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 December 30, 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 January 27, 2001
- ------------------------------------- -----------------------------
Class A Common Stock, $0.10 Par Value 119,663,716 Shares
Class B Common Stock, $0.10 Par Value 102,645,048 Shares
Page 1
TYSON FOODS, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income
for the Three Months Ended
December 30, 2000 and January 1, 2000 3
Consolidated Condensed Balance Sheets
December 30, 2000 and September 30, 2000 4
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended
December 30, 2000 and January 1, 2000 5
Notes to Consolidated Condensed Financial Statements 6-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-19
Item 3. Quantitative and Qualitative Disclosure About
Market Risks 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
EXHIBIT INDEX 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions except per share amounts)
(Unaudited)
Three Months Ended
__________________
December 30, January 1,
2000 2000
___________ __________
Sales $1,743 $1,779
Cost of Sales 1,482 1,466
------ ------
261 313
Operating Expenses:
Selling 141 146
General and administrative 44 36
Amortization 8 8
------ ------
Operating Income 68 123
Other Expense (Income):
Interest 26 29
Foreign currency exchange 1 1
Other - 1
------ ------
Income Before Taxes on Income
and Minority Interest 41 92
Provision for Income Taxes 14 33
Minority Interest - 2
------ ------
Net Income $ 27 $ 57
====== ======
Basic Average Shares Outstanding 223 228
====== ======
Basic Earnings Per Share $ 0.12 $ 0.25
====== ======
Diluted Average Shares Outstanding 224 228
====== ======
Diluted Earnings Per Share $ 0.12 $ 0.25
====== ======
Cash Dividends Per Share:
Class A $0.040 $0.040
Class B $0.036 $0.036
See accompanying notes.
3
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions except per share amounts)
(Unaudited)
December 30, September 30,
2000 2000
ASSETS ___________ ____________
Current Assets:
Cash and cash equivalents $ 33 $ 43
Accounts receivable 506 520
Inventories 984 965
Other current assets 43 48
_____ _____
Total Current Assets 1,566 1,576
Net Property, Plant, and Equipment 2,101 2,141
Excess of Investments over Net Assets Acquired 929 937
Other Assets 203 200
______ ______
Total Assets $4,799 $4,854
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 50 $ 62
Current portion of long-term debt 73 123
Trade accounts payable 326 346
Accrued compensation and benefits 138 104
Other current liabilities 254 251
_____ _____
Total Current Liabilities 841 886
Long-Term Debt 1,342 1,357
Deferred Income Taxes 389 385
Other Liabilities 51 51
Shareholders' Equity:
Common stock ($.10 par value):
Class A-Authorized 900 million shares;
issued 138 million shares at
December 30, 2000 and September 30, 2000 14 14
Class B-Authorized 900 million shares;
issued 103 million shares at
December 30, 2000 and September 30, 2000 10 10
Capital in excess of par value 735 735
Retained earnings 1,734 1,715
Accumulated other comprehensive loss (6) (5)
_______ ______
2,487 2,469
Less treasury stock, at cost-
18 million shares at December 30, 2000 and
16 million shares at September 30, 2000 303 284
Less unamortized deferred compensation 8 10
______ ______
Total Shareholders' Equity 2,176 2,175
______ ______
Total Liabilities and Shareholders' Equity $4,799 $4,854
====== ======
See accompanying notes.
4
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
__________________
December 30, January 1,
2000 2000
___________ _________
Cash Flows from Operating Activities:
Net income $ 27 $ 57
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 65 63
Amortization 8 8
Amortization of deferred compensation 2 -
Deferred income taxes (2) (3)
Minority interest - 2
Foreign currency exchange 1 1
Loss on dispositions of assets - 2
Decrease in accounts receivable 14 23
(Increase)decrease in inventories (19) 19
Decrease in trade accounts payable (20) (29)
Increase in accrued compensation
and benefits 34 12
Net change in other current assets
and other current liabilities 13 50
_____ _____
Cash Provided by Operating Activities 123 205
Cash Flows from Investing Activities:
Additions to property, plant and equipment (47) (49)
Proceeds from disposition of assets 21 1
Net change in other assets and other liabilities (5) (6)
_____ _____
Cash Used for Investing Activities (31) (54)
Cash Flows from Financing Activities:
Net change in notes payable (12) (2)
Repayments of long-term debt (65) (79)
Purchases of treasury shares (19) (33)
Dividends (8) (8)
Other (1) 1
_____ _____
Cash Used for Financing Activities (105) (121)
Effect of Exchange Rate Change on Cash 3 (1)
_____ _____
(Decrease)Increase in Cash and Cash Equivalents (10) 29
Cash and Cash Equivalents at Beginning of Period 43 30
_____ _____
Cash and Cash Equivalents at End of Period $ 33 $ 59
===== =====
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $30 $25
Income taxes $8 $1
See accompanying notes.
