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 January 1, 1994
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or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from
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to
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Commission File Number 0-3400
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TYSON FOODS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 71-0225165
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(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
2210 West Oaklawn Drive, Springdale, Arkansas 72764
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(Address of Principal Executive Offices and Zip Code)
(501) 290-4000
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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
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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 1, 1994
- ------------------------------------ -------------------------------------
Class A Common Stock, $.10 Par Value 79,047,440 Shares
Class B Common Stock, $.10 Par Value 68,455,438 Shares
Page 1
TYSON FOODS, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
January 1, 1994 and October 2, 1993 3
Consolidated Condensed Statements of Income
for the Three Months Ended
January 1, 1994 and January 2, 1993 4
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended
January 1, 1994 and January 2, 1993 5
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION 12-14
SIGNATURES 15
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYSON FOODS, INC.
Consolidated Condensed Balance Sheets
(In Thousands)
(Unaudited)
January 1, October 2,
Assets 1994 1993
- ------------------------------------ ------------ ------------
Current Assets:
Cash and cash equivalents $ 18,042 $ 21,547
Accounts receivable 347,178 104,767
Inventories 709,035 675,205
Other current assets 12,559 10,236
---------- ----------
Total Current Assets 1,086,814 811,755
Net Property, Plant, and Equipment 1,438,658 1,435,298
Excess of Investments over Net Assets Acquired 918,068 924,432
Investments and Other Assets 82,084 82,019
---------- ----------
Total Assets $3,525,624 $3,253,504
========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Notes Payable $ 40,000 $ 29,800
Current portion of long-term debt 74,042 73,987
Trade accounts payable 209,590 205,592
Other accrued liabilities 185,626 217,326
--------- ----------
Total Current Liabilities 509,258 526,705
Long-Term Debt 1,165,514 920,465
Deferred Income Taxes 445,588 445,588
Shareholders' Equity:
Common stock 14,814 14,814
Capital in excess of par value 392,727 392,693
Retained earnings 1,008,513 965,493
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1,416,054 1,373,000
Less treasury stock 10,122 11,359
Less unamortized deferred compensation 668 895
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Total Shareholders' Equity 1,405,264 1,360,746
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Total Liabilities and Shareholders' Equity $3,525,624 $3,253,504
========== ==========
The accompanying notes are an integral part of these financial statements.
3
TYSON FOODS, INC.
Consolidated Condensed Statements of Income
(In Thousands Except Per Share Data)
(Unaudited)
THREE MONTHS ENDED
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January 1, January 2,
1994 1993
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c>
Sales $1,152,790 $1,083,312
Cost of Sales 935,415 878,510
Expenses:
Selling 96,273 87,099
General and administrative 23,398 28,306
Amortization 8,165 7,547
Interest 17,016 18,892
Other income (224) (547)
---------- ----------
Income Before Taxes on Income 72,747 63,505
Provision for Income Taxes 28,368 24,109
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Net Income $ 44,379 $ 39,396
========== ==========
Average Shares Outstanding 148,580 148,367
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Earnings Per Share $0.30 $0.27
===== =====
Cash Dividends Per Share:
Class A $0.0100 $0.0100
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Class B $0.0083 $0.0083
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The accompanying notes are an integral part of these financial statements.
4
TYSON FOODS, INC.
Consolidated Condensed Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
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January 1, January 2,
1994 1993
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Cash Flows from Operating Activities:
Net income $ 44,379 $ 39,396
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation 37,451 33,246
Amortization 8,165 7,547
Deferred income taxes 0 3,527
Loss on dispositions of property and
equipment 2,415 906
(Increase) decrease in accounts receivable (242,411) 58,590
Increase in inventories (33,830) (39,286)
Increase (Decrease) in trade accounts payable 3,998 (34,510)
Net change in other current assets and
liabilities (34,023) (221)
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Cash Provided by (Used for) Operating Activities (213,856) 69,195
Cash Flows from Investing Activities:
Net cash paid for acquisitions 0 (43,207)
Additions to property, plant and equipment (44,368) (54,129)
Proceeds from sale of property, plant and
equipment 1,142 858
Net increase in other assets (1,866) (14,596)
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Cash Used for Investing Activities (45,092) (111,074)
Cash Flows from Financing Activities:
Net change in notes payable 10,200 1,000
Proceeds from long-term debt 260,352 248,000
Repayments of long-term debt (15,248) (198,014)
Dividends and other 139 (284)
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Cash Provided by Financing Activities 255,443 50,702
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Increase (Decrease) in Cash and Cash Equivalents (3,505) 8,823
Cash and Cash Equivalents at Beginning of Period 21,547 27,060
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Cash and Cash Equivalents at End of Period $ 18,042 $ 35,883
========== =========
Supplemental Cash Flow Information,
Cash paid during the period for:
Interest $11,444 $10,703
Income taxes $35,726 $27,328
The accompanying notes are an integral part of these financial statements.
