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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended October 3, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission File No. 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) (Zip Code)
Registrant's telephone number, including area code: (501) 290-4000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Class A Common Stock, New York Stock Exchange, Inc.
Par Value $.10
Securities Registered Pursuant to Section 12(g) of the Act:
Not Applicable
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
On October 3, 1998, the aggregate market value of the Class A Common and
Class B Common voting stock held by non-affiliates of the registrant was
$2,508,274,106 and $2,146,223,295, respectively.
On October 3, 1998, there were outstanding 128,296,821 shares of the
registrant's Class A Common Stock, $.10 par value, and 102,645,423 shares
of its Class B Common Stock, $.10 par value.
Page 1 of 91 Pages
The Exhibit Index appears on pages 23 through 29
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents or the indicated portions thereof are incorporated
herein by reference into the indicated portions of this Annual Report on
Form 10-K: (i) pages 14-44 and back cover of the registrant's Annual Report
to Shareholders for fiscal year ended October 3, 1998 (the "Annual Report")
which are filed as Exhibit 13 to this Form 10-K and (ii) the registrant's
definitive Proxy Statement for the registrant's Annual Meeting of
Shareholders to be held January 8, 1999 (the "Proxy Statement").
PART I
Item 1. Business
Pages 16 through 23 of the Annual Report under the caption
"Management's Discussion and Analysis."
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Pages 14 and 15, 29 and 44 of the Annual Report under the captions
"Eleven-Year Financial Summary", "Capital Stock" and "Closing Price of
Company's Common Stock."
Item 6. Selected Financial Data
Pages 14 and 15 of the Annual Report under the caption "Eleven-Year
Financial Summary."
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Pages 16 through 23 of the Annual Report under the caption
"Management's Discussion and Analysis."
Item 8. Financial Statements and Supplementary Data
Pages 24 through 41 of the Annual Report under the captions
"Consolidated Statements of Income," "Consolidated Balance Sheets,"
"Consolidated Statements of Shareholders' Equity," "Consolidated
Statements of Cash Flows," "Notes to Consolidated Financial Statements" and
"Report of Independent Auditors."
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Part III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting" in the Proxy Statement.
Item 11. Executive Compensation
The information set forth under the caption "Executive Compensation
and Other Information" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the captions "Principal Shareholders"
and "Security Ownership of Management" in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Transactions" in
the Proxy Statement.
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PART I
ITEM 1. BUSINESS
General
Tyson Foods, Inc. and its various subsidiaries (collectively, the
"Company") produce, market and distribute a variety of food products
consisting of value-enhanced poultry; fresh and frozen poultry; value-
enhanced seafood products; fresh and frozen seafood products and prepared
foods and other products such as flour and corn tortillas and chips.
Additionally, the Company has live swine, animal feed and pet food
ingredients operations. The Company's integrated operations consist of
breeding and rearing chickens, harvesting seafood, as well as the
processing, further-processing and marketing of these food products. The
Company's products are marketed and sold to national and regional grocery
chains, regional grocery wholesalers, clubs and warehouse stores, military
commissaries, industrial food processing companies, national and regional
chain restaurants or their distributors, international export companies and
domestic distributors who service restaurants, foodservice operations such
as plant and school cafeterias, convenience stores, hospitals and other
vendors. Sales are made by the Company's sales staffs located in
Springdale, Arkansas, in regions throughout the United States and in
several foreign countries. Additionally, sales to the military and a
portion of sales to international markets are made through independent
brokers and trading companies. The Company conducts the major portion of
its business activities on a vertically integrated basis and considers its
business to be one industry segment, that of "food products." The Company
commenced business in 1935, was incorporated in Arkansas in 1947, and was
reincorporated in Delaware in 1986.
Description
Originally, the Company was a producer and distributor of fresh
chicken. The Company developed a strategy to reduce the impact of the
commodity market of the fresh chicken business through value-enhancement.
As the industry leader in value-enhanced poultry products, the Company
utilizes national and regional advertising, special promotions and brand
identification, and meets the varying demands of its customers through
capital expenditures and strategic acquisitions. With further-processed
poultry products, grain costs as a percentage of total product costs are
reduced because of the value added to the products by cutting, deboning,
cooking, packaging and/or freezing the poultry.
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The Company's integrated poultry processes include genetic research,
breeding, hatching, rearing, ingredient procurement, feed milling,
veterinary and other technical services, and related transportation and
delivery services. The Company contracts with independent growers to
maintain the Company's flocks of breeder chicks which, when grown, lay the
eggs which the Company transfers to its hatcheries and hatch into broiler
chicks. Newly hatched broiler chicks are vaccinated and then delivered to
independent contract growers who care for and feed the broiler chicks until
they reach processing weight, usually from the end of the fourth to the
eighth week. During the broiler growout period, the Company provides
growers with feed, vitamins and medication for the broilers, if needed, as
well as supervisory and technical services. The broilers are then
transported by the Company to its nearby processing plants. The Company
processed approximately 6.4 billion pounds of consumer poultry during
fiscal 1998.
The Company's farrow to finish swine operations, which include genetic
and nutritional research, breeding, farrowing and feeder pig finishing and
the marketing of live swine to regional and national packers, are conducted
in Alabama, Arkansas, Missouri, North Carolina and Oklahoma. The Company
sold approximately 2.0 million head of market weight live swine in fiscal
1998.
The Company is the leading manufacturer, marketer and distributor of
branded surimi-based seafood offerings including analog crabmeat, lobster,
shrimp and scallops. Additionally, the Company's seafood operations consist
of one of the largest catching and at-sea processing fleets in the North
Pacific. These vessels harvest a wide range of species of bottomfish and
shellfish year-round off the coasts of Alaska, Washington and Oregon. The
catch is either processed at sea or in shore-based processing facilities
into a variety of product forms.
The Company's prepared foods group, consisting of Mexican Original,
Culinary Foods and Mallard's Food, produce flour and corn tortilla products
and specialty pasta and meat dishes, for restaurants, airlines and other
major customers.
The Company's by-products operations convert inedible poultry by-
products into high-grade pet food and animal feed ingredients.
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Sources of Revenue
The principal revenue sources of the Company include value-enhanced
poultry products, fresh and frozen poultry products, prepared food
products, frozen dinner products, seafood products, live swine operations,
animal foods, by-products, and other products. In the first quarter of
1997, the Company sold its beef further-processing plants and closed its
pork further-processing plant. Revenue for 1996 includes value-enhanced
beef and pork products. The following table sets forth the relative sources
of the Company's revenues for the last three fiscal years.
For Fiscal Year Ended
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1998 1997 1996
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Consumer Poultry(1) 82% 83% 78%
Prepared Foods(2) 4 4 5
Seafood (3) 3 4 5
Live Swine and Other 11 9 12
--- --- ---
Total 100% 100% 100%
=== === ===
(1) Includes products such as chicken patties and nuggets, pre-cooked
chicken, individually-quick-frozen chicken segments, pre-packaged and pre-
priced poultry, Cornish game hens and other poultry products to which
certain processes are added to enhance their value to the Company's
customers. Also includes fresh and frozen poultry products sold without
value enhancements.
(2) Includes flour and corn tortillas, corn chips, taco shells and filled
tortilla specialty items; premium frozen dinners and other specialty items.
(3) Includes surimi-based products as well as breaded and battered
seafood, fillets and crab.
Marketing and Distribution
The Company seeks to develop and increase the demand for and market
share of a product or product line through concentrated national and local
advertising and other promotional efforts, stressing product quality and
brand identification and meeting specific customer requirements. The
Company's principal marketing strategy is to identify target markets for
value-enhanced food products consisting primarily of poultry, tortilla
products and seafood. The Company concentrates production, sales and
marketing efforts in order to appeal to and enhance the demand from those
markets. The Company utilizes its national distribution system and customer
support services to achieve a dominant market position for its products and
identifies distinct markets through trade and consumer research.
The Company's nationwide distribution system utilizes a network of
food distributors which is supported by cold storage warehouses owned or
leased by the Company, by public cold storage facilities and by the
Company's transportation system. The Company ships products from two
Company-owned major frozen food distribution centers having a storage
capacity of approximately 58 million pounds, from a network of public cold
storages, from other owned or leased facilities or directly from plants.
