or related notes filed as part of tis report. 3. Exibits Exibit 3.1 Articles of Amendment effective August 27, 2009 to te Amended and Restated Articles of Incorporation, including te Amended and Restated Articles of Incorporation of te Company, as amended to date (incorporated by reference to Exibit 3.1 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on September 11, 2009). Exibit 3.2 Amendment to te Bylaws effective June 16, 2010, including te Bylaws of te Company, as amended to date (incorporated by reference to Exibit 3.2 to te Company s Annual Report on Form 10-K filed wit te SEC on June 18, 2010). Exibit 4.1 Indenture between te Company and SunTrust Bank, as trustee, dated May 21, 2003 regarding te issuance by te Company of $350,000,000 senior notes (incorporated by reference to Exibit 4.11(a) to te Company s Annual Report on Form 10-K filed wit te SEC on July 23, 2003). Exibit 4.2(a) Registration Rigts Agreement, dated May 7, 2007, among te Company and ContiGroup Companies, Inc. (incorporated by reference to Exibit 4.1 to te Company s Current Report on Form 8-K filed wit te SEC on May 7, 2007). Exibit 4.2(b) Amendment No. 1, dated as of October 23, 2008, to te Registration Rigts Agreement, dated as of May 7, 2007, by and between Smitfield Foods, Inc. and Continental Grain Company (incorporated by reference to Exibit 4.1 to te Company s Current Report on Form 8-K filed wit te SEC on October 24, 2008). Exibit 4.3(a) Indenture-Senior Debt Securities, dated June 1, 2007, between te Company and U.S. Bank National Association as trustee (incorporated by reference to Exibit 4.10(a) to te Company s Annual Report on Form 10-K filed wit te SEC on June 28, 2007). 125

180 Exibit 4.3(b) First Supplemental Indenture to te Indenture-Senior Debt Securities between te Company and U.S. Bank National Association, as trustee, dated as of June 22, 2007 regarding te issuance by te Company of te % Senior Notes due 2017 (incorporated by reference to Exibit 4.10(b) to te Company s Annual Report on Form 10-K filed wit te SEC on June 28, 2007). Exibit 4.3(c) Second Supplemental Indenture to te Indenture-Senior Debt Securities between te Company and U.S. Bank National Association, as trustee, dated as of July 8, 2008 regarding te issuance by te Company of te % Convertible Senior Notes due 2013 (incorporated by reference to Exibit 4.8 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on September 5, 2008). Exibit 4.4(a) Indenture, dated July 2, 2009, among te Company, te Guarantors and U.S. Bank National Association, as Trustee (incorporated by reference to Exibit 4.1 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2009). Exibit 4.4(b) Form of 10% Senior Secured Note Due 2014 (incorporated by reference to Exibit 4.2 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2009). Exibit 4.4(c) Form of 10% Senior Secured Note Due 2014 (incorporated by reference to Exibit 4.2 to te Company s Current Report on Form 8-K filed wit te SEC on August 14, 2009). Exibit 4.5 Form of Subordinated Indenture between te Company and U.S. Bank National Association, as trustee, as supplemented from time to time (incorporated by reference to Exibit 4.6 to te Company s Registration Statement on Form S-3 filed wit te SEC on June 25, 2010). Registrant ereby agrees to furnis te SEC, upon request, oter instruments defining te rigts of olders of long-term debt of te Registrant. Exibit 10.1(a)** Smitfield Foods, Inc Stock Incentive Plan (incorporated by reference to Exibit 10.7 to te Company s Form 10-K Annual Report filed wit te SEC on July 30, 1998). Exibit 10.1(b)** Amendment No. 1 to te Smitfield Foods, Inc Stock Incentive Plan dated August 29, 2000 (incorporated by reference to Exibit 10.6(b) of te Company s Annual Report on Form 10-K filed wit te SEC on July 29, 2002). Exibit 10.1(c)** Amendment No. 2 to te Smitfield Foods, Inc Stock Incentive Plan dated August 29, 2001 (incorporated by reference to Exibit 10.6(c) of te Company s Annual Report on Form 10-K filed wit te SEC on July 29, 2002). Exibit 