5
TYSON FOODS, INC.,
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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, 1993. 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 January 1, 1994 and October 2, 1993, the
results of operations for the three months ended January 1, 1994, and
January 2, 1993 and cash flows for the three months ended January 1, 1994 and
January 2, 1993. The results of operations for the three months ended
January 1, 1994 and January 2, 1993, and cash flows for the three months
ended January 1, 1994 and January 2, 1993, are not necessarily indicative of
the results to be expected for the full year.
The Notes to Consolidated Financial Statements for the year ended
October 2, 1993, 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 three months ended January 1, 1994, except as disclosed below.
2. Accounts Receivable
At October 2, 1993 the Company had an asset sale agreement with an unrelated
financial institution which allowed the Company to sell up to $275 million of
accounts receivable . As sold accounts receivable were collected, new
qualifying accounts were substituted such that the outstanding balance
remained at $275 million. In November 1993, the Company discontinued this
asset sale agreement due to lower financing costs available through the sale
of commercial paper. As a result, accounts receivable has increased by $275
million at January 1, 1994.
6
3. Inventories
(In thousands)
Inventories, valued at the lower of January 1, October 2,
cost (first-in, first-out) or market 1994 1993
consist of the following: ---------- ----------
Finished and work-in-process $326,328 $299,388
Farm flocks and herds 171,599 152,187
Live swine 51,080 55,661
Seafood related products 41,512 53,064
Hatchery eggs and feed 42,558 40,110
Supplies 75,958 74,795
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Total $709,035 $675,205
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4. Excess of Investments over Net Assets Acquired
Excess cost over the fair value of net assets acquired generally is amortized
on a straight-line basis over periods ranging from 20 to 40 years. The
carrying value of excess of investments over net assets acquired will be
reviewed if the facts and circumstances suggest that it may be impaired. If
this review indicates that excess of investments over net assets acquired
will not be recoverable, as determined based on the undiscounted cash flows
of the entity acquired over the remaining amortization period, the Company's
carrying value of excess of investments over net assets acquired will be
reduced by the estimated shortfall of cash flows.
5. 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, including the
following two matters relating to Arctic Alaska Fisheries Corporation
("Arctic"). The U.S. Attorney's Office in Seattle, Washington is presently
conducting an investigation following the U.S. Coast Guard's referral of its
investigation regarding the sinking in 1990 of one of Arctic's vessels, The
Aleutian Enterprise. Also, on September 8, 1993, the State of Alaska, after
conducting investigations, filed a Complaint for Forfeiture and Damages
alleging that certain Arctic vessels participated in the use of certain
fishing gear during 1990, 1991, and 1992. While management is not able at
the present time to determine the outcome of these matters, based upon
information currently available, management presently does not believe that
any of these lawsuits or claims by third parties will have a material adverse
effect on the Company's financial position.
7
6. Income Taxes
At the beginning of fiscal 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
This statement supersedes Statement of Financial Accounting Standards No. 96,
("SFAS No. 96") the method previously followed by the Company. Both SFAS
No. 109 and SFAS No. 96 require the liability method be used to account for
deferred income taxes. The liability method provides that deferred tax
liabilities are recorded at current tax rates based on the difference between
the tax basis of assets and liabilities and their carrying amounts for
financial reporting purposes referred to as temporary differences. The
cumulative effect of adoption of SFAS No. 109 did not affect the Company's
financial position or results of operations.