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The Company has a total frozen storage capacity in excess of 132.5 million
pounds, excluding public or outside cold storage. The Company's
distribution centers facilitate accumulating frozen products so that it can
fill and consolidate less-than-truckload orders into full truckloads,
thereby decreasing shipping costs while increasing customer service. In
addition, customers are provided with a selection of products that do not
require large volume orders. The Company's distribution system enables it
to supply large or small quantities of products to meet customer
requirements anywhere in the continental United States.
The Company's food products are sold primarily in three broad domestic
markets consisting of foodservice, retail and wholesale clubs. The
foodservice, retail and wholesale club markets may, in some cases, overlap.
The Company's food products are also sold internationally.
In the foodservice market, the Company sells poultry, seafood and
tortilla products. Operators serving these products include commercial
restaurants, business/industry, colleges/universities, national/regional
chains, hotels/lodging, primary/secondary schools, health/elderly care and
other foodservice accounts. The Company's products are sold through
foodservice and specialty distributors who deliver to the above listed
operators.
Foodservice products are sold under the following brands and
registered trademarks: Tyson, Honey Stung, Tyson's Pride, HoneyBest, Wing
Stingers, W.W. Flyers, Signature Specialties, Flavor-Redi, Lady Aster,
Quality Cuisine, Our Finest, Mexican Original, McCarty Foods, Louis Kemp,
Arctic Ice, Enterprise, Crab Delights, Lobster Delights, Ocean Master and
Sure Salad.
Foodservice products include: (a) poultry items such as individually-
quick-frozen segments (IQF), ready-to-cook and fully cooked fried chicken,
fully cooked breaded and glazed wings, cooked and ready-to-cook breaded and
unbreaded tenderloins, breaded and unbreaded patties and chunks (cooked and
ready-to-cook), oven roasted chicken, stuffed breast specialties, Cornish
hens, flavor marinated breasts, fully cooked diced, pulled and shredded
chicken products, breaded breast and thigh pieces, bites and strips; fast
food cut-up chicken and marinated deli-chicken; (b) tortilla items such as
flour and corn tortillas and chips; and (c) seafood items such as surimi,
snow crab, king crab, pollock, cod and several species of flatfish.
In the retail market the Company sells a wide variety of food products
to customers that sell food products for at-home consumption. These
customers include grocery store chains, independent grocery stores and
grocery wholesalers.
Tyson, Weaver, Tyson Holly Farms, Mexican Original, Louis Kemp, Crab
Delights, Lobster Delights, JAC Creative Foods, Captain JAC, SeaFest and
Mallard's are registered trademarks under which the Company sells retail
products.
Retail products include: (a) frozen prepared foods consisting of
separate lines of Tyson breaded chicken patties, chunks, fillets and
tenders; Weaver breaded chicken tenders, nuggets, patties and fillets;
Tyson premium plated dinners; Tyson and Weaver flavored chicken wings;
Tyson complete meal kits; Tyson premium pot pies; Tyson and Mallard's
meals; Tyson individually-quick-frozen chicken parts and breaded chicken
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patties and chunks; (b) refrigerated prepared foods consisting of separate
lines of Tyson roasted ready-to-eat chicken; Tyson and Weaver sliced lunch
meat; Weaver hot dogs; Tyson and Weaver deli meats; and Mexican Original
tortillas and chips;(c) refrigerated Tyson Holly Farms fresh tray pack
chicken; (d) frozen and refrigerated Tyson Cornish game hens; and (e)
seafood products which are marketed under the Louis Kemp brand of Crab
Delights and Lobster Delights, as well as the JAC Creative Foods brands of
Captain JAC and SeaFest.
In the wholesale club market the Company designs and markets a variety
of products targeted to small foodservice operators and consumers who
frequent club stores. These products are aimed at both foodservice
operators who buy in small quantities and want to cut costs of storage and
final distribution, as well as retail consumers willing to buy larger than
normal quantities to realize cost savings. The Company sells several
categories of products including: IQF chicken, fresh tray pack chicken,
refrigerated roasted ready-to-eat chicken, frozen value-added chicken,
canned chicken and surimi-based seafood products.
The Company's international division markets and sells throughout the
world the full line of Tyson products, including poultry, prepared food
products and seafood. The international division exported to 56 countries
in fiscal 1998. Major markets include Canada, China, Georgia, Guatemala,
Japan, Puerto Rico, Russia and Singapore as well as certain Middle Eastern
countries and countries in the Caribbean.
The Company continues to believe that Asia offers potential in terms
of developing fully-integrated poultry facilities. A memorandum of
understanding has been signed with the Kuok Group to explore development of
poultry production and processing complexes in China. The Company has also
established a joint venture called Fil-Am Foods, Inc. with Aboitiz Equity
Ventures, Inc. and PM Nutrition Company, Inc., a subsidiary of Purina
Mills, Inc., to create a commercial feed and swine operation in the
Philippines. Meanwhile, the Company's joint venture operation in Mexico
continues to grow rapidly under improving economic conditions. Cobb-
Vantress, Inc., a wholly-owned subsidiary, has entered into a joint venture
agreement with a company to build a 180 thousand capacity breeder farm in
China.
Raw Materials and Sources of Supply
The primary raw materials used by the Company in its poultry
operations consist of feed ingredients, cooking ingredients, packaging
materials and cryogenic agents. The Company believes that its sources of
supply for these materials are adequate for its present needs and the
Company does not anticipate any difficulty in acquiring these materials in
the future. While the Company produces substantially all of its inventory
of breeder chickens and live broilers, it has the capability to purchase
live, ice-packed or deboned poultry to meet poultry production
requirements.
In addition, raw material requirements for the Company's seafood
operations are met by either purchasing in the open market or by the
Company's vessels harvesting a wide range of species of bottomfish and
shellfish off the coasts of Alaska, Washington and Oregon. A large supply
of bottomfish, one of the principal groups of fish harvested for human
consumption, is found in the 200-mile U.S. exclusive economic zone off the
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coast of Alaska. This area also provides a significant quantity of crab for
commercial harvesting; however, crab quotas have been severely limited in
recent years. Following passage of the Magnuson Fishery Conservation and
Management Act of 1976 (the "Magnuson Act"), the United States extended
control over the management of offshore fishing resources from a 12-mile to
a 200-mile exclusive economic zone by, among other things, establishing
annual catch limits and allocating the available resources between U.S. and
foreign catchers and processors. As a result of these government actions,
the Company's ability to harvest seafood is subject to these limitations.
Patents and Trademarks
The Company has registered a number of trademarks relating to its
products which either have been approved or are in the process of
application. Because the Company does a significant amount of brand name
and product line advertising to promote its products, it considers the
protection of such trademarks to be important to its marketing efforts. The
Company has also developed non-public proprietary information regarding its
production processes and other product-related matters. The Company
utilizes internal procedures and safeguards to protect the confidentiality
of such information, and where appropriate, seeks patent protection for the
technology it utilizes.
Seasonal Demand
The demand for the Company's products generally increases during the
spring and summer months and generally decreases during the winter months.
Because of the somewhat seasonal character of the Company's business, the
Company may increase its finished product inventories during the winter
months in anticipation of increased spring and summer demands.
Industry Practices
The Company's agreements with its customers are generally short-term,
verbal agreements due primarily to the nature of its products, industry
practice and the fluctuation in demand and price for such products.
Customer Relations
No single customer of the Company accounts for more than ten percent
of the Company's consolidated revenues, and the loss of any single customer
would not have a material adverse effect on the Company's business.
Although any extended discontinuance of sales to any major customer could,
if not replaced, have an impact on the Company's operations, the Company
does not anticipate any such occurrences due to the demand for its products
and its ability to obtain new customers.
Backlog of Orders
There is no significant backlog of unfilled orders for the Company's
products.
Competition
The Company's food products compete with those of other national and
regional food producers and processors and certain prepared food
manufacturers. Additionally, the Company's food products compete in
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international markets in Europe, South America, Central America and the Far
East. The Company's principal marketing and competitive strategy is to
identify target markets for value-enhanced products, to concentrate
production, sales and marketing efforts in order to appeal to and enhance
the demand from those markets and, utilizing its national distribution
system and customer support services, to achieve a dominant market position
for its products. Past efforts have indicated that customer demand
generally can be increased and sustained through application of the
Company's marketing strategy, as supported by its distribution system.
