UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to_________________
Commission File Number 0-3400
TYSON FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0225165
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2210 West Oaklawn Drive, Springdale, Arkansas 72762-6999
(Address of principal executive offices and zip code)
(501) 290-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding July 29, 2000
- ------------------------------------ -------------------------
Class A Common Stock, $.10 Par Value 122,476,177 Shares
Class B Common Stock, $.10 Par Value 102,645,273 Shares
Page 1
TYSON FOODS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
July 1, 2000 and October 2, 1999 3
Consolidated Condensed Statements of Income
for the Three Months and Nine Months Ended
July 1, 2000 and July 3, 1999 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended
July 1, 2000 and July 3, 1999 5
Notes to Consolidated Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosure About
Market Risks 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15-16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
EXHIBIT INDEX 17
SIGNATURES 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions except per share amounts)
(Unaudited)
July 1, October 2,
2000 1999
ASSETS ________ _________
Current Assets:
Cash and cash equivalents $ 22.9 $ 30.3
Accounts receivable, net of allowance
for doubtful accounts 543.0 602.5
Inventories 1,014.4 989.4
Assets held for sale 1.9 74.5
Other current assets 14.2 30.2
_______ _______
Total Current Assets 1,596.4 1,726.9
Net Property, Plant, and Equipment 2,150.4 2,184.5
Excess of Investments over Net Assets Acquired 944.4 962.5
Investments and Other Assets 206.6 208.8
________ ________
Total Assets $4,897.8 $5,082.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 26.4 $ 65.9
Current portion of long-term debt 122.7 222.7
Trade accounts payable 320.1 351.9
Other accrued liabilities 319.1 346.5
_______ _______
Total Current Liabilities 788.3 987.0
Long-Term Debt 1,459.3 1,515.2
Deferred Income Taxes 430.6 398.0
Other Liabilities 50.2 54.5
Shareholders' Equity:
Common stock ($.10 par value):
Class A-Authorized 900 million shares;
issued 137.9 million shares at
7-1-00 and 10-2-99 13.8 13.8
Class B-Authorized 900 million shares;
issued 102.7 million shares at
7-1-00 and 10-2-99 10.3 10.3
Capital in excess of par value 734.7 740.0
Retained earnings 1,706.2 1,599.0
Other accumulated comprehensive income(loss) (6.4) (1.5)
_______ _______
2,458.6 2,361.6
Less treasury stock, at cost-
15.2 million shares at 7-1-00 and
12.0 million shares at 10-2-99 276.9 232.0
Less unamortized deferred compensation 12.3 1.6
________ ________
Total Shareholders' Equity 2,169.4 2,128.0
________ ________
Total Liabilities and Shareholders' Equity $4,897.8 $5,082.7
======== ========
The accompanying notes are an integral part of these financial statements.
3
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
__________________ _________________
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
_______ _______ _______ _______
Sales $1,807.1 $1,881.3 $5,376.6 $5,547.3
Cost of Sales 1,538.3 1,531.1 4,497.4 4,569.6
------- ------- ------- -------
Gross Profit 268.8 350.2 879.2 977.7
Expenses:
Selling 138.9 150.2 425.8 441.9
General and administrative 33.7 34.2 125.9 99.9
Loss on sale of seafood assets - 16.6 - 16.6
Amortization 8.4 9.2 25.5 26.7
------- ------- ------- -------
Operating Income 87.8 140.0 302.0 392.6
Other Expense (Income):
Interest 28.8 30.5 87.3 93.7
Foreign currency exchange 1.8 (0.5) 1.6 (4.5)
Other 2.8 (2.2) 5.5 (4.9)
------- ------- ------- -------
Income Before Taxes and
Minority Interest 54.4 112.2 207.6 308.3
Provision for Income Taxes 19.6 40.7 74.2 110.5
Minority Interest (5.7) 3.1 0.2 9.0
------- ------- ------- -------
Net Income $ 40.5 $ 68.4 $ 133.2 $ 188.8
======= ======= ======= =======
Basic Average Shares Outstanding 224.6 229.5 226.1 230.3
===== ===== ===== =====
Basic Earnings Per Share $0.18 $0.30 $0.59 $0.82
===== ===== ===== =====
Diluted Average Shares Outstanding 225.0 230.7 226.4 231.5
===== ===== ===== =====
Diluted Earnings Per Share $0.18 $0.30 $0.59 $0.82
===== ===== ===== =====
Cash Dividends Per Share:
Class A $0.0400 $0.0250 $0.1200 $0.0750
Class B $0.0360 $0.0225 $0.1080 $0.0675
The accompanying notes are an integral part of these financial statements.