5
TYSON FOODS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: ACCOUNTING POLICIES
BASIS OF PRESENTATION
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
September 30, 2000. 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.
Management believes the accompanying consolidated condensed financial
statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly the financial position as of December
30, 2000 and September 30, 2000 and the results of operations and cash
flows for the three months ended December 30, 2000 and January 1, 2000. The
results of operations and cash flows for the three months ended December
30, 2000 and January 1, 2000 are not necessarily indicative of the results
to be expected for the full year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the Commission. SAB 101A was released on March 24, 2000, and
delayed for one fiscal quarter the implementation date of SAB 101 for
registrants with fiscal years beginning between December 16, 1999, and
March 15, 2000. Since the issuance of SAB 101 and SAB 101A, the staff has
continued to receive requests from a number of groups asking for additional
time to determine the effect, if any, on registrant's revenue recognition
practices. SAB 101B issued June 26, 2000 further delayed the
implementation date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The Company
believes the adoption of SAB 101 in fiscal 2001 will not have a material
impact on its financial position or results of operations.
6
In September 2000, the Emerging Issues Task Force (EITF) released Issue 00-
10-Accounting for Shipping and Handling Fees and Costs, which provides
guidance on the classification of amounts billed and incurred for shipping
and handling in the income statement. The Task Force concluded that all
shipping and handling billings to a customer in a sale transaction
represent the fees earned for the goods provided and, accordingly, should
be classified as revenue. The EITF concluded that significant shipping and
handling costs not included in cost of sales should be disclosed as to
amount of such costs and where classified on the income statement. The
issue requires implementation in the fourth quarter of a registrant's
fiscal year beginning after December 15, 1999.
RECLASSIFICATIONS
Certain reclassifications have been made to prior periods to conform to
current presentations.
Note 2: ACQUISITIONS
On December 4, 2000, the Company announced an offer to acquire all
outstanding common stock of IBP, inc. (IBP) through transaction in which
IBP shareholders would receive $26.00 for each share of IBP common stock,
with 50% of the consideration in cash and 50% in Tyson Class A common
stock. On December 12, 2000, the Company commenced a formal cash tender
offer for 50.1% of IBP common stock at $26.00 per share. On December 28,
2000, the Company announced that it had increased its offer to acquire IBP
to $27.00 per share. The Company also announced that it was prepared to
commence an exchange offer for all shares not purchased in the cash tender
offer promptly after the Company signed a merger agreement with IBP. The
cash tender offer was scheduled to expire on January 10, 2001.
On January 1, 2001, the Company announced it had signed a definitive merger
agreement with IBP pursuant to which IBP shareholders would receive $30.00
for each share of IBP common stock. The Company also announced that it
would commence the exchange offer pursuant to which it would offer to
exchange, for each outstanding IBP share not owned by Tyson after
completion of the cash tender offer, a number of shares of Tyson Class A
common stock having a value of $30.00, so long as the average per share
price of Tyson Class A common stock during the fifteen trading day period
ending on the second trading day before the expiration date of the exchange
offer is at least $12.60 and no more than $15.40. This $30.00 value is
subject to change if the average per share price of Tyson Class A common
stock is not in that range and the value that an IBP shareholder would
receive would be proportionately changed. Assuming the average per share
price is less than or equal to $12.60, the Company will issue approximately
126 million shares of Tyson Class A common stock in the transaction.
Assuming the average per share price is more than or equal to $15.40, the
Company will issue approximately 103 million shares of Tyson Class A common
stock in the transaction. The total consideration to be paid to IBP
shareholders in cash and Tyson Class A common stock is approximately $3.2
billion with an additional assumption of approximately $1.5 billion in IBP
debt.