Significant components of the Company's deferred tax liabilities and assets
as of October 2, 1993 are as follows (In thousands):
<cption>
Deferred tax liabilities:
Basis difference in property, plant and equipment $205,586
Suspended taxes from conversion to accrual method 150,162
Other 128,416
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Total deferred tax liabilities $484,164
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Deferred tax assets:
Accrued expenses (38,576)
--------
Total deferred tax assets (38,576)
--------
Net deferred tax liabilities $445,588
========
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
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For the three months ended January 1, 1994, net cash of $213.9 million was
used by all operating activities, consisting of $90 million provided by
operations, offset by $303.9 million used for net changes in receivables,
inventories, payables and other items. Accounts receivable increased
as a result of management's decision to discontinue an asset sale agreement
due to lower financing costs available through the sale of commercial paper.
See Note 2 of Notes to Consolidated Condensed Financial Statements.
Inventories increased slightly from 1993 fiscal year-end. Finished
inventories have increased from 1993 fiscal year-end due to increased grain
costs, seasonal factors and shifts in product mix. Financing activities
provided net cash of $255.4 million, mainly from the discontinuance of the
sale of accounts receivable and additional long-term debt incurred by issuing
commercial paper. The Company used funds generated from operating activities
and financing activities to fund $44.4 million of property, plant and
equipment additions. The expenditures for property, plant and equipment were
related to new equipment and upgrading facilities to take advantage of market
opportunities and the Company's continuing effort to increase efficiencies,
reduce overall cost, and meet or exceed environmental standards.
At January 1, 1994, working capital was $577.6 million compared to
$285.1 million at 1993 fiscal year-end, an increase of $292.5 million. The
current ratio at the end of the first quarter of 1994 was 2.13 to 1 compared
to 1.54 to 1 at 1993 fiscal year-end. The current ratio for the first
quarter was impacted by management's decision to discontinue the sale of
accounts receivable and increase commercial paper borrowings to achieve lower
financing costs. See Note 2 to Notes to Consolidated Condensed Financial
Statements.
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 and additional credit facilities
which the Company believes are available.
Long-term debt has increased $245 million since 1993 fiscal year-end. This
is due to the Company's discontinuance of the sale of accounts receivable in
the amount of $275 million, and the financing of this amount through the sale
of commercial paper. At January 1, 1994, long-term debt was 45.3% of total
capitalization compared to 40.3% at 1993 fiscal year-end. On December 17,
1993, the Company obtained a $150 million unsecured revolving credit
agreement. This credit agreement plus the Company's two other unsecured
revolving credit agreements totaling $850 million provide the Company access
to $1 billion which supports the Company's commercial paper program. At
January 1, 1994, long-term debt consisted of $590 million of commercial
paper, $167 million drawn under the revolving credit facilities, $366 million
of institutional notes and $42.5 million of other indebtedness.
9
Results of Operations
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Sales for the first quarter of 1994 increased 6.4% over the same quarter of
1993. This increase was mainly due to an increase in consumer poultry sales
which accounted for 6.1% of the increase in 1994 total sales. The increase
in consumer poultry sales is attributable to a 9.3% increase in tonnage
offset slightly by a 1.1% decrease in sales prices. First quarter sales to
the animal and pet food industry increased 1994 total sales by 0.2% compared
to the first quarter of last year due to a 5.9% increase in tonnage and a
2.8% increase in sales prices. Beef and pork sales increased first quarter
1994 total sales by 4.2% compared to 1993. Beef and pork sales increased
primarily due to production by the new pork operation in Marshall, Missouri.
Seafood sales decreased first quarter 1994 total sales 2.0% due to a 22.0%
decrease in tonnage and a 14.8% decrease in average sales prices. Seafood
sales volumes and profit margins continue to be adversely affected by various
factors including changes in product mix resulting from government fishing
quotas, resource availability and fluctuations in market prices. Mexican
food, prepared foods and other sales decreased first quarter 1994 total sales
by 0.1%. Reduced numbers of live swine sales resulted in a decrease to 1994
total sales by 2.0% compared to first quarter 1993 swine sales. This
decrease in live swine sales was primarily the result of the integration of
some of the live swine production with the Company's swine processing
facility.