4
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
_________________
July 1, July 3,
2000 1999
_______ _______
Cash Flows from Operating Activities:
Net income $ 133.2 $ 188.8
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 192.1 191.7
Amortization 25.5 26.7
Loss on sale of seafood assets 16.6
Foreign currency exchange 1.6 (4.5)
Minority interest 0.2 9.0
Deferred income taxes 32.6 (76.2)
Loss(Gain) on dispositions of assets 3.4 (0.3)
Decrease(increase) in accounts receivable, net 59.5 (1.8)
Decrease(Increase) in inventories 34.7 (74.4)
(Decrease)Increase in trade accounts payable (33.7) 43.2
Net change in other current assets
and liabilities (10.9) 160.0
_____ ______
Cash Provided by Operating Activities 438.2 478.8
Cash Flows from Investing Activities:
Additions to property, plant and equipment (141.3) (279.8)
Proceeds from sale of property, plant and equipment 3.0 60.0
Net change in other assets and liabilities (21.2) (25.8)
_____ ______
Cash Used for Investing Activities (159.5) (245.6)
Cash Flows from Financing Activities:
Net change in notes payable (39.5) (2.4)
Additions to long-term debt 20.3 73.5
Repayments of long-term debt (177.8) (250.9)
Purchases of treasury shares (62.4) (34.8)
Other (24.9) (11.6)
_____ ______
Cash Used for Financing Activities (284.3) (266.2)
Effect of Exchange Rate Change on Cash (1.8) 1.5
_____ ______
(Decrease)Increase in Cash and Cash Equivalents (7.4) 8.5
Cash and Cash Equivalents at Beginning of Period 30.3 46.5
______ ______
Cash and Cash Equivalents at End of Period $ 22.9 $ 55.0
====== ======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $55.1 $94.0
Income taxes $47.0 $67.1
The accompanying notes are an integral part of these financial statements.
5
TYSON FOODS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Accounting Policies
The consolidated condensed financial statements have been prepared by Tyson
Foods, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading,
these consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report for the fiscal year ended
October 2, 1999. The preparation of consolidated condensed financial
statements requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. In the opinion of the management of the
Company, the accompanying consolidated condensed financial statements
contain all adjustments, consisting of normal recurring accruals necessary
to present fairly the financial position as of July 1, 2000 and
October 2, 1999 and the results of operations for the three months and nine
months ended July 1, 2000 and July 3, 1999 and cash flows for the nine
months ended July 1, 2000 and July 3, 1999. The results of operations for
the three months and nine months ended and cash flows for the nine months
ended July 1, 2000 and July 3, 1999 are not necessarily indicative of the
results to be expected for the full year.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("FAS No. 133"), Accounting for Derivative Instruments
and Hedging Activities, as amended by FAS No. 138 in June 2000. In May
1999, the FASB voted to delay the effective date of FAS No. 133 by one
year. The Company will be required to adopt FAS No. 133 in the first
quarter of fiscal year 2001. This statement establishes accounting and
reporting standards, which requires that all derivative instruments be
recorded on the balance sheet at fair value. This statement also
establishes "special accounting" for fair value hedges, cash flow hedges,
and hedges of foreign currency exposures of net investments in foreign
operations. The Company has determined the business processes related to
hedging activities mainly consist of grain procurement and certain
financing activities. Management has not completed its determination of
the impact of the adoption of this new accounting standard on its financial
position and results of operations.
