<PAGE>
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 2, 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
--- ---
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 2, 1994
- - ------------------------------------ -------------------------------------
Class A Common Stock, $.10 Par Value Shares 79,227,151
Class B Common Stock, $.10 Par Value Shares 68,455,438
Page 1
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<TABLE>
TYSON FOODS, INC.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
<CAPTION>
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
July 2, 1994 and October 2, 1993 3
Consolidated Condensed Statements of Operations
for the Three Months and Nine Months Ended
July 2, 1994 and July 3, 1993 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended
July 2, 1994 and July 3, 1993 5
Notes to Consolidated Condensed Financial
Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II. OTHER INFORMATION 14-19
SIGNATURES 20
</TABLE>
2
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYSON FOODS, INC.
Consolidated Condensed Balance Sheets
(In Thousands)
<CAPTION>
(Unaudited)
July 2, October 2,
Assets 1994 1993
- - ------------------------------------ ------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 46,531 $ 21,547
Accounts receivable 407,273 104,767
Inventories 759,316 675,205
Other current assets 18,718 10,236
---------- ----------
Total Current Assets 1,231,838 811,755
Net Property, Plant, and Equipment 1,552,935 1,435,298
Excess of Investments over Net Assets Acquired 729,557 924,432
Investments and Other Assets 86,127 82,019
---------- ----------
Total Assets $3,600,457 $3,253,504
========== ==========
Liabilities and Shareholders' Equity
- - ------------------------------------
Current Liabilities:
Notes Payable $ 5,173 $ 29,800
Current portion of long-term debt 44,500 73,987
Trade accounts payable 228,723 205,592
Other accrued liabilities 231,130 217,326
--------- ----------
Total Current Liabilities 509,526 526,705
Long-Term Debt 1,350,038 920,465
Deferred Income Taxes 429,213 445,588
Minority Interests in Subsidiary 18,002
Shareholders' Equity:
Common stock 14,815 14,814
Capital in excess of par value 392,306 392,693
Retained earnings 897,785 965,493
Cumulative translation adjustment 804
---------- ----------
1,305,710 1,373,000
Less treasury stock 8,696 11,359
Less unamortized deferred compensation 3,336 895
---------- -----------
Total Shareholders' Equity 1,293,678 1,360,746
---------- ----------
Total Liabilities and Shareholders' Equity $3,600,457 $3,253,504
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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<TABLE>
TYSON FOODS, INC.
Consolidated Condensed Statements of Operations
(In Thousands Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- -----------------------
July 2, July 3, July 2, July 3,
1994 1993 1994 1993
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Sales $1,307,697 $1,216,875 $3,722,390 $3,470,598
Cost of Sales 1,050,989 977,453 3,025,787 2,799,471
Expenses:
Selling 109,718 100,778 311,423 287,070
General and administrative 24,391 26,771 69,062 83,943
Amortization 8,053 7,842 24,302 23,429
Special charges 213,924 213,924
Interest 24,388 18,083 61,487 55,892
Other expense (income) (2,482) (691) (5,754) (3,731)
--------- --------- ---------- ----------
Income (Loss) Before
Taxes on Income (121,284) 86,639 22,159 224,524
Provision for Income Taxes 27,117 32,928 83,060 85,329
--------- --------- ---------- ----------
Net Income (Loss) ($ 148,401) $ 53,711 ($ 60,901) $ 139,195
========= ========= ========== ==========
Average Shares Outstanding 147,683 148,533 147,594 148,391
======= ======= ======= =======
Earnings (Loss)Per Share ($1.00) $0.36 ($0.41) $0.94
===== ===== ===== =====
Cash Dividends Per Share:
Class A $0.0200 $0.0100 $0.0500 $0.0300
======= ======= ======= =======
Class B $0.0167 $0.0083 $0.0417 $0.0250
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
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<TABLE>
TYSON FOODS, INC.
