CORPORATE SOCIAL RESPONSIBILITY REPORT 2008/09

Transcription

1 CORPORATE SOCIAL RESPONSIBILITY REPORT 2008/09

2 Smthfeld Foods: A Global Leader Producng Good Food. Responsbly. NORTH AMERICA UNITED STATES t Arkansas t Calforna t Colorado t Georga t Illnos t Indana t Iowa t Kansas t Kentucky t Maryland t Massachusetts t Mnnesota t Mssour t Nebraska t New Jersey t North Carolna t Oho t Oklahoma t Pennsylvana t South Carolna t South Dakota t Texas t Utah t Vrgna t Wsconsn MEXICO

3 Through ndependent operatng companes and jont ventures, as well as our stake n Europe s largest packaged meats provder, Smthfeld Foods operatons extend to 13 countres. EUROPE BELGIUM FRANCE GERMANY ITALY THE NETHERLANDS POLAND PORTUGAL ROMANIA SPAIN UNITED KINGDOM ASIA CHINA Wholly owned Smthfeld Foods operatons as well as the Butterball, LLC, jont venture n the Unted States Campofrío Food Group, S.A., a publcly traded company n whch Smthfeld Foods owns 37 percent Jont ventures

4 TABLE OF CONTENTS Letter from C. Larry Pope, Presdent and CEO 4 Letter from Denns H. Treacy, VP, Envronmental & Corporate Affars 6 About Smthfeld Foods 11 Governance and Management 18 FINANCIAL HIGHLIGHTS Envronment 26 Anmal Welfare 47 Food Safety 55 Helpng Communtes 59 Employees 64 Internatonal Operatons 75 Corporate Offcers and Drectors 92 Corporate Informaton 93 GRI Index 94 CSR SPOTLIGHTS Farm-to-Fork Sustanablty Reportng 23 Envronmental Protecton Expendtures 38 The Scence of Hog Producton 54 CSR Actvtes of a Jont Venture 89 MAPS, DIAGRAMS, AND MAJOR TABLES Smthfeld Foods Global Operatons IFC Fnancal Hghlghts 2 Smthfeld Foods Key Commtments 8 Fscal years ended May 3, 2009 Aprl 27, 2008 Aprl 29, 2007 (n mllons, except per share data) Sales $ 12,487.7 $ 11,351.2 $ 9,359.3 Income (loss) from contnung operatons (242.8) Net ncome (loss) (190.3) Income (loss) from contnung operatons per dluted share (1.72) Net ncome (loss) per dluted share (1.35) Weghted average dluted shares outstandng Addtonal Informaton Captal expendtures $ $ $ Deprecaton expense Workng captal 1, , ,795.3 Total debt 1 2, , ,092.9 Shareholders equty 2, , ,240.8 Total debt to total captalzaton % 56.0% 58.0% Key Data Summary 10 Our Famly of Companes 12 Smthfeld Foods Producton 14 1 Total debt s equal to notes payable and long-term debt and captal lease oblgatons ncludng current porton. 2 Computed usng total debt dvded by total debt and shareholders equty. CSR Across Our Busness 17 Envronmental Inputs and Outputs 27 Consoldated Fnancal Statements 90 2

5 ABOUT THIS REPORT Welcome to Smthfeld Foods Corporate Socal Responsblty (CSR) report. Ths s our fourth CSR report, whch bulds on our experence publshng annual envronmental reports from 2001 to Ths report dscusses our performance n envronmental stewardshp, anmal welfare, food safety, communty engagement, and employee well-beng the CSR areas we consder mportant to our company and ts stakeholders. We also nclude a secton on governance, whch underpns all of our CSR performance, and a secton on our wholly owned nternatonal operatons. The order of dscusson n the report s not meant to emphasze one ssue over another. To help determne the focus and communcatons objectves of ths year s reportng, we consdered stakeholder feedback from a number of sources, ncludng the Nathan Cummngs Foundaton, Envronmental Defense Fund, and Chesapeake Bay Foundaton. We expect that many of our stakeholders wll fnd ths report of nterest, ncludng our employees, nvestors, customers, and end consumers; governments and nongovernmental organzatons; and the communtes n whch we do busness. Over the past two reportng years, we have worked hard to algn our report more closely wth the Global Reportng Intatve (GRI) G3 Gudelnes, whch provde a recommended sustanablty reportng framework and ndcators. We are reportng at a GRI-checked applcaton level of B. More nformaton on the G3 Gudelnes and applcaton levels s avalable at the followng Web address: We used the GRI G3 Gudelnes to help focus the boundares of the qualtatve and quanttatve nformaton n ths report. Wth the excepton of the About Smthfeld Foods secton, and unless otherwse ndcated, the nformaton and metrcs wthn ths report pertan to Smthfeld Foods ndependent operatng companes and nvestments n whch we have a controllng (51 percent or more) nterest.* We also provde dscusson of our management approach to contract farmng, prmarly n the areas of envronment and anmal welfare, but do not provde performance data because our contract farmers are ndependent busnesses. Changes n the scope of reportng or reclassfcatons of data prevously reported are noted n the relevant data sectons, as are other assumptons and bases for calculatons. We prmarly use Amercan measurement unts for data for our U.S. operatons, metrc unts for nternatonal operatons, and Amercan numberng conventons throughout. The fnancal data n ths report have been audted by a thrd-party frm. Other data and nformaton have been subject to nternal revew but not external, thrd-party assurance. The content focuses prmarly on calendar year 2008 but ncludes fscal 2009 fnancal nformaton and dscusson of some key developments that occurred n early Smthfeld s fscal year runs from May through Aprl. Throughout ths report, Smthfeld Foods s referred to as Smthfeld. The name Smthfeld s also sometmes utlzed for ease of reference to ndcate one or more ndependent operatng companes. Smthfeld should not be confused wth The Smthfeld Packng Company, Inc., whch s a subsdary. Forward-Lookng Informaton Ths publcaton may contan forward-lookng statements wthn the meanng of federal securtes laws. In lght of the rsks and uncertantes nvolved, we nvte you to read the Rsk Factors and Forward-Lookng Informaton sectons of Smthfeld Foods Form 10-K for fscal * Smthfeld Foods, Inc., s a holdng company wth a number of ndependent operatng companes. For the purposes of ths report, the term ndependent operatng company and subsdary are used nterchangeably to refer to varous enttes of the Smthfeld Foods famly of companes.