Research and Development
The Company conducts continuous research and development activities to
improve the strains of primary poultry breeding stock, the genetic
qualities of swine, and finished product development. Additionally, a
separate staff of research and development personnel is maintained to
develop and provide for product needs. The annual cost of such research and
development programs is less than one percent of total consolidated annual
sales.
Regulation
The Company's facilities for processing poultry and for housing live
poultry and swine are subject to a variety of federal, state and local laws
relating to the protection of the environment, including provisions
relating to the discharge of materials into the environment, and to the
health and safety of its employees. The Company's poultry and Mexican
Original processing and distribution facilities are also subject to
extensive inspection and regulation by the United States Department of
Agriculture. Additionally, the Company's poultry processing facilities are
participants in the government's pilot Hazardous Analysis Critical Control
Point (HACCP) program. The cost of compliance with such laws and
regulations has not had a material adverse effect upon the Company's
capital expenditures, earnings or competitive position and it is not
anticipated to have a material adverse effect in the future.
Fishing activities and seafood processing activities of the Company's
seafood operations are closely regulated by the United States Department of
Commerce and various other state and governmental agencies. These
agencies, among other things, establish fishing seasons and resource
depletion restrictions and regulate legal gear types. Violations of the
Magnuson Act and state laws can result in substantial penalties, ranging
from fines to seizure of catch and vessels. In addition, the seafood
operations are subject to various federal, state and local laws relating to
the protection of the environment and the health and safety of its
employees.
To provide consumer reassurance of product integrity and safety, to
create a quality point of difference from the competition, and to assume a
position of measured industry leadership in production standards, the
Company's seafood operation voluntarily complies with certain United States
Department of Commerce regulations which enable it to show the United
States Department of Commerce seal of approval (PUFI) on its primary
products. Three of the Company's seafood manufacturing facilities are
United States Department of Commerce inspected and are participants in the
HACCP program.
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Employees and Labor Relations
As of October 3, 1998, the Company employed approximately 70,500 persons.
The Company believes that its relations with its workforce are good.
Set forth below is a listing of the Company facilities which have employees
subject to a collective bargaining agreement together with the name of the
union party to the collective bargaining agreement, the number of employees
at the facility subject thereto and the expiration date of the collective
bargaining agreement currently in effect.
Location Union No. of People Expiration Date
- -------- ----- ------------- ---------------
Albert Lea, MN UFCW 350 January 24, 1999
Albertville, AL UFCW 900 December 31, 1998
Ashland, AL UFCW 750 February 24, 1999
Berlin, MD UFCW 450 December 31, 2001
Berlin, MD Teamsters 100 December 16, 2001
Buena Vista, GA RWDSU 1,300 November 4, 2000
Carthage, TX UFCW 700 November 11, 2000
Center, TX UFCW 1,025 November 4, 2000
Chicago, IL Truck Drivers 1,100 October 6, 2001
Cleveland, MS RWDSU 475 February 20, 2000
Corydon, IN UFCW 375 December 4, 1998
Corydon, IN Steelworkers 75 October 10, 1999
Dardanelle, AR UFCW 1,000 November 3, 2001
Gadsden/Blountsville, AL Teamsters 23 March 31, 2001
Gadsden, AL RWDSU 1,200 November 8, 2001
Glen Allen, VA UFCW 850 November 3, 2001
Henderson, KY UFCW 1,150 April 21, 2001
Hope, AR UFCW 1,400 March 3, 1999
Jackson, MS UFCW 1,050 December 31, 1999
Jacksonville, FL Teamsters 650 December 31, 1999
Noel, MO UFCW 1,225 April 25, 2000
Pine Bluff, AR UFCW 250 October 10, 1999
Shelbyville, TN RWDSU 950 November 12, 1999
Shelbyville, TN Teamsters 35 July 14, 2001
Social Circle, GA GMPPAW 200 November 30, 1998
Wilkesboro, NC Teamsters 35 November 4, 2001
Wilkesboro, NC Teamsters 25 November 4, 2001
Wilkesboro, NC Teamsters 125 November 4, 2001
The Company has not experienced any strike or work stoppage which had a
material impact on operations.
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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 which could cause the
Company's actual results and experiences to differ materially from the
anticipated results and expectations expressed in such forward-looking
statements. The Company wishes to caution readers not to place undue
reliance on any forward-looking statements, which speak only as of the date
made.
Among the factors that may affect the operating results of the Company
are the following: (i) fluctuations in the cost and availability of raw
materials, such as feed grain costs; (ii) changes in the availability and
relative costs of labor and contract growers; (iii) market conditions for
finished products, including the supply and pricing of alternative
proteins; (iv) effectiveness of advertising and marketing programs; (v) the
ability of the Company to make effective acquisitions and to 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)
access to foreign markets together with foreign economic conditions,
including currency fluctuations; and (ix) the effect of, or changes in,
general economic conditions.
ITEM 2. PROPERTIES
The Company currently has production and distribution operations in
the following states: Alabama, Alaska, Arkansas, California, Florida,
Georgia, Illinois, Indiana, Kentucky, Maryland, Minnesota, Mississippi,
Missouri, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina,
Tennessee, Texas, Virginia and Washington. Additionally, the Company,
either directly or through its subsidiaries, has facilities in or
participates in joint venture operations in Argentina, Brazil, Canada,
China, Denmark, France, India, Indonesia, Ireland, Japan, Mexico, the
Philippines, Poland, South Africa, Spain, the United Kingdom and Venezuela.
The principal poultry operations of the Company consist of 58
processing plants. These plants are devoted to various phases of
slaughtering, dressing, cutting, packaging, deboning or further-processing.
The total slaughter capacity is approximately 43 million head per week.
To support the above facilities the Company operates 37 feed mills and
65 broiler hatcheries with sufficient capacity to meet the needs of the
poultry growout operations. In addition, the Company owns poultry cold
storage facilities with a capacity of approximately 126.8 million pounds.
The Company's prepared foods operations consist of eight processing
plants. These operations are supported by five additional freezer storage
facilities.
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The Company's seafood operations consist of 23 catching and at-sea
processing vessels along with two freighters. The at-sea processing is
supported by nine shore-based processing plants, five of which are
dedicated to surimi processing.
The Company's animal feed and pet food processing operations consist
of eleven rendering plants with the capacity to produce 26.6 million pounds
of animal protein products per week supported by three freezer facilities.
Fourteen ground pet food processing operations in connection with poultry
processing plants are capable of producing 7.3 million pounds of product
per week.
The Company's live swine operations consist of 158 swine farrowing and
nursery units and 385 swine finishing units. These swine growout operations
are supported by three dedicated feed mills supplemented by the production
from the poultry operations' feed mills. In addition, the Company operates
a grain drying and two storage facilities in support of its swine feed mill
operations.
The Company owns its major operating facilities and vessels with the
following exceptions: one poultry emulsified operation facility and one
poultry emulsified plant are leased month to month, 355 breeder farms are
leased under agreements expiring at various dates through 1999, 52 swine
farrowing and nursery units and 318 swine finishing units are leased under
one to ten year renewable lease agreements and two seafood processing
plants are leased under agreements expiring in 2000 and 2001.
Management believes that the Company's present facilities are
generally adequate and suitable for its current purposes. In general, the
Company's facilities are fully utilized. However, seasonal fluctuations in
inventories and production may occur as a reaction to market demands for
certain products. The Company regularly engages in construction and other
capital improvement projects intended to expand capacity and improve the
efficiency of its processing and support facilities.
ITEM 3. LEGAL PROCEEDINGS
On December 29, 1997, the Company entered into a plea agreement
resolving the Office of Independent Counsel's (OIC) investigation of the
Company in connection with its investigation of former Secretary of
Agriculture Michael Espy. The Company entered a guilty plea to a single
count of violating the illegal gratuity statute, 18 U.S.C. 201(c)(1).