Consolidated Condensed Statements of Cash Flows
(In Thousands)
<CAPTION>
(Unaudited)
Nine Months Ended
-------------------------
July 2, July 3,
1994 1993
-------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ($ 60,901) $ 139,195
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation 116,935 108,294
Amortization 24,302 23,429
Special charges 213,924
Deferred income taxes (3,714) 7,459
Loss on dispositions of property and
equipment 2,555 1,898
(Increase) decrease in accounts receivable (286,764) 38,893
Increase in inventories (64,343) (90,946)
Decrease in trade accounts payable 13,865 (34,321)
Net change in other current assets and
liabilities 481 19,768
--------- ---------
Cash Provided by (Used for) Operating Activities (43,660) 213,669
Cash Flows from Investing Activities:
Net cash paid for acquisitions (32,378) (43,377)
Additions to property, plant and equipment (174,600) (179,823)
Proceeds from sale of property, plant and
equipment 3,569 5,875
Net increase in other assets (21,647) (15,066)
--------- ---------
Cash Used for Investing Activities (225,056) (232,391)
Cash Flows from Financing Activities:
Net change in notes payable (28,355) 51,400
Proceeds from long-term debt 378,420 298,245
Repayments of long-term debt (50,199) (335,850)
Dividends and other (6,166) (2,932)
--------- ---------
Cash Provided by Financing Activities 293,700 10,863
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 24,984 (7,859)
Cash and Cash Equivalents at Beginning of Period 21,547 27,060
--------- ---------
Cash and Cash Equivalents at End of Period $ 46,531 $ 19,201
========= =========
Supplemental Cash Flow Information,
Cash paid during the period for:
Interest $55,572 $76,958
Income taxes $59,174 $42,668
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
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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, except for the special
charges, necessary to present fairly the financial position as of July 2,
1994 and October 2, 1993, the results of operations for the three months and
nine months ended July 2, 1994, and July 3, 1993 and cash flows for the nine
months ended July 2, 1994, and July 3, 1993. The results of operations for
the three months and nine months ended July 2, 1994 and July 3, 1993, and
cash flows for the nine months ended July 2, 1994 and July 3, 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 nine months
ended July 2, 1994, except as disclosed below.
2. Acquisitions
On January 6, 1994, the Company acquired a beef further-processing company
and certain related assets with annual sales of approximately $55 million.
On April 19, 1994, the Company increased its ownership interest to 50.1% in
Trasgo, S.A. de C.V.("Trasgo"). Previously, the Company had held an 18%
minority interest in Trasgo. Trasgo, with annual sales of approximately $140
million, is the third largest poultry producer and processor in Mexico,
serving both retail and foodservice markets. These transactions have been
accounted for as purchases, and the results of operations for these
acquisitions have been included in the Company's consolidated results of
operations since the acquisition dates.
Effective July 3, 1994, the Company acquired certain assets of Culinary
Foods, Inc., a manufacturer and processor of value-added specialty frozen
foods with annual sales of approximately $70 million and the results of this
acquisition will be included in subsequent reporting periods.
6
<PAGE>
3. 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, which resulted in an increase in accounts receivable of
$275 million.
4. Inventories
<TABLE>
<CAPTION>
(In thousands)
Inventories, valued at the lower of July 2, October 2,
cost (first-in, first-out) or market 1994 1993
consist of the following: ---------- ----------
<S> <C> <C>
Finished and work-in-process $360,959 $299,388
Farm flocks and herds 183,295 158,092
Live swine 55,154 49,756
Seafood related products 35,376 53,064
Hatchery eggs and feed 47,583 40,110
Supplies 76,949 74,795
-------- --------
Total $759,316 $675,205
======== ========
</TABLE>
5. 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 is reviewed
at each balance sheet date to determine 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.
<TABLE>
<CAPTION>
Changes in the Company's excess of investments over net assets acquired are
summarized as follows (in thousands):
<S> <C>
Balance at October 2, 1993 $ 924,432
Acquisitions 15,395
Amortization (19,285)
Special Charge (Arctic Alaska Fisheries Corporation) (190,985)
--------
Balance at July 2, 1994 $ 729,557
=========
</TABLE>
Government restrictions on fishing, intense industry competition and
fluctuations in market prices have continued to adversely affect Arctic
Alaska Fisheries Corporation ("Arctic"), a wholly-owned subsidiary. Based on
7
<PAGE>
Arctic's continued performance below pre-acquisition expectations, the
Company has made an impairment evaluation and determined that its projected
results will not support the future amortization of Arctic's remaining excess
of investments over net assets acquired balance of approximately $191 million
at July 2, 1994.
