SMITHFIELD FOODS INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion and analysis includes the results of operations and financial conditions, including year-over-year comparisons, for fiscal years 2024 and 2023. For discussion and analysis of fiscal year 2022, including a year-over-year comparison of fiscal years 2023 and 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our final prospectus, dated January 27, 2025, for our IPO, filed with the SEC under Rule 424(b) of the Securities Act on January 29, 2025. The information reflects all normal recurring adjustments which we believe are necessary to present fairly the financial position and results of operations for all periods included. Totals and percentages may be affected by rounding. Certain prior period amounts have been reclassified to conform to the current period presentation. Overview We are an American food company that employs approximately 34,000 people in the U.S. and 2,500 people in Mexico. We boast a portfolio of high-quality, iconic brands, such as Smithfield®, Eckrich® and Nathan’s Famous®, among many others. We are a majority owned subsidiary of Hong Kong-based WH Group. We conduct our operations through three reportable segments: Packaged Meats, Fresh Pork, and Hog Production. We also conduct operations that do not constitute reportable segments, which include our Mexico and Bioscience operations. Our fiscal year is the 52-week or 53-week period which ends on the Sunday nearest to December 31. Fiscal years 2024 and 2023 each consisted of 52-weeks. For a more comprehensive overview of our company and operations, refer to “Item 1. Business” in this Annual Report on Form 10-K. Growth Strategies The strategic initiatives we are executing across our segments are complemented and enabled by our strong balance sheet and ongoing operational investments, positioning us for future growth. We have several strategic initiatives to grow our business, reduce costs and enhance our profitability and margins. These include: • driving growth in our Packaged Meats segment; • further enhancing the profitability of our Fresh Pork segment; • continuing to invest in innovation; • optimizing operational and supply chain efficiencies; and • executing synergistic and complementary mergers and acquisitions. For a more comprehensive discussion of our growth strategies, refer to “Item 1. Business—Our Growth Strategies” in this Annual Report on Form 10-K. Key Factors Affecting Our Results of Operations and Financial Condition The following are key factors that have influenced our results of operations in the past and may influence our results in the future. Sales Drivers We are focused on driving profitable growth through our Packaged Meats segment. Within the Packaged Meats segment, the primary factors impacting sales of our brands are household penetration, consumption levels, price 60 point and product offerings. As a result, we have pursued strategies that we believe best align our products with consumer trends and behavior. We have shifted our portfolio towards a higher mix of value-added and margin accretive products while leveraging the breadth of our offerings to further penetrate across dayparts. We look to increase brand awareness and encourage consumer adoption of our products through product and packaging innovation and effective and appealing marketing strategies while maintaining our promise to consumers to offer high-quality products for every budget. We have also expanded to new categories and grown distribution of under-indexed brands in under-penetrated locations. In addition to the prior initiatives, we also seek to increase sales in packaged meats products by driving volumes of our private label and foodservice products, by expanding our customer relationships and by offering quality selections across the value chain. The U.S. packaged meats market is supported by long-term secular tailwinds, including consumer demand for high-protein diets, high-quality nutrition, product versatility and convenience. We expect these tailwinds to continue to drive increases in overall meat consumption. Nevertheless, changes in market trends and consumer preferences could adversely affect our results of operations. In our Fresh Pork segment, the primary drivers of external sales are the consistent level of global pork consumption, our ability to maximize the value of each hog and our ability to leverage our different end markets including retail, foodservice, industrial and export channels. Through ongoing product innovation, we seek to appeal to ever-changing consumer preferences, including demand for convenience and smaller portion sizes as well as expanded interests in new and varied flavors. We also seek to capitalize on export markets as an outlet for increasing the value of raw materials through whole-hog utilization and by appealing to differentiated, global tastes and preferences. Cost Factors Our cost as a percentage of sales varies based on fluctuations of raw materials prices, as well as manufacturing, distribution and marketing costs. Raw materials are the largest component of our total cost of goods sold, with feed ingredients and hogs accounting for the majority share. Approximately 80% of the raw materials used in the Packaged Meats segment is sourced internally from our Fresh Pork segment, and about half of the hogs used in the Fresh Pork segment are supplied by our Hog Production segment. In the Hog Production segment, in fiscal year 2024, approximately 60% of cost of goods sold was from animal feed, which is derived primarily from corn and soybean meal. The price of feed ingredients, hogs and pork fluctuates based on market dynamics which can affect our margins. We enter into hedging transactions for these commodities when we determine conditions are appropriate to mitigate the inherent price risks. While this hedging may limit our ability to participate in gains from favorable commodity fluctuations, it also reduces the risk of loss from adverse changes in raw material prices. We continue to optimize the size of our hog production operations and procure a greater mix of hogs from independent suppliers with market-based supply agreements in order to supply our Fresh Pork segment. We have reduced the size of our internal hog production from a peak of 17.6 million head in 2019 to 14.6 million head in 2024, and we continue to explore opportunities for reduced internal production. We expect to produce approximately 11.5 million head in 2025, which would represent approximately 40% of the hogs processed by our Fresh Pork segment. We are pursuing best-in-class manufacturing principles in our plants by employing automation to redeploy labor to higher value tasks, increasing yields and driving efficiency by reducing complexity. In our logistics and distribution network, we have reduced transportation and warehousing costs by improving transportation carrier mix, maximizing utilization of our cold storage and trucking assets, improving supply and demand planning and optimizing inventory levels. Our results of operations will continue to depend on our ability to (1) manage raw material cost movements through optimizing our hog production operations, hedging, forward purchasing, strategic sourcing negotiations and passing inflationary cost increases to customers, (2) operate our manufacturing and logistics footprint efficiently and competitively and (3) continue to attract and retain customers and consumers through effective sales and marketing spend. 61 Tariffs We export our products to over 30 countries, including China, Mexico and Canada, and we are engaged in a joint venture in Mexico. For the year ended December 29, 2024, U.S. export sales accounted for 13% of our total sales. Because of the growing market share of U.S. pork products in the international markets, U.S. exporters are increasingly being affected by measures taken by importing countries to protect local producers. Our international sales and operations are subject to various risks related to economic or political uncertainties, including, but not limited to, the risks posed by the imposition of tariffs, quotas, trade barriers and other trade protection measures that may be taken by various countries. In February 2025, the current U.S. administration issued executive orders announcing a 10% tariff on most imported goods from China and 25% tariffs on most imported goods from Mexico and Canada. The China tariff went into effect on February 4, 2025 and the tariffs on Mexico and Canada went into effect on March 4, 2025. The China tariff was increased by an additional 10% effective March 4, 2025. However, on March 6, 2025, President Trump announced that the proposed tariffs on imported goods from Canada and Mexico that are covered by the United States-Mexico-Canada Agreement will be suspended until April 2, 2025. China responded by imposing an additional 15% tariff on U.S. chicken, wheat, corn and cotton products and an additional 10% tariff on pork, among other products, increasing the tariff rate on pork from 37% to 47%. Officials from Mexico and Canada have announced that they anticipate imposing retaliatory tariffs. Our primary raw materials, including hogs, feed grains and meat, are sourced primarily in the U.S. Tariffs imposed on U.S. exports of these items could increase U.S. supplies of these items and therefore, reduce our raw material costs. On the other hand, the U.S. pork industry depends on free and open export markets to support growth. China, Mexico and Canada are three of our largest export markets. Tariffs imposed on U.S. pork exports could increase U.S. pork supplies, which would also affect the price of pork in the U.S. We could also experience a decrease in demand or lose customers due to anti-American sentiment. Any of the above could materially affect our business, financial condition and results of operations. Recent Developments The following events and transactions have had, and/or will have, an impact on our results of operations and/or financial condition: Initial Public Offering. On