10.1(d)** Form of Nonstatutory Stock Option Agreement for te Smitfield Foods, Inc Stock Incentive Plan (incorporated by reference to Exibit 10.3(d) to te Company s Annual Report on Form 10-K filed wit te SEC on July 11, 2005). Exibit 10.2** Smitfield Foods, Inc Non-Employee Directors Stock Incentive Plan (incorporated by reference to Exibit 10.1 to te Company s Current Report on Form 8-K filed wit te SEC on September 1, 2005). Exibit 10.3** Consulting Agreement, dated August 30, 2006, by and between te Company and Josep W. Luter, III (incorporated by reference to Exibit 10.2 to te Company s Current Report on Form 8-K filed wit te SEC on September 6, 2006). Exibit 10.4(a) Master Terms and Conditions for Convertible Bond Hedging Transactions, dated as of July 1, 2008, between Citibank, N.A. and Smitfield Foods, Inc. (incorporated by reference to Exibit 10.1 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). 126

181 Exibit 10.4(b) Master Terms and Conditions for Convertible Bond Hedging Transactions, dated as of July 1, 2008, between Goldman, Sacs & Co. and Smitfield Foods, Inc. (incorporated by reference to Exibit 10.2 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(c) Master Terms and Conditions for Convertible Bond Hedging Transactions, dated as of July 1, 2008, between JPMorgan Case Bank, National Association, London Branc and Smitfield Foods, Inc. (incorporated by reference to Exibit 10.3 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(d) Confirmation for Convertible Bond Hedging Transaction, dated July 1, 2008, between Citibank, N.A. and Smitfield Foods, Inc. (incorporated by reference to Exibit 10.4 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(e) Confirmation for Convertible Bond Hedging Transaction, dated July 1, 2008, between Goldman, Sacs & Co. and Smitfield Foods, Inc. (incorporated by reference to Exibit 10.5 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(f) Confirmation for Convertible Bond Hedging Transaction, dated July 1, 2008, between JPMorgan Case Bank, National Association, London Branc and Smitfield Foods, Inc. (incorporated by reference to Exibit 10.6 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(g) Master Terms and Conditions for Warrants Issued by Smitfield Foods, Inc. to Citibank, N.A., dated as of July 1, 2008 (incorporated by reference to Exibit 10.7 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4() Master Terms and Conditions for Warrants Issued by Smitfield Foods, Inc. to Goldman, Sacs & Co., dated as of July 1, 2008 (incorporated by reference to Exibit 10.8 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(i) Master Terms and Conditions for Warrants Issued by Smitfield Foods, Inc. to JPMorgan Case Bank, National Association, London Branc, dated as of July 1, 2008 (incorporated by reference to Exibit 10.9 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(j) Confirmation for Warrants Issued by Smitfield Foods, Inc. to Citibank, N.A., dated July 1, 2008 (incorporated by reference to Exibit to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(k) Confirmation for Warrants Issued by Smitfield Foods, Inc. to Goldman, Sacs & Co., dated July 1, 2008 (incorporated by reference to Exibit to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.4(l) Confirmation for Warrants Issued by Smitfield Foods, Inc. to JPMorgan Case Bank, National Association, London Branc, dated July 1, 2008 (incorporated by reference to Exibit to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2008). Exibit 10.5(a) ** Smitfield Foods, Inc. Amended and Restated 2008 Incentive Compensation Plan (incorporated by reference to Exibit 10.3 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on September 11, 2009). 127

