UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 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 July 3, 1999
- ------------------------------------ -------------------------
Class A Common Stock, $.10 Par Value 126,939,806 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
July 3, 1999 and October 3, 1998 3
Consolidated Condensed Statements of Income
for the Three Months and Nine Months Ended
July 3, 1999 and June 27, 1998 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended
July 3, 1999 and June 27, 1998 5
Notes to Consolidated Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosure About
Market Risks 14-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions except per share amounts)
(Unaudited)
July 3, October 3,
1999 1998
ASSETS ________ _________
Current Assets:
Cash and cash equivalents $ 55.0 $ 46.5
Accounts receivable 612.0 631.0
Inventories 1,027.2 984.1
Assets held for sale 184.8 65.2
Other current assets 46.8 38.3
_______ _______
Total Current Assets 1,925.8 1,765.1
Net Property, Plant, and Equipment 2,211.1 2,256.5
Excess of Investments over Net Assets Acquired 1,014.3 1,035.8
Investments and Other Assets 209.4 185.1
________ ________
Total Assets $5,360.6 $5,242.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 82.3 $ 84.7
Current portion of long-term debt 226.7 77.6
Trade accounts payable 365.4 330.6
Other accrued liabilities 527.3 338.1
_______ _______
Total Current Liabilities 1,201.7 831.0
Long-Term Debt 1,640.1 1,966.6
Deferred Income Taxes 357.7 434.4
Other Liabilities 52.8 40.1
Shareholders' Equity:
Common stock ($.10 par value):
Class A-Authorized 900 million shares;
issued 137.9 million shares at
7-3-99 and 10-3-98 13.8 13.8
Class B-Authorized 900 million shares;
issued 102.7 million shares at
7-3-99 and 10-3-98 10.3 10.3
Capital in excess of par value 740.2 740.5
Retained earnings 1,566.6 1,394.2
Other accumulated comprehensive income (4.1) (1.0)
_______ _______
2,326.8 2,157.8
Less treasury stock, at cost-
11.1 million shares at 7-3-99 and
9.7 million shares at 10-3-98 216.4 185.1
Less unamortized deferred compensation 2.1 2.3
________ ________
Total Shareholders' Equity 2,108.3 1,970.4
________ ________
Total Liabilities and Shareholders' Equity $5,360.6 $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 Nine Months Ended
__________________ _________________
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
________ ________ _______ ________
Sales $1,881.3 $1,953.6 $5,547.3 $5,345.2
Cost of Sales 1,531.1 1,645.2 4,569.6 4,507.3
------- ------- ------- -------
Gross Profit 350.2 308.4 977.7 837.9
Expenses:
Selling 150.2 156.0 441.9 436.8
General and administrative 34.2 36.5 99.9 101.4
Loss on sale of seafood assets 16.6 - 16.6 -
Amortization 9.2 8.3 26.7 22.5
------- ------- ------- -------
Operating Income 140.0 107.6 392.6 277.2
Other Expense (Income):
Interest 30.5 37.6 93.7 102.8
Foreign currency exchange (0.5) (4.5)
Other (2.2) (4.0) (4.9) (7.8)
------- ------- ------- -------
Income Before Taxes on Income 112.2 74.0 308.3 182.2
Provision for Income Taxes 40.7 27.4 110.5 67.4
Minority Interest 3.1 9.0
------- ------- ------- -------
Net Income $ 68.4 $ 46.6 $ 188.8 $ 114.8
======= ======= ======= =======
Basic Average Shares Outstanding 229.5 230.7 230.3 225.1
===== ===== ===== =====
Basic Earnings Per Share $0.30 $0.20 $0.82 $0.51
===== ===== ===== =====
Diluted Average Shares Outstanding 230.7 232.5 231.5 226.4
===== ===== ===== =====
Diluted Earnings Per Share $0.30 $0.20 $0.82 $0.51
===== ===== ===== =====
Cash Dividends Per Share:
Class A $0.0250 $0.0250 $0.0750 $0.0750
Class B $0.0225 $0.0225 $0.0675 $0.0675
The accompanying notes are an integral part of these financial statements.