The increase in cost of goods sold of 6.5% for the first quarter of 1994
compared to the same quarter of 1993 was mainly the result of the increase in
sales plus an increase of approximately 7.1% in feed ingredient costs. As a
percent of sales, cost of sales was 81.1% for both the first quarter of 1994
and the first quarter of 1993. While the Company's strategy of adding value
to products through further-processing offsets a portion of the impact of
higher grain costs, such increases continue to affect poultry, swine and
Mexican food production cost. Additionally, management expects feed
ingredient costs for poultry and swine production to increase approximately
9% during the second quarter of fiscal 1994. It is anticipated that the
increase in these costs will have an adverse impact on second quarter results
and will continue to have an adverse impact on operating results until such
time as the market will permit these costs to be passed through to customers.
The Company monitors and compares costs for labor, raw material purchases,
utilities and other expenses to companies within the industry as part of its
cost control measures and believes such costs are at least within industry
averages.
Operating expenses increased 4% for the first quarter of 1994 over the same
quarter of 1993. Selling expense, as a percent of sales, in the first
quarter of 1994 was 8.4% compared to 8% in the same quarter of 1993. Selling
expense increased primarily due to increases in storage and transportation
expenses. General and administrative expense, as a percent of sales,
decreased to 2% in the first quarter of 1994 compared to 2.6% in the same
period of 1993. Certain costs which in previous years were classified as
general and administrative expenses have been classified as cost of sales or
selling expenses. This classification change was made primarily to assign
cost based on activity, responsibility and benefit resulting in better
management control. This classification change decreased general and
administrative expenses 0.5% as a percent of sales. The impact on cost of
10
sales and selling expense was not material. Costs incurred in connection
with the sale of accounts receivable, which are classified as general and
administrative expense, decreased 33.9% due to the discontinuance of the sale
of accounts receivable. Amortization expense was 0.7% of sales for both the
first quarter of 1994 and the first quarter of 1993.
Interest expense decreased 10% in the first quarter of 1994 compared to the
same quarter of 1993. Short-term interest rates were lower compared to 1993,
due to market conditions and the Company's use of less costly borrowing
alternatives which lowered the weighted average interest rate of all Company
debt to 6.2% compared to 7.4% for the same period last year. These lower
rates were partially offset by a higher level of borrowing due to the
discontinuance of the sale of accounts receivable, as the Company's average
indebtedness increased 9% compared to the same period last year.
The effective income tax rate for the first quarter of 1994 was 39%, compared
to 38% in the first quarter of 1993. The increase in the effective rate is
due to the increase in the federal income tax rate during the fourth quarter
of the Company's fiscal 1993. The increase in the tax provision was offset
slightly by reduced state income taxes and the reduced impact of the non-
deductibility of amortization of excess of investments over net assets
acquired as income before income taxes increases. The income tax rate
generally reflects the statutory corporate income tax rate plus the impact of
the non-deductibility of amortization of excess of investments over net
assets acquired.
Environmental Matters
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The Company has a strong financial commitment to environmental matters.
During the first quarter of fiscal 1994 the Company invested approximately
$1.7 million in water quality facilities, including both capital outlays to
build and upgrade facilities and $7.2 million for day-to-day operations.
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following directors were elected at the annual shareholders'
meeting held January 14, 1994:
Directors Votes For Votes Withheld
--------- ----------- --------------
Neely Cassady 744,272,658 701,589
Lloyd V. Hackley 744,263,616 710,631
Shelby Massey 744,268,504 705,743
Joe F. Starr 744,262,984 711,263
Leland Tollett 744,269,552 704,695
Barbara Tyson 744,272,267 701,980
Don Tyson 744,271,343 702,904
John H. Tyson 744,263,333 710,914
Fred S. Vorsanger 744,262,031 712,216
Additionally, Don Tyson, Chairman of the Board of Directors,
announced the nomination of Donald E. "Buddy" Wray, Chief Operating
Officer of Tyson Foods, Inc., to the Board of Directors. Mr. Wray
was elected to the Board of Directors at its first meeting
immediately after the adjournment of the annual meeting of
shareholders. Mr. Wray has been with the Company since 1961, and
has served as chief operating officer since 1989.