January 29, 2025, we completed our IPO of 26,086,958 shares of common stock, which represents 7% of the total outstanding shares, at a price of $20.00 per share. We issued 13,043,479 shares of common stock bringing the total number of outstanding shares to 393,112,711. The remaining 13,043,479 shares of common stock were sold by our existing shareholder. Our existing shareholder granted the underwriters a 30-day option to purchase up to 3,913,042 additional shares of our common stock. On February 20, 2025, the underwriters partially exercised such option and purchased 2,506,936 additional shares of common stock from our existing shareholder. We received net proceeds from the IPO of approximately $236 million after deducting underwriting discounts, commissions and fees. As a result of the IPO, our common stock is listed on the Nasdaq Global Select Market under the ticker “SFD.” In connection with the IPO, we granted to our directors and certain of our employees and certain directors and employees of WH Group: • options to purchase 9,822,467 shares with an exercise price equal to the IPO price and an aggregate grant date fair value of $30 million; and • 1,527,000 restricted stock units (“RSUs”) with an aggregate grant date fair value of $31 million. Both the options and RSUs vest over a five year period, with 20% vesting each year. We expect to recognize an aggregate of $49 million in compensation expense over the five-year vesting period of these awards, of which we estimate that the amount recognized in 2025 will be $9 million. 62 Altoona, Iowa Facility Closure. On August 30, 2024, we closed our Altoona, Iowa ham boning facility and consolidated production volume into other locations to improve manufacturing efficiencies. Costs associated with closing the plant primarily include operating lease assets and equipment that we disposed of prior to the expiration of the lease term or end of the asset’s useful life. The charges associated with the closing were not material. Altoona was accounted for in the Fresh Pork segment. European Carve-Out. On August 26, 2024, we completed a carve-out and transfer of our European operations to WH Group. As a result, we derecognized the assets and liabilities of our former European operations through equity. No gain or loss was recognized on the transaction. The historical results of operations, assets and liabilities, and cash flows of the European operations have been condensed and reported as discontinued operations in the consolidated financial statements for all periods presented. Dry Sausage Facility Acquisition. On July 30, 2024, we acquired a dry sausage production facility located in Nashville, Tennessee from Cargill Meat Solutions Corporation for $38 million. The acquisition is part of our strategy to grow our value-added packaged meats business and serve the growing demand for high-quality pepperoni, salami, charcuterie and other dry sausage products. Employee Retention Tax Credit. In the second quarter of 2024, we recognized $86 million and $1 million of employee retention credits in cost of sales and selling, general and administrative expenses (“SG&A”), respectively, in the consolidated statement of income. For more information, see “Note 7: Employee Retention Tax Credits” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. American Skin. On December 28, 2023, we acquired the remaining 15% interest in American Skin Food Group, LLC for $15 million. West Coast Exit and Hog Production Reform. We have undertaken a number of steps to exit our operations in California where high taxes, high utility costs and a challenging regulatory environment negatively impact our ability to operate efficiently and profitably. We also undertook a number of other actions in furtherance of our efforts to optimize the size of our Hog Production segment’s operations and improve its cost structure: • West Coast Exit. In May 2022, we announced a decision to close our Vernon, California processing facility, exit farm operations in Arizona and California and reduce our sow herd in Utah. Additionally, in December 2023, we made a decision to terminate a number of agreements with contract farmers and closed several company-owned nursery farms in Utah as a result of the Vernon, California facility closure in early fiscal year 2023. • Hog Production Reform. We have taken the following actions to further restructure and optimize the size of our hog production operations, including: • In May 2023, we made a decision to cease operations on a number of sow farms in Missouri. The decision was driven by persistent livestock disease issues, underperforming operations and shifting industry supply and demand dynamics. • In fiscal years 2023 and 2024, we terminated certain agreements with underperforming contract farmers and closed certain farms in the eastern U.S. • On December 27, 2024, we became a member of a North Carolina-based company, Murphy Family Farms, by contributing $3 million in cash in exchange for a 25% minority interest. We additionally sold approximately 150,000 sows and related inventories located on company-owned and contract farms in North Carolina to Murphy Family Farms and recorded a gain of $6 million on the sale. Subsequent to the end of fiscal year 2024, on December 30, 2024, we sold the commercial hog inventories associated with such sows to Murphy Family Farms. Murphy Family Farms is now a hog supplier to us and will supply approximately 3.2 million hogs annually. We will supply animal feed and other supplies and provide certain support services to Murphy Family Farms. 63 • On February 24, 2025, we became a member of a North Carolina-based company, VisionAg, by contributing $450,000 in cash in exchange for a 9% minority interest. We additionally sold approximately 28,000 sows and the associated commercial hog inventories located on certain company-owned and contract farms in North Carolina to VisionAg. VisionAg is now a hog supplier to us and will supply approximately 600,000 hogs annually. In addition, we will supply animal feed and provide certain support services to VisionAg. As a result of these decisions, we incurred various exit costs and disposal charges. We recognized charges totaling $31 million and $195 million in cost of sales in fiscal years 2024 and 2023, respectively. Included in the $31 million of charges recognized in fiscal year 2024 was a $4 million loss on the sale of certain hog farms in Missouri from which we received $32 million in proceeds. Additionally, in the fourth quarter of 2023, certain biogas assets owned by our joint venture, Align, were impaired as a result of our decision in December 2023 to terminate hog grower contracts and close farms in Utah. As a result, we recognized our share of the impairment totaling $35 million in (income) loss from equity method investments in the consolidated income statement. Also in the fourth quarter of 2023, we incurred $14 million in costs associated with biogas assets owned by our joint venture, Monarch, in connection with the farms in Missouri that were closed in fiscal year 2023. These costs were recognized in (income) loss from equity method investments in the consolidated statement of income. In the second quarter of 2023, we sold our Vernon, California facility for $205 million and recognized a gain of $86 million in operating gains in the consolidated statement of income. On December 17, 2024, we sold our hog production assets in Utah, excluding the live animals, for $58 million. The transaction resulted in a gain of $32 million, which was recognized in operating gains in the consolidated statement of income in the fourth quarter of 2024. As part of the agreement, we leased back certain farm and feed properties that we continue to operate. Results of Operations Consolidated Results of Continuing Operations Fiscal Year 2024 2023 $ Change (in millions) Sales $ 14,142 $ 14,640 $ (498) Cost of sales 12,244 13,751 (1,507) Gross profit 1,897 889 1,008 Selling, general and administrative expenses 840 1,050 (211) Operating gains (60) (105) 45 Operating profit (loss) 1,118 (56) 1,174 Interest expense, net 66 76 (10) Non-operating gains (9) (3) (6) Income (loss) from continuing operations before income taxes 1,061 (129) 1,189 Income tax expense (benefit) 271 (41) 312 (Income) loss from equity method investments (8) 46 (53) Net income (loss) from continuing operations 798 (133) 930 Net income from continuing operations attributable to noncontrolling interests 14 5 9 Net income (loss) from continuing operations attributable to Smithfield $ 783 $ (138) $ 921 64 Operating Profit (Loss) by Segment Fiscal Year 2024 2023 $ Change (in millions) Packaged Meats $ 1,168 $ 1,066 $ 102 Fresh Pork 266 117 150 Hog Production (144) (756) 612 Other 35 (4) 39 Corporate expenses (153) (107) (46) Unallocated (55) (371) 316 Operating profit (loss) $ 1,118 $ (56) $ 1,174 We recently removed income from equity method investments from the measure of segment profit reviewed by our Chief Operating Decision Maker. Accordingly, the historical segment results presented herein have been retrospectively adjusted to remove income from equity method investments. Results of Operations Analysis The following discussion provides an analysis of our results of operations for fiscal year 2024 compared to fiscal year 2023. Sales Fiscal Year 2024 2023 $ Change % Change (in millions) Sales by segment: Packaged Meats $ 8,319 $ 8,280 $ 39 0.5 % Fresh Pork 7,873 7,832 42 0.5 % Hog Production 3,002 3,317 (315) (9.5) % Other 471 559 (88) (15.7) % Total segment sales 19,665 19,988 (323) (1.6) % Inter-segment sales eliminations: Fresh Pork (2,990) (2,694) (296) 11.0 % Hog Production (2,533) (2,646) 114 (4.3) % Other (1) (7) 6 (90.0) % Total inter-segment sales eliminations (5,524) (5,348) (176) 3.3 % Consolidated Sales $ 14,142 $ 14,640 $ (498) (3.4) % Packaged Meats. Segment sales increased by $39 million, or 0.5%, as a 3.1% increase in average sales price more than offset a 2.5% decrease in sales volume. The increase in average sales price was primarily due to higher raw material