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 January 2, 1999
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 2, 1999
- ------------------------------------ ---------------------------
Class A Common Stock, $.10 Par Value 128,056,701 Shares
Class B Common Stock, $.10 Par Value 102,645,423 Shares
Page 1
TYSON FOODS, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
January 2, 1999 and October 3, 1998 3
Consolidated Condensed Statements of Income
for the Three Months Ended
January 2, 1999 and December 27, 1997 4
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended
January 2, 1999 and December 27, 1997 5
Notes to Consolidated Condensed Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-12
Item 3. Quantitative and Qualitative Disclosure About
Market Risks 12-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 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 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)
January 2, October 3,
ASSETS 1999 1998
Current Assets:
Cash and cash equivalents $ 53.6 $ 46.5
Accounts receivable 633.6 631.0
Inventories 1,008.9 984.1
Assets held for sale 8.6 65.2
Other current assets 31.9 38.3
_______ _______
Total Current Assets 1,736.6 1,765.1
Net Property, Plant, and Equipment 2,275.7 2,256.5
Excess of Investments over Net Assets Acquired 1,046.4 1,035.8
Investments and Other Assets 189.8 185.1
________ ________
Total Assets $5,248.5 $5,242.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 119.7 $ 84.7
Current portion of long-term debt 74.1 77.6
Trade accounts payable 385.6 330.6
Other accrued liabilities 375.9 338.1
_______ _______
Total Current Liabilities 955.3 831.0
Long-Term Debt 1,823.5 1,966.6
Deferred Income Taxes 411.1 434.4
Other Liabilities 42.4 40.1
Shareholders' Equity:
Common stock ($.10 par value):
Class A-Authorized 900 million shares;
issued 137.9 million shares at
1-2-99 and 10-3-98 13.8 13.8
Class B-Authorized 900 million shares;
issued 102.7 million shares at
1-2-99 and 10-3-98 10.3 10.3
Capital in excess of par value 740.4 740.5
Retained earnings 1,444.5 1,394.2
Currency translation adjustment (1.0)
_______ _______
2,209.0 2,157.8
Less treasury stock, at cost-
9.9 million shares at 1-2-99 and
9.7 million shares at 10-3-98 190.6 185.1
Less unamortized deferred compensation 2.2 2.3
________ ________
Total Shareholders' Equity 2,016.2 1,970.4
________ ________
Total Liabilities and Shareholders' Equity $5,248.5 $5,242.5
======== ========
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
__________________
January 2, December 27,
1999 1997
__________ ___________
Sales $1,824.7 $1,520.8
Cost of Sales 1,519.4 1,260.1
------- --------
Gross Profit 305.3 260.7
Expenses:
Selling 145.7 125.6
General and administrative 32.6 31.3
Amortization 8.6 5.9
------- -------
Operating Income 118.4 97.9
Other Expense (Income):
Interest 31.3 27.2
Foreign currency exchange (1.7)
Other (2.8) (0.6)
------- -------
Income Before Taxes on Income 91.6 71.3
Provision for Income Taxes 32.8 26.4
Minority Interest 3.0
------- -------
Net Income $ 55.8 $ 44.9
======= =======
Basic Average Shares Outstanding 230.8 213.3
===== =====
Basic Earnings Per Share $0.24 $0.21
===== =====
Diluted Average Shares Outstanding 232.1 215.0
===== =====
Diluted Earnings Per Share $0.24 $0.21
===== =====
Cash Dividends Per Share:
Class A $0.0250 $0.0250
Class B $0.0225 $0.0225
The accompanying notes are an integral part of these financial statements.