4
TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended
_________________
July 3, June 27,
1999 1998
_______ _______
Cash Flows from Operating Activities:
Net income $188.8 $114.8
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 191.7 175.3
Amortization 26.7 22.6
Loss on sale of seafood assets 16.6 -
Foreign currency exchange (4.5) -
Deferred income taxes (76.2) (61.4)
Gain on dispositions of assets (0.3) (3.2)
(Increase) decrease in accounts receivable (1.8) 20.3
(Increase) decrease in inventories (74.4) 15.3
Increase in trade accounts payable 43.2 7.9
Net change in other current assets
and liabilities 169.0 61.2
_____ ______
Cash Provided by Operating Activities 478.8 352.8
Cash Flows from Investing Activities:
Net cash paid for acquisitions - (257.4)
Additions to property, plant and equipment (279.8) (203.1)
Proceeds from sale of property, plant and equipment 60.0 130.6
Net change in other assets and liabilities (25.8) (12.9)
_____ ______
Cash Used for Investing Activities (245.6) (342.8)
Cash Flows from Financing Activities:
Net change in notes payable (2.4) (77.2)
Proceeds from long-term debt 73.5 1,091.9
Repayments of long-term debt (250.9) (987.9)
Purchases of treasury shares (34.8) (16.4)
Other (11.6) (14.3)
_____ ______
Cash Used for Financing Activities (226.2) (3.9)
Effect of Exchange Rate Change on Cash 1.5 (0.1)
_____ ______
Increase in Cash and Cash Equivalents 8.5 6.0
Cash and Cash Equivalents at Beginning of Period 46.5 23.6
______ ______
Cash and Cash Equivalents at End of Period $55.0 $29.6
====== ======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $94.0 $119.0
Income taxes $67.1 $ 62.4
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 July 3, 1999 and
October 3, 1998 and the results of operations for the three months and nine
months ended July 3, 1999 and June 27, 1998 and cash flows for the nine
months ended July 3, 1999 and June 27, 1998. The results of operations for
the three months and nine months ended and cash flows for the nine months
ended July 3, 1999 and June 27, 1998 are not necessarily indicative of the
results to be expected for the full year.
Effective for fiscal 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No.
130). The provisions of SFAS No. 130 require companies to classify items
of comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately
from retained earnings and capital in excess of par value in the
consolidated financial statements. The only difference between total
comprehensive income and net income reported on the Consolidated Condensed
Statements of Income arises from foreign currency translation adjustment.
The Company's total comprehensive income for the three months ended July 3,
1999 and June 27, 1998 was $66.1 million and $46.2 million, respectively.
The Company's total comprehensive income for the nine months ended July 3,
1999 and June 27, 1998 was $185.7 million and $114.8 million, respectively.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) requires
public business enterprises to report financial and descriptive information
about its reportable segments. SFAS No. 131 is effective for fiscal 1999,
but need not be applied to interim financial statements in the initial year
of adoption. The Company recently announced a new organizational
structure which will realign the Company into groups designed around the
6
marketplace and the Company's customers and consumers. Management is
currently evaluating its new organizational structure to determine its
reportable segments.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133). The provisions of SFAS No. 133 requires all derivatives to
be recorded on the balance sheet at fair value. SFAS No. 133 establishes
"special accounting" for fair value hedges, cash flow hedges, and hedges of
foreign currency exposures of net investments in foreign operations.
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 item through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has
not yet determined what the effect of this statement will be on the
earnings and financial position of the Company when it becomes effective
for fiscal 2001.
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 nine months ended July 3, 1999, except as disclosed in
these notes.