IBP is a leading beef and pork producer headquartered in Dakota Dunes,
South Dakota which had sales of approximately $14 billion for the fiscal
year ended December 25, 1999 and approximately $12 billion for the nine
months ended September 23, 2000.
7
Note 3: DERIVATIVE FINANCIAL INSTRUMENTS
On October 1, 2000, the Company adopted Financial Accounting Standards
Board Statement (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended. This Statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through
earnings, or recognized in Other Comprehensive Income (OCI) until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value is recognized in earnings.
The adoption of SFAS No. 133 on October 1, 2000, resulted in the pretax
cumulative effect of an accounting change of approximately $9 million loss
being charged to OCI.
The Company uses derivatives to moderate the financial and commodity market
risks of its business operations. Derivative products, such as futures and
option contracts, are considered to be a hedge against changes in the
amount of future cash flows related to forward basis contracts to procure
grain. The Company also enters into interest rate swap agreements to
adjust the proportion of total long-term debt and leveraged equipment loans
that are subject to variable interest rates. Under these interest rate
swaps, Tyson agrees to pay a fixed rate of interest times a notional
principal amount and to receive in return an amount equal to a specified
variable-rate of interest times the same notional principal amount. These
interest rate swaps are considered to be a hedge against changes in the
amount of future cash flows associated with Tyson's variable rate interest
payments.
All of the Company's derivatives that are designated as hedges at December
30, 2000, are designated as cash flow hedges (i.e., hedging the exposure of
variability in expected future cash flows that is attributable to a
particular risk). The effective portion of the cumulative gain or loss on
the derivative instrument is reported as a component of OCI in
shareholders' equity and recognized into earnings in the same period or
periods during which the hedged transaction affects earnings (for commodity
hedges when the chickens that consumed the hedged grain are sold and for
interest rate swaps as the underlying debt is paid down). The remaining
cumulative gain or loss on the derivative instrument in excess of the
cumulative change in the present value of the future cash flows of the
hedged item, if any, is recognized in earnings during the period of change.
No ineffectiveness was recognized on cash flow hedges during the first
quarter of fiscal 2001. The Company expects that the losses, net of gains,
totaling approximately $0.7 million recorded in OCI at December 30, 2000,
related to commodity hedges, will be recognized within the next twelve
months. The Company expects that the loss totaling approximately $1.7
million recorded in OCI at December 30, 2000, associated with interest rate
swaps, that will be recognized within the next twelve months will not be
significant, however the amount will be recognized by September 2007, which
coincides with when the related debt matures.
8
Derivative liabilities totaling approximately $1.7 million related to
interest rate swap agreements, with a notional amount of $106 million, are
recorded in other current liabilities on the Consolidated Condensed Balance
Sheets at December 30, 2000. The fair value of interest rate swaps is
based on individual market values as calculated monthly using a published
forward curve for the floating portion and the agreed upon fixed rate for
the fixed portion of the interest rate swap agreement.
Derivative assets relating to commodity hedges totaling approximately $4.9
million are recorded in other current assets on the Consolidated Condensed
Balance Sheets at December 30, 2000. Fair values for these contracts are
based on quoted market prices. Fair values of other items recorded as
assets at December 30, 2000 totaled approximately $0.2 million.
Commodity contracts held by the Company at December 30, 2000 consisted of
long positions in corn with a notional amount of 27.6 million bushels and
fair value of $3.7 million; short positions in corn with a notional amount
of 2 million bushels and fair value that was a liability totaling $0.1
million; long positions in soybean oil with a notional amount of 26.6
million cwt and fair value that was a liability totaling $0.1 million; long
positions in soybean meal with a notional amount of 0.1 million tons and
fair value of $1.4 million. The hedging positions expire at various dates
through September 2001. Commodity contracts held by the Company at
September 30, 2000, consisted of long positions in corn with a notional
amount of 17.1 million bushels and fair value that was a liability totaling
$9 million. The Company had interest rate swap agreements with a notional
amount of $110 million and fair value of $0.5 million at September 30,
2000.