4
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Three Months Ended
__________________
January 2, December 27,
1999 1997
_________ ___________
Cash Flows from Operating Activities:
Net income $ 55.8 $ 44.9
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 64.9 51.7
Amortization 8.6 5.9
Foreign currency exchange (1.7)
Deferred income taxes (23.3) (3.4)
(Gain)loss on dispositions of assets (0.9) 0.6
Decrease in accounts receivable 43.9 28.1
Increase in inventories (24.8) (28.4)
Increase(decrease) in trade accounts payable 54.4 (21.3)
Net change in other current assets
and liabilities 44.1 (9.9)
_____ ______
Cash Provided by Operating Activities 221.0 68.2
Cash Flows from Investing Activities:
Additions to property, plant and equipment (107.8) (50.3)
Proceeds from sale of property, plant and equipment 19.1 2.4
Net change in other assets and liabilities (3.6) (10.6)
_____ ______
Cash Used for Investing Activities (92.3) (58.5)
Cash Flows from Financing Activities:
Net change in notes payable 34.9 101.5
Proceeds from long-term debt 14.2 20.4
Repayments of long-term debt (160.8) (121.2)
Purchases of treasury shares (6.1) (5.5)
Other (2.2) (4.2)
_____ ______
Cash Used for Financing Activities (120.0) (9.0)
Effect of Exchange Rate Change on Cash (1.6) (0.1)
_____ ______
Increase in Cash and Cash Equivalents 7.1 0.6
Cash and Cash Equivalents at Beginning of Period 46.5 23.6
______ ______
Cash and Cash Equivalents at End of Period $ 53.6 $ 24.2
====== ======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $29.9 $45.8
Income taxes $27.7 $2.1
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 3, 1998. 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 January 2, 1999 and
October 3, 1998 and the results of operations and cash flows for the three
months ended January 2, 1999 and December 27, 1997. The results of
operations and cash flows for the three months ended January 2, 1999 and
December 27, 1997 are not necessarily indicative of the results to be
expected for the full year.
The Notes to Consolidated Financial Statements for the fiscal year
ended October 3, 1998, 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 2, 1999, except as disclosed in
these notes.
6
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended:
Quarter Ended
(In millions except per share amounts)
January 2, December 27,
1999 1997
--------- -----------
Numerator:
Net Income $55.8 $44.9
===== =====
Denominator:
Denominator for basic
earnings per share-
weighted average shares 230.8 213.3
Effect of dilutive securities:
Employee stock options 1.3 1.7
----- -----
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 232.1 215.0
===== =====
Basic earnings per share $0.24 $0.21
===== =====
Diluted earnings per share $0.24 $0.21
===== =====
3. Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of the following:
(In millions)
January 2, October 3,
1999 1998
--------- ----------
Finished and work-in-process $ 434.6 $410.4
Live poultry and hogs 385.5 374.2
Seafood related products 38.6 49.2
Hatchery eggs and feed 65.6 71.5
Supplies 84.6 78.8
________ ______
Total $1,008.9 $984.1
======== ======
4. Assets held for sale
Effective December 31, 1998, the Company sold Willow Brook Foods, its
integrated turkey production and processing business, and its Albert Lea,
Minn., processing facility which primarily produced the Schweigert brand of
sausages, lunch and deli meats, to PLF Meats, Inc., a subsidiary of MCMI
Food, Inc. of San Antonio, Texas (collectively, the "Willow Brook Sale").
In addition, on December 31, 1998, the Company sold its National Egg
7
Products Company operations in Social Circle, Ga. to Rose Acre Farms, Inc.
of Seymour, Indiana (the "NEPCO Sale"). These facilities were sold for
amounts which approximated their carrying values. These operations, which
were reflected in assets held for sale at October 3, 1998, were acquired as
part of the acquisition of Hudson Foods, Inc. ("Hudson") in January 1998
(the "Hudson Acquisition"). The remaining balance of assets held for sale
at January 2, 1999 relates to facilities identified for closing under the
Company's restructuring program which are expected to be disposed of within
the next twelve months.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
For the three months ended January 2, 1999, net cash totaling $221 million
was provided by all operating activities. Operations provided $103.4
million in cash and $117.6 million was provided by net changes in
receivables, inventories, payables and other items. The Company used cash
from operations to fund $107.8 million of property, plant and equipment
additions and pay down debt by $160.8 million. 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 January 2, 1999, working capital was $781.3 million compared to $934.1
million at 1998 fiscal year-end, a decrease of $152.8 million. The current
ratio at January 2, 1999 was 1.82 to 1 compared to 2.12 to 1 at October 3,
1998. Working capital has decreased since year-end primarily due to a
decrease in assets held for sale and increases in notes payable, accounts
payable and other current liabilities. The decrease in assets held for
sale is mainly due to completion of the Willow Brook Sale and the NEPCO
Sale effective December 31, 1998. At January 2, 1999, total debt was 50%
of total capitalization compared to 51.9% at October 3, 1998. 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 January 2, 1999, $372.5 million was
outstanding under this $1 billion facility consisting of $242.5 million in
commercial paper and $130 million drawn under the revolver. Additional
outstanding long-term debt at January 2, 1999 consisted of $1,028.4 million
of public debt, $221.6 million of institutional notes, $181.9 million in
leveraged equipment loans and $93.2 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.