The Notes to Consolidated Financial Statements for the fiscal year
ended October 2, 1999, reflect the significant accounting policies, debt
provisions, borrowing arrangements, dividend restrictions, contingencies
and commitments of the Company. There were no material changes in such
items during the nine months ended July 1, 2000, except as disclosed in
these notes.
6
Note 2: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three and nine months ended:
(In millions except per share amounts)
Three Months Ended Nine Months Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
------- ------- ------ -------
Numerator: Net Income $40.5 $68.4 $133.2 $188.8
===== ===== ===== ======
Denominator:
Denominator for basic
earnings per share-
weighted average shares 224.6 229.5 226.1 230.3
Effect of dilutive securities:
Employee stock options - 1.2 - 1.2
Restricted stock 0.4 - 0.3 -
----- ----- ----- -----
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 225.0 230.7 226.4 231.5
===== ===== ===== =====
Basic earnings per share $0.18 $0.30 $0.59 $0.82
===== ===== ===== =====
Diluted earnings per share $0.18 $0.30 $0.59 $0.82
===== ===== ===== =====
The Company had approximately 7 million option shares outstanding at July
1, 2000, that were not included in the dilutive earnings per share
calculation because they would have been antidilutive.
On May 4, 2000 approximately 4.3 million stock option shares were cancelled
and exchanged for approximately 1 million restricted shares of Class A
common stock. The restriction expires over periods through December 1,
2003. The unamortized portion of the restricted stock is classified on the
Consolidated Balance Sheets as unamortized deferred compensation in
shareholders' equity and charged to operations over the vesting period.
Note 3: Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of the following:
(In millions)
July 1, October 2,
2000 1999
------- ----------
Finished and work-in-process $ 517.8 $549.2
Live poultry and hogs 354.7 290.8
Hatchery eggs and feed 65.2 67.4
Supplies 76.7 82.0
________ ______
Total $1,014.4 $989.4
======== ======
7
Note 4: Assets held for sale
On September 28, 1999, the Company signed a letter of intent to sell its
wholly-owned subsidiary, The Pork Group, Inc. ("Pork Group") to Smithfield
Foods, Inc. ("Smithfield"). As a result, the Pork Group's swine assets
valued at approximately $70 million were included in assets held for sale
at October 2, 1999. On December 6, 1999, the Company and Smithfield ceased
negotiations for the sale of the Pork Group. Therefore, in the first
quarter of fiscal 2000, the swine assets were reclassified to inventory and
net property, plant and equipment. The Company has no plan to actively
market the Pork Group and/or its assets at this time. The balance of assets
held for sale at July 1, 2000, relates to facilities identified for closing
under the Company's restructuring program which are expected to be disposed
of within the next twelve months.
Note 5: Segments
The Company is a fully integrated producer, processor and marketer of a
variety of food products. The Company identifies segments based on the
products offered and the nature of customers which results in four reported
business segments: Food Service, Consumer Products, International and
Swine. Food Service includes fresh, frozen and value-enhanced poultry
products sold through foodservice and specialty distributors who deliver to
restaurants, schools and other accounts. Consumer Products include fresh,
frozen and value-enhanced poultry products sold through retail markets for
at-home consumption and through wholesale club markets targeted to small
foodservice operators, individuals and small businesses. International
markets and sells the full line of Tyson chicken products throughout the
world. Swine includes feeder pig finishing and marketing of swine to
regional and national packers. The Company's seafood business, which was
sold on July 17, 1999, is also listed as a business segment for fiscal
1999. The majority of revenue included in the Other category is derived
from the Company's Specialty Products and Prepared Foods groups, the
Company's wholly-owned subsidiaries involved in supplying poultry breeding
stock and trading agricultural goods worldwide, as well as the Company's
turkey and egg products facilities which were sold on December 31, 1998.
Sales between reportable segments are recorded at cost. Total assets for
each segment at July 1, 2000 approximate those at October 2, 1999.