The methodology used to assess the recoverability of Arctic's excess of
investments over net assets acquired involved projecting aggregate cash
flows. The Company's projection assumes that Arctic's sales volumes and
prices will be comparable to the results for 1994. Due to government
restrictions on fishing and the addition into the fishing waters of the North
Pacific of new higher production capacity vessels by competitors, the Company
did not assume any increases in volume for the projected cash flows. The
aggregate undiscounted value of these projected cash flows are sufficient
only to recover a portion of the carrying value of the tangible net assets of
Arctic and do not provide any recovery of the remaining $191 million of the
excess of investments over net assets acquired related to Arctic.
Additionally, the Company's projection indicated that approximately
$23 million of Arctic's long-lived assets were impaired. The Company
believes that its projection, based on recent historic trends and current
market conditions, are its best estimate of Arctic's future performance,
although there can be no assurances that such estimates will be indicative of
future results, which ultimately may be less than or greater than these
estimates.
6. 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"). On April 20, 1994, after investigations beginning as early as
1990, a Federal Grand Jury in Seattle, Washington indicted fourteen (14)
former officers, directors and employees of Arctic as well as Arctic on
criminal charges stemming from the sinking of the fishing vessel Aleutian
Enterprise in 1990 and other matters relating to the overall operation of
Arctic. The factual allegations giving rise to the forty-four (44) count
indictment now pending in the United States District Court, Western District
of Washington at Seattle, occurred prior to the Company's acquisition of
Arctic on October 5, 1992. Conviction of the individuals, as well as Arctic,
carries penalties and fines ranging from a maximum fine or penalty per count
of $500,000 and 10 years in prison. The Company anticipates that the trial
of all or a portion of the defendants on the indictments will begin in the
spring of 1995. 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.
8
<PAGE>
7. 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.
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax liabilities and assets
as of October 2, 1993 are as follows (In thousands):
<S> <C>
Deferred tax liabilities:
Basis difference in property, plant and equipment $205,586
Suspended taxes from conversion to accrual method (1) 150,162
Other 128,416
--------
Total deferred tax liabilities $484,164
--------
Deferred tax assets:
Accrued expenses (38,576)
--------
Total deferred tax assets (38,576)
--------
Net deferred tax liabilities $445,588
========
</TABLE>
(1) The Omnibus Budget Reconciliation Act of 1987 required family-owned
farming businesses to use the accrual method of accounting for tax purposes.
Internal Revenue Code Section 447(i) provides that if any family corporation
is required to change its method of accounting for any taxable year, such
corporation shall establish a suspense account in lieu of taking the
adjustments into taxable income. The suspense account, which represents the
initial catch-up adjustment to change from the cash to accrual method of
accounting, is not currently includable in the Company's taxable income and
any related income taxes are deferred. However, the deferred amount will be
included in taxable income if the business ceases to be family-owned or if
gross receipts from farming activities in future years drop below certain
1987 levels. A corporation is family-owned when at least 50 percent of the
total combined voting power of all classes of stock of the corporation are
owned by family members of the same family. Both of the deferral conditions
relative to ownership and gross receipts continue to be met by the Company.
The Company also believes that these conditions will continue to be met for
the foreseeable future.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition
- - -------------------
During the third quarter the Company recorded special charges for the excess
of investments over net assets acquired totaling approximately $191 million
plus an additional $23 million for impaired long-lived assets of Arctic
Alaska Fisheries Corporation ("Arctic"), a wholly-owned subsidiary. The
impact of these special charges after-tax was approximately $205 million or
$1.38 per share. Arctic has consistently performed below pre-acquisition
expectations. The Company's management has attempted to open marketing and
distribution channels for this business, initiated cost reduction and
efficiency measures, and explored global expansion opportunities. Although
improvements have been made, Arctic has not achieved and does not expect to
achieve the sales and earnings anticipated at the time of the acquisition.