182 Exibit 10.5(b)** Form of Smitfield Foods, Inc Incentive Compensation Plan Performance Sare Unit Award (incorporated by reference to Exibit 10.2 to te Company s Current Report on Form 8-K filed wit te SEC on September 3, 2008). Exibit 10.5(c)** Form of Smitfield Foods, Inc Incentive Compensation Plan Stock Option Award (incorporated by reference to Exibit 10.1 to te Company s Current Report on Form 8-K filed wit te SEC on July 10, 2009). Exibit 10.5(d)** Form of Smitfield Foods, Inc Incentive Compensation Plan Performance Sare Unit Award for fiscal 2010 (incorporated by reference to Exibit 10.2 to te Company s Current Report on Form 8-K filed wit te SEC on July 10, 2009). Exibit 10.5(e)** Form of Smitfield Foods, Inc Incentive Compensation Plan Performance Sare Unit Award granted December 2009 (incorporated by reference to Exibit 10.2 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on Marc 12, 2010). Exibit 10.5(f)** Summary of Performance Sare Unit Awards to Executive Officers in te Pork Group granted on June 15, 2010 (incorporated by reference to Exibit 99.1 to te Company s Current Report on Form 8-K filed wit te SEC on June 21, 2010). Exibit 10.5(g)** Form of Smitfield Foods, Inc Incentive Compensation Plan Performance Sare Unit Award to Executive Officers in te Pork Group granted on June 15, 2010 (incorporated by reference to Exibit 10.3 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on September 9, 2010). Exibit 10.6 Market Hog Contract Grower Agreement, dated May 13, 1998, by and between Continental Grain Company and CGC Asset Acquisition Corp. (incorporated by reference to Exibit 10.3 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on Marc 12, 2010). Exibit 10.7** Retirement Agreement and General Release dated as of August 9, 2010 between te Company and Ricard J. M. Poulson (incorporated by reference to Exibit 99.1 to te Company s Current Report on Form 8-K filed wit te SEC on August 16, 2010). Exibit 10.8** Certain Compensation for Named Executive Officers for fiscal 2012 (incorporated by reference to Exibit 10.6 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on September 9, 2011). Exibit 10.9** Smitfield Foods, Inc. Cange in Control Executive Severance Plan (incorporated by reference to Exibit 99.1 to te Company s Current Report on Form 8-K filed wit te SEC on September 8, 2010). Exibit 10.10** Compensation for Non-Employee Directors as of September 1, 2010 (incorporated by reference to Exibit 10.3 to te Company s Quarterly Report on Form 10-Q filed wit te SEC on December 9, 2010). Exibit 10.11(a) Term Loan Agreement, dated July 2, 2009, among te Company, te Guarantors, te lenders party tereto and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branc, as administrative agent (incorporated by reference to Exibit 4.4 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2009). 128

183 Exibit 10.11(b) First Amendment to Term Loan Agreement, dated as of June 9, 2011, among te Company, te subsidiaries of te Company party tereto, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branc, as administrative agent and te lenders party tereto (incorporated by reference to Exibit 10.5 to te Company s Current Report on Form 8-K filed wit te SEC on June 16, 2011). Exibit Pledge and Security Agreement, dated July 2, 2009, among te Company, te Guarantors, and U.S. Bank National Association, as collateral agent (incorporated by reference to Exibit 4.6 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2009). Exibit 10.13* Amended and Restated Intercreditor Agreement, dated as June 9, 2011, among Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branc, as administrative agent, and U.S. Bank National Association, as collateral agent. Exibit Intercreditor and Collateral Agency Agreement, dated July 2, 2009, among te Company, te Guarantors, U.S Bank National Association, as collateral agent, U.S. Bank National Association, as trustee for te Notes, and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branc, as administrative agent (incorporated by reference to Exibit 4.8 to te Company s Current Report on Form 8-K filed wit te SEC on July 8, 2009). Exibit 10.15(a) Second Amended and Restated Credit Agreement, dated as of June 9, 2011, among te Company, te subsidiaries of te Company party tereto, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., Rabobank