6 Dear Smthfeld Foods Stakeholder: It can be easy for companes to make corporate socal responsblty a prorty durng tmes of fscal prosperty. It becomes much more challengng when the economc road s rough. We are publshng ths year s CSR report n the mdst of a global recesson of hstorc proportons. Smthfeld Foods has not been mmune to these events. Indeed, the costs of hog producton spked substantally n 2008, thanks n large part to feed and energy prces that ht record hghs. Whle sales n our packaged meats dvson were strong, they could not make up for the losses sustaned n our hog producton unt. C. Larry Pope Presdent and CEO Another sgnfcant challenge we faced ths year was the sprng 2009 outbreak of A(H1N1) nfluenza the offcal name of the msnamed but wdely quoted swne flu. Much of the ntal meda focus fell on a hog farm n Veracruz, Mexco, that s partly owned by Smthfeld. The nfluenza outbreak was dffcult for the entre pork ndustry, whch had to dspel many common msperceptons about the vrus. Accordng to the Centers for Dsease Control and Preventon, the A(H1N1) nfluenza s not transmtted by food and cannot be contracted from eatng pork or pork products. More nformaton about the nfluenza vrus, and Smthfeld s response, can be found on our Web ste at Despte these challenges, we dd not back away from our CSR commtments. We mantaned the core programs and systems that we have developed to address envronmental and socetal concerns, although the economy dd force us to slow the pace of some of our efforts. Nevertheless, we contnued to focus on our CSR goal of becomng the most trusted, respected, and ethcal food ndustry leader. Recent efforts nclude the followng: u We sent to market the frst hogs to be produced n new group housng part of our pledge to replace ndvdual gestaton stalls for pregnant sows. u To further mprove transparency, we expanded the scope of our reportng to nclude baselne envronmental data from our wholly owned nternatonal operatons n Poland and Romana as well as our most recent domestc acqustons. 4

7 u At our processng plants, we mproved our rate of recyclng, reduced sold waste generaton, and mproved effcences n electrcty and water use. u u u We contnued to fund our new Helpng Hungry Homes ntatve, whch provdes food for low-ncome famles, and worked wth celebrty cook Paula Deen to delver donatons. We also partnered wth promnent chef Jeff Henderson to help spread the message of hunger relef, dversty, and empowerment. We have contnued fundng educatonal programs that enhance the leadershp and career development sklls, as well as personal growth, of students preparng for eventual careers n agrbusness. We saw a contnued reducton of our overall total njury and llness rate, whch remans well below the ndustry average. We contnued to focus on our CSR goal of becomng the most trusted, Our CSR efforts are gettng notced. We are extremely proud to have been selected as the frst recpent of McDonald s new Sustanablty Award for the suppler that best exemplfes the McDonald s vson, prncples, and values for sustanable supply. And n 2009, we were ncluded for the frst tme among CRO (Corporate Responsblty Offcer) magazne s lst of 100 Best Corporate Ctzens. Meanwhle, we re optmstc that fscal 2010 wll mprove, and we are hopeful that we wll emerge from the recesson ahead of other ndustres. respected, and ethcal food ndustry leader. We re pleased to share wth you our CSR report for 2008/09. We beleve you wll fnd that our slogan Good Food. Responsbly. s lvng up to ts promse. Sncerely, C. Larry Pope Presdent and Chef Executve Offcer June 15,

8 Dear Smthfeld Foods Stakeholder: In the past decade, CSR has become an ntegral component of Smthfeld s busness operatons. Socal responsblty creates busness opportuntes, mnmzes regulatory threats, attracts customers and nvestors, safeguards our employees, and engages stakeholders. Ths report covers the ssues that we beleve are most mportant to Smthfeld and to our stakeholders: envronmental stewardshp, anmal welfare, food safety, communty engagement, and employee well-beng. We are makng progress n these areas, as noted n the followng examples: Denns H. Treacy Vce Presdent Envronmental and Corporate Affars u We contnued to ntegrate and algn our most recent acqustons wth our core Smthfeld operatons, mplementng systematc approaches to the management of envronmental, health and safety, anmal welfare, and food safety ssues. We also present examples of how one of our jont ventures n Mexco s tacklng CSR ssues. u Our envronmental and safety record mproved on a number of fronts. For example, our U.S. facltes that process meat nto fnshed products cut ther greenhouse gas emssons per unt by 25 percent n The long-term trends n our energy and water effcency show great mprovement. Our safety ndcators have mproved anywhere from 12 percent to 31 percent over fve years, and two of the three key measures are better than ndustry averages. u Our employees contnue to fnd creatve ways to mprove operatonal and envronmental performance. In ths report, we document the costs and savngs generated as a result of nvestments n envronmental mprovements. In 2008, we nvested $6.1 mllon n projects that saved nearly $11 mllon. u We resolved a long-standng, contentous stuaton at our largest processng plant, n Tar Heel, North Carolna, where the Unted Food and Commercal Workers Internatonal Unon (UFCW) had been attemptng to unonze the hourly work force. Smthfeld and the UFCW agreed to hold a secret-ballot unon electon, n whch the employees voted n favor of unonzaton by a vote of 52 percent to 48 percent. We respect the decson of our employees, and we look forward to workng wth the unon. 6