Competition for the allowable resource of fish in the waters of the Pacific
Northwest has become very intense in the past few years. More vessels with
greater production capacities are now competing for the limited quotas set by
government regulatory agencies. Allocations toward onshore processing have
created a competitive disadvantage for Arctic due to its significant at-sea
processing capabilities. Global expansion has failed to materialize in spite
of extensive management efforts. Market prices which had risen significantly
during the two years prior to acquisition have fallen back to more modest
levels. These conditions have led to shorter fishing seasons, less
production per vessel, significant excess production capacity and continuing
losses. After continued evaluation of business opportunities for Arctic,
management has concluded that there is permanent impairment of the carrying
value of Arctic's intangible assets and certain other long-lived assets. See
Note 5 to Notes to Consolidated Condensed Financial Statements for impairment
evaluation methodology.
For the nine months ended July 2, 1994, net cash of $43.7 million was used by
all operating activities, consisting of $293.1 million provided by
operations, offset by $336.8 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 3 of Notes to Consolidated Condensed Financial Statements. Finished
inventories have increased from 1993 fiscal year-end due to increased grain
costs, seasonal inventory increases and shifts in product mix. Financing
activities provided net cash of $293.7 million, mainly due to additional long-
term debt incurred from issuing commercial paper to offset the discontinuance
of the sale of accounts receivable. The Company used funds generated from
operating activities and financing activities to fund $174.6 million of
property, plant and equipment additions and $32.4 million for business
acquisitions. 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.
10
<PAGE>
At July 2, 1994, working capital was $722.3 million compared to $285.1
million at 1993 fiscal year-end, an increase of $437.2 million. The current
ratio at July 2, 1994 was 2.42 to 1 compared to 1.54 to 1 at October 2, 1993.
Working capital and the current ratio have increased since year-end due to
management's decision to discontinue the sale of accounts receivable and
increase commercial paper borrowings to achieve lower financing costs. See
Note 3 of 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 $429.6 million since October 2, 1993. This is
primarily 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 July 2, 1994, long-term debt was
51.1% of total capitalization compared to 40.3% at October 2, 1993. The
Company's two unsecured revolving credit agreements provide up to
$1.5 billion of financing which supports the Company's commercial paper
program. At July 2, 1994, $875.7 million was outstanding under the
$1.5 billion of financing facilities consisting of $765.7 million of
commercial paper and $110 million drawn under the revolving credit
facilities. Additional outstanding debt at July 2, 1994, consisted of
$366 million of institutional notes and $108.3 million of other indebtedness,
including $74.7 million related to Trasgo, S.A. de C.V. ("Trasgo"), a Mexican
subsidiary. See Note 2 of Notes to Consolidated Condensed Financial
Statements.
Results of Operations
- - ---------------------
Sales for the third quarter of 1994 increased 7.5% over the same quarter of
1993. This increase was partially due to an increase in consumer poultry
sales which accounted for 6.9% of the increase in 1994 total sales. The
increase in consumer poultry sales is attributable to a 5.4% increase in
tonnage and a 3.6% increase in sales prices. Trasgo accounted for 71.7% of
the tonnage increase in consumer poultry. Beef and pork sales increased
third quarter 1994 total sales by 1.6% compared to the third quarter of 1993.
The increase in beef and pork sales was due primarily to the acquisition
during the second quarter of a beef further-processing company. Mexican food,
prepared foods, live swine and other sales as a group decreased third quarter
1994 total sales by 0.4%. Live swine sales decreased primarily as a result
of the integration of some of the live swine production with the Company's
pork processing facility. Seafood sales decreased third quarter 1994 total
sales 1.0% due to a 10.6% decrease in tonnage and an 8% decrease in average
sales prices. Seafood sales volumes and profit margins continue to be
adversely affected by various factors including government fishing
regulations, intense industry competition and fluctuations in market prices.
Third quarter sales to the animal and pet food industry increased 1994 total
sales by 0.3% compared to the third quarter of last year due to an 8.4%
increase in tonnage and a 5.9% increase in average sales prices.