8
RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 1999 increased 20% from the same
period of fiscal 1998. This increase is mainly due to an increase in total
volume. Consumer poultry sales, excluding turkey, accounted for an
increase of 15.5% of the total change in sales for the first quarter of
fiscal 1999 as compared to the same period of fiscal 1998. This increase
was due to a 28% increase in tonnage offset somewhat by a 7.3% decrease in
average sales prices. A significant portion of the increase in total sales
and consumer poultry sales for the first quarter of fiscal 1999 compared to
the first quarter of fiscal 1998 is due to volume gained from the Hudson
Acquisition and the inclusion of Tyson de Mexico on a consolidated basis.
The prepared foods group sales accounted for an increase of 0.6% of the
total change in sales for the first quarter of fiscal 1999 as compared to
the same period of fiscal 1998. This increase was primarily due to a 15.5%
increase in average sales prices slightly offset by a 1.3% decrease in
tonnage. Seafood sales accounted for an increase of 1% of the change in
total sales for the first quarter of fiscal 1999 as compared to the same
period of fiscal 1998. This increase was due to a 49.4% increase in tonnage
mostly offset by a 9.6% decrease in average sales prices. The seafood
operations continue to be affected by the availability of some species of
fish as well as reduced pricing on some products and other regulations
which limit its source of supply. Sales of live swine and other as a group
accounted for an increase of 2.9% of the change in total sales for the
first quarter of fiscal 1999 as compared to the same period of fiscal 1998.
The live swine business experienced a significant decrease in market prices
in the first quarter of fiscal 1999 compared to the same quarter last year,
resulting in a live swine group net loss of $.06 per share. Management
cannot predict future market prices for live swine, but anticipates
continued losses at least through the second quarter of fiscal 1999.
In fiscal 1998, the Company announced a strategy of focusing on its core
business - producing and marketing chicken and poultry based food products
- - while reviewing the possibility of divesting other non-core assets. On
January 18, 1999, the Company announced that it is exploring the
possibility of divesting its live swine and seafood assets. The Company is
in the early stages of this process but has received indications of
interest on certain of these assets. During this process, the Company
intends to manage these operations in a manner that maximizes value,
regardless of whether the live swine and seafood assets are sold or
continue to be part of the Company.
Cost of goods sold increased 20.6% for the first quarter of fiscal 1999 as
compared to the same period of fiscal 1998. This increase is mainly the
result of the increase in sales. As a percent of sales, cost of sales was
83.3% for the first quarter of fiscal 1999 compared to 82.9% for the first
quarter of fiscal 1998.
Operating expenses increased 14.8% for the first quarter of fiscal 1999
over the same quarter of fiscal 1998 mostly due to the Hudson Acquisition.
Selling expense, as a percent of sales, decreased to 8% for the first
quarter of fiscal 1999 as compared to 8.3% for the first quarter of fiscal
1998. General and administrative expense, as a percent of sales, was 1.8%
in the first quarter of fiscal 1999 compared to 2.1% in the same quarter
last year. Included in general and administrative expense for the first
9
quarter of fiscal 1998 is a charge of $6 million for penalties and costs
associated with the plea agreement by the Company with respect to the
investigation by the Office of Independent Counsel in connection with
former Secretary of Agriculture Michael Espy. Amortization expense, as a
percent of sales, was 0.5% in the first quarter of fiscal 1999 and 0.4% in
the first quarter of fiscal 1998. The increase in amortization expense is
mainly due to additional amortization related to the Hudson Acquisition.