costs, which translated into higher sales prices of our packaged meats products, as well as an improvement in product mix. The decrease in volume was mainly due to lower bacon sales associated with the group housing legislation in California and Massachusetts, which requires pork producers nationwide to comply with certain production standards in order to sell pork products into these states, and lower holiday ham sales. Fresh Pork. Segment sales increased by $42 million, or 0.5%, as a 5.4% increase in our average sales price more than offset a 4.7% decrease in volume. The increase in our average sales price reflects strong demand for U.S. pork, which was supported by higher relative prices for competing proteins and strength in export markets. In fiscal year 65 2024, fresh pork cut-out values reported by the USDA averaged $0.96 per pound, up 6.5% from fiscal 2023. The decrease in Fresh Pork volume was largely due to a strategic plan to optimize production levels. Hog Production. Segment sales decreased by $315 million, or 9.5%, largely due to an 7.8% decrease in the number of hogs sold and a $171 million decrease in grain sales, partially offset by a 6.2% increase in our average hog sales price, including the effects of hedging. The decrease in the number of hogs sold by the segment was largely attributable to Hog Production Reform activities aimed at reducing the number of hogs we produce. Other. Segment sales decreased by $88 million, or 15.7%, predominantly attributable to our Mexico operations due in part to an 8.3% decline in volume. Inter-segment Eliminations • Fresh Pork. The increase in inter-segment sales by our Fresh Pork segment was attributable to higher market values for fresh pork components sold to our Packaged Meats segment. • Hog Production. The decrease in inter-segment sales by our Hog Production segment was attributable to our Hog Production Reform activities, which reduced the number of hogs sold to our Fresh Pork segment, partially offset by an increase in the average sales price. Cost of Sales Fiscal Year 2024 2023 $ Change % Change (in millions) Packaged Meats $ 6,759 $ 6,792 $ (33) (0.5) % Fresh Pork 7,419 7,525 (105) (1.4) % Hog Production 3,104 4,024 (920) (22.9) % Other 412 536 (125) (23.3) % Unallocated 74 222 (148) (66.6) % Inter-segment eliminations (5,524) (5,348) (176) 3.3 % Cost of sales $ 12,244 $ 13,751 $ (1,507) (11.0) % Packaged Meats. Cost of sales in our Packaged Meats segment decreased by $33 million, or 0.5%, driven by the following factors, which more than offset a $75 million increase in raw material costs attributable to the net effect of higher meat prices and lower sales volume: • A $71 million decrease in manufacturing and distribution costs primarily due to cost improvement initiatives and lower sales volume. • The recognition of $38 million in employee retention tax credits in the second quarter of 2024. Fresh Pork. Cost of sales in our Fresh Pork segment decreased by $105 million, or 1.4%, due to the following factors, which more than offset a $111 million increase in raw material costs driven by the net effect of higher market hog prices and lower sales volume: • A $175 million decrease in manufacturing and distribution costs largely due to cost improvement initiatives and lower sales volume. • The recognition of $41 million in employee retention tax credits in the second quarter of 2024. Hog Production. Cost of sales in our Hog Production segment decreased by $920 million, or 22.9%, primarily due to the following factors: • A $717 million decrease in raw material costs largely due to lower prices for feed ingredients, a reduction in the number of hogs produced and lower external grain sales. 66 • A $195 million decrease in operating costs largely attributable to the effects of our Hog Production Reform activities on both volume and cost improvements, as well as lower external grain sales. • The recognition of $8 million in employee retention tax credits in the second quarter of 2024. Other. Cost of sales in our Other segments decreased by $125 million, or 23.3%, which was primarily attributable to lower raw material costs in our Mexico operations driven by lower market prices for feed ingredients and lower sales volume. Unallocated. The unallocated costs primarily represent costs associated with our West Coast Exit and Hog Production Reform activities. Selling, General and Administrative Expenses Fiscal Year 2024 2023 $ Change % Change (in millions) Packaged Meats $ 394 $ 422 $ (28) (6.7) % Fresh Pork 188 190 (3) (1.5) % Hog Production 42 50 (8) (15.9) % Other 24 26 (2) (8.2) % Unallocated 38 254 (215) (84.9) % Corporate expenses 154 108 46 42.8 % Selling, general, and administrative expenses $ 840 $ 1,050 $ (211) (20.1) % SG&A decreased by $211 million, or 20.1%, primarily driven by the following factors, which more than offset a $44 million increase in variable compensation expenses attributable to the improvement in our results of operations (reflected primarily in corporate expenses): • A $211 million decrease in accruals for litigation matters described in “Note 18: Regulation and Contingencies” to the consolidated financial statements included in Part II, Item 8. of this Annual Report. This decrease is reflected in unallocated expenses in the table above. • A $27 million decrease in marketing and advertising expenses due to an increased focus on the effectiveness of our spending, largely attributable to our Packaged Meats and Fresh Pork segments. • The impact of foreign exchange transactions, which decreased SG&A by $14 million. Gains and losses on foreign exchange transactions are included in unallocated expenses in the table above. 67 Operating Gains Operating gains consists of the following items: Fiscal Year 2024 2023 (in millions) Packaged Meats $ (2) $ — Unallocated: Gain on disposal of assets (1) (43) (88) Insurance recoveries (9) (5) Other operating gains (5) (12) Total operating gains $ (60) $ (105) ________________ (1) Fiscal year 2024 includes a $32 million gain on the sale of hog farms in Utah and a $6 million gain on the sale of assets to Murphy Family Farms. Fiscal year 2023 includes an $86 million gain on the sale of our Vernon, California plant. Interest Expense, Net Interest expense, net decreased by $10 million to $66 million from $76 million, or 13.1%, due to higher levels of cash and cash equivalents earning interest at higher rates in fiscal year 2024 as compared to fiscal year 2023, while interest rates on borrowings were largely fixed. Non-operating Gains Non-operating gains consists of the following items: Fiscal Year 2024 2023 (in millions) Gain on nonqualified retirement plan assets $ (17) $ (15) Net pension and postretirement benefits cost (1) 10 10 Other (2) 1 Non operating gains $ (9) $ (3) ________________ (1) Includes the components of net pension and postretirement benefits cost other than service cost, which is included in operating profit. These components consist of interest cost, expected return on plan assets, amortization of actuarial gains/losses and prior service costs/credits, and curtailment gains. Income Tax Expense (Benefit) Income tax expense (benefit) increased to an expense of $271 million in fiscal year 2024 from a benefit of $41 million in fiscal year 2023 primarily due to the significant pre-tax income recognized in fiscal year 2024, compared to a loss recognized in fiscal year 2023. The effective tax rate was 25.5% in fiscal year 2024 compared to 32.2% in fiscal year 2023. The impact of the reconciling items between the federal statutory rate and our effective tax rate were more pronounced in fiscal year 2023 largely due to the pre-tax loss of $129 million in fiscal year 2023 compared to pre-tax income of $1,061 million in fiscal year 2024. See “Note 13: Income Taxes” to the consolidated financial statements included in Part II, Item 8 of this Annual Report, for further information. (Income) Loss from Equity Method Investments (Income) loss from equity method investments increased to income of $8 million in fiscal year 2024 from a loss of $46 million in fiscal year 2023. Fiscal year 2023 included $49 million in impairments and other costs associated with our biogas joint ventures as a result of our West Coast Exit and Hog Production Reform actions. 68 Liquidity and Capital Resources Our sources of liquidity include cash and cash equivalents on hand together with availability under our committed revolving credit facilities. As of December 29, 2024, we had $3,245 million of available liquidity consisting of $943 million in cash and cash equivalents and $2,303 million of availability under our committed credit facilities. Availability under our committed credit facilities is reduced by the principal amount of our outstanding commercial paper. We believe that our current liquidity position is strong and that our cash flows from operations and availability under our credit facilities will be sufficient to meet our working capital needs and financial obligations and commitments for at least the next twelve months. Credit Facilities December 29, 2024 Facility Capacity Borrowing Base Adjustment Outstanding Borrowings Commercial Paper Borrowings Outstanding Letters of Credit Amount Available (in millions) Senior Revolving Credit Facility $ 2,100 $ — $ — $ — $ — $ 2,100 Securitization Facility 225 — — — (22) 203 Total credit facilities $ 2,325 $ — $ — $ — $ (22) $ 2,303 Senior Unsecured Revolving Credit Facility In February 2025, we refinanced our $2,100 million senior unsecured revolving credit facility (“Senior Revolving Credit Facility”) extending the maturity date from May 21, 2027 to February 12, 2030. As part of the new agreement, there are no longer any subsidiary guarantors under the Senior Revolving Credit Facility which also released the subsidiary guarantors from our senior unsecured notes. The Senior Revolving Credit Facility bears interest at the SOFR plus a margin ranging from 0.875% to 1.50% per annum, or, at our election, at a base rate plus a margin ranging from 0.00% to 0.50% per annum, in each case depending on our