The Company was sentenced on January 12, 1998 to pay a fine of $4 million,
costs of prosecution of $2 million and was placed on probation for four
years. At the time of its plea, the Company also entered a Compliance
Agreement with OIC and the U.S. Department of Agriculture requiring it to
implement a compliance program.
Following the entry of its guilty plea, the Company and others
were named as defendants in a putative class action suit brought on behalf
of all individuals who sold beef cattle to beef packers for processing
between certain dates in 1993 and 1998. This action, captioned Wayne
Newton, et al. v. Tyson Foods, Inc., et al., U.S. District Court, Northern
District of Iowa, Civil Action No. 98-30, asserts claims under the
Racketeer Influenced and Corrupt Organizations statute as well as a common
- -law claim for intentional interference with prospective economic
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advantage. Plaintiffs allege that the gratuities which were the subject of
the Company's plea resulted in a competitive advantage for poultry products
vis-a-vis beef products. Plaintiffs request trebled damages in excess of
$3 billion, plus attorney's fees and costs. While management is not able
at the present time to determine the outcome of this matter, based upon
information currently available, management presently does not believe that
this lawsuit has merit and will not have a material adverse effect on the
Company's financial position or its results of operations.
On July 28, 1997, Hudson received notice from the U.S. Department of
Justice (DOJ) that it was prepared to bring an action against Hudson for
the alleged violation of the Clean Water Act at Hudson's Berlin, Md.,
poultry processing facility. The DOJ alleged that over the past five
years, Hudson had repeatedly discharged pollutants in quantities in excess
of its National Pollutant Discharge Elimination System (NPDES) permit
limits, violated monitoring and sampling requirements of its NPDES permit
and failed to provide notice of NPDES violations. On September 19, 1997,
Hudson entered into an agreement in principle with the DOJ for the
settlement of these claims. On May 8, 1998, a Consent Decree between the
United States, Hudson and the Company was filed with the U.S. District
Court together with a Complaint alleging these violations. On October 6,
1998, the U.S. District Court approved and entered the Consent Decree. The
Consent Decree, while stating that Hudson denies the violations alleged in
the Complaint, provides for the payment to the United States of $4 million
and the expenditure of $2 million in supplemental environmental projects
(SEPs).
On or about July 23, 1998, the Maryland Department of the Environment (MDE)
filed a Complaint for Injunctive Relief and Civil Penalty (the Complaint)
against the Company in the Circuit Court of Worcester County, Md. for the
alleged violation of certain Maryland water pollution control laws with
respect to the Company's land application of sludge to Company owned
agricultural land near Berlin, Md. The MDE seeks, in addition to injunctive
and equitable relief, civil penalties of up to $10,000 per day for each day
the Company had allegedly operated in violation of the Maryland water
pollution control laws. The Company has only recently received the
Complaint, is reviewing and researching the factual matters asserted
therein, and intends to vigorously defend against the same. The Company
does not believe any penalties, if imposed, would have a material adverse
effect on the Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
<PAGE>
Executive Officers of the Company
Officers of the Company serve one year terms from the date of their
election, or until their successors are appointed and qualified. The name,
title, age and year of initial election to executive office of the
Company's executive officers are listed below:
Year
Name Title Age Elected
- ---- ----- --- -------
Don Tyson Senior Chairman of the 68 1963
Board of Directors
John H. Tyson Chairman of the 45 1984
Board of Directors
Wayne Britt Chief Executive Officer 49 1977
Donald E. Wray President and Chief Operating 61 1979
Officer
Greg Lee Executive Vice President, Sales, 51 1993
Marketing and Technical Services
David Purtle Executive Vice President, 54 1985
Operations, Transportation and
Warehousing
Steven Hankins Executive Vice President and 40 1997
Chief Financial Officer
Dennis Leatherby Senior Vice President, 38 1990
Finance and Treasurer
James G. Ennis Vice President, Controller and 53 1996
Chief Accounting Officer
David L. Van Bebber Vice President and 42 1990
Director of Legal Services
R. Read Hudson Secretary 40 1998
Louis C. Gottsponer, Jr. Assistant Secretary and 34 1998
Director of Investor Relations
15
<PAGE>
John H. Tyson is the son of Don Tyson. No other family relationships exist
among the above officers. Mr. Don Tyson was appointed Senior Chairman of
the Board of Directors in 1995 after previously serving as Chairman of the
Board and Chief Executive Officer. Mr. John H. Tyson was appointed Chairman
of the Board of Directors in 1998 after serving as Vice Chairman of the
Board of Directors since 1997 and President, Beef and Pork Division since
1993. Mr. Britt was appointed Chief Executive Officer in 1998 after serving
as Executive Vice President and Chief Financial Officer since 1996, Senior
Vice President, International Sales and Marketing since 1994 and Vice
President, Wholesale Club Division since 1992. Mr. Wray was appointed
President and Chief Operating Officer in 1995 after serving as Chief
Operating Officer since 1991. Mr. Lee was appointed Executive Vice
President, Sales, Marketing and Technical Services in 1995 after serving as
Senior Vice President, Sales and Marketing since 1993. Mr. Purtle was
appointed Executive Vice President, Operations, Transportation and
Warehousing in 1995 after serving as Senior Vice President, Operations
since 1991. Mr. Hankins was appointed Chief Financial Officer in 1998 after
serving as Senior Vice President, Financial Planning and Shared Services
since 1997 and Vice President, Management Information Systems since 1993.
Mr. Leatherby was appointed Senior Vice President, Finance and Treasurer in
1998 after serving as Vice President and Treasurer since 1997, Treasurer
since 1994 and Assistant Treasurer since 1990. Mr. Ennis was appointed Vice
President, Controller and Chief Accounting Officer in 1996 after serving as
Corporate Tax Manager since 1986. Mr. Van Bebber was appointed Vice
President and Director of Legal Services in 1998 after serving as Assistant
Secretary since 1990. Mr. Hudson was appointed Secretary in 1998 after
serving as Corporate Counsel since 1992. Mr. Gottsponer was appointed
Assistant Secretary and Director of Investor Relations in 1998 after
serving as Corporate Finance Manager since 1996 and Cash Manager since
1993.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company currently has issued and outstanding two classes of
capital stock, Class A Common Stock (the "Class A Stock") and Class B
Common Stock (the "Class B Stock"). Information regarding the voting rights
and dividend restrictions are set forth on page 29 of the Annual Report
under the caption "Capital Stock," which information is incorporated herein
by reference.
On October 3, 1998, there were approximately 33,683 holders of record
of the Company's Class A Stock and 17 holders of record of the Company's
Class B Stock, excluding holders in the security position listings held by
nominees. The Class A Stock is traded on the New York Stock Exchange under
the symbol "TSN." No public trading market currently exists for the Class B
Stock. Information regarding the high and low closing prices of the Class A
Stock is set forth on pages 14 and 15 and in the table on page 44 of the
Annual Report under the captions "Eleven-Year Financial Summary" and
"Closing Price of Company's Common Stock," which information is
incorporated herein by reference.
The Company has paid uninterrupted quarterly dividends on its common
stock each year since 1977. On January 10, 1997, the Board of Directors
increased the post-split annual dividend rate on Class A Stock to $.10 per
share and fixed an annual dividend rate of $.09 per share for the Class B
Stock, effective with the quarterly dividend paid on March 15, 1997. The
Company has continued to pay quarterly dividends at the same rates through
fiscal 1998.
ITEM 6. SELECTED FINANCIAL DATA
See the information reflected under the caption "Eleven-Year Financial
Summary" on pages 14 and 15 of the Annual Report, which information is
incorporated herein by reference.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See the information reflected under the caption "Management's
Discussion and Analysis" on pages 16 through 23 of the Annual Report, which
information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Market risks relating to the Company's operations result primarily
from changes in interest rates, foreign exchange rates and commodity
prices, as well as credit risk concentrations. 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.
17
<PAGE>
Commodities Risk
The Company is a purchaser of certain commodities, primarily corn and
soybeans. 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 grains. The contracts that
effectively meet risk reductions 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 October 3, 1998. Additionally, for the futures
contracts, the latest which matures 15 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 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 - $36.0 $ - $36.0 $ -
Corn Futures Contracts
(volume in bushels)
Long (Buy) Positions 7.5 17.4 2.33 17.0 2.27
Short (Sell) Positions 9.7 20.5 2.11 20.2 2.08
Soybean Oil Futures Contracts
(volume in cwt)
Long (Buy) Positions 0.1 2.1 24.24 2.1 24.05
Short (Sell) Positions 0.1 1.5 24.40 1.5 24.06
===========================================================================
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 denominatedin 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%.