Interest expense increased 15.1% for the first quarter of fiscal 1999
compared to the same quarter of fiscal 1998 primarily as a result of a
17.2% increase in the Company's average indebtedness over the same period
last year. The net average effective interest rate of all Company debt
decreased to 6.3% compared to 6.4% for the same period last year.
The effective income tax rate for the first quarter of fiscal 1999 was
35.8% compared to 37% for the same period of fiscal 1998 due in part to
foreign subsidiary earnings being taxed at their applicable foreign rate.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
Because of the nature of the Year 2000 issue, older software is more likely
to have issues with Year 2000 readiness, while newer software is more
likely to be Year 2000 compliant. The Company has replaced its entire
computer software applications portfolio since 1990. Nonetheless, the
Company has been working on testing and ensuring application readiness
since 1996. Many of the applications that are used to support core
business processes have been taken to offsite computer testing facilities
to ensure their Year 2000 readiness. This includes core application
functionality as well as interfaces to other applications and outside
partners.
In addition to the testing that has been done, the Company has been in
contact with the providers of packaged software applications to ensure that
these packages are also Year 2000 ready. To this point, all suppliers of
software have provided some approach for the Company to ensure readiness,
either through upgrades or new products. Most of these solutions have
already been implemented. Those remaining will be completed by March 31,
1999.
In certain instances, software has been purchased to provide new
functionality for the Company replacing software that was not compliant.
These purchases were not predicated by the Year 2000 issue; however, the
result is that the new systems are compliant and non-compliant systems are
ultimately retired. An example of this is the implementation of new
accounting software from SAP that the Company installed at the beginning of
the 1999 fiscal year.
10
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 $1.4 million and are anticipated to be less than $720,000
in 1999. No projects under consideration by the Company have been deferred
because of Year 2000 efforts.
Because of the rapid pace of change in technology, especially in the area
of hardware, the Company regularly upgrades and replaces hardware platforms
such as database and application servers. Consequently, all of the servers
are Year 2000 ready. More than 90 percent of the personal computers have
been certified as being Year 2000 ready with the remainder to be completed
by mid year or replaced.
The telephone systems in use by the Company have also been surveyed. There
are more than 170 of these systems currently in use. Three of these
systems currently have Year 2000 issues that need to be resolved. It is
expected that these systems will be addressed by March 31, 1999.
The embedded technology in the production environment, such as programmable
logic controllers, computer-controlled valves and other equipment, has been
inventoried and the Company has contacted the vendors who supplied this
technology with respect to their Year 2000 readiness. While not all of the
responses have been received, those that have responded have given a
positive response to their Year 2000 readiness. Based on current evidence,
the Company believes there to be no significant exposure with regard to
production equipment.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure
to remediate their own Year 2000 issues. The Company's total Year 2000
project cost, which is not expected to have a material effect on the
Company's results of operations, includes the estimated costs and time
associated with the impact of third party Year 2000 issues based upon
presently available information. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
converted timely or would not have an adverse effect on the Company's
systems.
To date, the Company has not established a contingency plan for possible
Year 2000 issues. The Company will establish contingency plans, if needed,
based on its actual testing experience with its supplier base and
assessment of outside risks.
11
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 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, including those related
to the Company's ability to effectively assimilate Hudson, 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,
including Hudson, 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, and laws
regulating fishing and seafood processing activities; (viii) access to
foreign markets together with foreign economic conditions, including
currency fluctuations; and (ix) the effect of, or changes in, general
economic conditions.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
Market risks relating to the Company's operations result primarily from
changes in commodity prices, interest rates and foreign exchange rates. To
address these risks the Company enters into various hedging transactions as
described below. The Company does not use financial instruments for trading
purposes and is not a party to any leveraged derivatives.
Commodities Risk
The Company is a purchaser of certain commodities, primarily corn and
soybean oil. The Company periodically uses commodity futures and purchased
options for hedging purposes to reduce the effect of changing commodity
prices and as a mechanism to procure the commodities. The contracts that
effectively meet risk reduction and correlation criteria are recorded using
hedge accounting. Gains and losses on closed hedge transactions are
recorded as a component of the underlying inventory purchase.