senior unsecured debt ratings. The Senior Revolving Credit Facility also contains financial maintenance covenants requiring us to maintain a maximum total consolidated leverage ratio (ratio of consolidated funded debt to consolidated capitalization, each as defined in the Senior Revolving Credit Facility) of 0.50 to 1.00 (which we may elect to increase to 0.55 to 1.00 with respect to any fiscal quarter in which a material acquisition is consummated and the immediately following three consecutive fiscal quarters, subject to certain restrictions) and a minimum interest coverage ratio (ratio of EBITDA to Consolidated Interest Expense, each as defined in the Senior Revolving Credit Facility) of 3.50 to 1.00. Our Senior Revolving Credit Facility contains customary covenants, including, but not limited to, restrictions on our ability and that of our subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets subject to their security interest, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, optionally prepay or modify terms of any junior indebtedness or enter into transactions with affiliates, each subject to certain exceptions as set forth therein. We are currently in compliance with the covenants under our Senior Revolving Credit Facility. We have a commercial paper program, which is supported by the Senior Revolving Credit Facility, that provides access to a low-cost source of borrowing to fund general corporate purposes, including working capital. The maximum issuance capacity under our commercial paper program is $1,750 million. The maturity of commercial paper issued under the program varies but does not exceed 397 days from the date of issuance. Our ability to access the commercial paper market in the future is dependent on maintaining investment grade credit ratings and market conditions. Accounts Receivable Securitization Facility In November 2024, we refinanced our accounts receivable securitization facility (the “Securitization Facility”), which extended the maturity date to November 22, 2027, and reduced the borrowing capacity to $225 million. As part of the Securitization Facility, certain accounts receivable of our major domestic meat processing subsidiaries are 69 sold to a wholly owned “bankruptcy remote” special purpose vehicle (“SPV”). The SPV pledges all such accounts receivable not otherwise sold pursuant to the Monetization Facility (as defined below) as security for loans made, and letters of credit issued, by participating lenders under the Securitization Facility. The SPV is included in our consolidated financial statements and therefore the accounts receivable owned by it are included in our consolidated balance sheets. However, the accounts receivable owned by the SPV are separate and distinct from our other assets and are not available to our other creditors should we become insolvent. As of December 29, 2024, the SPV held $374 million of accounts receivable. We must maintain certain ratios related to the collection of our receivables as a condition of the Securitization Facility agreement. As of December 29, 2024, we had $22 million in letters of credit issued under the Securitization Facility. None of the letters of credit were drawn upon. Under the Securitization Facility, we and the SPV, as applicable, are subject to certain customary covenants, including, but not limited to, restrictions on our ability to sell, assign or otherwise dispose of any collateral or assign any right to receive income with respect thereto, use proceeds for any purpose other than those set forth in the Securitization Facility, make certain payments on junior indebtedness, incur debt or merge or consolidate, subject to certain exceptions set forth therein. The SPV is also prohibited from issuing any LCR Security (as defined in the Securitization Facility agreement). We are currently in compliance with the covenants under the Securitization Facility. Monetization Facility In addition to the Securitization Facility, we maintain an uncommitted $250 million accounts receivable monetization facility (the “Monetization Facility”). At Smithfield’s election and subject to the purchasing banks’ approval, certain accounts receivable may be sold by the SPV to purchasing banks, so long as the uncollected outstanding amount of accounts receivable sold pursuant to the Monetization Facility does not exceed $250 million in the aggregate at any time, among other limitations. In the event of a sale, the purchasing banks assume all credit risk related to the receivables while we maintain risk associated with customer disputes. We account for the sale of receivables to a purchasing bank by derecognizing the receivables from our consolidated balance sheet upon transfer of control to the purchasing bank, and recognizing a discount on the sale in SG&A in the consolidated statement of income. The proceeds from the sale of receivables are included in net cash flows from operating activities in the consolidated statement of cash flows. On behalf of the purchasing banks, we continue to service all receivables sold under the Monetization Facility. As of December 29, 2024, the uncollected balance of receivables that had been sold to purchasing banks was $230 million. We had no servicing asset or liability outstanding as of December 29, 2024. In the first quarter of fiscal year 2023, we sold $227 million of accounts receivable at a discount and received proceeds totaling $225 million. Subsequently, we reinvested $4,094 million and $3,431 million of cash collections from customers in the revolving sale of accounts receivable to purchasing banks in fiscal years 2024 and 2023, respectively. We recognized charges totaling $15 million and $12 million in fiscal years 2024 and 2023, respectively, attributable to the discount on the sale of accounts receivable in SG&A in the consolidated statement of income. Cash Flows Cash Flows From Operating Activities of Continuing Operations 70 Fiscal Year 2024 2023 (in millions) Net income $ 970 $ 23 Less: Net income from discontinued operations (172) (155) Net income (loss) from continuing operations $ 798 $ (133) Adjustments to reconcile net income from continuing operations to net cash flows from operating activities of continuing operations: Depreciation and amortization 339 427 Deferred income taxes 91 (130) Impairment of assets 1 1 (Income) loss from equity method investments (8) 46 (Gain) loss on sale of other assets 15 11 (Gain) loss on sale of property, plant and equipment (35) (85) Change in accounts receivable (6) 157 Change in inventories 138 469 Change in prepaid expenses and other current assets (88) 57 Change in accounts payable (19) (215) Change in accrued expenses and other current liabilities (261) 80 Other (49) 2 Net cash flows from operating activities of continuing operations $ 916 $ 688 Net cash flows from operating activities of continuing operations increased by $228 million to $916 million in fiscal year 2024 from $688 million in fiscal year 2023. This increase was primarily driven by higher earnings and changes on deferred income taxes, partially offset by changes in working capital. The following describes the significant changes in working capital: • Accounts receivable. Accounts receivable decreased in fiscal year 2023 primarily due to the monetization of receivables under the Monetization Facility. • Inventories and accounts payable. Inventories and accounts payable decreased in fiscal year 2024 primarily due to lower commodity prices for feed grains and lower inventory volumes attributable to Hog Production reform decisions. Inventories and accounts payable decreased in fiscal year 2023 primarily due to lower inventory volumes largely attributable to the West Coast exit and Hog Production reform decisions as well as lower commodity prices for meat and feed grains. • Prepaid expenses and other current assets. Prepaid expenses and other current assets increased in fiscal year 2024 largely due to an increase in income taxes receivable, which was primarily driven by a tax benefit recognized in connection with the carve-out of our European operations, and an increase in prepaid deposits for grain in Mexico. Prepaid expenses and other current assets decreased in fiscal year 2023 largely due to a decrease in an escrow balance related to a litigation settlement. • Accrued expenses and other current liabilities. Accrued expenses and other current liabilities decreased in fiscal year 2024 largely due to payments related to litigation settlements and our West Coast exit and Hog Production reform activities. Accrued expenses and other current liabilities increased in fiscal year 2023 largely due to accruals for litigation and our West Coast exit and Hog Production reform activities, partially offset by litigation settlements. 