Note 4: INVENTORIES
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of the following:
(In millions)
December 30, September 30,
2000 2000
___________ ____________
Dressed and further-processed products $472 $460
Live chickens 303 291
Live swine 73 75
Hatchery eggs and feed 62 67
Supplies 74 72
____ ____
Total Inventory $984 $965
==== ====
9
Note 5: PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and accumulated
depreciation, at cost, are as follows:
(In millions)
December 30, September 30,
2000 2000
___________ ____________
Land $ 61 $ 61
Buildings and leasehold improvements 1,294 1,291
Machinery and equipment 2,244 2,219
Land improvements and other 112 110
Buildings and equipment under construction 85 103
______ ______
3,796 3,784
Less accumulated depreciation 1,695 1,643
______ ______
Net property, plant and equipment $2,101 $2,141
====== ======
Note 6: LONG-TERM DEBT
The major components of long-term debt are as follows:
(In millions)
December 30, September 30,
2000 2000
___________ ____________
Commercial paper
(7.8% effective rate at December 30, 2000
and 6.7% effective rate at
September 30, 2000) $ 234 $ 260
Revolver
(7.5% effective rate at December 30, 2000) 20 -
Debt securities:
6.75% notes 149 149
6.625% notes 149 149
6% notes 149 149
7% notes 147 147
7% notes 237 237
Institutional notes:
10.84% notes 50 50
11.375% notes - 4
Leveraged equipment loans
(rates ranging from 4.7% to 6.0%) 133 138
Other 74 74
______ ______
Total long-term debt $1,342 $1,357
====== ======
The revolving credit agreement and notes contain various covenants, the
more restrictive of which require maintenance of a minimum net worth,
current ratio, cash flow coverage of interest and a maximum total debt-to-
capitalization ratio. The Company is in compliance with these covenants at
December 30, 2000.
10
Effective January 12, 2001, the Company entered into a new 364-day
revolving credit agreement which provides for an aggregate financing
commitment of up to $2.5 billion. This new facility, when combined with
the Company's existing $1 billion revolving credit facility described
above, will support the issuance of a total of up to $3.5 billion in
commercial paper. The combined additional financing availability provided
by these facilities will be used to fund the approximately $1.8 billion
cash purchase price for the Company's acquisition of IBP and to repay
certain of IBP's indebtedness.
Note 7: CONTINGENCIES
The Company is involved in various lawsuits and claims made by third
parties on an ongoing basis as a result of its day-to-day operations.
Although the outcome of such items cannot be determined with certainty, the
Company's general counsel and management are of the opinion that the final
outcome should not have a material effect on the Company's results of
operations or financial position.
On June 22, 1999, 11 current and former employees of the Company filed the
case of M.H. Fox, et al. v. Tyson Foods, Inc. (Fox v. Tyson) in the U.S.
District Court for the Northern District of Alabama 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 ongoing. 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 February 9, 2000, the Wage and Hour Division of the U.S. Department of
Labor (DOL) began an industry-wide investigation of poultry producers,
including the Company, to ascertain compliance with various wage and hour
issues. As part of this investigation, the DOL inspected 14 of the
Company's processing facilities. The Company is having discussions with
the DOL regarding its investigation and the possible resolution of
potential claims that might be asserted by the DOL.
On August 22, 2000, 7 employees of the Company filed the case of De Asencio
v. Tyson Foods, Inc. in the U.S. District Court for the Eastern District of
Pennsylvania. This lawsuit is similar to Fox V. Tyson in that the employees
11
claim violations of the Fair Labor Standards Act for allededly failing to
pay for time taken to put on, take off, and sanitize certain working
supplies. Plaintiffs seek to represent themselves and all similarly
situated current and former employees of the poultry processing plants in
New Holland, Pennsylvania. Currently, there are 89 additional current or
former employees who have filed consents to join the lawsuit. The Court,
on January 30, 2001, ordered that notice of the lawsuit be issued to all
potential plaintiffs at the New Holland facilities, but the class has not
been ordered certified. The Company believes it has substantial defenses
to the claims made and intends to defend the case vigorously; 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.
