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Smithfield Foods 2012 Integrated Report

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Smithfield Foods 2012 Integrated Report 2012 INTEGRATED REPORT We combine Leading Brands and a Commitment to Sustainability to produce Good Food. Responsibly.® OUR OPERATIONS Through independent operating companies and joint ventures, as well as our stake in Europe’s largest packaged meats provider, Smithfield Foods’ operations extend to 12 countries. UNITED STATES h Arkansas h Nebraska h California h New Jersey h Colorado h North Carolina h Georgia h Ohio h Illinois h Oklahoma h Indiana h Pennsylvania h Iowa h South Carolina h Kansas h South Dakota h Kentucky h Texas h Maryland h Utah h Massachusetts h Virginia h Minnesota h Wisconsin h Missouri MEXICO BELGIUM FRANCE GERMANY ITALY THE NETHERLANDS POLAND PORTUGAL ROMANIA SPAIN UNITED KINGDOM Joint ventures Wholly owned Campofrío Food Group, S.A., a Smithfield Foods operations publicly traded company of which Smithfield Foods owns 37 percent TABLE OF CONTENTS Chief Executive Officer Letter 1 Management 51 Ask the Chief Sustainability Officer 4 Corporate Information 52 Our Business Journey 10 Contact Us 53 Value Creation 12 MAPS, DIAGRAMS, AND MAJOR TABLES Governance & Management 16 Animal Care 20 Map of Operations Foldout Employees 24 Key Data Summary 6 Environment 27 Key Commitments 7 Food Safety & Quality 32 Value Creation & Risk Management 14 Helping Communities 34 10-Year Financial Summary 48 International Operations 36 Cumulative Total Return Comparisons 50 Our Family of Companies 40 Integrated Reporting Index 53 FINANCIAL HIGHLIGHTS Fiscal years ended April 29, 2012 May 1, 2011 May 2, 2010 (in millions, except per share data) Sales $13,094.3 $12,202.7 $11,202.6 Operating profit 722.6 1,095.0 62.8 Net income (loss) 361.3 521.0 (101.4) Diluted earnings (loss) per share 2.21 3.12 (.65) Weighted average diluted shares outstanding 163.5 167.2 157.1 Additional Information Capital expenditures $ 290.7 $ 176.8 $ 174.7 Depreciation expense 238.6 227.4 236.9 Working capital 2,162.7 2,110.0 2,128.4 Net debt1 1,640.1 1,747.6 2,556.9 Shareholders’ equity 3,387.3 3,545.5 2,755.6 Net debt to total capitalization2 33.0% 33.0% 48.1% 1 Net debt is equal to notes payable and long-term debt and capital lease obligations, including current portion, less cash and cash equivalents. 2 Computed using net debt divided by net debt and shareholders’ equity. ABOUT THIS REPORT Welcome to the Smithfield Foods1 2012 Integrated FORWARD:LOOKING INFORMATION Report—our first to combine our annual financial results with our sustainability reporting. Our This report contains “forward-looking” statements within the sustainability strategy is based on our core values meaning of the federal securities laws. The forward-looking and organized by five pillars that represent our key statements include statements concerning our outlook for areas of sustainability focus: animal care, employees, the future, as well as other statements of beliefs, future plans environment, food safety and quality, and helping and strategies or anticipated events, and similar expressions communities. In this summary report, we report on concerning matters that are not historical facts. Our forward- our progress and performance in each area. We have looking information and statements are subject to risks and also identified and report on a sixth pillar, value uncertainties that could cause actual results to differ materially creation, recognizing that this concept underpins from those expressed in, or implied by, the statements. These our sustainability strategy and connects it with our risks and uncertainties include the availability and prices of business results. live hogs, raw materials, fuel and supplies, food safety, live- stock disease, live hog production costs, product pricing, the Integrated reporting is rapidly evolving, and there is not competitive environment and related market conditions, risks yet a standardized approach. We expect our reporting will associated with our indebtedness, including cost increases due continue to progress over time, and we welcome feedback to rising interest rates or changes in debt ratings or outlook, on how we might improve our approach. hedging risk, operating efficiencies, changes in foreign currency exchange rates, access to capital, the cost of compliance with To produce this report, we used the results of an updated and changes to regulations and laws, including changes in 2012 materiality analysis and the Global Reporting Initiative accounting standards, tax laws, environmental laws, agricultural (GRI) G3 Guidelines, which provide a recommended laws and occupational, health and safety laws, adverse results sustainability reporting framework and indicators. We also from ongoing litigation, actions of domestic and foreign reviewed recommendations published in 2011 by