71 Cash Flows From Investing Activities of Continuing Operations Fiscal Year 2024 2023 (in millions) Capital expenditures $ (350) $ (353) Net expenditures from breeding stock transactions (43) (48) Investments in partnerships and other assets (13) (27) Business dispositions — 13 Proceeds from sale of property, plant and equipment and other assets 99 219 Other 9 3 Net cash flows used in investing activities of continuing operations $ (298) $ (194) Net cash used in investing activities of continuing operations increased by $104 million to $298 million in fiscal year 2024 from $194 million in fiscal year 2023. The following items explain this increase and the significant cash flows from investing activities: • Capital expenditures. Fiscal year 2024 includes $33 million for the purchase of a dry sausage production facility located in Nashville, Tennessee. The remaining capital expenditures for both fiscal years 2024 and 2023 consisted primarily of various plant expansion, automation and improvement projects. • Investments in partnerships and other assets. We made capital contributions totaling $5 million and $21 million to our biogas joint ventures in fiscal years 2024 and 2023, respectively. Also, in fiscal year 2024, we became a member of, and contributed $3 million to, Murphy Family Farms. • Business dispositions. In fiscal year 2023, we received a $7 million final settlement for the sale of a business in fiscal year 2022, $4 million for the sale of a retail business and a $2 million final settlement for the sale of hog farms in California. • Proceeds from the sale of property, plant and equipment and other assets. In fiscal year 2024, we received $58 million and $32 million for the sale of hog farms in Utah and Missouri, respectively. In fiscal year 2023, we received $205 million in proceeds for the sale of our Vernon, California facility. Cash Flows From Financing Activities of Continuing Operations Fiscal Year 2024 2023 (in millions) Payment of dividends $ (288) $ (323) Repayments to Securitization Facility (14) (226) Proceeds from Securitization Facility 14 226 Purchase of redeemable noncontrolling interest — (15) Net repayments to revolving credit facilities (8) (7) Principal payments on long-term debt and finance lease obligations (24) (4) Payment of deferred purchase consideration for acquisition (2) (2) Other 1 (2) Net cash flows used in financing activities of continuing operations $ (321) $ (353) 72 Net cash used in financing activities of continuing operations decreased by $32 million to $321 million in fiscal year 2024 from $353 million in fiscal year 2023. The following items explain certain significant cash flows from financing activities during the periods presented: • Dividends. Dividends in fiscal year 2023 included a $100 million special dividend from the proceeds from the sale of our Vernon, California facility. • Purchase of redeemable noncontrolling interest. In fiscal year 2023, we paid $15 million for the remaining 15% interest in American Skin. Contractual Obligations and Commitments Our cash requirements for long-term contractual obligations and commitments as of December 29, 2024 are presented in the following table: Due Date by Period 2025 2026 2027 2028 2029 2030 & thereafter Total (in millions) Debt principal payments (1) $ — $ — $ 600 $ — $ 400 $ 1,000 $ 2,000 Debt interest payments 74 74 51 49 33 34 317 Guaranteed royalty payments (2) 15 15 16 16 16 34 112 Lease obligations (3) 73 59 47 36 27 217 460 Pension and other postretirement benefit obligations (4) 29 — — — — — 312 Commitments to investees (5) — — — — — — 195 Purchase commitments: Hog procurement (6) 2,599 1,704 1,239 913 913 584 7,953 Contract hog growers (7) 141 78 69 55 37 108 488 Grain procurement (8) 179 — — — — — 179 Other 83 19 17 15 16 209 359 Other long-term liabilities (9) 197 Total $ 3,194 $ 1,951 $ 2,039 $ 1,085 $ 1,443 $ 2,185 $ 12,571 ________________ (1) In the event of default on a payment, acceleration of principal payments could occur. (2) Represents guaranteed royalty payments to license the Nathan’s Famous brand. (3) Amounts presented for lease obligations represent the undiscounted contractual lease payments for our operating and finance lease obligations. For more information on leases, see “Note 12: Lease Obligations, Commitments and Guarantees” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. (4) We historically provided the majority of our U.S. employees with pension benefits. Funding requirements for our pension plans are determined based on the funded status measured at the end of each year. The values of our pension obligation and related assets may fluctuate significantly, which may in turn lead to a larger underfunded status in our pension plans and a higher funding requirement. The funding requirement for our qualified pension plans in fiscal year 2025 is expected to be $6 million. We also expect to contribute $23 million to our non-qualified pension plans to cover expected benefit payments. We are unable to reliably estimate the amount and timing of the remaining payments beyond fiscal year 2025, therefore we have only the estimated funding for fiscal year 2025 and the total liability as of December 29, 2024 in the table above. For more information, see “Note 14: Pension and Other Retirement Plans” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. (5) In 2019, we announced that we planned to contribute up to $250 million to Align through 2028 to fund various projects as approved by Align’s board from time to time. As of December 29, 2024, we had contributed $114 million in capital toward these planned contributions. Should the board, of which we have 50% of the voting power, choose not to approve additional projects, the remaining contributions would not be required. Additionally, we have committed to contribute up to $25 million to the TPG Rise Climate investment fund through July 2027. As of December 29, 2024, we had contributed $17 million in capital toward this commitment. Lastly, we have a capital support agreement with Murphy Family Farms whereby we are committed to advance up to $50 million to cover operating costs of Murphy Family Farms if certain conditions are 73 met. No such advances have been made. We are unable to reliably estimate if or when any of these commitments will be drawn upon. (6) Through the Fresh Pork segment, we have purchase agreements with certain independent suppliers. Some of these arrangements obligate us to purchase all of the hogs produced by these suppliers. Other arrangements obligate us to purchase a fixed amount of hogs. Due to the uncertainty of the number of hogs that we are obligated to purchase and the uncertainty of market prices at the time of hog purchases, we have estimated our obligations under these arrangements. Future payments were estimated using current live hog market prices, available futures contract prices and internal projections adjusted for historical quality premiums. (7) Through the Hog Production segment, we use contract farmers and their facilities to raise hogs produced from our breeding stock. Under multi-year contracts, the farmers provide the initial facility investment, labor and front-line management in exchange for a performance-based service fee payable upon delivery. We are obligated to pay this service fee for all hogs delivered. We have estimated our obligation based on expected hogs delivered from these farmers. (8) Includes fixed-price forward grain purchase contracts totaling $76 million. Also includes unpriced forward grain purchase contracts which, if valued using market prices as of December 29, 2024, would be $102 million. These forward grain contracts are accounted for as normal purchases. As a result, they are not recorded in the balance sheet. (9) Other long-term liabilities consist of long-term casualty insurance reserves, deferred compensation, contingent liabilities, and asset retirement obligations, among others. We are unable to estimate reliably the timing of settlement of these liabilities. Other Anticipated or Potential Cash Requirements Capital Expenditures The Company remains in a strong financial position due to its robust cash flows, liquidity, and solid balance sheet. We plan to continue to support the business in 2025 through capital expenditures in the range of $400 million to $500 million, inclusive of profit improvement projects, such as packaged meats capacity expansion and automation, as well as repairs and maintenance. Dividends Returning cash to shareholders in the form of dividends is also a top priority for the Company. On March 24, 2025, our Board declared a quarterly cash dividend of $0.25 per share of common stock, which is payable on April 22, 2025, to shareholders of record on April 10, 2025. We anticipate the remaining quarterly dividends in fiscal 2025 will be $0.25 per share, resulting in an annual dividend rate in fiscal 2025 of $1.00 per share. The declaration of dividends is subject to the discretion of our Board and depends on various factors, including our net income, financial condition, cash requirements, business prospects, and other factors that our Board deems relevant to its analysis and decision making. Monarch Sale Notice On January 16, 2025, TPG Rise Climate, one of the other two equal joint venture partners in Monarch, delivered a sale notice under the joint venture agreement, pursuant to which Monarch must pursue a sale of the joint venture. In the event that a sale of Monarch is not consummated before January 17, 2026, TPG Rise Climate may require that Monarch purchase TPG Rise Climate’s ownership interests in Monarch. Altosano Redeemable Noncontrolling Interest After December 31, 2024, our noncontrolling interest (“NCI”) holders in Altosano have the right to exercise a put option that would obligate us to redeem 40% of their interest. After December 31, 2027 the NCI holders in Altosano have the right to exercise a put option for the remainder of their interest. The redemption value for the NCI is fair value. As of December 29, 2024, the value of the NCI on our consolidated balance sheet was $225 million. Contingent Losses Like other participants in our industry, we are subject to various laws and regulations administered by federal, state and other government entities, including the U.S. Environmental Protection Agency and corresponding state agencies, as well as the Grain Inspection, Packers and Stockyard Administration, the USDA, the OSHA, the Commodity Futures Trading Commission and similar agencies in foreign countries. We, from time to time, receive 74 notices and inquiries from regulatory authorities and others asserting that we are not in compliance with such laws and regulations. In some instances, litigation ensues. In addition, individuals may initiate litigation against us. The consolidated financial statements reflect accruals for contingent losses associated with various claims. These matters will not affect our profits or losses in future periods unless our accruals prove to be insufficient or excessive. It is reasonably possible that a change in our estimates may occur in the near term and that our accruals could be insufficient. We are unable to estimate the amount of possible loss in excess of our accruals, which could be material. Additionally, legal expenses incurred in our and our subsidiaries’ defense of these claims and any payments