18
<PAGE>
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
10/3/98
___________________________________________________________________________
Liabilities
Long-term Debt,
including
Current Portion
Fixed Rate $73.6 $226.7 $125.2 $31.4 $178.5 $823.3 $1,458.7 $1,533.7
Average Interest
Rate 9.37% 6.39% 8.25% 7.88% 6.20% 6.79% 6.93%
Variable Rate $4.0 $24.6 - $506.9 - $50.0 $585.5 $585.5
Average Interest
Rate 4.15% 7.67% - 5.57% - 3.73% 5.49%
Interest Rate
Derivative Financial
Instruments Related
to Debt
Interest Rate Swaps
Pay Fixed $16.1 $17.2 $18.4 $19.6 $20.2 $50.2 $141.7 ($8.1)
Average Pay Rate 6.71% 6.71% 6.69% 6.73% 6.74% 6.59% 6.67%
Average Receive Rate- USD 6 Month Libor.
===========================================================================
The following table summarizes information on instruments and transactions
that are sensitive to foreign currency exchange rates. The table presents
the notional amounts, weighted-average exchange rates by expected
(contractual) maturity dates and fair values. These notional amounts
generally are used to calculate the contractual payments to be exchanged
under the contract.
19
<PAGE>
Exposures Related to Derivative Contracts
with United States Dollar Functional Currency
Principal (Notional) Amount by Expected Maturity
Average Forward Foreign Currency Exchange Rate (USD/Foreign Currency)
(dollars in millions)
___________________________________________________________________________
1999 2000 - 2003 There- Total Fair
after Value
10/3/98
___________________________________________________________________________
Sold Option Contracts
to Sell Foreign
Currencies for US$
Japanese Yen
Notional Amount $6.5 - $6.5 -
Weighted Average
Strike Price Y109.48
Purchased Option
Contracts to Sell
Foreign Currencies
for US$
Japanese Yen
Notional Amount $5.6 - $5.6 $0.4
Weighted Average
Strike Price Y126.69
===========================================================================
Credit Risks
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash equivalents and trade receivables.
The Company's cash equivalents are in high quality securities placed with
major banks and financial institutions. Concentrations of credit risk with
respect to receivables are limited due to the large number of customers and
their dispersion across geographic areas. The Company performs periodic
credit evaluations of its customers' financial condition and generally does
not require collateral. No single group or customer represents greater than
10% of total accounts receivable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the information on pages 24 through 41 of the Annual Report under
the caption "Consolidated Statements of Income," "Consolidated Balance
Sheets," "Consolidated Statements of Shareholders' Equity," "Consolidated
Statements of Cash Flows," "Notes to Consolidated Financial Statements" and
"Report of Independent Auditors," which information is incorporated herein
by reference. Other financial information is filed under Item 14 of Part IV
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See information set forth under the captions "Election of Directors"
and "Section 16(a) Beneficial Ownership Reporting" in the Proxy Statement,
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to general instruction G(3) of the instructions to Annual
Report on Form 10-K, certain information concerning the Company's executive
officers is included under the caption "Executive Officers of the Company"
in Part I of this Report. See the information set forth under the captions
"Executive Compensation and Other Information" and "Report of Compensation
Committee" in the Proxy Statement, which information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information included under the captions "Principal
Shareholders" and "Security Ownership of Management" in the Proxy
Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information included under the caption "Certain Transactions"
in the Proxy Statement, which information is incorporated herein by
reference.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. The following consolidated financial statements of the
registrant included on pages 24 through 40 in the
Company's Annual Report for the fiscal year ended
October 3, 1998, and the Report of Independent
Auditors, on page 41 of such Annual Report are
incorporated herein by reference. Page references
set forth in the index below are to page numbers in
Exhibit 13 of this Form 10-K.
Pages
------
Consolidated Statements of Income 62
for the three years ended October 3, 1998
Consolidated Balance Sheets at 63
October 3, 1998 and September 27, 1997
Consolidated Statements of Shareholders' Equity 64
for the three years ended October 3, 1998
Consolidated Statements of Cash Flows 65
for the three years ended October 3, 1998
Notes to Consolidated Financial Statements 66-81
Report of Independent Auditors 83
2. The following additional information for the years 1998,
1997, and 1996 is submitted herewith. Page references are
to the consecutively numbered pages of this Report on
Form 10-K:
Pages
-----
Report of Independent Auditors 32
Schedule VIII Valuation and Qualifying 33
Accounts and Reserves for the three years ended October
3, 1998
All other schedules are omitted because they are neither applicable
nor required.
3. The exhibits filed with this report are listed in the
Exhibit Index at the end of this Item 14.
4. On September 4, 1998, the Company filed a Current Report
on Form 8-K related to the Board of Directors' approval of
a combined financial program.
22
<PAGE>
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated
by reference to previously filed material. Page references are to the
cover page preceding each attached Exhibit.
Exhibit No. Pages
- ----------- -----
2.1 Agreement and Plan of Merger dated September 4, 1997
by and among the Company, HFI Acquisition Sub, Inc.
and Hudson Foods, Inc. (previously filed as Exhibit
2.1 to the Company's Registration Statement on Form
S-4, filed with the Securities and Exchange Commission
on December 10, 1997, Registration No. 333-41887, and
incorporated herein by reference).
3.1 Restated Certificate of Incorporation of the Company 34-43
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).
4.1 Form of Indenture between the Company and The Chase
Manhattan Bank, N.A., as Trustee relating to the
issuance of Debt Securities (previously filed as
Exhibit 4 to Amendment No. 1 to Registration Statement
on Form S-3, filed with the Commission on May 8, 1995,
Registration No. 33-58177, and incorporated herein by
reference).
4.2 Form of 6.75% $150 million Note due June 1, 2005
(previously filed as Exhibit 4(b) to the Company's
Quarterly Report on Form 10-Q for the period ended
July 1, 1995, Commission File No. 0-3400, and
incorporated herein by reference).
4.3 Form of Fixed Rate Medium-Term Note (previously filed
as Exhibit 4.2 to the Company's Current Report on Form
8-K, filed with the Commission on July 20, 1995,
Commission File No. 0-3400, and incorporated herein by
reference).
4.4 Form of Floating Rate Medium-Term Note (previously
filed as Exhibit 4.3 to the Company's Current Report
on Form 8-K, filed with the Commission on
July 20, 1995, Commission File No. 0-3400, and
incorporated herein by reference).
4.5 Form of Calculation Agent Agreement (previously filed
as Exhibit 4.4 to the Company's Current Report on Form
8-K, filed with the Commission on July 20, 1995,
Commission File No. 0-3400, and incorporated herein by
reference).
23
<PAGE>
4.6 Amended and Restated Note Purchase Agreement, dated
June 30, 1993, by and between the Company and various
Purchasers as listed in the Purchaser Schedule
attached to said agreement, together with the
following documents:
(a) Form of Series A Note
(b) Form of Series D Note
(previously filed as Exhibit 4(a) to the Company's
Quarterly Report on Form 10-Q for the period ended
July 3, 1993, Commission File No. 0-3400, and
incorporated herein by reference).
4.7 Amendment Agreement, dated November 1, 1994, to
Amended and Restated Note Purchase Agreements, dated
June 30, 1993, by and between the Company and various
Purchasers as listed in the Purchaser Schedule
attached to said agreement (previously filed as
Exhibit 10(a) to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1994,
Commission File No. 0-3400, and incorporated herein by
reference).
4.8 Second Amendment Agreement, dated as of June 29, 1996,
to Amended and Restated Note Purchase Agreements,
dated June 30, 1993, by and between the Company and
various Purchasers as listed in the Purchaser Schedule
attached to said agreement (previously filed as
Exhibit 4.8 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).