9 u Three Smthfeld facltes partcpated n a plot effort amed at provdng a frst-ever, comprehensve farm-tofork look at sustanablty ssues and ther management across the pork producton value chan. Our ntatve was recently lsted among McDonald s 2009 Global Best of Green for companes wth leadng envronmental practces. The recent A(H1N1) nfluenza outbreak, coupled wth the global economc slowdown, made ths past year a partcularly challengng one. But we do not queston the value of mantanng and expandng our CSR ntatves. Our customers, nfluenced n turn by ther customers, have ever-hgher expectatons for our CSR performance and dsclosure about t. To meet and exceed ther expectatons, we must rase standards throughout our value chan and ndustry, document that our operatons are envronmentally sound and safe, and engage wth our supplers on these ssues. As we communcate wth customers and other stakeholders, we contnue to strve to be as transparent as possble. And we must renforce the value of our CSR efforts to our employees n the face of fnancal pressures and contnung controverses about ndustral food producton. Our ndustry and our company wll always be attacked by those who oppose rasng any anmals for food and wll be controversal among those who prefer a small-scale approach to food producton. We reman commtted to provdng affordable proten sources for mllons of famles through large-scale meat producton conducted n a responsble manner. We also beleve we can learn from other perspectves and promote dalogue by practcng transparency and engagng wth stakeholders. Indeed, we have led the ndustry n revewng our practces and adoptng new ones when they make sense for our company, our customers, and other stakeholders. Our commtment to transton our farms to group housng for sow gestaton and our polcy on antbotcs use exemplfy our leadershp efforts. We see our CSR reports as an mportant way to provde nformaton about our company, communcate our values, and encourage dalogue. We hope you fnd ths report nformatve, and we welcome your comments on t. We reman commtted to provdng affordable proten sources for mllons of famles through large-scale meat producton conducted n a responsble manner. Denns H. Treacy Vce Presdent, Envronmental and Corporate Affars June 15,

10 SMITHFIELD KEY COMMITMENTS CSR FOCUS AREA OVERALL GOALS COMMITMENTS RESULTS FUTURE PLANS ENVIRONMENT 100% complance 100% of the tme Reduce NOVs NOVs reduced by 20% snce 2007 Reduce NOVs through focused tranng and nformaton programs Contnuously revew and reduce envronmental mpacts Reduce emssons and waste generaton Snce 2007, SOx emssons fell by 18.5%; sold waste generaton per anmal unt ncreased 7%; and cardboard recyclng decreased by 33% Reduce sold waste generaton through source reducton, reuse, and expanded recyclng Work toward quantfable, corporate-level envronmental performance targets Improve the effcency of our use of raw materals and energy Communcate envronmental performance and polces to the publc Snce 2007, further processng electrcty effcency mproved by 5.5%; frst processng water use effcency mproved by 0.6%; and natural gas use rose by 19% Reported usng GRI G3 Gudelnes Expanded scope and coverage of reportng Develop specfc targets for energy reducton Expand the scope of nternatonal data to nclude addtonal GRI ndcators ANIMAL WELFARE Adhere to sound anmal welfare practces Integrate audts wth Natonal Pork Board s Pork Qualty Assurance (PQA) Plus program All company-owned and contract farms are n the process of beng certfed and ste assessed under PQA Plus Complete PQA Plus certfcaton and ste assessment at all company-owned and contract farms by September Comply wth and pass all follow-up thrd-party audts Phase out ndvdual gestaton stalls at all company-owned sow farms; begn weanng pgs at an average of 24 days Frst anmals produced from open gestaton stall facltes reached market n early 2009; completed converson surveys on several dozen farms Convert all ndvdual gestaton stalls to group housng Improve hog handlng and transportaton safety Two accdents n U.S. Contnue to mprove response to accdents to reduce anmal njures and fataltes FOOD SAFETY Mantan excellent food safety record Make safe, hghqualty food Ensure complance wth nternal and government standards Better address pathogen control, food securty, and tranng Further mplementaton of comprehensve new audtng protocols ntroduced n 2006 Worked toward Global Food Safety Intatve certfcaton for Smthfeld facltes 100% complance 100% of the tme Improve proactve R&D research on nutrton Mantan hgh standards n product and servce labelng No sgnfcant penaltes or fnes assocated wth product labelng regulatons Mantan excellent labelng record, ncorporatng Country of Orgn labelng COMMUNITIES Noursh mnds and bodes n the communtes where our employees lve, work, and rase ther famles Support ongong educaton efforts Provde educatonal scholarshps for employees chldren and grandchldren Donated $660,875 to Learners to Leaders program over three years Awarded 48 scholarshps worth $290,000 n 2008 Contnue to close the educaton gap for underprvleged students n our employees communtes Contnue to rase employee awareness of scholarshp opportuntes Provde food to those n need In fscal 2009, provded approxmately 3.7 mllon pounds of food, worth about $4.6 mllon. Partnered wth natonally known chef to spread the message of hunger n Amerca. In Romana, launched Food For Souls Contnue donatng much-needed food for hunger-relef programs

11 Ths table hghlghts some of our goals, commtments, results, and future plans n the CSR areas we vew as partcularly mportant. We have a number of overarchng goals for our company. Our management systems call for targets to be set n mportant performance areas. CSR FOCUS AREA OVERALL GOALS COMMITMENTS Gven the decentralzed nature of our company, and the fact that the targets vary by busness and faclty, t s dffcult to aggregate company-wde targets. As we contnue to advance our CSR efforts, we wll work toward settng and reachng quantfable targets and goals RESULTS FUTURE PLANS COMMUNITIES (contnued) Support local envronmental stewardshp efforts Sponsored World Water Montorng Day, an nternatonal program organzed by the Water Envronment Federaton Contnue supportng local efforts EMPLOYEES Treat our employees wth respect, whle protectng ther health and safety Promote dversty and cultvate a representatve U.S. work force Comply wth federal and state mmgraton legslaton by strengthenng our hrng practces and reducng employment of unauthorzed workers Began creatng a leadershp program to develop a more dverse and well-prepared Smthfeld work force. Awarded assocate membershp n U.S. Immgraton and Customs Enforcement s (ICE) new IMAGE program ICE Mutual Agreement between Government and Employers Launch leadershp program Contnue ensurng the ntegrty of our work force Mantan actve employee engagement Conducted employee engagement surveys at ndependent operatng companes and responded to employee concerns from pror surveys Respond to employee concerns and contnue wth engagement efforts Offer opportuntes for further educaton and advancement wthn our company Rembursed 50% to 100% of tuton and lab fees; provded scholarshps for employee dependents Increase employee partcpaton Improve employee retenton Provded strong benefts, compettve wages, and employee-focused programs Contnue decreasng turnover rates HUMAN RIGHTS Ensure far treatment of our employees throughout the company Implement a new Human Rghts Polcy ( human.aspx) Provded copes of the polcy to all employees, encouragng them to call a toll-free hotlne f they need to report volatons Protect and advance human rghts through dedcated oversght and mplementaton of the polcy HEALTH & SAFETY Foster contnuous mprovement and a culture of safety as a core value Implement Employee Injury Preventon Management System (EIPMS) Enhance employee safety management Rolled out EIPMS audt and conducted lead audtor tranng for 30+ audtors Held monthly conference calls to fnd mprovement opportuntes and completed EIPMS refresher tranng at all locatons Contnue baselne EIPMS audts at all locatons Increase engagement/partcpaton n safety processes. Create new tranng programs Mantan hghest tranng standards Annual Safety Conference conducted onlne throughout the year Conduct 10-hour OSHA General Industry tranng for all conference partcpants Improve safety metrcs OSHA metrcs versus ndustry averages: OSHA TIFR Rate: 6.58 (8.40) OSHA DART Rate: 4.40 (5.50) OSHA DAW Rate: 1.27 (1.20) Improve OSHA metrcs. Contnue to reduce number and severty of njures Acheve external recognton for our efforts Eghteen facltes recognzed by Amercan Meat Insttute (AMI) n Aprl 2009, up from 13 n 2008 Increase number of facltes partcpatng n the AMI recognton program