Net Sales by operating segment were as follows: (in millions)
Three Months Ended Nine Months Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
_______ _______ _______ _______
Food Service $ 836.8 $ 872.4 $2,474.7 $2,510.4
Consumer Products 580.0 583.6 1,680.4 1,682.1
International 141.9 157.3 500.6 475.4
Swine 47.9 33.0 118.3 79.3
Seafood - 45.3 - 183.4
Other 200.5 189.7 602.6 616.7
________ ________ _______ _______
Total Net Sales $1,807.1 $1,881.3 $5,376.6 $5,547.3
======== ======== ======== ========
8
The Company measures segment profit as gross profit less selling expenses.
Segment profit and a reconciliation to income before taxes and minority
interest are as follows: (in millions)
Three Months Ended Nine Months Ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
_______ _______ _______ _______
Food Service $ 48.9 $ 80.2 $168.4 $244.4
Consumer Products 31.7 63.7 124.1 188.8
International (1.0) 24.1 43.1 42.4
Swine 9.6 (16.7) 15.1 (51.5)
Seafood - 3.2 - 21.9
Other 40.7 45.5 102.7 89.8
_____ _____ _____ _____
Total Gross Profit
less Selling Expense $129.9 $200.0 $453.4 $535.8
Other Operating Expenses 42.1 60.0 151.4 143.2
Other Expense 33.4 27.8 94.4 84.3
_____ _____ _____ _____
Income Before Taxes
and Minority Interest $ 54.4 $112.2 $207.6 $308.3
====== ====== ====== ======
Note 6: Comprehensive Income
The only difference between total comprehensive income and net income
reported on the Consolidated Condensed Statements of Income arises from
foreign currency translation adjustment. The Company's total comprehensive
income for the three months ended July 1, 2000 and July 3, 1999 was $37.3
million and $66.1 million, respectively. The Company's total comprehensive
income for the nine months ended July 1, 2000 and July 3, 1999 was $128.3
million and $185.7 million, respectively.
Note 7: Bad Debt Reserve
On January 31, 2000, AmeriServe Food Distribution, Inc. ("AmeriServe"), a
significant distributor of products to fast food and casual dining
restaurant chains, filed for reorganization in Delaware under Chapter 11 of
the federal Bankruptcy Code. Tyson is a major supplier to several
AmeriServe customers. All current sales to these customers are either
direct billed or made through another distributor. The Company recorded a
$24.2 million bad debt reserve in the second quarter of fiscal 2000, to
fully reserve the AmeriServe receivable. At July 1, 2000 and October 2,
1999, allowance for doubtful accounts was $46.1 million and $21.8 million,
respectively.
9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
For the nine months ended July 1, 2000 net cash totaling $438.2 million was
provided by operating activities. Operations provided $388.6 million in
cash and $49.6 million was provided by net changes in receivables,
inventories, payables and other items. The Company used cash from
operations to fund $141.3 million of property, plant and equipment
additions, to pay down debt by $197 million and to repurchase $62.4 million
of the Company's Class A common stock in the open market. The expenditures
for property, plant and equipment were related to acquiring new equipment
and upgrading facilities in order to maintain competitive standing and
position the Company for future opportunities.
At July 1, 2000, working capital was $808.1 million compared to $739.9
million at 1999 fiscal year-end, an increase of $68.2 million. The current
ratio at July 1, 2000 was 2 to 1 compared to 1.7 to 1 at October 2, 1999.
Working capital has increased since year-end primarily due to an increase
in inventories and decreases in notes payable, current portion of long-term
debt, trade payables and other accrued liabilities. Net accounts receivable
has decreased since year-end mainly due to the AmeriServe Food
Distribution, Inc. ("AmeriServe") reserve and improved collections. Total
debt, including current portion of long-term debt, has decreased 10.8%
since year-end. At July 1, 2000, total debt was 42.6% of total
capitalization compared to 45.9% at October 2, 1999. The Company's
foreseeable cash needs for operations and capital expenditures will
continue to be met through cash flows from operations and borrowings
supported by existing credit facilities as well as additional credit
facilities which the Company believes are available.