The Company has been advised of an investigation by the Immigration and
Naturalization Service (INS) and the U.S. Attorney's Office for the Eastern
District of Tennessee into possible violations of the Immigration and
Naturalization Act at several of the Company's locations. On October 5,
2000, the Company was advised that, in addition to a number of its
employees, the Company itself is a subject of the investigation. The
outcome of the investigation and any potential liability on the part of the
Company cannot be determined at this time.
The Company's Sedalia, Mo., facility is currently under investigation by
the U.S. Attorney's office of the Western District of Missouri for possible
violations of environmental laws or regulations. Neither the likelihood of
an unfavorable outcome nor the amount of ultimate liability, if any, with
respect to this investigation can be determined at this time.
On October 17, 2000, a Washington County (Arkansas) Chancery Court awarded
the Company approximately $20 million in its lawsuit alleging trade secret
misappropriation by ConAgra, Inc. and ConAgra Poultry Company.
Subsequently, on December 4, 2000, as a result of an opinion issued by the
Arkansas Supreme Court, the Chancery Court reversed its finding that the
Company's nutrient profile was a trade secret and reversed the jury's $20
million verdict against the ConAgra entities. On January 3, 2001, the
Company filed a notice of appeal appealing the Chancery Court's reversal of
the trade secret determination and of the jury verdict.
Note 8: COMPREHENSIVE INCOME
The components of comprehensive income are as follows:
(In millions)
Three Months Ended
__________________
December 30, January 1,
2000 2000
___________ _________
Net Income $ 27 $ 57
Other Comprehensive Income -
net of tax of $(0.7) million at December 30, 2000
and $(0.6) million at January 1, 2000
Currency Translation Adjustment 1 (2)
Cumulative Effect of SFAS. 133 Adoption (6) -
Derivative Unrealized Gain 3 -
Derivative Loss Recognized in
Cost of Sales 1 -
______ ______
Total Comprehensive Income $ 26 $ 55
====== ======
12
Note 9: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
(In millions except per share amounts)
Three Months Ended
__________________
December 30, January 1,
2000 2000
___________ _________
Numerator:
Net Income $ 27 $ 57
===== =====
Denominator:
Denominator for basic
earnings per share-
weighted average shares 223 228
Effect of dilutive securities:
Restricted stock 1 -
____ ____
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 224 228
===== =====
Basic earnings per share $0.12 $0.25
===== =====
Diluted earnings per share $0.12 $0.25
===== =====
The Company had approximately seven million option shares outstanding at
December 30, 2000, that were not included in the dilutive earnings per
share calculation because they would have been antidilutive.
Note 10: SEGMENT REPORTING
The Company presently identifies segments based on the products offered and
the nature of customers, resulting in four reported business segments: Food
Service, Consumer Products, International and Swine. Food Service includes
fresh, frozen and value-added chicken products sold through domestic
foodservice, specialty and commodity distributors who deliver to
restaurants, schools and other accounts. Consumer Products include fresh,
frozen and value-added chicken products sold through domestic retail
markets for at-home consumption and through wholesale club markets targeted
to small foodservice operators, individuals and small businesses. The
Company's International segment markets and sells the full line of Tyson
chicken products throughout the world. The Company's Swine segment includes
feeder pig finishing and marketing of swine to regional and national
packers. Other consists primarily of the Specialty Products group, the
Prepared Foods group, the chicken breeding stock subsidiary and other
corporate operating activities. Sales between reportable segments are
recorded at cost. The Company measures segment profit as gross profit less
13
selling expenses. Corporate overhead adjustments were included in the
measurement of segment profit at December 30, 2000, but were not included
in the measurement of segment profit at January 1, 2000. Total assets for
each segment at December 30, 2000 approximate those at September 30, 2000.
Information on segments and a reconciliation to income before taxes on
income and minority interest are as follows:
(In millions)
Three Months Ended
__________________
December 30, January 1,
2000 2000
Sales: ____________ __________
Food Service $ 802 $ 825
Consumer Products 529 538
International 187 188
Swine 38 32
Other 187 196
______ ______
Total Sales $1,743 $1,779
====== ======
Segment Profit:
Food Service $ 37 $ 70
Consumer Products 38 53
International 2 24
Swine - (1)
Other 43 21
____ ____
Total Segment Profit 120 167
Other Operating Expenses 52 44
Other Expense (Income) 27 31
_____ _____
Income Before Taxes on Income
and Minority Interest $ 41 $ 92
===== =====
14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Earnings for the first quarter of fiscal 2001 were $27 million or $0.12 per
share compared to $57 million or $0.25 per share for the first quarter of
fiscal 2000.