made to plaintiffs through unfavorable verdicts or otherwise could negatively impact our cash flows and our liquidity position. For more information on contingencies, refer to “Note 18: Regulation and Contingencies” to the consolidated financial statements included in Part II, Item 8 of this Annual Report . Risk Management Activities We are exposed to market risks primarily from changes in commodity prices, and to a lesser degree, interest rates and foreign exchange rates. To mitigate these risks, we utilize derivative instruments to hedge our exposure to changing prices and rates, as more fully described in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” and “Note 8: Derivative Financial Instruments” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. See these sections for more information on the effects of derivative instruments on our consolidated statements of income. Our liquidity position may be positively or negatively affected by changes in the value of our derivative portfolio. When the value of our open derivative contracts decreases, we may be required to post margin deposits with our brokers and counterparties to cover a portion of the decrease. Conversely, when the value of our open derivative contracts increases, our brokers may be required to deliver margin deposits to us for a portion of the increase. Over the past two fiscal years, the maximum amount of margin deposits held by our brokers and counterparties at any given time was $97 million. The effects, positive or negative, on liquidity resulting from our risk management activities historically have tended to be mitigated by offsetting changes in cash 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 higher cash prices paid to farmers and other suppliers in spot markets. These offsetting changes do not always occur, however, in the same amounts or in the same period, with lag times of as much as twelve months. Guarantees We and certain other joint venture partners in Monarch joint and severally guarantee Monarch’s debt, interest and fees. As of December 29, 2024, the maximum amount of loans that could be outstanding under Monarch’s debt agreements was $61 million and the loans mature in June 2025. Monarch’s outstanding debt was $43 million as of the end of fiscal year 2024. The guarantee involves elements of performance and credit risk and is not included in the consolidated balance sheets. We could become liable in connection with Monarch’s obligation depending on the ability of Monarch to perform on its obligation. If we consider it probable that we will become responsible for the obligation, we would record the liability on our consolidated balance sheet. Non-GAAP Measures In arriving at our presentation of non-GAAP financial measures, we exclude items that have an impact on our income statement that, in the judgment of our management, are items that, either as a result of their nature or size, could, were they not identified, potentially cause investors to extrapolate future performance from an improper base. While not all inclusive, examples of these items include: • loss contingencies, due to the difficulty in predicting future events, their timing and size; • transactions or events that are not part of our core business activities or are unusual in their nature (whether gains or losses); and 75 • the tax effects of the foregoing items. Adjusted Net Income from Continuing Operations Attributable to Smithfield and Adjusted Net Income from Continuing Operations per Common Share Attributable to Smithfield The following table provides a reconciliation of net income from continuing operations to adjusted net income from continuing operations attributable to Smithfield. Adjusted net income from continuing operations attributable to Smithfield and adjusted net income from continuing operations per common share attributable to Smithfield are non-GAAP measures. We believe these non-GAAP measures are useful for investors because they exclude the effects of items that are unusual in nature, infrequent in occurrence or otherwise stem from strategic decisions to restructure our operations. Although we believe these non-GAAP measures provide a better comparison of our year-over-year performance and are frequently used by investors and securities analysts in their evaluations of companies, they have limitations as analytical tools. As such, adjusted net income from continuing operations attributable to Smithfield and adjusted net income from continuing operations per common share attributable to Smithfield are not intended to be alternatives to net income from continuing operations, net income from continuing operations per common share or any other performance measures derived in accordance with GAAP and should not be used by investors or other users of our financial statements in isolation for formulating decisions as they exclude a number of important cash and non-cash charges. Fiscal Year 2024 2023 Affected income statement account (in millions, except per share data) Net income from continuing operations attributable to Smithfield 783 (138) Employee Retention Tax Credits (1) (86) — Cost of sales Employee Retention Tax Credits (1) (1) — SG&A West Coast Exit and Hog Production Reform (2) (38) — Operating gains West Coast Exit and Hog Production Reform (3) 31 195 Cost of sales West Coast Exit and Hog Production Reform (4) — 49 (Income) loss from equity method investments Insurance recoveries (4) (5) Operating gains Litigation charges (5) — 208 SG&A Gain on sale of Vernon, California facility — (86) Operating gains Incremental costs from destruction of property 4 3 Cost of sales Income tax effect of non-GAAP adjustments (6) 24 (94) Income tax expense (benefit) Adjusted net income from continuing operations attributable to Smithfield $ 714 $ 132 Net income (loss) from continuing operations attributable to Smithfield per common share (basic and diluted) $ 2.06 $ (0.36) Adjusted net income from continuing operations attributable to Smithfield per common share (basic and diluted) $ 1.88 $ 0.35 ________________ (1) In the second quarter of 2024, we recognized $86 million and $1 million of employee retention tax credits in cost of sales and SG&A, respectively. For more information about the employee retention tax credits, see “Note 7: Employee Retention Tax Credits” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. (2) Includes a $32 million gain on sale of our Utah hog farms and a $6 million gain on the sale of breeding stock to Murphy Family Farms. (3) Consists of costs related to the closure of our Vernon, California processing facility, the closure and/or reduction of certain farms in Arizona, California, Missouri and Utah and certain residual operating and restructuring expenses, including the termination of a number of agreements with contract farmers, workforce reduction, and accelerated depreciation of 76 machinery equipment with no future alternative use, due to discontinuation of operations in the West Coast and efforts to improve the cost structure of our Hog Production segment. (4) Includes an impairment of certain biogas assets recognized by our joint venture, Align, and costs incurred in connection with the closure of certain farms in Missouri that impacted assets owned by our joint venture, Monarch. (5) Consists of accruals for the antitrust price-fixing and antitrust wage-fixing litigation matters that are described in “Note 18: Regulation and Contingencies” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. (6) Represents the tax effects of the non-GAAP adjustments based on a statutory tax rate of 25.7%. EBITDA from Continuing Operations, Adjusted EBITDA from Continuing Operations and Adjusted EBITDA Margin from Continuing Operations The following table provides a reconciliation of net income from continuing operations to EBITDA from continuing operations and adjusted EBITDA from continuing operations. EBITDA from continuing operations, adjusted EBITDA from continuing operations and adjusted EBITDA margin from continuing operations are non-GAAP measures. We believe EBITDA from continuing operations is a useful measure to our stakeholders because it excludes the effects of financing and investing activities by eliminating interest and depreciation costs to provide a comparable year-over-year analysis. We believe adjusted EBITDA from continuing operations is a useful measure as it excludes the effect of discontinued operations, non-operating gains and losses, and other items that are unusual in nature, infrequent in occurrence or otherwise stem from strategic decisions to restructure our operations. We believe adjusted EBITDA margin from continuing operations is a useful measure as it evaluates overall operating performance, ability to pursue and service possible debt opportunities and possible future investment opportunities. We believe these non-GAAP measures provide a more comparable year-over-year analysis. Although these non-GAAP measures are frequently used by investors and securities analysts in their evaluations of companies, they have limitations as analytical tools. As such, EBITDA from continuing operations, adjusted EBITDA from continuing operations and adjusted EBITDA margin from continuing operations are not intended to be alternatives to net income from continuing operations or any other performance measures derived in accordance with GAAP and should not be used by investors or other users of our financial statements in isolation for formulating decisions as they exclude a number of important cash and non-cash charges. 