7
2. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three and nine months ended:
(In millions except per share amounts)
Three Months Ended Nine Months Ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
------- -------- ------- --------
Numerator: Net Income $68.4 $46.6 $188.8 $114.8
===== ===== ====== ======
Denominator:
Denominator for basic
earnings per share-
weighted average shares 229.5 230.7 230.3 225.1
Effect of dilutive securities:
Employee stock options 1.2 1.8 1.2 1.3
----- ----- ----- -----
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 230.7 232.5 231.5 226.4
===== ===== ===== =====
Basic earnings per share $0.30 $0.20 $0.82 $0.51
===== ===== ===== =====
Diluted earnings per share $0.30 $0.20 $0.82 $0.51
===== ===== ===== =====
3. Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of the following:
(In millions)
July 3, October 3,
1999 1998
--------- ----------
Finished and work-in-process $ 520.7 $410.4
Live poultry and hogs 357.7 374.2
Seafood related products - 49.2
Hatchery eggs and feed 61.0 71.5
Supplies 87.8 78.8
_________ ______
Total $1,027.2 $984.1
========= ======
4. Dispositions
Effective July 17, 1999, the Company completed the sale of the assets in
its seafood division, Tyson Seafood Group, in two separate transactions.
The analog business was sold to Bumble Bee Seafoods, Inc., a wholly owned
subsidiary of International Home Foods, Inc. of Parsippany, New Jersey.
The remaining seafood assets, which includes vessels, associated fishing
rights and shoreside processing plants, were sold to TT Acquisition, Inc.,
a wholly owned subsidiary of Trident Seafoods Corporation of Seattle,
8
Washington. Under the terms of both agreements, the Company received
proceeds of approximately $180 million, which will be used to reduce
indebtedness. The Company recognized a loss of approximately $16.6 million
($10.5 million after-tax) on the sale of these assets.
5. 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
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 July 3, 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 and the seafood assets which were sold subsequent to
July 3, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
For the nine months ended July 3, 1999 net cash totaling $478.8 million was
provided by all operating activities. Operations provided $342.8 million in
cash and $136 million was provided by net changes in receivables,
inventories, payables and other items. The Company used cash from
operations to fund $279.8 million of property, plant and equipment
additions and pay down debt, net of borrowings, by $179.8 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 July 3, 1999, working capital was $724.1 million compared to $934.1
million at 1998 fiscal year-end, a decrease of $210 million. The current
ratio at July 3, 1999 was to 1.60 to 1 compared to 2.12 to 1 at October 3,
1998. Working capital has decreased since year-end primarily due to
increases in current liabilities. The increase in other current
liabilities includes income taxes payable from the Willow Brook Sale and
the NEPCO Sale that were previously provided for and reclassed from
deferred income taxes payable. The increase in current portion of long-term
debt relates to timing of debt payments. Finished inventories have
increased since year end mainly due to seasonal demand during the summer
months. Assets held for sale have increased since year end due to $180
million of seafood assets sold subsequent to July 3, 1999. Total debt,
including current portion of long-term debt, has decreased since year end.
At July 3, 1999, total debt was 48% 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
9
facilities as well as additional credit facilities which the Company
believes are available.
The Company has an unsecured revolving credit agreement totaling $1 billion
which supports the Company's commercial paper program. This $1 billion
facility expires in May 2002. At July 3, 1999, $357.8 million was
outstanding under this $1 billion facility consisting of $337.8 million in
commercial paper and $20 million drawn under the revolver. Additional
outstanding long-term debt at July 3, 1999 consisted of $879.1 million of
public debt, $164.8 million of institutional notes, $158.5 million in
leveraged equipment loans and $79.9 million of other indebtedness. The
Company may use funds borrowed under its revolving credit facilities,
commercial paper program or through the issuance of additional debt
securities from time to time in the future to finance acquisitions as
opportunities may arise, to refinance other indebtedness or capital leases
of the Company and for other general corporate purposes.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 1999 decreased 3.7% from the same
period of fiscal 1998. This decrease is mainly due to the sale of non-core
businesses prior to the third quarter of fiscal 1999 offset somewhat by the
inclusion of Tyson de Mexico on a consolidated basis. Third quarter sales
were also impacted by an industry-wide over supply of chicken and other
meats which affected sales prices. This over supply is expected to
continue in the near future and as a result, the Company anticipates
cutting back chicken production. Consumer poultry sales accounted for
an increase of 2.9% of the total change in sales for the third quarter of
fiscal 1999 as compared to the same period of fiscal 1998. This increase
was due to an 8.5% increase in tonnage offset somewhat by a 4.5% decrease
in average sales prices.