Sales for the nine months of 1994 increased 7.3% over the same period of
1993. This increase was mainly due to an increase in consumer poultry sales
which accounted for 5.7% of the increase in 1994 total sales. The increase
11
<PAGE>
in consumer poultry sales is attributable to a 5.8% increase in tonnage and a
1.7% increase in average sales prices. Trasgo accounted for 23.4% of the
tonnage increase in consumer poultry. Beef and pork sales increased first
nine months of 1994 total sales by 3.4% compared to 1993. The increase in
beef and pork sales was due primarily to the acquisition during the second
quarter of a beef further-processing company and additional production from a
new pork processing facility which was not fully operational during 1993.
Mexican food, prepared foods, live swine and other sales as a group decreased
sales for the nine months of 1994 by 1.3%. Seafood sales decreased first
nine months of 1994 total sales 0.9% due to a 15.4% decrease in tonnage and a
0.1% decrease in average sales prices. Sales to the animal and pet food
industry increased nine months of 1994 total sales by 0.3% compared to the
nine months of last year due to a 4.9% increase in tonnage and a 6.9%
increase in average sales prices.
The increase in cost of goods sold of 7.5% for the third quarter of 1994
compared to the same quarter of 1993 was mainly the result of the increase in
sales plus an increase of approximately 8.1% in feed ingredient costs. As a
percent of sales, cost of sales was 80.4% for the third quarter of 1994
compared to 80.3% in the third 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. While grain prices are currently
trending downward, it is anticipated that higher grain prices will still have
an adverse effect on fourth quarter operating results as compared to the
previous year. Although management is optimistic, the future of this trend
in moderating grain prices is difficult to predict and is dependent upon
various factors in the commodity grain market as well as the market for
finished products. 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.
The increase in cost of goods sold of 8.1% for the nine months of 1994
compared to the same period of 1993 was mainly the result of the increase in
sales plus an increase of approximately 9.3% in feed ingredient costs. As a
percent of sales, cost of sales was 81.3% for the nine months of 1994
compared to 80.7% for the same period of 1993. Although grain prices are
decreasing, past increases continue to affect poultry, swine cost and Mexican
food production cost.
Operating expenses increased 163% for the third quarter of 1994 over the same
quarter of 1993. Special charges for Arctic accounted for 158% of this
increase in operating expenses. Selling expense, as a percent of sales, in
the third quarter of 1994 was 8.4% compared to 8.3% in the same quarter of
1993. Selling expense as a percent of sales increased primarily due to
expenses related to the Mexican subsidiary that was acquired in the third
quarter. General and administrative expense, as a percent of sales,
decreased to 1.9% in the third quarter of 1994 compared to 2.2% in the same
period of 1993. Costs incurred in connection with the sale of accounts
receivable, which are classified as general and administrative expense, were
zero compared to 0.2% of sales in the same period last year. This decrease
was due to the discontinuance of the sale of accounts receivable. Certain
other administrative costs decreased compared to the same period last year
due to cost control and administrative initiatives instituted by management.
Amortization expense was 0.6% of sales in both the third quarter of 1994 and
1993.
12
<PAGE>
Operating expenses increased 56.9% for the nine months of 1994 over the same
period of 1993. Special charges for Arctic accounted for 54.2% of this
increase in operating expenses. Selling expense, as a percent of sales, in
the nine months of 1994 was 8.4% compared to 8.3% in the same period 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 1.9% in the nine months of 1994 compared to 2.4% in the
same period of 1993. Costs incurred in connection with the sale of accounts
receivable, which are classified as general and administrative expense, were
0.04% of sales compared to 0.2% in the same period last year. Certain other
administrative costs decreased compared to last year due to cost control and
administrative initiatives instituted by management. Amortization expense
was 0.7% of sales for both the nine months of 1994 and 1993.
Interest expense increased 34.9% in the third quarter of 1994 compared to the
same quarter of 1993. The consolidation of Trasgo, the Company's Mexican
subsidiary, accounted for 40.2% of the increase in interest expense. Short-
term interest rates were slightly higher compared to 1993, which raised the
weighted average interest rate of all Company debt to 7.2% compared to 6.9%
for the same period last year. In addition, the Company had a higher level
of borrowing due to the discontinuance of the sale of accounts receivable, as
the Company's average indebtedness increased 29.3% compared to the same
period last year.