The Company has an unsecured revolving credit agreement totaling $1 billion
which supports the Company's commercial paper program. This $1 billion
facility expires in May 2002. At July 1, 2000, $303.5 million in commercial
paper was outstanding under this $1 billion facility. Additional
outstanding long-term debt at July 1, 2000 consisted of $830.9 million of
public debt, $107.3 million of institutional notes, $141.8 million in
leveraged equipment loans and $75.8 million of other indebtedness. The
Company may use funds borrowed under its revolving credit facilities,
commercial paper program or through the issuance of additional debt
securities from time to time in the future to finance acquisitions as
opportunities may arise, to refinance other indebtedness or capital leases
of the Company and for other general corporate purposes.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 2000 decreased 3.9% from the same
period of fiscal 1999. This decrease is mainly due to the sale of the
seafood group on July 17, 1999. Comparable sales, which exclude the
Company's seafood business sold in the fourth quarter of last year,
decreased 1.6% on a volume decrease of 2.3%. Third quarter sales were
negatively impacted by a weak domestic market for poultry and reduced
volume by the Company's Mexican subsidiary. In response to the oversupply
of chicken, the Company has continued its 3% cut in the number of chickens
produced.
10
Food Service third quarter sales decreased 4.1% compared to the same period
last year, with a 2.4% decrease in volume and a 1.7% decrease in average
sales prices. Segment profit, defined as gross profit less selling
expenses, for Food Service decreased $31.3 million from the same period
last year due primarily to low market prices which more than offset an
improved product mix, and higher grain costs.
Consumer Products third quarter sales decreased 0.6% over the same period
last year, with a 0.5% decrease in volume and a 0.2% decrease in average
sales prices. Segment profit for Consumer Products decreased $32 million
from the same period last year due primarily to low market prices which
more than offset an improved product mix, and higher grain costs.
International third quarter sales decreased 9.8% over the same period last
year, with an 11.1% decrease in volume offset slightly by a 1.5% increase
in average sales prices. International segment profit decreased $25.1
million over the same period last year mostly due to losses incurred by the
Company's Mexican subsidiary resulting from the outbreak of Exotic
Newcastle disease and substantial decreases in production during the
quarter.
Swine third quarter sales increased 45.2% over the same period last year,
with a 54.5% increase in average sales prices offset slightly by a 6%
decrease in volume. Swine segment profit improved $26.3 million over the
same period last year due to the increase in average sales prices.
Other third quarter sales increased 5.7% from the same period last year
mostly due to the Company's poultry breeding stock subsidiary. Other
segment profit decreased $4.8 million over the same period last year.
Cost of goods sold increased 0.5% for the third quarter of fiscal 2000 as
compared to the same period last year. As a percent of sales, cost of
sales was 85.1% for the third quarter of fiscal 2000 compared to 81.4% for
the same period last year. The increase in cost of goods sold as a percent
of sales was impacted by the weak domestic market and the reduction in
volume associated with the Company's ongoing production cut.
Operating expenses decreased 13.9% for the third quarter of fiscal 2000
over the same period last year. Selling expense, as a percent of sales, was
7.7% for the third quarter of fiscal 2000 and 8% for the third quarter of
fiscal 1999. General and administrative expense, as a percent of sales, was
1.9% for the third quarter of fiscal 2000 and 1.8% in the third quarter of
fiscal 1999. Amortization expense, as a percent of sales, was 0.5% for the
third quarter of fiscal 2000 and fiscal 1999.
Interest expense decreased 5.6% for the third quarter of fiscal 2000
compared to the same period last year primarily as a result of a 17.2%
decrease in the Company's average indebtedness over the same period last
year. Although the overall weighted average borrowing rate increased
slightly to 7.1% compared to 6.6%, interest expense decreased primarily as
a result of paying off more expensive long-term debt with strong positive
cash flows.