the governments, labor relations issues, credit exposure to large International Integrated Reporting Council (IIRC), which aims customers, the ability to make effective acquisitions and to establish a global integrated reporting framework. (See successfully integrate newly acquired businesses into existing Integrated Reporting Index on inside back cover.) operations, our ability to effectively restructure portions of our operations and achieve cost savings from such restructurings In fiscal 2012, we retained an independent consultancy to and uncertainties described under “Item 1A. Risk Factors” in conduct third-party pre-assurance of selected performance our annual report on Form 10-K for the fiscal year ended data and adherence to the AA1000 Assurance Standard April 29, 2012. Readers are cautioned not to place undue (2008) principles. (See smithfieldcommitments.com for reliance on forward-looking statements because actual results more information.) may differ materially from those expressed in, or implied by, the statements. Any forward-looking statement that we Unless otherwise indicated, the information and metrics make speaks only as of the date of such statement, and we within this report pertain to Smithfield Foods’ independent undertake no obligation to update any forward-looking operating companies and investments in which we have statements, whether as a result of new information, future a majority (51 percent or more) interest. We also discuss events, or otherwise. Comparisons of results for current and our management approach to contract farming. Although any prior periods are not intended to express any future contract farms are managed under the same animal care trends or indications of future performance, unless expressed and environmental standards as Smithfield-owned farms, as such, and should only be viewed as historical data. we do not provide performance data for these operations because they are independent businesses. We primarily use American measurement metrics and American numbering More comprehensive when reporting the performance of our U.S. and interna- sustainability information will be available tional operations. at smithfieldcommitments.com in October 2012, including full GRI B-level reporting. 1 Smithfield Foods, Inc., is a holding company with a number of independent operating companies (IOCs). Throughout this report, the term “Smithfield” is utilized for ease of reference to indicate one or more of these independent operating companies. Smithfield should not be confused with The Smithfield Packing Company, Inc., which is one of Smithfield’s IOCs. DEAR SMITHFIELD FOODS STAKEHOLDERS: I’m proud to introduce the Smithfield Foods 2012 Integrated Report—our first to report on both our financial and sustainability performance. This report aims to demonstrate the value that Smithfield Foods delivers to all our stakeholders—from employees to investors to the communities in which we operate. To Smithfield, value creation extends well beyond the financial performance of our company. It includes the jobs we create at our farms and our plants. It’s the taxes we pay within our communities. It’s the educational programs we sponsor for children and the millions of pounds of food we donate to those in need. It’s the work we are doing to convert waste to energy. And it’s the good health of the animals we raise for our products. Value creation and economic performance have always been at the heart of our sustainability commitments and performance. But with this report, we have added value creation to the sustainability pillars most material to our business, and we explore the interrelationship of value creation to the other pillars and to our broader stakeholder communities. C. Larry Pope 2012 Financial Performance President and Here at Smithfield, we believe that a strong business yields strong sustainability performance. Chief Executive Officer And there is no doubt in my mind that our sustainability strategy strengthens our business. Fiscal 2012 was our company’s second most profitable year—eclipsed only by fiscal 2011. We reported fiscal 2012 net income of $361.3 million, or $2.21 per diluted share. Sales were at a record high of $13.1 billion—up 7 percent from the previous year. Our back-to-back strong performance underscores our ability to consistently deliver solid earnings to our shareholders. The recent restructuring of our Pork segment is now allowing us to zero in on the packaged meats side of our business, which is where we believe we have the biggest opportunities for earnings growth. Despite higher raw material costs, our packaged meats business grew profitability in fiscal 2012 by more than $50 million, or $.02 per pound. The business benefited from an improved product mix, a more coordinated and focused sales strategy, and increased investment in product marketing
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