First Quarter Fiscal 2001 vs. First Quarter Fiscal 2000
Sales for the first quarter of fiscal 2001 decreased 2% from the same
period of fiscal 2000, with a 4.9% decrease in volume. The decreases in
price and volume were partially offset by an improved product mix. The
oversupply of chicken in the market has continued to negatively impact
sales prices. In November 1999, in response to the oversupply of chicken,
the Company initiated a 3% cut in the number of chickens produced and since
then has maintained a reduced production level.
Breast meat commodity market prices continue to be pressured by an
oversupply of chicken and average prices for the quarter ended December 30,
2000, were 12% lower than the same quarter last year. This situation not
only continues to adversely affect the average sales prices and margins of
many of the Company's core value-added products, but also offsets much of
the benefits of the Company's focused shift to value-added products
targeted to reduce the amount of raw material being sold to non-integrated
further processors.
Food Service first quarter sales decreased $23 million or 2.8% from the
same period last year, with a 7.9% decrease in volume partially offset by a
5.6% increase in average sales prices due to product mix changes. Segment
profit for Food Service, defined as gross profit less selling expenses,
decreased $33 million from the same period last year primarily due to lower
market prices and product mix changes.
Consumer Products first quarter sales decreased $9 million or 1.7% from the
same period last year, with a 3.4% decrease in average sales prices
partially offset by a 1.8% increase in volume. Consumer Products segment
profit decreased $15 million from the same period last year primarily due
to lower market prices.
International first quarter sales were comparable to the same period last
year, with a 15.5% decrease in volume primarily offset by an 18.2% increase
in average sales prices. International segment profit decreased $22 million
from the same period last year with $9 million related to the lingering
effect of Exotic Newcastle disease on Tyson de Mexico and the remainder due
to lower volumes and a change in product mix. International sales volume
was negatively impacted by severe weather that slowed movement of product
to port, the loading and shipment of product at the port and the production
of product at Company locations.
Swine first quarter sales increased $6 million or 18.8% over the same
period last year, with a 17.9% increase in average sales prices and a 0.6%
increase in volume. Swine segment profit improved slightly over the same
period last year due to the increase in average sales prices.
15
Other first quarter sales decreased $9 million or 4.6% from the same period
last year primarily due to a decrease in Prepared Foods sales. Other
consists primarily of the Specialty Products group, the Prepared Foods
group, the chicken breeding stock subsidiary and other corporate operating
activities.
Cost of sales increased 1.2% for the first quarter of fiscal 2001 as
compared to the same period last year. As a percent of sales, cost of
sales was 85.0% for the first quarter of fiscal 2001 compared to 82.4% for
the same period last year. The increase in cost of sales, as a percent of
sales, is primarily due to lower market prices, product mix changes and
higher grain costs.
Operating expenses increased 1.3% for the first quarter of fiscal 2001 over
the same period last year. Selling expense, as a percent of sales, was 8.1%
for the first quarter of fiscal 2001 and 8.2% for the first quarter of
fiscal 2000. Total selling expenses have decreased primarily due to
decreased storage costs resulting from reduced inventories from the same
period last year. General and administrative expense, as a percent of
sales, was 2.5% in the first quarter of fiscal 2001 and 2.0% in the first
quarter of fiscal 2000. The increase in general and administrative expense
is primarily due to litigation costs related to ongoing employee practice
matters and other corporate overhead costs. Amortization expense, as a
percent of sales, was 0.5% in the first quarter of fiscal 2001 and fiscal
2000.
Interest expense decreased 7.6% for the first quarter of fiscal 2001
compared to the same period last year primarily as a result of a 13.6%
decrease in the Company's average indebtedness over the same period last
year. Short-term rates were slightly higher than last year and the overall
weighted average borrowing rate increased to 7.0% compared to 6.6% last
year.
The effective income tax rate for the first quarter of fiscal 2001 was
34.8% compared to 35.6% for the same period last year primarily due to a
decrease in foreign subsidiary earnings effective tax rate.