4.9 Amended and Restated Note Agreement, dated
June 30, 1993, by and between the Company and various
Purchasers as listed in the Purchaser Schedule
attached to said agreement, together with the
following related documents:
(a) Form of Series E Note
(b) Form of Series F Note
(c) Form of Series G Note
(previously filed as Exhibit 4(b) to the Company's
Quarterly Report on Form 10-Q for the period ended
July 3, 1993, Commission File No. 0-3400, and
incorporated herein by reference).
4.10 Amendment Agreement, dated November 1, 1994, to
Amended and Restated Note Agreement, dated
June 30, 1993, by and between the Company and various
Purchasers as listed in the Purchaser Schedule
attached to said agreement (previously filed as
24
<PAGE>
Exhibit 10(b) to the Company's Quarterly Report on
Form 10-Q for the period ended December 31, 1994,
Commission File No. 0-3400, and incorporated herein by
reference).
4.11 Second Amendment Agreement, dated as of June 29, 1996,
to Amended and Restated Note Agreement, dated
June 30, 1993, by and between the Company and
Purchasers as listed in the Purchaser Schedule
attached to said agreement (previously filed as
Exhibit 4.11 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).
4.12 Form of $150 million 6% Note due January 15, 2003
(previously filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended
December 27, 1997, Commission File No. 0-3400, and
incorporated herein by reference).
4.13 Form of $150 million 7% Note due January 15, 2028
(previously filed as Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
December 27, 1997, Commission File No. 0-3400, and
incorporated herein by reference).
4.14 Form of $100 million 6.08% MOPPRS, due February 1,
2010 (previously filed as Exhibit 4.3 to the Company's
Quarterly Report on Form 10-Q for the period ended
December 27, 1997, Commission File No. 0-3400, and
incorporated herein by reference).
4.15 Remarketing Agreement dated January 28, 1998 between
the Company and Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, relating to the 6.08% MOPPRS due
February 1, 2010 (previously filed as Exhibit 4.1 to
the Company's Current Report on Form 8-K, filed with
the Securities and Exchange Commission on February 4,
1998 and incorporated herein by reference).
4.16 Form of $50 million Floating Rate MOPPRS, due February
1, 2010 (previously filed as Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q for the period
ended December 27, 1997, Commission File No. 0-3400,
and incorporated herein by reference).
4.17 Remarketing Agreement dated January 28, 1998 between
the Company and Merrell Lynch, Pierce, Fenner & Smith,
Incorporated, relating to the Floating Rate MOPPRS due
February 1, 2010 (previously filed as Exhibit 4.2 to
the Company's Current Report on Form 8-K, filed with
the Securities and Exchange Commission on February 4,
1998 and incorporated herein by reference).
4.18 Form of 7.0% $200 million Note due May 1, 2018
(previously filed as Exhibit 4.1 to the Company's
25
<PAGE>
Quarterly Report on Form 10-Q for the period ended
March 28, 1998, Commission File No. 0-3400, and
incorporated herein by reference).
4.19 Form of 7.0% $40 million Note due May 1, 2018
(previously filed as Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the period ended
March 28, 1998, Commission File No. 0-3400, and
incorporated herein by reference).
10.1 Fourth Amended and Restated Credit Agreement,
including all exhibits thereto, dated as of
May 26, 1995, by and among the Company, as Borrower,
The Chase Manhattan Bank N.A., Chemical Bank,
Cooperative Centrale Raiffeisen-Boerenleenbank B.A.
(Rabobank Nederland), Morgan Guaranty Trust Company of
New York, National Westminister Bank Plc, Nationsbank
of Texas, N.A., and Societe Generale, as Co-Agents,
and Bank of America National Trust and Savings
Association, as Agent (previously filed as Exhibit
4(f) to the Company's Quarterly Report on Form 10-Q
for the period ended July 1, 1995, Commission File
No. 0-3400, and incorporated herein by reference).
10.2 Amendment No. 1 to Fourth Amended and Restated Credit
Agreement, dated as of May 24, 1996, by and among the
Company, as Borrower, the banks party thereto, The
Chase Manhatten Bank, N.A., Chemical Bank, Cooperative
Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank
Nederland), Morgan Guaranty Trust Company of New York,
National Westminister Bank Plc, Nationsbank of Texas,
N.A., and Societe Generale as Co-Agents and Bank of
America National Trust and Savings Association, as
Agent (previously filed as Exhibit 4(b) to the
Company's Form 10-Q for the quarter ended
June 29, 1996, Commission File No. 0-3400, and
incorporated herein by reference).
10.3 Amendment No. 2 to Fourth Amended and Restated Credit
Agreement, dated as of May 23, 1997, by and among the
Company, as Borrower, the banks party thereto, The
Chase Manhatten Bank, N.A., Chemical Bank, Cooperative
Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank
Nederland), Morgan Guaranty Trust Company of New York,
National Westminister Bank Plc, Nationsbank of Texas,
N.A., and Societe Generale as Co-Agents and Bank of
America National Trust and Savings Association, as
Agent (previously filed as Exhibit 4(b) to the
Company's Form 10-Q for the quarter ended
June 28, 1997, Commission File No. 0-3400, and
incorporated herein by reference).
10.4 Issuing and Paying Agency Agreement dated July 1,
1993, between the Company and Morgan Guaranty Trust
Company of New York, (previously filed as Exhibit
10(d) to the Company's Quarterly Report on Form 10-Q
26
<PAGE>
for the period ended July 3, 1993, Commission File No.
0-3400, and incorporated herein by reference).
10.5 Commercial Paper Dealer Agreement dated July 1, 1993,
between the Company and Merrill Lynch Money Markets,
Inc. (previously filed as Exhibit 10(e) to the
Company's Quarterly Report on Form 10-Q for the period
ended July 3, 1993, Commission File No. 0-3400, and
incorporated herein by reference).
10.6 Commercial Paper Dealer Agreement dated July 1, 1993,
between the Company and the First Boston Corporation
(previously filed as Exhibit 10(g) to the Company's
Quarterly Report on Form 10-Q for the period ended
July 3, 1993, Commission File No. 0-3400, and
incorporated herein by reference).
10.7 Commercial Paper Dealer Agreement dated July 1, 1993,
between the Company and J.P. Morgan Securities, Inc.
(previously filed as Exhibit 10(h) to the Company's
Quarterly Report on Form 10-Q for the period ended
July 3, 1993, Commission File No. 0-3400, and
incorporated herein by reference).
10.8 Commercial Paper Dealer Agreement dated July 1, 1993,
between the Company and Bank of America National Trust
and Savings Association (previously filed as Exhibit
10(i) to the Company's Quarterly Report on Form 10-Q
for the period ended July 3, 1993, Commission File
No. 0-3400, and incorporated herein by reference).
10.9 Commercial Paper Dealer Agreement dated
September 1, 1994, between the Company and Chase
Securities, Inc. (previously filed as Exhibit 10(j) to
the Company's Annual Report on Form 10-K for the
fiscal year ended October 1, 1994, Commission File
No. 0-3400, and incorporated herein by reference).
10.10 Tyson Foods, Inc. Senior Executive Performance Bonus
Plan adopted November 18, 1994 (previously filed as
Exhibit 10(k) to the Company's Annual Report on
Form 10-K for the fiscal year ended October 1, 1994,
Commission File No. 0-3400, and incorporated herein by
reference).
10.11 Tyson Foods, Inc. Restricted Stock Bonus Plan,
effective August 21, 1989, as amended and restated on
April 15, 1994; and Amendment to Restricted Stock
Bonus Plan effective November 18, 1994 (previously
filed as Exhibit 10(l) to the Company's Annual Report
on Form 10-K for the fiscal year ended
October 1, 1994, Commission File No. 0-3400, and
incorporated herein by reference).
10.12 Profit Sharing Plan and Trust of Tyson Foods, Inc., as
amended and restated through April 1, 1993; Amendment
No.1 thereto, effective April 1, 1995; and terminating
27
<PAGE>
resolution, effective March 31, 1996 (previously filed
as Exhibit 10(b) to the Company's Form 10-Q for the
quarter ended March 30, 1996, Commission File No. 0-
3400, and incorporated herein by reference).