Interest expense increased 10% in the nine months of 1994 compared to the
same period 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 6.4% compared to 7.2% 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 23.4% compared to the same period last year.
The effective income tax rate for the third quarter and nine months of 1994
was unusually high due to the non-deductibility of special charges related to
Arctic's excess of investments over net assets acquired. Without special
charges the effective income tax rate would have been 39% for both the
quarter and nine months compared to 38% in the same periods of 1993. The
increase in the effective rate from 38% to 39% 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
- - ---------------------
The Company has a strong financial commitment to environmental matters.
During the nine months of fiscal 1994 the Company invested approximately
$4.1 million in water quality facilities, including capital outlays to build
and upgrade facilities, and $22.6 million for day-to-day operations of waste-
water facilities.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No items were voted upon during the quarter ended July 2, 1994.
Item 5. Other Information
(a) Proposed Acquisition of WLR Foods, Inc.
Proposal and Offer
- - ------------------
On January 24, 1994, the Company delivered to the Board of Directors of WLR
Foods, Inc. ("WLR") a proposal to enter into a transaction whereby the
Company would acquire WLR at a purchase price of $30.00 per share in cash. On
February 6, 1994, WLR announced that at a meeting of WLR's Board held on
February 4, 1994, the Board had unanimously rejected the Company's proposal.
In connection with WLR's rejection of the Company's proposal, WLR and its
Board took a number of defensive actions in apparent anticipation of a tender
offer. On March 9, 1994, the Company, through its wholly-owned subsidiary,
WLR Acquisition Corp., commenced a tender offer (the "Offer") for all of the
shares of WLR at a price of $30.00 per share, net to the seller in cash. The
Offer was subsequently extended three separate times and terminated, without
extension, at midnight, August 5, 1994. On July 21, 1994, the Company
notified WLR of its intention to nominate certain persons for the open Board
positions to be voted upon at the annual meeting of WLR's Shareholders in
October 1994, and further, that the Company would be proposing an expansion
of the WLR Board from ten (10) to fifteen (15) members and would nominate
other persons for these open positions. On August 10, 1994, the Company
notified WLR and announced that it was withdrawing nominations for Board
positions to be voted upon at the annual meeting of WLR's Shareholders in
October, 1994.
Litigation
- - ----------
On February 6, 1994, WLR filed a lawsuit in the United States District Court
for the Western District of Virginia, Harrisonburg Division naming the
Company as a defendant (the "Virginia Action"). The Virginia Action seeks a
declaratory judgment that WLR's Shareholder Protection Rights Agreement
adopted on February 4, 1994, is valid and was duly adopted and, that any
rights issued thereunder are valid, binding and legally enforceable under
state and federal law. The Virginia Action also seeks a declaration that the
Virginia Control Share Act and the Virginia Affiliated Transactions Law are
constitutional under the Virginia and United States Constitutions and valid
under any other applicable law. The Virginia Action also seeks a temporary,
preliminary and permanent injunction enjoining the Company and Acquisition
from bringing any action in any other court relating to the Company's
proposal to acquire WLR.
14
<PAGE>
On February 25, 1994, the Company answered WLR's complaint in the Virginia
Action, and filed counterclaims against WLR and all of its directors. The
Company and Acquisition filed an amended answer and counterclaims on
March 21, 1994 and a supplemental counterclaim on May 4, 1994. The
counterclaims allege, among other things, that on February 4, 1994, WLR's
Board took a series of actions designed to erect numerous barriers that would
insulate WLR from any acquisition not approved by WLR's existing Board and,
that through its actions, WLR's Board attempted to impose its will on WLR's
shareholders and deprive them of the benefits of an acquisition proposal from
the Company or any other third party not endorsed by WLR's existing Board.