11
The effective income tax rate for the third quarter of fiscal 2000 was 36%
compared to 36.3% for the same period last year.
Sales for the nine months of fiscal 2000 decreased 3.1% from the same
period of fiscal 1999. This decrease is mainly due to the sale of the
seafood group on July 17, 1999 and other divested non-core businesses.
Comparable sales for the nine months increased 1.3% on a volume increase of
0.6% compared to the same period last year.
Food Service nine months sales decreased 1.4% compared to the same period
last year, with a 1% increase in volume which was more than offset by a
2.4% decrease in average sales prices. Segment profit for Food Service
decreased $76 million from the same period last year due primarily to low
market prices which more than offset an improved product mix, and higher
grain costs.
Consumer Products nine months sales were comparable to the same period last
year, with a 0.9% decrease in volume mostly offset by a 0.8% increase in
average sales prices. Segment profit for Consumer Products decreased $64.7
million from the same period last year due primarily to low market prices
which more than offset an improved product mix, and higher grain costs.
International nine months sales increased 5.3% over the same period last
year, with a 6.6% increase in average sales prices offset by a 1.2%
decrease in volume. International segment profit increased $0.7 million
over the same period last year.
Swine nine months sales increased 49.1% over the same period last year,
with a 62.4% increase in average sales prices offset somewhat by an 8.2%
decrease in volume. Swine segment profit improved $66.6 million over the
same period last year due to the increase in average sales prices.
Other nine months sales decreased 2.3% from the same period last year
mostly due to non-core businesses sold during fiscal 1999. Other segment
profit increased $12.9 million over the same period last year mostly due to
the prepared foods group and the Company's poultry breeding stock
subsidiary.
Cost of goods sold decreased 1.6% for the nine months of fiscal 2000 as
compared to the same period last year. This decrease is mainly the result
of the decrease in sales. As a percent of sales, cost of sales was 83.6%
for the nine months of fiscal 2000 and 82.4% for the nine months of fiscal
1999. The increase in cost of goods sold as a percent of sales was impacted
by the weak domestic market and the reduction in volume associated with the
Company's ongoing production cut.
Operating expenses decreased 1.4% for the nine months of fiscal 2000 over
the same period last year. Selling expense, as a percent of sales, was 7.9%
for the nine months of fiscal 2000 and 8% for the nine months of fiscal
1999. General and administrative expense, as a percent of sales, was 2.3%
for the nine months of fiscal 2000 and 1.8% for the nine months of fiscal
1999. The increase in general and administrative expenses is primarily due
to $24.2 million ($0.07 per share) in bad debt reserve recorded in the
second quarter of fiscal 2000 resulting from the bankruptcy filing by
AmeriServe. Amortization expense, as a percent of sales, was 0.5% for the
nine months of fiscal 2000 and fiscal 1999.
12
Interest expense decreased 6.8% for the nine months of fiscal 2000 compared
to the same period last year primarily as a result of a 15.5% decrease in
the Company's average indebtedness over the same period last year.
Although the overall weighted average borrowing rate increased slightly to
6.9% compared to 6.7%, interest expense decreased primarily as a result of
paying off more expensive long-term debt with strong positive cash flows.
The effective income tax rate for the nine months of fiscal 2000 and fiscal
1999 was 35.7% and 35.8%, respectively.
IMPACT OF YEAR 2000
The Company has completed its Year 2000 Project as scheduled. As of
August 11, 2000, the Company's products, computing, and communications
infrastructure systems have operated without Year 2000 related problems and
appear to be Year 2000 ready. The Company is not aware that any of its
major customers or third-party suppliers have experienced significant Year
2000 related problems.
The Company believes all its critical systems are Year 2000 ready. However,
there is no guarantee that the Company has discovered all possible failure
points including all systems, non-ready third parties whose systems and
operations impact the Company, and other uncertainties.