The prepared foods group sales accounted for an increase of 0.3% of the
total change in sales for the third quarter of fiscal 1999 as compared to
the same period of fiscal 1998. This increase was primarily due to a 6.1%
increase in tonnage and a 2.7% increase in average sales prices. Seafood
sales accounted for a decrease of 0.5% of the change in total sales for the
third quarter of fiscal 1999 as compared to the same period of fiscal 1998.
This decrease was due to a 21.6% decrease in tonnage offset slightly by a
3.3% increase in average sales prices. Sales of live swine and other as a
group accounted for a decrease of 6.4% of the change in total sales for the
third quarter of fiscal 1999 as compared to the same period of fiscal 1998.
This decrease is mainly due to the Willow Brook Sale and the Nepco Sale at
the end of the first quarter of fiscal 1999.
Sales for the first nine months of fiscal 1999 increased 3.8% from the same
period of fiscal 1998. This increase is mainly due to volume gained from
the Hudson Acquisition and the inclusion of Tyson de Mexico on a
consolidated basis. Consumer poultry sales accounted for an increase of
7.1% of the total change in sales for the first nine months of fiscal 1999
as compared to the same period of fiscal 1998. This increase was due to a
16.1% increase in tonnage offset somewhat by a 6.3% decrease in average
sales prices.
10
The prepared foods group sales accounted for an increase of 0.3% of the
total change in sales for the first nine months of fiscal 1999 as compared
to the same period of fiscal 1998. This increase was primarily due to a 9%
increase in average sales prices slightly offset by a 0.4% decrease in
tonnage. Seafood sales accounted for an increase of 0.6% of the change in
total sales for the first nine months of fiscal 1999 as compared to the
same period of fiscal 1998. This increase was due to a 19.4% increase in
tonnage with average sales prices remaining steady. Sales of live swine and
other as a group accounted for a decrease of 4.2% of the change in total
sales for the first nine months of fiscal 1999 as compared to the same
period of fiscal 1998.
The live swine business experienced a significant decrease in market prices
for the first nine months of fiscal 1999 compared to the first nine months
of fiscal 1998, resulting in a live swine group net loss for the third
quarter and for the nine months of fiscal 1999. Management cannot predict
future market prices for live swine, but anticipates continued losses from
its live swine business into fiscal 2000. In addition, management is
pursuing alternative courses of action for this business which includes
closure of some production facilities and the possible divestiture of the
remaining swine group assets.
Cost of goods sold decreased 6.9% for the third quarter of fiscal 1999 as
compared to the same period of fiscal 1998. This decrease is a result of
the decrease in sales and lower grain costs. As a percent of sales, cost
of sales was 81.4% for the third quarter of fiscal 1999 compared to 84.2%
for the third quarter of fiscal 1998.
Cost of goods sold increased 1.4% for the first nine months of fiscal 1999
as compared to the same period of fiscal 1998. This increase is mainly the
result of the increase in sales offset somewhat by lower grain costs. As a
percent of sales, cost of sales was 82.4% for the first nine months of
fiscal 1999 compared to 84.3% for the first nine months of fiscal 1998.
Operating expenses increased 4.7% for the third quarter of fiscal 1999 over
the same quarter of fiscal 1998 mainly due to the loss on sale of seafood
assets. Selling expense, as a percent of sales, was 8% for the third
quarter of fiscal 1999 and fiscal 1998. General and administrative
expense, as a percent of sales, decreased to 1.8% in the third quarter of
fiscal 1999 from 1.9% in the third quarter of fiscal 1998. Amortization
expense, as a percent of sales, was 0.5% in the third quarter of fiscal
1999 and 0.4% in the third quarter of fiscal 1998. The increase in
amortization expense is mainly due to additional amortization related to
the Hudson Acquisition.
Operating expenses increased 4.4% for the first nine months of fiscal 1999
over the same period of fiscal 1998 mostly due to the Hudson Acquisition
and the loss on sale of seafood assets. Selling expense, as a percent of
sales, decreased to 8.0% for the first nine months of fiscal 1999 as
compared to 8.2% for the first nine months of fiscal 1998. General and
administrative expense, as a percent of sales, was 1.8% for the first nine
months of fiscal 1999 compared to 1.9% for the same period last year.