The Board of Directors announced a 100 percent increase in the
Company's quarterly cash dividends for both Class A and Class B
common stock. The quarterly dividend for the Class A common stock
increased from $0.01 to $0.02 per share and the quarterly dividend
for Class B common stock increased from $0.00833 to $0.01667 per
share. The increases in the quarterly dividends for Class A and
Class B common stock will be payable March 15, 1994 to holders of
record on March 1, 1994.
No other items were voted upon at the annual shareholders' meeting or
during the quarter ended January 1, 1994.
Item 5. Other Information:
On January 6, 1994, the Company announced the acquisition of Gorges
Foodservice, Inc. ("Gorges") of Harlingen, Texas and certain real
property related to the operation of Gorges for a total cash purchase
price of approximately $35.6 million. Gorges operates two primarily
beef further-processing facilities in Harlingen, Texas.
On January 24, 1994 the Company delivered to the Board of Directors
of WLR Foods, Inc. ("WLR Foods") a proposal to enter into a
transaction whereby the Company would acquire WLR Foods at a purchase
price of $30.00 per share in cash. The proposal was conditioned on a
number of factors including approval by a majority of disinterested
directors of WLR Foods, the negotiation of a formal agreement and
compliance with various regulatory requirements. A copy of the press
12
release announcing the proposal is attached to this report as
Exhibit 99(a).
The total consideration for the transaction, based upon a cash
purchase price of $30.00 per share and 10,956,856 shares of WLR Foods
common stock outstanding would be approximately $328.7 million
together with the assumption of approximately $71.1 million in debt.
The Company anticipates it would finance the transaction with
availability under its existing credit facilities, commercial paper,
additional credit facilities and working capital.
On February 6, 1994, WLR Foods announced that its Board of Directors
had unanimously rejected the Company's proposal to merge with
WLR Foods for $30.00 per share. Further, WLR Foods announced the
adoption of a Shareholder Protection Rights Plan, (i.e. poison pill).
Finally, WLR Foods initiated legal proceedings against the Company in
the United States District Court in Harrisonburg, Virginia, seeking
among other things, validation of WLR Foods' Shareholder Protection
Rights Plan and the constitutionality of the Virginia Control Share
Acquisition Act. A copy of the press release by WLR Foods as
reported by Business Wire together with three letters to WLR Foods
Shareholders and a summary of the WLR Foods Shareholder Protection
Rights Plan is attached to this report as Exhibit 99(b).
Additionally, a copy of the legal proceedings as filed with the
United States District Court is attached to this report as
Exhibit 99(c).
The Company continues to be interested in acquiring WLR Foods, but in
light of the rejection of the Company's proposal, there can be no
assurance that further proposals will be made or whether any
transaction on any terms will be consummated with WLR Foods. The
Company has set no timetable as to when any decision concerning this
matter will be made.
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:
None.
13
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Page
- ----------- ----
10. Revolving credit agreement, dated December 17, 1993,
by and among the Company, as Borrower, Union Bank of
Switzerland, Houston Agency and National Westminister
Bank Plc., New York Branch as Co-Agents and Union Bank
of Switzerland, Houston Agency as Agent. 16-40
11. Statement Regarding Computation of Earnings Per Share 41
99(a). News Release on Proposal to Merge With WLR Foods, Inc. 42-45
99(b). News Release by WLR Foods Rejecting the Company's
Proposal to Merge and Announcing the Adoption of a
Shareholder Rights Protection Plan Together with
Letters to WLR Foods Shareholders. 46-50
99(c). Legal Proceedings by WLR Foods Against the Company as
Filed in the United States District Court for the
Western District of Virginia, Harrisonburg Division. 51-54
14
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 15, 1994 /s/ Gerald Johnston
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Gerald Johnston
Executive Vice President,
Finance
Date: February 15, 1994 /s/ Gary Johnson
----------------- ----------------
Gary Johnson
Corporate Controller
15