The following table provides information about the Company's corn, soybean
oil and other feed ingredient inventory and futures contracts that are
sensitive to changes in commodity prices. The table presents the carrying
amounts and fair values at January 2, 1999. Additionally, for the futures
contracts, the latest which matures 12 months from the reporting date, the
12
table presents the notional amounts in units of purchase, the weighted
average contract prices and the total dollar contract amounts. Contract
amounts are used to calculate the contractual payments and quantity of corn
and soybean oil to be exchanged under the futures contracts.
(dollars and volume in millions, except per unit amounts)
- ---------------------------------------------------------------------------
Volume Contract/ Weighted Fair Weighted
Book Value Average Price Value Average
Per Unit Price Per
Unit
- ---------------------------------------------------------------------------
Commodity Inventory - $29.9 $ - $29.9 $ -
Corn Futures Contracts
(volume in bushels)
Long (Buy) Positions 6.9 $15.9 $2.30 $15.7 $2.27
Short (Sell) Positions 7.5 $16.8 $2.24 $16.6 $2.21
===========================================================================
Foreign Currency and Interest Rate Risks
The Company periodically enters into foreign exchange forward contracts and
option contracts to hedge some of its foreign currency exposure. The
Company uses such contracts to hedge exposure to changes in foreign
currency exchange rates, primarily Japanese Yen, associated with sales
denominated in foreign currency. Gains and losses on these contracts are
recognized as an adjustment of the subsequent transaction when it occurs.
Forward and option contracts generally have maturities not exceeding 12
months.
The Company also hedges exposure to changes in interest rates on certain of
its financial instruments. Under the terms of various leveraged equipment
loans, the Company enters into interest rate swap agreements to effectively
lock in a fixed interest rate for these borrowings. The maturity dates of
these leveraged equipment loans range from 2005 to 2008 with interest rates
ranging from 4.7% to 6%.
The following table provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. The table presents for the Company's debt
obligations, principal cash flows, related weighted-average interest rates
by expected maturity dates and fair values. For interest rate swaps, the
table presents notional amounts, weighted-average interest rates or strike
rates by contractual maturity dates and fair values. Notional amounts are
used to calculate the contractual cash flows to be exchanged under the
contract.
13
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest (Swap) Rate
___________________________________________________________________________
(dollars in millions)1999 2000 2001 2002 2003 There- Total Fair
after Value
1/2/99
___________________________________________________________________________
Liabilities
Long-term Debt,
including
Current Portion
Fixed Rate $74.1 $277.3 $74.4 $27.3 $178.8 $818.6 $1,450.5 $1,497.0
Average Interest 9.36% 6.40% 9.48% 7.31% 6.19% 6.80% 6.93%
Rate
Variable Rate - $24.6 - $372.5 - $50.0 $447.1 $447.1
Average Interest - 7.38% - 5.65% - 4.15% 5.58%
Rate
Interest Rate
Derivative Financial
Instruments Related
to Debt
Interest Rate Swaps
Pay Fixed $12.2 $17.2 $18.4 $19.6 $21.6 $50.2 $139.2 ($6.8)
Average Pay Rate 6.59% 6.71% 6.69% 6.73% 6.73% 6.59% 6.66%
Average Receive Rate- USD 6 Month Libor.
===========================================================================
The following table summarizes information on instruments and transactions
that are sensitive to foreign currency exchange rates. The table presents
the notional amounts, weighted-average exchange rates by expected
(contractual) maturity dates and fair values. These notional amounts
generally are used to calculate the contractual payments to be exchanged
under the contract.