Nederland, New York Branc, as Administrative Agent, te lenders party tereto, and te oter agents and arrangers party tereto (incorporated by reference to Exibit 10.1 to te Company s Current Report on Form 8-K filed wit te SEC on June 16, 2011). Exibit 10.15(b) Second Amended and Restated Pledge and Security Agreement, dated as of June 9, 2011, among te Company, te subsidiaries of te Company party tereto and Coöperatieve Centrale Raiffeisen- Boerenleenbank B.A., Rabobank Nederland, New York Branc, as Administrative Agent (incorporated by reference to Exibit 10.2 to te Company s Current Report on Form 8-K filed wit te SEC on June 16, 2011). Exibit Receivables Sale Agreement, dated as of June 9, 2011, among Smitfield Receivables Funding LLC, te Company, SFFC, Inc., Farmland Foods, Inc., Te Smitfield Packing Company, Incorporated, Patrick Cuday, LLC, Premium Pet Healt, LLC, Jon Morrell & Co., Smitfield Global Products, Inc., and Armour- Eckric Meats LLC (incorporated by reference to Exibit 10.3 to te Company s Current Report on Form 8-K filed wit te SEC on June 16, 2011). Exibit Credit and Security Agreement, dated as of June 9, 2011, among Smitfield Receivables Funding LLC,, te Company, Rabobank, as te Administrative Agent and certain lenders and co-agents party tereto (incorporated by reference to Exibit 10.4 to te Company s Current Report on Form 8-K filed wit te SEC on June 16, 2011). Exibit 10.18*,** Smitfield Foods, Inc. Executive Stock Purcase Plan. Exibit 21* Subsidiaries of te Company. Exibit 23.1* Consent of Independent Registered Public Accounting Firm. 129

184 Exibit 31.1* Certification of C. Larry Pope, President and Cief Executive Officer, pursuant to Section 302 of te Sarbanes-Oxley Act of Exibit 31.2* Certification of Robert W. Manly, IV, Executive Vice President and Cief Financial Officer, pursuant to Section 302 of te Sarbanes-Oxley Act of Exibit 32.1* Certification of C. Larry Pope, President and Cief Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of te Sarbanes-Oxley Act of Exibit 32.2* Certification of Robert W. Manly, IV, Executive Vice President and Cief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of te Sarbanes-Oxley Act of Exibit 101* Te following financial statements from Smitfield Foods, Inc. s Annual Report on Form 10-K for te year ended April 29, 2012, formatted in XBRL: (i) Consolidated Statements of Income, (i) Consolidated Statements of Compreensive Income, (iii) Consolidated Balance Seets, (iv) Consolidated Statements of Cas Flows, and (v) te Notes to Consolidated Financial Statements. * Filed erewit. ** Management contract or compensatory plan or arrangement of te Company required to be filed as an exibit. 130

185 SIGNATURES Pursuant to te requirements of Section 13 or 15(d) of te Securities Excange Act of 1934, te registrant as duly caused tis report to be signed on its bealf by te undersigned, tereunto duly autorized. REGISTRANT: SMITHFIELD FOODS, INC. By: /s/ C. LARRY POPE C. Larry Pope President and Cief Executive Officer Date: June 15, 2012 Pursuant to te requirements of te Securities Excange Act of 1934, tis report as been signed below by te following persons on bealf of te registrant and in te capacities and on te dates indicated. Signature Title Date /s/ JOSEPH W. LUTER, III Josep W. Luter, III Cairman of te Board and Director June 15, 2012 /s/ C. LARRY POPE C. Larry Pope President, Cief Executive Officer and Director June 15, 2012 /s/ ROBERT W. MANLY, IV Robert W. Manly, IV Executive Vice President and Cief Financial Officer (Principal Financial Officer) June 15, 2012 /s/ KENNETH M. SULLIVAN Kennet M. Sullivan Vice President, Finance and Cief Accounting Officer (Principal Accounting Officer) June 15, 2012 /s/ /s/ /s/ /s/ /s/ CAROL T. CRAWFORD Carol T. Crawford RICHARD T. CROWDER Ricard T. Crowder MARGARET G. LEWIS Margaret G. Lewis WENDELL H. MURPHY Wendell H. Murpy DAVID C. NELSON David C. Nelson Director June 15, 2012 Director June 15, 2012 Director June 15, 2012 Director June 15, 2012 Director June 15, 2012 /s/ /s/ /s/ FRANK S. ROYAL, M.D. Frank S. Royal, M.D. JOHN T. SCHWIETERS Jon T. Scwieters PAUL S. TRIBLE, JR. Paul S. Trible, Jr. Director June 15, 2012 Director June 15, 2012 Director June 15,