Because many of the systems were already compliant, did not require
significant modifications to make them compliant, or were replaced for
other business reasons, the costs incurred specifically to address Year
2000 readiness are not material to the Company. Since 1996, the expenses
that resulted from Year 2000 readiness activities have been absorbed
through the annual Management Information Systems operational budget and
funded from internally generated funds. These costs can be primarily
described as personnel costs and have increased each year since 1996
because of increased activity from testing. The costs incurred since 1996
are approximately $1.5 million. No projects under consideration by the
Company have been deferred because of Year 2000 efforts. In certain
instances, software was purchased to provide new functionality for the
Company, replacing software that was not compliant. An example of this is
the implementation of new accounting software from SAP that the Company
installed at the beginning of fiscal year 1999. These purchases were not
predicated by the Year 2000 issue; however, the result is that the new
systems are compliant and non-compliant systems were ultimately retired.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("FAS No. 133"), Accounting for Derivative Instruments
and Hedging Activities, as amended by FAS No. 138 in June 2000. In May
1999, the FASB voted to delay the effective date of FAS No. 133 by one
year. The Company will be required to adopt FAS No. 133 in the first
quarter of fiscal year 2001. This statement establishes accounting and
reporting standards which requires that all derivative instruments be
recorded on the balance sheet at fair value. This statement also
establishes "special accounting" for fair value hedges, cash flow hedges,
and hedges of foreign currency exposures of net investments in foreign
operations. The Company has determined the business processes related to
hedging activities mainly consist of grain procurement and certain
financing activities. Management has not completed its determination of
13
the impact of the adoption of this new accounting standard on its financial
position and results of operations.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company and its representatives may from time to time make written or
oral forward-looking statements, including forward-looking statements made
in this report, with respect to their current views and estimates of
future economic circumstances, industry conditions, company performance and
financial results. These forward-looking statements are subject to a number
of factors and uncertainties which could cause the Company's actual results
and experiences to differ materially from the anticipated results and
expectations, expressed in such forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any forward-
looking statements, which speak only as of the date made. Among the factors
that may affect the operating results of the Company are the following:
(i) fluctuations in the cost and availability of raw materials, such as
feed grain costs in relation to historical levels; (ii) changes in the
availability and relative costs of labor and contract growers; (iii)
market conditions for finished products, including the supply and pricing
of alternative proteins, all of which may impact the Company's pricing
power; (iv) effectiveness of advertising and marketing programs; (v) the
ability of the Company to make effective acquisitions and successfully
integrate newly acquired businesses into existing operations; (vi) risks
associated with leverage, including cost increases due to rising
interest rates; (vii) changes in regulations and laws, including changes
in accounting standards, environmental laws, occupational, health and
safety laws; (viii) issues related to food safety, including costs
resulting from product recalls, regulatory compliance and any related
claims or litigation; (ix) access to foreign markets together with foreign
economic conditions, including currency fluctuations; and (x) the effect
of, or changes in, general economic conditions.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
There have been no significant changes in market risk or market risk
factors since the 1999 annual report to shareholders.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 22, 1999, eleven current and/or former employees of the
Company filed the case of M.H. Fox, et al. v. Tyson Foods, Inc. in the
United States District Court for the Northern District of Alabama (Fox v.
Tyson) claiming the Company violated requirements of the Fair Labor
Standards Act. The suit alleges the Company failed to pay employees for all
hours worked and/or improperly paid them for overtime hours. The suit
generally alleges that (i) employees should be paid for time taken to put
on and take off certain working supplies at the beginning and end of their
shifts and breaks and (ii) the use of "mastercard" or "line" time fails to
pay employees for all time actually worked. Plaintiffs seek to represent
themselves and all similarly situated current and former employees of the
Company. At filing 159 current and/or former employees consented to join
the lawsuit and, to date, approximately 4,900 consents have been filed with
the court. Discovery in this case is on-going. A hearing was held on March
6, 2000 to consider the plaintiff's request for collective action
certification and court-supervised notice. No decision has been rendered.
The Company believes it has substantial defenses to the claims made and
intends to vigorously defend the case. However, neither the likelihood of
unfavorable outcome nor the amount of ultimate liability, if any, with
respect to this case can be determined at this time.