14
Exposures Related to Derivative Contracts
with United States Dollar Functional Currency
Principal (Notional) Amount by Expected Maturity
Average Forward Foreign Currency Exchange Rate (USD/Foreign Currency)
(dollars in millions)
____________________________________________________________________________
1999 2000 - 2003 There- Total Fair
after Value
1/2/99
____________________________________________________________________________
Sold Option Contracts
to Sell Foreign
Currencies for US$
Japanese Yen
Notional Amount $6.5 - $6.5 -
Weighted Average
Strike Price (Yen)109.48
Purchased Option
Contracts to Sell
Foreign Currencies
for US$
Japanese Yen
Notional Amount $5.6 - $5.6 -
Weighted Average
Strike Price (Yen)126.69
Foreign Forward
Exchange Contracts
Japanese Yen
Notional Amount $10.0 - $10.0 $(0.4)
Weighted Average
Strike Price (Yen)116.21
============================================================================
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On December 16, 1998, Hudson, Michael Gregory, Hudson's former Director of
Customer Relations and Quality Control, and Brent Wolke, the former plant
manager of Hudson's Columbus, Nebraska facility, were indicted by a federal
grand jury in Omaha, Nebraska on two counts-making false statements to the
USDA and conspiracy to make such statements-in connection with the August
1997 recall of Hudson beef products suspected of containing E-coli 0157:H7.
The charges arise out of presentations made on behalf of Hudson between
August 12 and August 20, 1997 (prior to the Hudson Acquisition) to USDA
FSIS officials during Hudson's cooperation with the government in
attempting to identify potentially contaminated product. The government
has conceded that the contamination did not originate in the Hudson plant
and it does not appear that any statements at issue in the indictment
resulted in or are alleged to have resulted in any illnesses. All
defendants have entered not guilty pleas and intend to vigorously defend
the case at trial which will be held in the federal courthouse in Lincoln,
Nebraska on a date yet to be determined by the court. According to the
government, the potential penalty for Hudson is a fine of up to $500,000
and the individual defendants each face the possibility of up to 5 years
imprisonment and fines of up to $250,000.
15
Item 2. Changes in Securities
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 8, 1999:
DIRECTORS VOTES FOR VOTES WITHHELD
_________ _________ ______________
Wayne Britt 1,129,222,245 1,828,539
Neely Cassady 1,129,217,062 1,833,722
Lloyd V. Hackley 1,129,203,161 1,847,623
Gerald M. Johnston 1,129,207,135 1,843,649
Shelby Massey 1,129,202,589 1,848,195
Joe F. Starr 1,129,195,168 1,855,616
Leland Tollett 1,129,198,484 1,852,300
Barbara Tyson 1,129,203,725 1,847,059
Don Tyson 1,129,193,529 1,857,255
John Tyson 1,129,192,575 1,858,209
Fred S. Vorsanger 1,129,193,297 1,857,487
Donald E. Wray 1,129,209,003 1,841,781
No other items were voted on at the annual meeting of shareholders or
during the quarter ended January 2, 1999.
Item 5. Other Information
The Company recently announced a new organizational structure which will
realign the Company into groups designed around the marketplace and the
Company's customers and consumers. The groups, each of which will have a
Group President reporting to the Company's Chief Executive Officer, are:
(1) Tyson Foodservice Group, (2) Tyson Consumer Products Group, (3) Tyson
Prepared Foods Group, and (4) Tyson International Group. Each Group will be
aligned with specific plants and will have profit and loss responsibility.
Additionally, the various administrative and support functions of the
Company have been realigned in six functional areas with an Executive Vice
President in charge of each area also reporting to the Company's Chief
Executive Officer. The Company believes that these changes will better
align its personnel, products and assets with customer demands. This new
organizational structure is not anticipated to have any material costs in
its initial implementation.
16
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
January 2, 1999.
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Page
- ----------- ----
3.1 Certificate of Incorporation of the Company as amended
(previously filed as Exhibit 3(a) to the Company's
Registration Statement on Form S-4 filed with the
Commission on July 8, 1992, Commission File No. 33-49368,
and incorporated herein by reference).
3.2 Amended and Restated Bylaws of the Company (previously
filed as Exhibit 3.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 28, 1996,
Commission File No. 0-3400, and incorporated herein by
reference).
27 Financial Data Schedule
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: February 16, 1999 /s/ Steven Hankins
----------------- ----------------------------
Steven Hankins
Executive Vice President and
Chief Financial Officer
Date: February 16, 1999 /s/ James G. Ennis
----------------- ----------------------------
James G. Ennis
Vice President, Controller and
Chief Accounting Officer
18