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187 MANAGEMENT CORPORATE OFFICERS C. LARRY POPE President and Cief Executive Officer DENNIS H. TREACY Executive Vice President and Cief Sustainability Officer MICHAEL D. FLEMMING Vice President and Corporate General Counsel PARUL STEVENS Vice President, Risk Management GEORGE H. RICHTER President and Cief Operating Officer, Pork Group JOSEPH W. LUTER, IV Executive Vice President ROBERT W. MANLY, IV Executive Vice President and Cief Financial Officer DHAMU THAMODARAN Executive Vice President and Cief Commodity Hedging Officer MICHAEL H. COLE Vice President, Cief Legal Officer and Secretary JEFFREY A. DEEL Vice President and Corporate Controller TIMOTHY P. DYKSTRA Vice President and Corporate Treasurer BART ELLIS Vice President, Operations Analysis CRAIG R. HARLOW Vice President, Internal Audit KEIRA L. LOMBARDO Vice President, Investor Relations and Corporate Communications HENRY L. MORRIS Senior Corporate Vice President, Operations and Engineering DAREK NOWAKOWSKI President, Smitfield Europe KENNETH M. SULLIVAN Senior Vice President of Finance and Cief Accounting Officer VERNON T. TURNER Vice President, Corporate Tax MANSOUR T. ZADEH Cief Information Officer DIRECTORS JOSEPH W. LUTER, III Cairman of te Board C. LARRY POPE President and Cief Executive Officer, Smitfield Foods, Inc. HON. CAROL T. CRAWFORD Former Commissioner, U.S. International Trade Commission RICHARD T. CROWDER Professor of International Trade, College of Agriculture and Life Sciences, Virginia Polytecnic Institute and State University MARGARET G. LEWIS President, HCA Capital Division WENDELL H. MURPHY Private Investor, former Cairman of te Board and Cief Executive Officer of Murpy Farms, Inc. DAVID C. NELSON Global Strategist, Animal Protein Grains and Oilseeds, Food & Agribusiness Researc and Advisory Group, Rabobank FRANK S. ROYAL, M.D. Pysician JOHN T. SCHWIETERS Senior Executive, Perseus LLC, a mercant bank and private equity fund management company HON. PAUL S. TRIBLE, JR. President, Cristoper Newport University DIRECTORS EMERITUS ROBERT L. BURRUS, JR. Cairman Emeritus of te law firm of McGuireWoods LLP RAY A. GOLDBERG Moffett Professor of Agriculture and Business, Emeritus, Harvard Business Scool MELVIN O. WRIGHT Formerly a senior executive of Dean Witter Reynolds, now Morgan Stanley 51

188 CORPORATE INFORMATION COMMON STOCK DATA Te common stock of te company as traded on te New York Stock Excange under te symbol SFD since September 28, Prior to tat, te common stock traded on te Nasdaq National Market under te symbol SFDS. Te following table sows te ig and low sales prices of te common stock of te company for eac quarter of fiscal 2012 and HIGH LOW HIGH LOW HOLDERS As of June 13, 2012, tere were 885 record olders of our common stock. First $ $ $ $ Second Tird Fourt DIVIDENDS Te company as never paid a cas dividend on its common stock. In addition, te terms of certain of te company s debt agreements proibit te payment of any cas dividends on te common stock. Te payment of cas dividends, if any, would be made only from assets legally available for tat purpose and would depend on te company s financial condition, results of operations, current and anticipated capital requirements, restrictions under ten-existing debt instruments, and oter factors ten deemed relevant by te board of directors. CORPORATE HEADQUARTERS Smitfield Foods, Inc. 200 Commerce Street Smitfield, VA smitfieldfoods.com TRANSFER AGENT AND REGISTRAR Computersare Investor Services LLC 2 Nort LaSalle Street Cicago, IL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 2100 East Cary Street, Suite 201 Ricmond, VA FORM 10-K REPORT Copies of te company s 10-K Annual Report are available witout carge upon written request to: Corporate Secretary Smitfield Foods, Inc. 200 Commerce Street Smitfield, VA ir@smitfieldfoods.com ANNUAL MEETING Te annual meeting of sareolders will be eld on September 19, 2012, at 2 p.m., at Williamsburg Lodge, 310 Sout England Street, Williamsburg, VA INVESTOR RELATIONS Smitfield Foods, Inc. 200 Commerce Street Smitfield, VA ir@smitfieldfoods.com Te company makes available, free of carge troug smitfieldfoods.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to tose reports as soon as reasonably practicable after filing or furnising te material to te SEC. 52