12 KEY DATA SUMMARY (See pp for baselne data from our operatons n Poland and Romana.) ENVIRONMENT 1 CY 2006 CY 2007 CY 2008 Ar Emssons NOx 2 (tons) p Not Avalable SOx 2 (tons) p Not Avalable Complance Notces of Volaton (NOVs) p Monetary Value of Sgnfcant Fnes p. 42 $183,952 $266,446 $69,616 FY 2007 FY 2008 FY 2009 Energy/Greenhouse Gas Emssons Electrcty Consumpton (kwh n mllons) p. 32 1,031 1,271 1,529 Drect & Indrect GHG Emssons 3 (metrc tons CO2e) p. 34 Not Avalable 1,153,634 1,354,640 Water Water Use (gallons n bllons) p Sold Waste Sold Waste Generaton (thousand tons) p Cardboard Recyclng (thousand tons) p All envronmental data s for processng facltes, except NOVs, whch nclude farms. 2 Calendar year 2008 data scheduled for release n md GHG emssons data were not recorded pror to Feed-grade antbotc data suppled by AgProvson. 5 Analyss now ncludes Premum Standard Farms, purchased n EMPLOYEES ANIMAL WELFARE COMMUNITIES CY 2006 CY 2007 CY 2008 Health and Safety Rates (per 100 employees) Total Injury and Illness Frequency Rate (TIFR) p Days Away, Restrcted, Transferred (DART) Rate p Days Away from Work (DAW) Rate p Complance OSHA Inspectons p OSHA Notces of Volaton p OSHA Penaltes p. 73 $41,404 $11,037 $38,787 FY 2007 FY 2008 FY 2009 Transportaton Market Hog Accdents p Hog Fataltes p Antbotcs Use 4, 5 Nov '05-Oct '06 Nov '06-Oct '07 Nov '07-Oct '08 Feed-Grade Medcatons Purchased (lbs. per 100 lbs. sold) p FY 2007 FY 2008 FY 2009 Corporate Gvng Smthfeld-Luter Foundaton Scholarshps (Total $ Value) p. 60 $282,256 $349,979 $290,000 Learners to Leaders p. 60 $277,490 $383,385 $319,415 Food Donatons Overall Food Donatons (lbs. of food) p mllon 3.3 mllon 3.7 mllon

13 A DIVERSIFIED FOOD PRODUCTION AND MARKETING COMPANY ABOUT SMITHFIELD FOODS Smthfeld Foods, Inc., s a global company commtted to provdng good food, responsbly. We are the world s largest hog producer and pork processor, wth more than 50 brands of pork and turkey products and more than 200 gourmet foods. Headquartered n Smthfeld, Vrgna, we have operatons n 13 countres through wholly owned subsdares and jont ventures. The majorty of our facltes and our approxmately 52,400 employees are n the Unted States. Internatonally, we have controllng nterests n meat producton, packagng, and dstrbuton operatons n Poland, Romana, and the Unted Kngdom, along wth jont ventures and mnorty nterests n Belgum, Chna, France, Germany, Italy, Mexco, the Netherlands, Portugal, and Span. Each of our operatng companes and jont ventures operates ndependently and mantans ts ndvdual dentty. Some of our popular brands nclude Smthfeld, John Morrell, Farmland, and Butterball. Our sales for fscal 2009 reached nearly $12.5 bllon, up from $11.4 bllon n fscal More detaled nformaton can be found n our annual report, avalable on our Web ste at nvestors.smthfeldfoods.com/annuals.cfm. Our products are sold to more than 4,000 customers n the Unted States and nternatonally, ncludng supermarket and hotel chans, wholesale dstrbutors, restaurants, hosptals, and other nsttutons. We also sell to companes that further process our meats nto consumer food products. We consstently appear on the Fortune lst of Most Admred Companes, rankng ffth among all U.S. food producton companes n Also n 2009, we were ncluded among CRO magazne s latest lst of 100 Best Corporate Ctzens. MERGERS AND ACQUISITIONS Over the years, we have completed a seres of mergers and acqustons that have made us a global company and a leadng food producer. Most recently, n December 2008, we fnalzed the merger of Campofrío Almentacón, S.A., wth Groupe Smthfeld Holdngs S.L. Smthfeld Foods owns 37 percent of the new company, now known as Campofrío Food Group. The merger, whch created the largest pan-european company n the packaged meats sector and one of the fve largest worldwde, represented a major step n our global growth strategy. In June 2008, we announced that we had entered nto an agreement wth COFCO Lmted, Chna s largest natonal agrcultural tradng and processng company, to sell 7 mllon shares. Chna s experencng rapd growth n pork consumpton, consumng more pork than the rest of the world combned. 11 t ABOUT SMITHFIELD FOODS