10.13 Tyson Foods, Inc. Employee Stock Purchase Plan, as
amended and restated through April 1, 1993; and
Amendment Nos. 1 and 2 thereto, effective
April 1, 1996 (previously filed as Exhibit 10(d) to
the Company's Form 10-Q for the quarter ended
March 30, 1996, Commission File No. 0-3400, and
incorporated herein by reference).
10.14 Tyson Foods, Inc. Incentive Stock Option Plan of 1982,
as amended and restated on September 5, 1987,
(previously filed as Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 3, 1987, Commission File No. 0-3400, and
incorporated herein by reference).
10.15 Tyson Foods, Inc. Employee Stock Ownership Plan as
amended and restated through April 1, 1993; and
terminating resolution, effective March 31, 1996
(previously filed as Exhibit 10(c) to the Company's
Form 10-Q for the quarter ended March 30, 1996,
Commission File No. 0-3400, and incorporated herein by
reference).
10.16 Second Amended and Restated Employment Agreement dated
August 1, 1997, between the Company and Don Tyson,
Senior Chairman of the Board of Directors of the
Company (previously filed as Exhibit 10.21 to the
Company's Form 10-K for the fiscal year ended
September 27, 1997, Commission File No. 0-3400, and
incorporated herein by reference).
10.17 Retirement Savings Plan of Tyson Foods, Inc.,
qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended, originally effective as of
October 3, 1987, as amended and restated through
January 1, 1993; and Amendments Nos. 1-5 thereto
(previously filed as Exhibit 10(a) to the Company's
Form 10-Q for the quarter ended March 30, 1996,
Commission File No. 0-3400, and incorporated herein by
reference).
10.18 Tyson Employee Retirement Income Savings Plan, as
amended and restated effective April 1, 1987,
(previously filed as Exhibit 10(h) to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 3, 1987, Commission File No. 0-3400, and
incorporated herein by reference).
10.19 Form of Indemnity Agreement between Tyson Foods, Inc.
and its directors and certain of its executive
officers (previously filed as Exhibit 10(t) to the
Company's Annual Report on Form 10-K for the fiscal
28
<PAGE>
year ended September 30, 1995, Commission File No.
0-3400, and incorporated herein by reference).
10.20 Senior Executive Employment Agreement dated November 44-45
20, 1998 between the Company and Leland E. Tollett.
10.21 Senior Executive Employment Agreement dated November 46-47
20, 1998 between the Company and Donald E. Wray.
12 Ratio of Earnings to Fixed Charges. 48
13 Pages 14-44 and back cover of the Annual Report to 49-88
Shareholders for the fiscal year ended October 3,
1998.
21 Subsidiaries of the Company. 89-90
23 Consent of Independent Auditors. 91
27 Financial Data Schedule.
29
<PAGE>
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) 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.
By /s/ Steven Hankins December 16, 1998
-------------------
Steven Hankins
Executive Vice President
and Chief Financial Officer
30
<PAGE> Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
/s/ Wayne Britt Chief Executive Officer December 16, 1998
- -------------------- and Director
Wayne Britt
/s/ Neely Cassady Director December 16, 1998
- --------------------
Neely Cassady
/s/ James G. Ennis Vice President, Controller December 16, 1998
- -------------------- and Chief Accounting Officer
James G. Ennis
/s/ Lloyd V. Hackley Director December 16, 1998
- --------------------
Lloyd V. Hackley
/s/ Steven Hankins Executive Vice President and December 16, 1998
- -------------------- Chief Financial Officer
Steven Hankins
/s/ Gerald Johnston Director December 16, 1998
- --------------------
Gerald Johnston
/s/ Shelby D. Massey Director December 16, 1998
- --------------------
Shelby D. Massey
/s/ Joe F. Starr Director December 16, 1998
- --------------------
Joe F. Starr
/s/ Leland E. Tollett Director December 16, 1998
- ---------------------
Leland E. Tollett
/s/ Barbara Tyson Vice President and Director December 16, 1998
- ---------------------
Barbara Tyson
/s/ Don Tyson Senior Chairman of the December 16, 1998
- --------------------- Board of Directors
Don Tyson
/s/ John H. Tyson Chairman of the December 16, 1998
- --------------------- Board of Directors
John H. Tyson
/s/ Fred S. Vorsanger Director December 16, 1998
- ---------------------
Fred S. Vorsanger
/s/ Donald E. Wray President, Chief Operating December 16, 1998
- --------------------- Officer and Director
Donald E. Wray
31
<PAGE>
FINANCIAL STATEMENT SCHEDULE
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Tyson Foods, Inc.
as of October 3, 1998 and September 27, 1997, and for each of the three
years in the period ended October 3, 1998, and have issued our report
thereon dated November 20, 1998. Our audits also included the financial
statement schedule listed in Item 14(a) in this annual report (Form 10-K).
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Tulsa, Oklahoma /s/ERNST & YOUNG LLP
November 20, 1998 --------------------
ERNST & YOUNG LLP
32
<PAGE>
TYSON FOODS, INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Three Years Ended October 3, 1998
(Dollars in Millions)
Balance at Charged to Charged Balance
Beginning Costs and to Other Additions at End
Description of Period Expenses Accounts (Deductions) of Period
- ----------- ---------- --------- -------- ----------- ---------
Allowance for
Doubtful Accounts
1998 $4.4 $2.2 0 $78.7(1) $85.3
1997 $3.5 $2.0 0 ($1.1) $4.4
1996 $3.6 $1.9 0 ($2.0) $3.5
(1) Includes $48.4 million reserve for international currency devaluation.
33
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
TYSON FOODS, INC.
Tyson Foods, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is Tyson Foods, Inc. The Corporation
was originally incorporated under the same name, and the original
Certificate of Incorporation of the corporation was filed with the Secretary
of State of the State of Delaware on January 31, 1986, as amended on March
5, 1987, and further amended on March 1, 1991.
2. Pursuant to Section 245 of the General Corporation Law of the State
of Delaware ("Section 245"), this Restated Certificate of Incorporation
restates and integrates the provisions of the Certificate of Incorporation
of the Corporation and does not further amend the provisions of the
Corporation's Certificate of Incorporation as heretofore amended or
supplemented and there is no discrepancy between those provisions and the
provisions of the Restated Certificate of Incorporation (except for
omissions allowed by Section 245).
3. The Restated Certificate of Incorporation has been duly adopted by
the Board of Directors of the Corporation in accordance with Section 245 at
a duly held meeting thereof on November 20, 1998.
4. The text of the Restated Certificate of Incorporation as heretofore
amended or supplemented is hereby restated without further amendment to read
in its entirety as follows:
FIRST: The name of the Corporation is Tyson Foods, Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, in the City Wilmington, County
of New Castle. The name of its registered agent at that address is the
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware as set forth in Title 8 of the Delaware Code
(the "GCL").
FOURTH: The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 1,800,000,000 shares,
consisting of 900,000,000 shares of Class A Common Stock, par value $.10 per
share (the "Class A Stock"), and 900,000,000 shares of Class B Common Stock,
par value $.10 per share (the "Class B Stock").
The relative rights, preferences and limitations of each class of
Common Stock are as follows:
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<PAGE>
I. Class A Stock and Class B Stock
A. Dividends. Subject to any other provisions of the Certificate
of Incorporation, as it may be amended from time to time, holders of Class A
Stock and Class B Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the Corporation as may be
declared thereon by the Board of Directors from time to time out of assets
or funds of the Corporation legally available therefor, provided that no
cash dividend shall be declared and paid on the Class B Stock unless (i) a
cash dividend is simultaneously declared and paid on the Class A Stock and
(ii) the per share amount of such dividend declared and paid on the Class B
Stock does not exceed 90% of the per share amount of the dividend declared
and paid on the Class A Stock. In the case of dividends or other
distributions payable in stock of the Corporation, including distributions
pursuant to stock splits or divisions of stock of the Corporation which
occur after the initial issuance of shares of Class B Stock by the
Corporation, such distributions or divisions shall be in the same proportion
with respect to each class of stock, but only shares of Class A Stock shall
be distributed with respect to Class A Stock and only shares of Class B
Stock shall be distributed with respect to Class B Stock. In the case of
any combination or reclassification of Class A Stock, the shares of Class B
Stock shall also be combined or reclassified so that the relationship
between the number of shares of Class B Stock and Class A Stock outstanding
immediately following such combination or reclassification shall be the same
as the relationship between the Class B Stock and the Class A Stock
immediately prior to such combination or reclassification.