Amortization expense, as a percent of sales, was 0.5% for the first nine
months of fiscal 1999 and 0.4% for the first nine months of fiscal 1998.
11
Interest expense decreased 18.9% for the third quarter of fiscal 1999
compared to the same quarter of fiscal 1998 primarily as a result of a 14%
decrease in the Company's average indebtedness over the same period last
year. Additionally, the net average effective interest rate of all Company
debt for the third quarter of fiscal 1999 decreased to 6.1% compared to
6.5% for the same period last year primarily as a result of lower short-
term borrowing costs.
Interest expense decreased 8.9% for the first nine months of fiscal 1999
compared to the first nine months of fiscal 1998 as a result of a 3.7%
decrease in the Company's average indebtedness over the same period last
year. Additionally, the net average effective interest rate of all Company
debt for the first nine months of fiscal 1999 decreased to 6.2% compared to
6.5% for the same period last year.
The effective income tax rate for the third quarter of fiscal 1999 was
36.3% compared to 37% for the same period of fiscal 1998. The effective
income tax rate for the first nine months of fiscal 1999 was 35.8% compared
to 37% for the same period of fiscal 1998. The decrease in the effective
income tax rate for the third quarter and first nine months of fiscal 1999
is 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.
12
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.
Because many of the systems were already compliant, did not require
significant modifications to make them compliant, or were replaced for
other business reasons, the costs incurred specifically to address Year
2000 readiness are not material to the Company. Since 1996, the expenses
that resulted from Year 2000 readiness activities have been absorbed
through the annual Management Information Systems operational budget and
funded from internally generated funds. These costs can be primarily
described as personnel costs and have increased each year since 1996
because of increased activity from testing. The costs incurred since 1996
are approximately $1.5 million 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 99 percent of the personal computers have
been certified as being Year 2000 ready with the remainder to be replaced.
The telephone systems in use by the Company have also been surveyed. There
are more than 170 of these systems currently in use. One of these systems
currently has a Year 2000 issue that needs to be resolved. It is expected
that this system will be addressed by the end of fiscal 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 as 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. Tyson has received responses from
approximately 10,000 vendors, and less than 0.5% of the responses received
have identified any type of non-compliance issues which need to be
addressed further. The Company has initiated a second inquiry to the
remaining vendors and expects all responses to be completed by
September 30, 1999.
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.
13
To date, the Company has completed 100 percent of the assessment phase and
approximately 98 percent of the remediation phase. The Company is
currently testing various applications and anticipates continuing this
testing up to December 31, 1999. 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.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company and its representatives may from time to time make written or
oral forward-looking statements, including forward-looking statements made
in this report, with respect to their current views and estimates of
future economic circumstances, industry conditions, company performance and
financial results. These forward-looking statements are subject to a number
of factors and uncertainties which could cause the Company's actual results
and experiences to differ materially from the anticipated results and
expectations, expressed in such forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any forward-
looking statements, which speak only as of the date made. Among the factors
that may affect the operating results of the Company are the following:
(i) fluctuations in the cost and availability of raw materials, such as
feed grain costs in relation to historical levels; (ii) changes in the
availability and relative costs of labor and contract growers; (iii)
market conditions for finished products, including the supply and pricing
of alternative proteins, all of which may impact the Company's pricing
power; (iv) effectiveness of advertising and marketing programs; (v) the
ability of the Company to make effective acquisitions and successfully
integrate newly acquired businesses into existing operations; (vi) risks
associated with leverage, including cost increases due to rising
interest rates; (vii) changes in regulations and laws, including changes
in accounting standards, environmental laws, occupational, health and
safety laws, and laws regulating fishing and seafood processing activities;
(viii) issues related to food safety, including costs resulting from
product recalls, regulatory compliance and any related claims or
litigation; (ix) access to foreign markets together with foreign economic
conditions, including currency fluctuations; and (x) the effect of, or
changes in, general economic conditions.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
Market risks relating to the Company's operations result primarily from
changes in commodity prices and interest 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.