14 HOG PRODUCTION FISCAL 2009 SALES $2.8 BILLION*** PORK FISCAL 2009 SALES $10.5 BILLION Murphy-Brown LLC The Smthfeld Packng Company, Inc. John Morrell & Co. Farmland Foods, Inc. Premum Standard Farms, LLC Smthfeld Specalty Foods Group Cumberland Gap Provson Co. Armour- Eckrch Meats, LLC Curly s Foods, Inc. Patrck Cudahy Inc. Cook s Hams, Inc. North Sde Foods Corp. Note: Fscal 2009 sales nclude ntersegment sales of $(2.4) bllon. 12

15 OUR FAMILY OF COMPANIES Ths chart provdes an overvew of Smthfeld Foods organzatonal structure. Our ndependent operatng companes and jont ventures mantan ther ndvdual denttes, and together they make us a leader n several key categores. INTERNATIONAL FISCAL 2009 SALES $1.4 BILLION*** OTHER FISCAL 2009 SALES $250.8 MILLION HOG PRODUCTION MEAT PROCESSING AgrPlus (Poland) Smthfeld Foods Ltd. (U.K.) Campofrío Food Group, S.A.** Butterball, LLC* Carroll s Turkey LLC Smthfeld Ferme (Romana) Anmex (Poland) Maverck Food Co. Ltd. (Chna)* Granjas Carroll de Méxco (Mexco)* Smthfeld Prod (Romana) Norson (Mexco)* Norson (Mexco)* Agroalm (Romana) * Jont venture (not ncluded n sales fgures) ** Smthfeld Foods owns a 37 percent stake (not ncluded n sales fgures). *** Internatonal hog producton sales are reported n the Hog Producton segment. 13

16 SMITHFIELD FOODS PRODUCTION GENERAL Employees 1 58,100 52,400 Brands Products Sales 2 $11.4 bllon $12.5 bllon Customers 4,000+ 4,000+ PORK Pounds of Fresh Pork Produced 4.0 bllon 4.5 bllon Pounds of Packaged Meats Produced 3.1 bllon 3.1 bllon Sales $9.6 bllon $10.5 bllon HOG PRODUCTION Sows 1.1 mllon 1.1 mllon Market Hogs Produced 19.4 mllon 20.0 mllon Jont Venture Sows 98,000 90,000 Jont Venture Market Hogs Produced 1.5 mllon 1.7 mllon Hog Producton Sales $2.4 bllon $2.8 bllon INTERNATIONAL Products Produced (lbs.) 870 mllon 806 mllon Sales $1.2 bllon $1.4 bllon OTHER Sales 2 $149 mllon $251 mllon All values reported by fscal year total employees ncludes Smthfeld Beef Group, whch was sold to JBS S.A. n October Includes sales of wholly owned lve cattle nventores that were excluded from the sale of Smthfeld Beef Group, whch was completed n October ABOUT SMITHFIELD FOODS t 14

17 CHANGES IN OPERATIONS Pork Group We are restructurng our pork group to consoldate and streamlne ts corporate structure and manufacturng operatons and make the company more compettve. The reorganzaton, whch was announced n February 2009, wll reduce the number of ndependent operatng companes (IOCs) n the pork group from seven to three. Four exstng IOCs wll be combned under the varous busness unts of The Smthfeld Packng Company, Inc., John Morrell & Co., and Farmland Foods, Inc. As a result of the restructurng, sx plants wll close, and we expect to elmnate approxmately 1,800 postons. Wherever possble we wll offer transfers to employees, and we are provdng assstance to help others fnd employment wthn ther local communtes. All employees were provded wth a 60-day closure notfcaton, as requred under the federal Worker Adjustment and Retranng Notfcaton Act (WARN). Sow Producton Begnnng n the thrd quarter of fscal 2008 through the thrd quarter of fscal 2009, we reduced the sze of our U.S. sow herd by 10 percent n order to reduce the oversupply of hogs n the U.S. market. Ths has resulted n a reducton of 100,000 sows, whch wll result n approxmately 1.4 mllon fewer market hogs n fscal 2010 and approxmately 1.8 mllon fewer market hogs annually thereafter. In addton, n June 2009 we announced that we wll further reduce our sow herd by 3 percent, or approxmately 30,000 sows. We beleve that ths reducton wll result n approxmately 540,000 fewer market hogs annually. Smthfeld Beef Group, Inc. In October 2008, we completed the sale of Smthfeld Beef Group, Inc., our beef processng and cattle feedng operaton, to JBS S.A. for $575.5 mllon n cash. Smthfeld had only a small market share among U.S. beef producers and lttle potental to grow. The net proceeds from the sale helped Smthfeld dramatcally mprove lqudty. STRUCTURE OF OUR MAIN BUSINESSES Smthfeld Foods conducts ts busness through fve reportng segments: Pork, Internatonal, Hog Producton, Other, and Corporate, each of whch ncludes a number of subsdares, jont ventures, and other nvestments. Pork Segment The Pork segment produces a wde varety of fresh pork and packaged meat products n the Unted States and markets them natonwde and nternatonally. In fscal 2009, we sold approxmately 4.5 bllon pounds of fresh pork and 3.1 bllon pounds of packaged meats. Pork segment sales totaled $10.5 bllon n fscal t ABOUT SMITHFIELD FOODS

18 Hog Producton Segment We operate numerous hog producton facltes wth approxmately 1.1 mllon sows producng about 20 mllon market hogs annually worldwde. Through jont ventures, we have another 90,000 sows producng about 1.7 mllon market hogs a year. The Hog Producton segment s Murphy-Brown LLC s the world s largest hog producer, wth sales of $2.8 bllon n fscal Internatonal Segment Smthfeld Foods Internatonal segment, whch accounts for approxmately 8,600 employees, produces a wde varety of fresh and packaged meats that are sold all over the world. In fscal 2009, our nternatonal operatons processed approxmately 806 mllon pounds of meat products. Sales for ths segment reached approxmately $1.4 bllon n fscal Other Segment The Other segment s composed of our turkey producton operatons, our 49 percent nterest n Butterball, LLC, the naton s largest turkey producer, our remanng lve cattle operatons, and our nterest n lve cattle jont venture operatons. For a detaled descrpton of our busnesses, read Smthfeld Foods Form 10-K at nvestors.smthfeldfoods.com/sec.cfm. ABOUT SMITHFIELD FOODS t 16