189 CONTACT US Te feedback we ave received on our performance and communications efforts as proven very valuable to our company. We ope tat you will continue to communicate wit us as we proceed along our performance improvement journey. DENNIS H. TREACY Executive Vice President and Cief Sustainability Officer WILLIAM D. GILL Assistant Vice President, Environmental Affairs STEWART T. LEETH Assistant Vice President, Environmental and Corporate Affairs, and Senior Counsel KEIRA L. LOMBARDO Vice President, Investor Relations and Corporate Communications youtube.com/smitfieldfoods INTEGRATED REPORTING INDEX In preparing our first integrated report, we considered te guidance of te International Integrated Reporting Council (IIRC). Integrated reporting is evolving rapidly, and we expect our own reporting to continue to evolve as well. Below is a ig-level mapping of our report to te content elements recommended in te IIRC integrated reporting framework. IIRC REPORTING CONTENT ELEMENT Organizational overview and business model MAJOR REPORT SECTIONS ADDRESSING Our Business Journey Our Family of Companies PAGES Tis report, wit te exception of te Form 10-K, is printed on Neena Paper Classic Crest Recycled 100 Brigt Wite stock. Tis paper contains 100 percent post-consumer recycled fiber and was made using 100 percent renewable electricity. We acieved te following by printing on tis stock instead of virgin paper: Trees saved 139 Water saved 3,371 gallons Operating context, including risks and opportunities Cief Executive Officer Letter Our Business Journey Governance & Management Value Creation , 21, 25, 28, 33, 35, 37 Solid waste not produced Energy saved 3,847 pounds 44 million BTUs Strategic objectives Our Business Journey Key Commitments 10 7 Carbon emissions not generated 13,158 pounds Governance and remuneration Performance Governance & Management Key Data Summary Core Reporting Areas , 20, 24, 27, 32, 34 Future outlook Designed and produced by RKC! (Robinson Kurtin Communications! Inc) Content developed by BuzzWord, Inc. Potograpy by Timoty Llewellyn (except pages 20 and 36) Printed by J.S. McCarty Cief Executive Officer Letter Our Business Journey 1 10 Non-GAAP Measure Reconciliation for Pork Segment Profitability Cart on Page 10 (in millions) FY 09 FY 10 Operating profit Pork segment $395 $539 Add: Pork segment restructuring and impairment carges Pork segment adjusted EBIT $483 $573 Operating profit Pork segment $395 $539 Less: Operating profit Fres pork (76) (61) Add: Packaged meats restructuring and impairment carges Packaged meats adjusted EBIT $386 $495 Operating profit Pork segment $395 $539 Less: Operating profit Packaged meats (319) (478) Add: Fres pork restructuring and impairment carges Fres pork adjusted EBIT $ 97 $ 78

190 SMITHFIELD FOODS is a $13 billion global food company and te world s largest pork processor and og producer. In te United States, te company is also te leader in numerous packaged meats categories wit popular brands including Smitfield, Eckric, Farmland, Armour, Cook s, Gwaltney, Jon Morrell, Kretscmar, Curly s, Carando, Margerita, and Healty Ones. Smitfield Foods is committed to providing good food in a responsible way and maintains robust animal care, community involvement, employee safety, environmental, and food safety and quality programs. ANIMAL CARE VALUE CREATION EMPLOYEES Our Commitments HELPING COMMUNITIES ENVIRONMENT FOOD SAFETY & QUALITY SMITHFIELD FOODS, INC. 200 Commerce Street, Smitfield, VA smitfieldfoods.com smitfieldcommitments.com