14
Commodities Risk
The Company is a purchaser of certain commodities, primarily corn, soybean
meal 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 commodity
inventory and futures contracts for corn and soybean meal that are
sensitive to changes in commodity prices. The table presents the carrying
amounts and fair values at July 3, 1999. Additionally, for the futures
contracts, the latest which matures 9 months from the reporting date,
the 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 meal 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 - $25.7 $ - $25.7 $ -
Futures Contracts
Corn (in bushels)
Long (Buy) Positions 25.9 $59.4 $2.30 $57.6 $2.23
Short (Sell) Positions 0.4 $0.9 $2.13 $0.9 $2.11
Soybean Meal
Long (Buy) Positions - $5.8 $136.7 $5.8 $136.6
Puts/Calls
Corn (in bushels)
Short Put 5.0 $0.2 $0.045 $0.6 $0.12
=========================================================================
Interest Rate Risks
The Company 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%.
15
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.
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
7/3/99
___________________________________________________________________________
Liabilities
Long-term Debt,
including
Current Portion
Fixed Rate 176.4 125.3 73.4 177.4 29.0 809.0 1,390.5 1,395.7
Average Interest
Rate 6.84% 8.20% 9.44% 6.18% 7.10% 6.82% 7.01%
Variable Rate 68.5 - 357.8 - - 50.0 476.3 476.3
Average Interest
Rate 5.73% - 5.13% - - 3.65% 5.06%
Interest Rate
Derivative Financial
Instruments Related
to Debt
Interest Rate Swaps
Pay Fixed 4.8 17.2 18.4 19.6 21.6 50.2 131.7 (1.6)
Average Pay Rate 6.55% 6.71% 6.69% 6.73% 6.73% 6.59% 6.66%
Average Receive Rate- USD 6 Month Libor.
===========================================================================
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 22, 1999, eleven current and/or former employees of the Company
filed the case of "M.H. Fox, et al. v. Tyson Foods, Inc." in the United
States District Court for the Northern District of Alabama claiming that
the Company has violated the requirements of the Fair Labor Standards Act.
The suit alleges that the Company has failed to pay employees for all hours
worked and/or has improperly paid them for overtime hours. The suit
alleges that employees should be paid for the time it takes them to put on
and take off certain working supplies at the beginning and end of their
shifts and breaks. The suit also alleges that the use of "mastercard" or
"line" time fails to pay employees for all time actually worked.
Plaintiffs purport to represent themselves and a class of all similarly
situated current and former employees of the Company. A total of 159
consents were filed with the complaint on behalf of persons to join the
lawsuit and, to date, approximately 850 consents have been filed with the
court. This case is in the preliminary stages and the Company is presently
required to file a response to the complaint on August 17, 1999. The
Company believes it has substantial defenses to the claims made in this
case 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.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
17
Item 5. Other Information
2000 Annual Meeting
The Company's 2000 Annual Meeting is currently scheduled for
January 14, 2000. Accordingly, pursuant to the Company's bylaws, for any
business to be brought before the 2000 Annual Meeting by a proponent
shareholder, written notice (in proper form as required by the Company's
Bylaws) must be provided to R. Read Hudson, the Company's Secretary, at
2210 West Oaklawn Drive, Springdale, Arkansas 72762-6999, no later than
October 31, 1999 and no earlier than October 6, 1999.
Mallard's Sale
Effective July 19, 1999, the Company signed a letter of intent for the sale
of Mallard's Food Products, a division of the Company's Prepared Foods
Group. The Company is still involved in negotiations concerning assumption
of liabilities and reimbursable expenses which will be included in a
definitive agreement. The sale is expected to be finalized in the fourth
quarter of fiscal 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The exhibits filed with this report are listed in the exhibit index at the
end of this Item 6.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K for the quarter ended
July 3, 1999.
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Page
- ----------- ----
3.1 Restated Certificate of Incorporation of the Company
(previously filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 3, 1998, Commission File No. 0-3400, and
incorporated herein by reference).
3.2 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
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TYSON FOODS, INC.
Date: August 17, 1999 /s/ Steven Hankins
--------------- ----------------------------
Steven Hankins
Executive Vice President and
Chief Financial Officer
Date: August 17, 1999 /s/ James G. Ennis
--------------- ----------------------------
James G. Ennis
Vice President, Controller and
Chief Accounting Officer
19