19 CORPORATE SOCIAL RESPONSIBILITY ACROSS OUR BUSINESS We have focused ths report on the key CSR topcs hghlghted below. The dagram llustrates the major components of our busness and the stages of our value chan n whch the key topcs arse. GOVERNANCE ANIMAL WELFARE FOOD SAFETY SMITHFIELD FOODS HOG PRODUCTION FRESH PORK (FIRST PROCESSING) PACKAGED MEATS (FURTHER PROCESSING) TRANSPORTATION RETAIL, FOOD- SERVICE, EXPORT, AND PROCESSING & INDUSTRIAL CUSTOMERS MEALTIME (END CONSUMERS) COMMUNITIES EMPLOYEES ENVIRONMENT HUMAN RIGHTS HEALTH & SAFETY

20 GOVERNANCE AND MANAGEMENT Smthfeld s msson s to be a trusted food ndustry leader that brngs delcous and nutrtous meat and specalty food products to mllons every day, wth a strong commtment to corporate socal responsblty. The company s core values state that we wll constantly strve to produce safe, hgh-qualty, nutrtous food, to be an employer of choce, to advance anmal welfare, to protect the envronment, and to have a postve mpact on our communtes. Our strong framework of governance, management, and accountablty for ethcal behavor s the key to upholdng our msson and values, and mantanng the trust of nvestors and stakeholders. In ths secton of our report, we dscuss our governance structures, how we manage CSR ssues, our ethcal standards and programs, our stakeholder engagement efforts, publc polcy ssues of nterest to our company, and our poltcal contrbutons. CORPORATE GOVERNANCE The Smthfeld board of drectors (the Board ) ncludes 13 members, nne of whom are ndependent (as determned by the Board n accordance wth the gudelnes of the New York Stock Exchange and other organzatons). The Board has establshed fve commttees: Audt Compensaton Executve Nomnatng and Governance Penson and Investment We also have an executve-level ethcs and complance commttee (the ECC ), chared by our chef legal offcer, whch oversees the full range of complance ssues for Smthfeld. The char of the ECC regularly reports to the audt commttee of the Board on rsks and complance ssues related to the envronment, anmal welfare, and other CSR ssues. The Smthfeld Foods vce presdent for envronmental and corporate affars, who sts on the ECC, s responsble for nformng the Board about Smthfeld s CSR ssues and progress and regularly brefs the audt commttee on the progress of the CSR program. Addtonal corporate governance nformaton, ncludng our governance gudelnes and commttee charters, s avalable on the Web at nvestors.smthfeldfoods.com/governance.cfm and CSR MANAGEMENT Smthfeld Foods tradtonally has operated wth a decentralzed management structure and phlosophy. Our subsdares have GOVERNANCE AND MANAGEMENT t 18

21 ther own corporate functons and staffs and manage many ssues ndependently, wthn an overall corporate framework that establshes expectatons for all our operatons. Our Code of Busness Conduct and Ethcs, for example, apples to all our global operatons. In the early part of the decade, we dentfed several CSR ssues that merted a more consstent management approach across the company n order to meet our goal to lead the ndustry n our practces. The frst such ssue was envronmental management. We mplemented and certfed envronmental management systems at all of our U.S. farms and processng facltes and some overseas operatons. Recognzng the value of applyng structured, dscplned management systems to CSR ssues, we have expanded that approach to anmal welfare, employee health and safety, and food safety. Common elements of the management systems nclude polces, employee tranng, goal settng, correctve acton, thrd-party audtng, and executve revew. As needed, we have formed corporate or cross-subsdary commttees to develop and mplement consstent approaches to our CSR ssues. For example, n 2003 Smthfeld establshed a sustanablty commttee consstng of senor managers. The commttee s responsble for helpng the company address the ntegraton of the fnancal, envronmental, and socal aspects of ts busness. Smthfeld s vce presdent of envronmental and corporate affars, who s a corporate offcer, manages the company s envronmental programs, revews recommendatons from the sustanablty commttee, and drects strateges on envronmental and socal topcs. Ths offcer reports drectly to the chef executve offcer and executve vce presdent. Other commttees nclude an anmal welfare commttee, a food safety commttee, and a commttee focused on hunger relef that coordnates food donatons. Most recently, we formed a dversty commttee to help the company dentfy opportuntes for strengthenng relatonshps wth our customers, our employees, our supplers, and our communtes. We have developed these approaches n our U.S. operatons. We also are phasng n our management system approaches at our wholly owned nternatonal subsdares n Poland and Romana, as well as addressng CSR ssues unque to those regons. Ths report covers those nternatonal operatons, located n Poland and Romana, provdng a baselne data set and nformaton on ther management of CSR ssues. Of course, regulatory frameworks vary from country to country. Therefore, we, lke many other companes, are workng hard to algn our goals and approaches to mportant ssues such as envronmental management wth our nternatonal operatons. Our envronmental management expertse s avalable to the companes n whch we hold a mnorty nterest. We have worked wth several of these companes to address partcular envronmental ssues, and we encourage them to utlze envronmental complance practces that are consstent wth our own. We ntend to expand these efforts wth our jont ventures, ncludng those n whch we recently acqured an nterest. In addton, we wll contnue to dentfy emergng CSR ssues where we operate and develop systematc approaches to managng them. Ths report ncludes examples of ntatves at jont venture facltes n Mexco. (See CSR Spotlght 4 on page 89.) When we acqure a new company, we conduct varous revews, ncludng assessng the company s practces related to employees, safety, and the envronment. We also try to address the current relatonshp wth local regulators and the communtes n whch 19 t GOVERNANCE AND MANAGEMENT