The counterclaims further allege that the Virginia Affiliated Transactions
Law and the Virginia Control Share Act are unconstitutional because, among
other things, each conflicts with federal law regulating tender offers, and
should be declared invalid. The counterclaims seek a declaration that: (1)
Virginia Affiliated Transactions Law and the Virginia Control Share Act, as
well as the Virginia statutory scheme regulating mergers and acquisitions,
are unconstitutional; (2) the poison pill rights and the various severance
arrangements adopted by WLR's Board are invalid; (3) none of WLR's directors
whose status was purported to be affected by the actions taken on February 4,
1994 will be permitted to vote their shares at the Special Meeting; and (4)
WLR's directors breached their fiduciary duties to WLR's shareholders in
taking the actions described in the counterclaims.
The Company and Acquisition filed a motion to obtain preliminary relief
barring the four directors whose statuses were purportedly altered on
February 4, 1994, WLR's officers, and each of the foregoing person's
"associates" (as defined in the Virginia Control Share Act) from being
permitted to vote their shares at the Special Meeting. The Court held a
hearing on the motion for preliminary relief that the Company brought on May
26, 1994. On June 22, 1994, the Court denied the Company's motion for
preliminary relief. The Company has filed a Notice of Appeal with respect to
such denial of preliminary relief.
The Company and Acquisition also filed a motion to obtain preliminary relief
and declare unconstitutional the Virginia antitakeover statutory "scheme" of
the Virginia Control Share Act, the Virginia Affiliated Transaction Law, the
Virginia Poison Pill Statute and the Virginia Business Judgement Statute.
The Court held a hearing on the motion for preliminary relief on July 7,
1994. On August 9, 1994, the Court denied the Company's motion for
preliminary relief.
The Court has set a trial date of September 12 through 15, 1994 for the
remaining matters in the case.
Reference is made to the Company's Schedule 13D filed on March 4, 1994, as
amended to date, with respect to WLR, the Company's Schedule 14D-1, as
amended to date, with respect to the Offer, and the Company's Proxy Statement
for the Special Meeting of WLR shareholders held May 21, 1994, which was
filed on April 22, 1994, each of which was filed electronically through the
EDGAR system and are included herein as exhibits.
15
<PAGE>
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.
16
<PAGE>
<TABLE>
EXHIBIT INDEX
The following exhibits are filed with this report.
<CAPTION>
Exhibit No. Page
- - ----------- ----
<C> <S> <C>
11. Statement Regarding Computation of Earnings (Loss)
Per Share 21-22
99 (a) Schedule 13D for Tyson Foods, Inc., WLR Acquisition Corp.,
Tyson Limited Partnership and Mr. Don Tyson reporting their
beneficial ownership of WLR Foods, Inc. shares previously
filed on March 4, 1994 and incorporated herein by reference.
99 (b) Schedule 14D-1 for WLR Acquisition Corp. and Tyson Foods, Inc.
for the tender offer for all outstanding shares of common
stock for WLR Foods, Inc. and Amendment No. 1 to the
Schedule 13D previously filed on March 9, 1994 and incorporated
herein by reference.
99 (c) Amendment No. 1 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 2 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on March 11, 1994
and incorporated herein by reference.
99 (d) Amendment No. 2 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 3 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on March 22, 1994
and incorporated herein by reference.
99 (e) Amendment No. 3 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 4 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on March 25, 1994
and incorporated herein by reference.
99 (f) Amendment No. 4 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 5 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on April 8, 1994
and incorporated herein by reference.
99 (g) Amendment No. 5 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 6 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on April 15, 1994
and incorporated herein by reference.
99 (h) Amendment No. 6 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 7 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on April 19, 1994
and incorporated herein by reference.
17
<PAGE>
Exhibit No. Page
- - ----------- ----
99 (i) Amendment No. 7 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 8 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on April 22, 1994
and incorporated herein by reference.
99 (j) Amendment No. 8 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 9 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on April 29, 1994
and incorporated herein by reference.
99 (k) Amendment No. 9 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 10 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 3, 1994
and incorporated herein by reference.
99 (l) Amendment No. 10 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 11 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 5, 1994
and incorporated herein by reference.
99 (m) Amendment No. 11 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 12 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 6, 1994
and incorporated herein by reference.
99 (n) Amendment No. 12 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 13 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 12, 1994
and incorporated herein by reference.