FINANCIAL CONDITION
For the three months ended December 30, 2000, net cash totaling $123
million was provided by operating activities. Operations provided $101
million in cash and $22 million was provided by net changes in receivables,
inventories, payables and other items. The Company used cash from
operations and proceeds of $21 million from asset disposals to fund $47
million of property, plant and equipment additions, to pay down total debt
by $77 million and to repurchase $18 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. Capital spending for fiscal 2001 is expected to be in
the range of $230-250 million.
16
At December 30, 2000, working capital was $725 million compared to $690
million at 2000 fiscal year-end, an increase of $35 million. The current
ratio at December 30, 2000 was 1.9 to 1 compared to 1.8 to 1 at September
30, 2000. Working capital and the current ratio have increased since year-
end primarily due to a decrease in current portion of long-term debt. At
December 30, 2000, total debt was 40.2% of total capitalization compared to
41.5% at September 30, 2000. 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 December 30, 2000, $234 million in
commercial paper and $20 million of revolver was outstanding under this $1
billion facility. Additional outstanding debt at December 30, 2000,
consisted of $830 million of public debt, $107 million of institutional
notes, $150 million in leveraged equipment loans, $50 million of short-term
notes payable and $74 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. The revolving credit agreement and notes
contain various covenants, the more restrictive of which require
maintenance of a minimum net worth, current ratio, cash flow coverage of
interest and a maximum total debt-to-capitalization ratio. The Company is
in compliance with these covenants at December 30, 2000.
On December 4, 2000, the Company announced an offer to acquire all
outstanding common stock of IBP, inc. (IBP) through transaction in which
IBP shareholders would receive $26.00 for each share of IBP common stock,
with 50% of the consideration in cash and 50% in Tyson Class A common
stock. On December 12, 2000, the Company commenced a formal cash tender
offer for 50.1% of IBP common stock at $26.00 per share. On December 28,
2000, the Company announced that it had increased its offer to acquire IBP
to $27.00 per share. The Company also announced that it was prepared to
commence an exchange offer for all shares not purchased in the cash tender
offer promptly after the Company signed a merger agreement with IBP. The
cash tender offer was scheduled to expire on January 10, 2001.
On January 1, 2001, the Company announced it had signed a definitive merger
agreement with IBP pursuant to which IBP shareholders would receive $30.00
for each share of IBP common stock. The Company also announced that it
would commence the exchange offer pursuant to which it would offer to
exchange, for each outstanding IBP share not owned by Tyson after
completion of the cash tender offer, a number of shares of Tyson Class A
common stock having a value of $30.00, so long as the average per share
price of Tyson Class A common stock during the fifteen trading day period
ending on the second trading day before the expiration date of the exchange
offer is at least $12.60 and no more than $15.40. This $30.00 value is
subject to change if the average per share price of Tyson Class A common
stock is not in that range and the value that an IBP shareholder would
receive would be proportionately changed. Assuming the average per share
price is less than or equal to $12.60, the Company will issue approximately
126 million shares of Tyson Class A common stock in the transaction.
17
Assuming the average per share price is more than or equal to $15.40, the
Company will issue approximately 103 million shares of Tyson Class A common
stock in the transaction. The total consideration to be paid to IBP
shareholders in cash and Tyson Class A common stock is approximately $3.2
billion with an additional assumption of approximately $1.5 billion in IBP
debt.
IBP is a leading beef and pork producer headquartered in Dakota Dunes,
South Dakota which had sales of approximately $14 billion for the fiscal
year ended December 25, 1999 and approximately $12 billion for the nine
months ended September 23, 2000.
Effective January 12, 2001, the Company entered into a new 364-day
revolving credit agreement which provides for an aggregate financing
commitment of up to $2.5 billion. This new facility, when combined with
the Company's existing $1 billion revolving credit facility described
above, will support the issuance of a total of up to $3.5 billion in
commercial paper. The combined additional financing availability provided
by these facilities will be used to fund the approximately $1.8 billion
cash purchase price for the Company's acquisition of IBP and to repay
certain of IBP's indebtedness. It is currently anticipated that the
Company will seek to refinance all or a portion of the commercial paper
borrowings supported by this facility through the issuance of public debt
securities. However, the decision whether or not to effect such
refinancing and the timing of such refinancing will depend on a number of
factors, including market conditions, interest rates and interest rate
spreads and the availability of alternative financing.