22 they are based. Followng an acquston, mplementaton of our envronmental and health and safety management systems (descrbed n the respectve sectons of ths report) begns promptly and helps us determne practces already n place as well as gaps. We then use our corporate-level tranng programs and ntranet stes to communcate Smthfeld best practces. ETHICS AND COMPLIANCE Smthfeld mantans a Code of Busness Conduct and Ethcs (the Code ) applcable to all employees, offcers, and drectors. We publsh the Code n the fve major languages of the countres n whch we have operatons. It conveys the company s polces and practces for conductng busness n accordance wth applcable law and the hghest ethcal standards. Any waver of the Code for executve offcers or drectors can be made only by the Board or ts Audt Commttee and must be promptly dsclosed. Our Board adopted the Code, and the Board s Nomnatng and Governance Commttees revew t perodcally. The ECC admnsters the Code. All drectors and executve offcers are requred to complete an annual certfcaton relatng to ethcs and complance wth the law, the Code, and other company polces. The char of the ECC reports perodcally to the Audt Commttee on the admnstraton of the Code and s requred to report promptly any volaton of the Code by an executve offcer or drector to the Charman of the Audt Commttee. The Code and any amendments or wavers are avalable at The company also has provded employees wth opportuntes to report ethcs volatons or smlar concerns through an anonymous telephone hotlne. The company revews and responds to all hotlne complants. STAKEHOLDERS We defne as stakeholders all persons or organzatons who are mpacted or beleve they are mpacted by the operatons or practces of the company. Interacton wth dverse stakeholders allows us to engage wth and learn from these groups. We contnuously conduct an nternal analyss to dentfy stakeholders. In general, we have dentfed and defned the followng stakeholders as groups we engage wth regularly: Internal stakeholders, ncludng company employees, faclty management, and corporate management, among others. External stakeholders, ncludng shareholders and nvestors; the customers and supplers wth whom we do busness; the end consumers of our products; federal, state, and local governments and regulatory enttes; nongovernmental organzatons; and the communtes n whch our employees lve and work. GOVERNANCE AND MANAGEMENT t 20

23 In 2008, we expanded our stakeholder engagement efforts on the local level by workng closely wth Ceres on the Faclty Reportng Project (FRP), a local-level sustanablty reportng process desgned to engage stakeholders and dsclose the mpacts companes have on communtes n whch they operate. Smthfeld s FRP s descrbed n CSR Spotlght 1 on page 23. Smthfeld has made a practce of frank and tmely communcatons wth our key stakeholders by lstenng, learnng, and communcatng openly. Stakeholders are typcally engaged drectly or as drected by and through the efforts of Smthfeld s vce presdent for envronmental and corporate affars. Many of our engagements occur around partcular ssues. For example, several actons dscussed n the Anmal Welfare secton resulted from stakeholder consultaton as follows: In 2007, followng dscussons wth and nput from company customers and nongovernmental organzatons, Smthfeld announced plans to phase out the use of sow gestaton crates on hog farms and replace them wth group housng. In 2005, Smthfeld executed an agreement wth Compass Group, one of the world s largest caterng companes, and Envronmental Defense Fund, a nonproft advocacy group, to report and track our use of antbotcs. The agreement bult upon an antbotcs polcy that had been n exstence at Murphy-Brown for some tme. In 2008, ths stakeholder nteracton was hghlghted n a case study n the Gude to Successful Corporate-NGO Partnershps, developed by the Global Envronmental Management Intatve (GEMI, of whch Smthfeld s a member) and Envronmental Defense Fund. Smthfeld responded to suggestons by anmal welfare groups a stakeholder segment wth whch the meat ndustry has had a sometmes-adversaral relatonshp to revse ts procedures for respondng to road accdents nvolvng the transportaton of anmals. The changes have resulted n mprovements to the handlng of accdents. The followng are addtonal examples of our nteractons wth stakeholders: Employees are one of our most mportant stakeholder groups. We are contnung ntatves to engage wth employees on a range of ssues, ncludng dversty. (Please see the Employees secton for more detal.) Increasngly, our customers are hearng from ther customers the ultmate consumers about CSR ssues of concern to them. We partcpate n suppler CSR surveys and communcate drectly wth customers, ncludng workng wth our customers to develop approaches to ssues rangng from anmal welfare to nutrton to envronmental and health and safety practces. We are respondng n numerous ways, ncludng offerng low-fat and low-sodum products. We have also engaged our sales force, whch provdes the prmary customer pont of contact, to communcate our approach to CSR so they can nteract knowledgeably wth our customers on these ssues. The government s an mportant stakeholder, and Smthfeld contnues to explore nnovatve ntatves wth elected offcals. For example, Smthfeld entered nto a voluntary agreement wth the North Carolna attorney general s offce to nvestgate 21 t GOVERNANCE AND MANAGEMENT

24 and partcpate n a varety of envronmental enhancement efforts. These nclude commttng $15 mllon to fund the ndependent nvestgaton of envronmentally superor technologes, as that term s defned n the agreement, for farm manure management, as well as $50 mllon over 25 years to fund envronmental enhancement projects n the state. Smthfeld also entered nto an agreement wth the Iowa attorney general to provde $100,000 per year for 10 years to fund a program for the awardng of annual grants to Iowa ctzens or enttes to pursue nnovatve programs to advance swne producton n that state. The grants are awarded to applcants selected by the attorney general n collaboraton wth Iowa legslators and Smthfeld. We operate n a hghly regulated ndustry. Thus, establshng and mantanng good relatonshps wth regulatory agences at all levels s key to our ablty to operate successfully. We cooperate wth agences n a varety of ways. For example, three of our ndependent operatng company facltes partcpated n the Performance Track program of the U.S. Envronmental Protecton Agency (EPA). Through ths program, faclty managers worked closely wth regulators to dentfy opportuntes to exceed legal requrements. Partcpatng companes typcally set publc, measurable goals to mprove the qualty of ar, water, and land. For example, Smthfeld Transportaton s Smthfeld Dvson, the frst of our facltes to partcpate, pledged to reduce ts energy use and mprove ts management of nonhazardous waste. Even though the EPA has recently elmnated the Performance Track program, Smthfeld contnues to benchmark mprovement under the crtera establshed for the program. Our supplers are mportant stakeholders n our value chan. As a vertcally ntegrated company, we are our own bggest suppler. Nonetheless, we nteract regularly wth external supplers. We work closely wth our contract growers on envronmental ssues, as dscussed n the Envronment secton of ths report. Several organzatons, ncludng Ceres, Envronmental Defense Fund, and the Nathan Cummngs Foundaton, have revewed our prevous reports and/or a draft of ths report and provded valuable feedback. We have tred to respond to the feedback n preparng ths report. For example, we have expanded coverage of our nternatonal operatons and ncreased the number of operatons covered by our data set. For the 2007/08 report and agan ths year, we used the Global Reportng Intatve G3 Gudelnes and had GRI check our applcaton-level declaraton. We are also reportng on key ssues such as anmal welfare n more depth. Our engagement wth dverse stakeholders s also reflected n the lst of organzatons n whch we hold membershps. A comprehensve lst of these membershps s avalable on our Web ste at GOVERNANCE AND MANAGEMENT t 22