77 Fiscal Year 2024 2023 Affected Income Statement Account (in millions, except percentages) Net income (loss) from continuing operations $ 798 $ (133) Interest expense, net 66 76 Income tax expense (benefit) 271 (41) Depreciation and amortization 339 427 EBITDA from continuing operations $ 1,474 $ 329 Employee Retention Tax Credits (86) — Cost of sales Employee Retention Tax Credits (1) — SG&A West Coast Exit and Hog Production Reform (38) — Operating gains West Coast Exit and Hog Production Reform (1) 29 110 Cost of sales West Coast Exit and Hog Production Reform — 49 (Income) loss from equity method investments Insurance recoveries (4) (5) Operating gains Incremental costs from destruction of property 4 3 Cost of sales Litigation charges — 208 SG&A Gain on sale of Vernon, California facility — (86) Operating gains Adjusted EBITDA from continuing operations $ 1,379 $ 610 Net income (loss) margin from continuing operations 5.6 % (0.9) % Adjusted EBITDA margin from continuing operations 9.7 % 4.2 % (1) Excludes accelerated depreciation and amortization charges of $2 million and $85 million for fiscal years 2024 and 2023, respectively, as such charges are included in the depreciation and amortization line in this table. Net Debt and Ratio of Net Debt to Adjusted EBITDA from Continuing Operations The following table provides a reconciliation of total debt and finance lease obligations to net debt, the ratio of total debt and finance lease obligations to net income from continuing operations, and the ratio of net debt to adjusted EBITDA from continuing operations. Net debt and the ratio of net debt to adjusted EBITDA from continuing operations are non-GAAP measures. We believe net debt is a useful measure as it helps to give investors a clear understanding of our financial position. Net debt is also used to calculate certain leverage ratios. We believe the ratio of net debt to adjusted EBITDA from continuing operations is a useful measure as it monitors the sustainability of our debt levels and our ability to take on additional debt against adjusted EBITDA from continuing operations, which is used as an operating performance measure. We believe these non-GAAP measures provide a more comparable year-over-year analysis. Although net debt and the ratio of net debt to adjusted EBITDA from continuing operations are frequently used by investors and securities analysts in their evaluations of companies, these non-GAAP measures have limitations as analytical tools. As such, net debt and the ratio of net debt to adjusted EBITDA from continuing operations are not intended to be alternatives to total debt and finance lease obligations and the ratio of total debt and finance lease obligations to net income from continuing operations or any other performance measures derived in accordance with GAAP and should not be used by investors or other users of our financial statements in isolation for formulating decisions as they exclude a number of important cash and non-cash charges. 78 Fiscal Year Ended December 29, 2024 December 31, 2023 (in millions, except ratios) Current portion of long-term debt and capital lease $ 3 $ 27 Long-term debt and finance lease obligations 1,999 2,006 Total debt and finance lease obligations 2,002 2,033 Cash and cash equivalents (943) (687) Net debt $ 1,059 $ 1,345 Net income (loss) from continuing operations $ 798 $ (133) Adjusted EBITDA from continuing operations $1,379 $610 Ratio of total debt and finance lease obligations to net income (loss) from continuing operations 2.5x (15.3x) Ratio of net debt to adjusted EBITDA from continuing operations 0.8x 2.2x Adjusted Operating Profit and Adjusted Operating Profit Margin The following table provides a reconciliation of operating profit to adjusted operating profit. Adjusted operating profit and adjusted operating profit margin are non-GAAP measures. We believe these non-GAAP measures are useful to investors because they provide a better understanding of underlying operating results and trends of established, ongoing operations of our segments, excluding the impact of items that are unusual in nature, infrequent in occurrence or otherwise stem from strategic decisions to restructure our operations. These non-GAAP measures are not intended to be alternatives to operating profit, operating profit margin or any other performance measures derived in accordance with GAAP and should not be used by investors or other users of our financial statements in isolation for formulating decisions as they exclude a number of important cash and non-cash charges. 79 Fiscal Year 2024 Packaged Meats Fresh Pork Hog Production Other (1) Corporate (2) Unallocated (3) Consolidated (in millions, except percentages) Operating profit (loss) $ 1,168 $ 266 $ (144) $ 35 $ (153) $ (55) $ 1,118 Employee retention tax credits (38) (41) (8) — — — (87) West Coast Exit and Hog Production Reform — — — — — (7) (7) Insurance recoveries — — — — — (4) (4) Incremental costs from destruction of property — — — — — 4 4 Adjusted operating profit (loss) $ 1,130 $ 225 $ (152) $ 35 $ (153) $ (61) $ 1,024 Operating profit (loss) margin 14.0 % 3.4 % (4.8) % 7.4 % NM NM 7.9 % Adjusted operating profit (loss) margin 13.6 % 2.9 % (5.0) % 7.4 % NM NM 7.2 % Fiscal Year 2023 Packaged Meats Fresh Pork Hog Production Other (1) Corporate (2) Unallocated (3) Consolidated (in millions, except percentages) Operating profit (loss) $ 1,066 $ 117 $ (756) $ (4) $ (107) $ (371) $ (56) Litigation charges — — — — — 208 208 West Coast Exit and Hog Production Reform — — — — — 195 195 Gain on sale of Vernon, California facility — — — — — (86) (86) Insurance recoveries — — — — — (5) (5) Incremental costs from destruction of property — — — — — 3 3 Adjusted operating profit (loss) $ 1,066 $ 117 $ (756) $ (4) $ (107) $ (56) $ 258 Operating profit (loss) margin 12.9 % 1.5 % (22.8) % (0.8) % NM NM (0.4) % Adjusted operating profit (loss) margin 12.9 % 1.5 % (22.8) % (0.8) % NM NM 1.8 % ________________ (1) Includes our Mexico and Bioscience operations. (2) Represents general corporate expenses for management and administration of the business. (3) Includes certain costs of sales, SG&A and operating gains that we do not allocate to our segments. Critical Accounting Estimates The preparation of consolidated financial statements requires us to make estimates and assumptions. These estimates and assumptions are based on our judgment, experience and our understanding of the current facts and circumstances. Actual results could differ from those estimates. Certain of our accounting estimates are considered critical as they are both important to the representation of our financial condition and results of operations and require significant or complex judgment on the part of management. The following is a summary of certain accounting policies and estimates that we consider to be critical. Our accounting policies are more fully discussed in “Note 1: Summary of Significant Accounting Policies” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. 80 Revenue Recognition Our revenue (sales) is primarily derived from contracts with customers for the purchase of our products. Revenue is recognized at a point in time when our performance obligation has been satisfied and control of the promised goods is transferred to the customer, which generally occurs upon shipment or delivery to a customer based on the terms of the sale. The primary performance obligation in our contracts with customers is to provide meat products. Shipping and handling activities are considered part of the fulfillment of our promise to provide meat products and not a separate performance obligation. Shipping and handling costs are reported as a component of cost of sales. Revenue is recorded at the amount of consideration we expect to receive in exchange for providing goods to customers. The transaction price may include estimates of variable consideration, including a variety of customer sales incentive programs, such as rebates, product returns and coupons redeemed by consumers. Our estimates of variable consideration are based on a number of factors including history with the respective customer, current performance and future projections. We sufficiently constrain estimates of variable consideration based on the likelihood and magnitude of a potential revenue reversal when the uncertainties associated with the variable consideration are subsequently resolved. We review and update estimates of variable consideration regularly. We have not experienced any material reversals of revenue recognized in the past three fiscal years resulting from overestimation of variable consideration nor do we expect there will be a material change in our estimates of variable consideration that would result in a material reversal of revenue recognized in the consolidated statements of income. The effect of any reversal of revenue would be recognized in the period in which an adjustment to our estimate is identified. Contingent Liabilities We are subject to lawsuits, investigations and other claims related to the operation of our farms and facilities, labor, livestock procurement, securities, the environment, our products, taxes and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of loss. A determination of the amount of accruals and disclosures required, if any, are made after considerable analysis of each individual issue or claim. We accrue for contingent liabilities, including future defense costs, when an assessment of the risk of loss is probable and can be reasonably estimated. We disclose contingent liabilities when the risk of loss is reasonably possible or probable. Our contingent liabilities contain uncertainties because the eventual outcome will result from future events. Our determination of accruals requires estimates and judgments related to the possible outcomes, differing interpretations of the law, assessments of the amounts of potential damages, settlements or defense costs, and the effectiveness of strategies or other factors beyond our control. The consolidated financial statements reflect accruals for estimated contingent losses associated with various claims. These matters will not affect our profits or losses in future periods unless our accruals prove to be insufficient or excessive. However, legal expenses incurred in our defense of legal matters and any payments made to plaintiffs through unfavorable verdicts or otherwise will negatively impact our cash flows and our liquidity position. If actual results are not consistent with the estimates or assumptions used to develop our accruals