Substantially similar suits have been filed against other integrated
poultry companies. In addition, organizing activity conducted by
representatives or affiliates of the United Food and Commercial Workers
Union against the poultry industry has encouraged worker participation in
Fox v. Tyson and the other lawsuits.
On or about July 23, 1998, the Maryland Department of the Environment
(MDE) filed a Complaint for Injunctive Relief and Civil Penalty (the
Complaint) against the Company in the Circuit Court of Worcester County,
Maryland. for the alleged violation of certain Maryland water pollution
control laws with respect to the Company's land application of sludge to
Company owned agricultural land near Berlin, Maryland. The MDE sought, in
addition to injunctive and equitable relief, civil penalties of up to
$10,000 per day for each day the Company had allegedly operated in
violation of the Maryland water pollution control laws. On July 7, 2000, a
consent decree was entered in which the Company agreed, in settlement of
all claims by the MDE, to (i) make certain improvements to its Berlin
wastewater treatment facility, (ii) deed approximately 100 acres and pay
$20,000 to The Nature Conservancy, and (iii) pay $80,000 in penalties to
the MDE. Furthermore, the consent decree stipulated a time frame for
operational compliance by the wastewater treatment facility upon completion
of the aforementioned improvements.
On January 20, 2000, McCarty Farms, Inc. (McCarty), a former
subsidiary of the Company which has been merged into the Company, was
indicted in the United States District Court for the Southern District of
Mississippi, Jackson Division, for conspiracy to violate the federal Clean
Water Act. The alleged conspiracy arises out of McCarty's partial
ownership of Central Industries, Inc. (Central), which operates a
rendering plant in Forest, Mississippi. Also indicted were Central, the
other shareholders of Central and a former chairman of Central. In
15
addition to the conspiracy count, the indictment alleges (although not with
respect to McCarty) (i) knowing violations of Central's wastewater
discharge permit, (ii) negligent discharge of pollutants and (iii) knowing
violations of Central's permitted wastewater volumes. All allegations
arose from the operation of Central's rendering plant during the summer of
1995, prior to the Company's purchase of McCarty in September of 1995. The
trial of the alleged violations is scheduled to begin on October 31, 2000
in Jackson, Mississippi. Neither the likelihood of unfavorable outcome nor
the amount of ultimate liability if any, with respect to this case can be
determined at this time.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
2001 Annual Meeting
The Company's 2001 Annual Meeting is currently scheduled for January 12,
2001. Accordingly, pursuant to the Company's bylaws, for any business to be
brought before the 2001 Annual Meeting by a proponent shareholder, written
notice (in proper form as required by the Company's Bylaws) must be
provided to R. Read Hudson, the Company's Secretary, at 2210 West Oaklawn
Drive, Springdale, Arkansas 72762-6999, no later than October 29, 2000 and
no earlier than October 4, 2000.
On August 11, 2000, the Company announced the election of an additonal
director. A copy of the related press release is attached hereto as
Exhibit 99.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The exhibits filed with this report are listed in the exhibit index at the
end of this Item 6.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K for the quarter ended
July 1, 2000.
16
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Page
- ----------- ----
3.1 Restated Certificate of Incorporation of the Company
(previously filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 3, 1998, Commission File No. 0-3400, and
incorporated herein by reference).
3.2 Second Amended and Restated Bylaws of the Company
(previously filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
January 1, 2000, Commission File No. 0-3400, and
incorporated herein by reference).
27 Financial Data Schedule
99 Press Release, dated August 11, 2000, of Tyson Foods, Inc. 19
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TYSON FOODS, INC.
Date: August 11, 2000 /s/ Steven Hankins
--------------- ----------------------------
Steven Hankins
Executive Vice President and
Chief Financial Officer
Date: August 11, 2000 /s/ James G. Ennis
--------------- ----------------------------
James G. Ennis
Vice President, Controller and
Chief Accounting Officer
18