99 (o) Amendment No. 13 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 14 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 17, 1994
and incorporated herein by reference.
99 (p) Amendment No. 14 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 15 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 18, 1994
and incorporated herein by reference.
99 (q) Amendment No. 15 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 16 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 20, 1994
and incorporated herein by reference.
18
<PAGE>
99 (r) Amendment No. 16 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 17 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on May 24, 1994
and incorporated herein by reference.
99 (s) Amendment No. 17 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 18 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on June 2, 1994
and incorporated herein by reference.
99 (t) Amendment No. 18 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 19 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on June 6, 1994
and incorporated herein by reference.
99 (u) Amendment No. 19 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 20 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on June 9, 1994
and incorporated herein by reference.
99 (v) Amendment No. 20 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 21 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on June 23, 1994
and incorporated herein by reference.
99 (w) Amendment No. 21 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 22 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on July 22, 1994
and incorporated herein by reference.
99 (x) Amendment No. 22 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 23 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on August 1, 1994
and incorporated herein by reference.
99 (y) Amendment No. 23 to the Tender Offer Statement on Schedule 14D-1
for all outstanding shares of common stock for WLR Foods, Inc.
and Amendment No. 24 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on August 4, 1994
and incorporated herein by reference.
99 (z) Amendment No. 25 to the Schedule 13D by WLR Acquisition
Corp. and Tyson Foods, Inc. previously filed on August 12, 1994
and incorporated herein by reference.
</TABLE>
19
<PAGE>
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 15, 1994 /s/ Gerald Johnston
----------------- -------------------
Gerald Johnston
Executive Vice President,
Finance
Date: August 15, 1994 /s/ Gary Johnson
----------------- ----------------
Gary Johnson
Corporate Controller
20
<PAGE>
EXHIBIT 11
TYSON FOODS, INC.
Computation of Earnings (Loss) Per Share
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Quarter Ended
------------------------
July 2, July 3,
1994 1993
------------------------
<S> <C> <C>
Primary:
Average common shares outstanding
during the period 147,683 147,247
Net effect of dilutive stock
options based on the treasury
stock method using average
market price 832 1,286
------- -------
Total common and common equivalent
shares outstanding 148,515 148,533
Less Antidilutive shares 832
------- -------
Adjusted shares 147,683 148,533
======= =======
Net income (loss) ($148,401) $53,711
======== =======
Earnings (loss) per share ($1.00) $0.36
===== =====
Fully Diluted:
Average common shares outstanding
during the period 147,683 147,247
Net effect of dilutive stock
options based on the treasury
stock method using the quarter-
end market price, if higher
than average market price 1,004 1,286
------- -------
Total common and common equivalent
shares outstanding 148,687 148,533
Less Antidilutive shares 1,004
------- -------
Adjusted shares 147,683 148,533
======= =======
Net income (loss) ($148,401) $53,711
======== =======
Earnings (loss) per share ($1.00) $0.36
===== =====
</TABLE>
21
<PAGE>
EXHIBIT 11
TYSON FOODS, INC.
Computation of Earnings (Loss) Per Share
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------
July 2, July 3,
1994 1993
------------------------
<S> <C> <C>
Primary:
Average common shares outstanding
during the period 147,594 147,105
Net effect of dilutive stock
options based on the treasury
stock method using average
market price 798 1,286
------- -------
Total common and common equivalent
shares outstanding 148,392 148,391
Less Antidilutive shares 798
------- -------
Adjusted shares 147,594 148,391
======= =======
Net income (loss) ($60,901) $139,195
======= ========
Earnings (loss) per share ($.41) $0.94
===== =====
Fully Diluted:
Average common shares outstanding
during the period 147,594 147,105
Net effect of dilutive stock
options based on the treasury
stock method using the quarter-
end market price, if higher
than average market price 964 1,286
------- -------
Total common and common equivalent
shares outstanding 148,558 148,391
Less Antidilutive shares 964
------- -------
Adjusted shares 147,594 148,391
======= =======
Net income (loss) ($60,901) $139,195
======= ========
Earnings (loss) per share ($.41) $0.94
===== =====
</TABLE>
22