for contingent losses, we may be exposed to gains or losses that could have a material effect on our future results of operations and cash flows. Impairment of Goodwill and Indefinite-Lived Intangible Assets Goodwill and non-amortizable intangible assets are tested for impairment annually in the fourth quarter, or sooner if impairment indicators arise. In the evaluation of goodwill for impairment, we may perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If it is not, no further analysis is required. If it is, a quantitative goodwill impairment test is performed to measure the amount of goodwill impairment loss to be recognized for that reporting unit, if any. 81 To identify if an impairment exists, we compare the fair value of a reporting unit with its carrying amount, including goodwill. The fair value of a reporting unit is estimated by applying valuation multiples of earnings and/or estimating future discounted cash flows. If the fair value of a reporting unit exceeds its carrying amount, goodwill is not impaired. However, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. For our other non-amortizable intangible assets, if the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The selection of earnings multiples 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 cash flow analysis requires us to make various judgmental assumptions about sales, operating margins, growth rates and discount rates. When estimating future discounted cash flows, we consider the assumptions that hypothetical marketplace participants would use in estimating future cash flows. In addition, where applicable, an appropriate discount rate is used, based on an industry-wide average cost of capital or location-specific economic factors. We consider all these factors to be level 3 inputs, as defined in “Note 16: Fair Value Measurements” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. The fair values of our trademarks have been estimated using a royalty rate method. Assumptions about royalty rates are based on the rates at which similar brands and trademarks are licensed in the marketplace. Our impairment analysis contains uncertainties due to uncontrollable events that could positively or negatively impact the anticipated future economic and operating conditions. As of December 29, 2024, we had $1,613 million of goodwill and $1,216 million of non-amortizable trademarks. Our goodwill is included in the following reporting units: • Packaged Meats: $1,503 million; • Mexico: $69 million; • Fresh Pork: $34 million; • Hog Production:$4 million; and • Bioscience: $4 million. We have not recognized an impairment of goodwill or other intangible assets in the past three fiscal years. A hypothetical 10% decrease in the estimated fair value of any of our reporting units would not result in an impairment. A hypothetical 10% decrease in the estimated fair value of our intangible assets also would not result in an impairment. Income Taxes We estimate total income tax expense based on statutory tax rates and tax planning opportunities available to us in various jurisdictions in which we earn income. Federal income taxes include an estimate for taxes on earnings of foreign subsidiaries expected to be remitted to the U.S. and be taxable, but not for earnings considered indefinitely invested in the foreign subsidiary. We account for the global intangible low-taxed income inclusion from foreign subsidiaries in the period in which it is incurred. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. 82 We record liabilities for uncertain tax positions based on our analysis of whether, and the extent to which, additional taxes will be due. We record these liabilities using a two-step process in which (1) we evaluate whether we believe it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the tax authority. The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items. Changes in current tax laws and rates could affect recorded tax assets and liabilities in the future. In addition, changes in projected future earnings could affect the recorded valuation allowances in the future. Our analysis of uncertain tax positions requires considerable judgment about the likelihood and amount of benefit that would be sustained upon examination by tax authorities. Due to the complexity and inherent uncertainties surrounding income tax positions, the ultimate resolution may result in a payment that is materially different from the current estimate of the tax liabilities. To the extent we prevail in matters for which liabilities have been established, 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 unfavorable tax settlement would require use of cash and result in an increase in our effective tax rate in the period of resolution. A favorable tax settlement would be recognized as a reduction in our effective tax rate in the period of resolution. Over the past three fiscal years, we have recognized $76 million of income tax expense in years subsequent to the initial recognition and measurement of an uncertain tax position and we paid $17 million to tax authorities in fiscal year 2024 upon the ultimate resolution of uncertain tax positions taken in prior years. See “Note 13: Income Taxes” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. Pension Accounting We historically provided the majority of our U.S. employees with pension benefits. In the second quarter of 2021, we amended our qualified pension plans to freeze the benefit accrual for all non-union participants as of June 30, 2021. We recognize the funded status of our pension plans in our consolidated balance sheets and recognize, as a component of other comprehensive income (loss), the gains or losses and prior service costs or credits that arise during the period but are not recognized in net periodic benefit cost. We use an independent third-party actuary to assist in the determination of our pension obligation and related costs. The measurement of our pension obligations and related costs is dependent on the use of assumptions and estimates. These assumptions include discount rates, expected returns on plan assets, salary growth rates and mortality rates. Changes in assumptions and future investment returns could potentially have a material impact on our expenses and related funding requirements. The following weighted average assumptions were used to determine our benefit obligation and net benefit cost for fiscal year 2024 : • 5.57% – Discount rate to determine net benefit cost; • 5.78% – Discount rate to determine pension benefit obligation; and • 7.05% – Expected return on plan assets. If actual results are not consistent with our estimates or assumptions, we may be exposed to gains or losses that could be material. The effects of actual results differing from these assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods. 83 An additional 0.50% decrease in the discount rate used to measure our projected benefit obligation would have further reduced the funded status by $103 million as of December 29, 2024, and would have resulted in an additional $3 million in net pension cost in fiscal year 2024. A 0.50% decrease in expected return on plan assets would have resulted in an additional $7 million in net pension cost in fiscal year 2024. In addition to higher net pension cost, a significant decrease in the funded status of our pension plans caused by either a devaluation of plan assets or a decline in the discount rate would result in higher pension funding requirements. See “Note 14: Pension and Other Retirement Plans” to the consolidated financial statements included in Part II, Item 8 of this Annual Report for further information about our accounting for pension and retirement plans. Derivative Accounting We are exposed to market risks primarily from changes in commodity prices. To mitigate these risks, we utilize derivative instruments to hedge our exposure to changing prices. Our objective is to reduce the volatility of earnings and cash flows associated with fluctuations in commodity prices. We record all derivatives as either assets or liabilities at fair value on the balance sheet, with the exception of contracts that qualify for the normal purchase and normal sale scope exception, which are expected to result in physical delivery. Accounting for changes in the fair value of a derivative depends on whether it qualifies and has been designated as part of a hedging relationship. For derivatives that qualify and have been designated as hedging instruments for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the “hedge accounting” method). For derivatives that do not qualify or are not designated as hedging instruments for accounting purposes, changes in fair value are recorded in current period earnings (commonly referred to as the “mark-to-market” method). We apply hedge accounting when the change in the market value of derivative contracts has historically been, and is expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. If it is determined that the derivative instruments are no longer effective at offsetting changes in the price of the hedged items, then the mark-to-market method must be applied to account for the derivative instruments prospectively, which could increase volatility in our results of operations. We recognized $(25) million, $18 million and $(10) million in gains (losses) on derivatives accounted for under the mark-to-market method in fiscal years 2024, 2023 and 2022, respectively. For additional information on derivatives, refer to “Note 1: Summary of Significant Accounting Policies” and “Note 8: Derivative Financial Instruments” to the consolidated financial statements included in Part II, Item 8 of this Annual Report, which includes detailed discussions of our accounting for and use of derivative instruments. Recently Issued Accounting Pronouncements For a description of recently issued accounting pronouncements, refer to “Note 1: Summary of Significant Accounting Policies” to the consolidated financial statements included in Part II, Item 8 of this Annual Report. 84