25 CSR SPOTLIGHT 1 Smthfeld and Stakeholders Plot Farm-to-Fork Sustanablty Reportng As a vertcally ntegrated company, Smthfeld s value chan s complex and ncludes dverse types of operatons. For several years, Smthfeld has engaged wth stakeholders nterested n the company s envronmental performance to ncrease ts publc reportng on envronmental and other sustanablty ssues across the busness. The steady expanson of nformaton n ths report s, n part, a result of that engagement. Durng 2008, three Smthfeld facltes reached out to stakeholders and prepared communty-level sustanablty reports amed at provdng a frst-ever, comprehensve, farm-to-fork look at sustanablty ssues and ther management across the pork producton value chan. After consderng requests from the Nathan Cummngs Foundaton, a nonproft phlanthropc organzaton, and other stakeholders for addtonal nformaton on the envronmental performance of our farms, several of our facltes partnered wth Ceres, a natonal network of nvestors, envronmental organzatons, and other publc nterest groups: PRODUCTION Blueberry Sow Farm, a Murphy-Brown sow farm n Ammon, North Carolna Smthfeld s frst faclty-level plot report usng the Ceres framework took place n 2006 and was produced by the North Sde Foods faclty. The plot project was a valuable learnng experence for all partcpants and accomplshed the followng: Drove external relatonshp buldng that has helped strengthen tes wth customers, communty members, regulators, and other stakeholders, and has helped confrm the facltes understandng of external stakeholders perceptons and prortes related to sustanablty. Led to the development of addtonal faclty sustanablty reports that provded a comprehensve and balanced pcture of faclty mpacts, hghlghtng the mportance of the company s contrbutons to communtes and employees, as well as envronmental mpacts. Engaged employees on ssues outsde ther day-to-day responsbltes and provded a broader forum for trend dentfcaton and problem solvng related to sustanablty ssues. FIRST PROCESSING a Smthfeld North slaughterng and processng faclty n Smthfeld, Vrgna PACKAGING the North Sde Foods further processng faclty n Cummng, Georga The faclty sustanablty reports are avalable by requestng them usng the general contact nformaton on the company Web ste. We contnue to assess whether addtonal facltes and communtes may beneft from ths form of reportng. Ceres provded tranng, tools, and advce to gude the facltes through the stakeholder dalogue and reportng process. Stakeholder engagement vared from meetngs wth regulators and nongovernmental organzatons to a communty cookout at the Blueberry Sow Farm. These efforts dentfed ssues of nterest to stakeholders that were then addressed n the reports. We followed the format of the Ceres Faclty Reportng Project, whch seeks to provde a generally accepted faclty-level economc, envronmental, and socal sustanablty reportng framework. The reportng addresses envronmental complance and stewardshp, employee health and safety, anmal well-beng, food safety, and communty nvolvement.

26 PUBLIC POLICY Publc Polcy Issues of Interest We partcpate n legslatve and regulatory processes both as an ndvdual company and through ndustry assocatons. We beleve that engagement n the poltcal process s mportant n makng our vews heard on ssues of sgnfcance to the busness. Smthfeld representatves partcpate n many cross-ndustry boards and commssons at the natonal and state levels, ncludng, for example, servng on the board of drectors of the Natonal Assocaton of Manufacturers (NAM), and servng as the foundng char of NAM s Sustanablty Task Force. We also value our partcpaton as a member of the EPA s Farm, Ranch, and Rural Communtes Federal Advsory Commttee (FRRCC). The Commttee works to strengthen relatons wth the agrculture communty and focuses on the mpacts of the EPA s agrculture-related programs, polces, and regulatons, ncludng those regardng clmate change and renewable energy; a comprehensve envronmental strategy for lvestock operatons; and areas of common nterest between sustanable agrculture and protecton of the envronment. The followng are among the most sgnfcant current publc polcy ssues for our company: The Farm Bll: We took an actve role n the debate on the Farm Bll that was passed n Of partcular concern to our company was an effort to ban meatpackers from ownng lvestock. Many n our ndustry, Smthfeld ncluded, choose to own or contract for lvestock because t s the most effcent way to delver the consstent-qualty meat demanded by modern consumers. Gven our busness strategy of vertcal ntegraton, we strongly opposed ths provson and were glad t was not ncluded n the fnal bll. Country of Orgn Labelng: New rules on country of orgn labelng were fnalzed n early 2009, after years of debate. Smthfeld joned wth other affected companes to engage Congress and the U.S. Department of Agrculture (USDA) n dalogue about the best way to mplement the changes to acheve ntent of the new requrements by provdng nformaton to consumers whle managng the practcal challenges of labelng each product. Imports of Poultry Products from Chna: Due to an obscure provson n an appropratons bll, mports of frozen processed poultry products from Chna have been effectvely prohbted. Ths ban on poultry products may make t dffcult for companes lke Smthfeld to export products to Chna. Smthfeld s workng wth others n the ndustry to persuade Congress to resolve ths ssue. Immgraton Reform: We are closely followng the mmgraton reform ssue because we have many valued employees who are legal mmgrants. We are a naton of mmgrants. Just lke ther Amercan-born co-workers, our mmgrant GOVERNANCE AND MANAGEMENT t 24