18
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; (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; (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)
risks associated with effectively evaluating derivatives and hedging
activities; (viii) changes in regulations and laws, including changes in
accounting standards, environmental laws, occupational, health and safety
laws; (ix) adverse results from ongoing litigation; (x) access to foreign
markets together with foreign economic conditions, including currency
fluctuations; and (xi) 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 2000 annual report to shareholders.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to information under Part I., Item 1. Notes to
Consolidated Condensed Financial Statements,
Note 7: Contingencies.
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
The following directors were elected at the annual meeting of shareholders
held January 12, 2001:
DIRECTORS VOTES FOR VOTES WITHHELD
_________ _________ ______________
Barbara Allen 1,125,769,979 4,158,764
Lloyd V. Hackley 1,125,895,965 4,032,778
Gerald M. Johnston 1,125,898,381 4,030,362
David A. Jones 1,125,775,144 4,153,599
Jim Kever 1,125,774,734 4,154,009
Shelby D. Massey 1,120,761,637 9,167,106
Joe F. Starr 1,125,880,546 4,048,197
Leland E. Tollett 1,125,897,039 4,031,704
Barbara A. Tyson 1,120,051,380 9,877,363
Don Tyson 1,121,931,252 7,997,491
John H. Tyson 1,120,035,177 9,893,566
Donald E. Wray 1,125,896,689 4,032,054
A shareholder proposal by the General Board of Pension and Health Benefits
of the United Methodist Church was defeated by a vote of 8,395,963
votes for the proposal and 1,086,242,053 votes against the proposal and
4,942,266 abstentions.
A Company proposal to approve the 2000 Stock Incentive Plan was passed by a
vote of 1,081,335,542 votes for the proposal and 17,828,985 votes against
the proposal and 415,755 abstentions.
No other items were voted on at the annual meeting of shareholders or
during the quarter ended December 30, 2000.
Item 5. Other Information
Not Applicable
20
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 Current Reports on Form 8-K for the quarter
ended December 30, 2000.
21
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Page
- ----------- ----
2.1 Agreement and Plan of Merger dated as of January 1, 2001
among the Company, IBP, inc. and Lasso Acquisition
Corporation. 24-94
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).
10.1 Credit Agreement, including all exhibits thereto, dated
as of January 12, 2001, by and among the Company, as
Borrower, The Chase Manhattan Bank N.A., as
Administrative Agent, Merrill Lynch Capital Corporation,
as Syndication Agent, Suntrust Banks, Inc., as
Documentation Agent, and other banks party thereto. 95-194
10.2 Issuing and Paying Agency Agreement dated as of January
12, 2001, between the Company and The Chase Manhattan
Bank N.A. 195-203
10.3 Commercial Paper Dealer Agreement dated as of January
12, 2001, between the Company and Banc of America
Securities LLC. 204-225
10.4 Commercial Paper Dealer Agreement dated as of January
12, 2001, between the Company and Credit Suisse First
Boston Corporation. 226-247
10.5 Commercial Paper Dealer Agreement dated as of January
12, 2001, between the Company and Merrill Lynch Money
Markets Inc., as Dealer for Notes with maturities up to
270 days, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Dealer for Notes with maturities over
270 days up to 365 days. 248-270
10.6 Commercial Paper Dealer Agreement dated as of January
12, 2001, between the Company and SunTrust Equitable
Securities Corporation. 271-293
10.7 Commercial Paper Dealer Agreement dated as of January
12, 2001, between the Company and J.P. Morgan
Securities, Inc. 294-311
10.8 Commercial Paper Dealer Agreement dated as of January
12, 2001, between the Company and Chase Securities Inc. 312-329
22
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: February 13, 2001 /s/ Steven Hankins
----------------- ----------------------------
Steven Hankins
Executive Vice President and
Chief Financial Officer
Date: February 13, 2001 /s/ Rodney S. Pless
----------------- ----------------------------
Rodney S. Pless
Vice President, Controller and
Chief Accounting Officer
23