B. Voting.
(1) At every meeting of the shareholders, every holder of Class A
Stock shall be entitled to one (1) vote in person or by proxy for each share
of Class A Stock standing in his name on the transfer books of the
Corporation, and every holder of Class B Stock shall be entitled to ten (10)
votes in person or by proxy for each share of Class B Stock standing in his
name on the transfer books of the Corporation.
(2) Following the initial issuance of shares of Class B Stock,
the Corporation may not effect the issuance of any additional shares of
Class B Stock (except in connection with stock splits and stock dividends)
unless and until such issuance is authorized by the holders of a majority of
the voting power of the shares of Class A Stock and of Class B Stock
entitled to vote, each voting separately as a class.
(3) No shareholder shall have the right to cumulate votes in the
election of directors.
(4) Except as may be otherwise required by law or this
Certificate of Incorporation, the holders of Class A Stock and Class B Stock
shall vote together as a single class.
C. Transfer.
(1) No person holding shares of Class B Stock of record
(hereinafter called a "Class B Holder") may transfer, and the Corporation
shall not register the transfer of, such shares of Class B Stock, whether by
sale, assignment, gift, bequest, appointment or otherwise, except to a
Permitted Transferee. A Permitted Transferee shall mean:
35
<PAGE>
(a) With respect to a Class B Holder who is a natural
person,
(i) The spouse of such Class B Holder, any lineal
descendant of an ancestor of such Class B Holder which
ancestor was born on or after January 1, 1905, and any spouse
of such a lineal descendant;
(ii) The trustee of a trust (including a voting trust)
principally for the benefit of such Class B holder and/or one
or more of his or her Permitted Transferees described in this
clause C.(1)(a);
(iii) Any organization described in Section 170(c)
of the Internal Revenue Code, as it may from time to time be
amended (the "Code") or any split-interest trust described in
Section 4947 of the Code (hereinafter called a "Charitable
Organization");
(iv) A corporation, a majority of the beneficial
ownership of outstanding capital stock of which entitled to
vote for the election of directors is owned by, or a
partnership a majority of the beneficial ownership of the
partnership interests of which entitled to participate in the
management of the partnership are held by, such Class B
holder or his or her Permitted Transferees determined under
this clause C.(1)(a), provided that if by reason of any
change in the ownership of such stock or partnership
interests, such corporation or partnership would no longer
qualify as a Permitted Transferee, all shares of Class B
Stock then held by such corporation or partnership shall,
upon the election of the Corporation given by written notice
to such corporation or partnership, without further act on
anyone's part, be converted into shares of Class A Stock
effective upon the date of the giving of such notice, and
stock certificates formerly representing such shares of Class
B Stock shall thereupon and thereafter be deemed to represent
a like number of shares of Class A Stock; and
(v) The executor, administrator or personal
representative of the estate of such Class B Holder or the
Guardian of the estate of such Class B Holder.
(b) In the case of a Class B Holder holding shares of Class
B Stock as trustee pursuant to a trust (other than a Charitable
Organization or a trust described in clause (c) below), "Permitted
Transferee" means (i) any person transferring Class B Stock to
such trust and (ii) any Permitted Transferee of any such
transferor determined pursuant to clause C.(1)(a) above.
(c) In the case of a Class B Holder holding shares of Class
B Stock as trustee pursuant to a trust (other than a Charitable
Organization) which was irrevocable on the record date for
determining the persons to whom such shares of Class B Stock are
first issued by the Corporation, "Permitted Transferee" means (i)
any
36
<PAGE>
person to whom or for whose benefit principal may be distributed
either during or at the end of the term of such trust whether by
power of appointment or otherwise and (ii) any Permitted
Transferee of any such person determined pursuant to clause
C.(1)(a) above.
(d) In the case of a Class B Holder that is a Charitable
Organization holding record and beneficial ownership of the amount
of shares of Class B Stock in question, "Permitted Transferee"
means (i) any person transferring such amount of shares of Class B
Stock to such Charitable Organization and (ii) any Permitted
Transferee of such transferor as determined under clause C.(1)(a)
above.
(e) In the case of a Class B Holder that is a trustee of a
thrift or profit sharing plan acquiring record ownership of shares
of Class B Stock for the benefit of participants in such thrift or
profit sharing plan upon its initial issuance by the Corporation,
"Permitted Transferee" means (i) the employee for whose account
such shares of Class B Stock are held by such trustee and (ii) any
"Permitted Transferee" of such employee as determined under clause
C.(1)(a) above.
(f) In the case of a Class B Holder that is a corporation or
partnership (other than a Charitable Organization) acquiring
record and beneficial ownership of shares of Class B Stock upon
its initial issuance by the Corporation, "Permitted Transferee"
means (i) any partner of such partnership, or shareholder of such
corporation, on the record date for determining the persons to
whom such shares of Class B Stock are first issued by the
Corporation, (ii) any person transferring shares of Class B Stock
to such corporation or partnership, and (iii) any Permitted
Transferee of any such person, partner, or shareholder referred to
in subclauses (i) and (ii) of this clause (f), as determined under
clause C.(1)(a) above.
(g) In the case of a Class B Holder that is a corporation or
partnership (other than a Charitable Organization or a corporation
or partnership described in clause (f) above) holding record and
beneficial ownership of shares of Class B Stock, "Permitted
Transferee" means (i) any person transferring shares of Class B
Stock to such corporation or partnership and (ii) any Permitted
Transferee of any such transferor as determined under clause
C.(1)(a) above.
(h) In the case of a Class B Holder that is the executor,
administrator, personal representative or guardian of the estate
of a deceased Class B Holder, or that is the trustee or receiver
of the estate of a bankrupt or insolvent Class B Holder, which
holds record or beneficial ownership of the shares of Class B
Stock, "Permitted Transferee" means a Permitted Transferee of such
deceased, bankrupt or insolvent Class B Holder as determined
pursuant to clause (a), (b), (c), (d), (e), (f) or (g) above, as
the case may be.
37
<PAGE>
(2) Notwithstanding anything to the contrary set forth herein, any
Class B Holder may pledge such holder's shares of Class B Stock to a pledgee
pursuant to a bona fide pledge of such shares as collateral security for
indebtedness due to the pledgee, provided that such shares shall not be
transferred to or registered in the name of the pledgee and shall remain
subject to the provisions of this Section C. In the event of foreclosure or
other similar action by the pledgee, such pledged shares of Class B Stock
may only be transferred to a Permitted Transferee of the pledgor or
converted into shares of Class A Stock, as the pledgee may elect.
(3) For purposes of this Section C.:
(a) The relationship of any person that is derived by or
through legal adoption shall be considered a natural one.
(b) Each joint owner of shares of Class B Stock shall be
considered a "Class B Holder" of such shares.
(c) A minor for whom shares of Class B Stock are held
pursuant to a Uniform Gifts to Minors Act or similar law shall be
considered a Class B Holder of such shares.
(d) Unless otherwise specified, the term "person" means both
natural persons and legal entities.
(e) Without derogating from the election conferred upon the
Corporation pursuant to subclause (iv) of clause C.(1)(a) above,
each reference to a corporation shall include any successor
corporation resulting from merger or consolidation; each reference
to a partnership shall include any successor partnership resulting
from the death or withdrawal of a partner; and each reference to a
trustee shall include any successor trustee.
(4) Any transfer of shares of Class B Stock not permitted hereunder
shall result in the conversion of the transferee's shares of Class B Stock
into shares of Class A Stock, effective the date on which certificates
representing such shares are presented for transfer on the books of the
Corporation. The Corporation may, in connection with preparing a list of
shareholders entitled to vote at any meeting of shareholders, or as a
condition to the transfer or the registration of shares of Class B Stock on
the Corporation's books, require the furnishing of such affidavits or other
proof as it deems necessary to establish that any person is the beneficial
owner of shares of Class B Stock or is a Permitted Transferee.
(5) Except as provided above, shares of Class B Stock shall be
registered in the names of the beneficial owners thereof and not in "street"
or "nominee" name. For this purpose, a "beneficial owner" of any shares of
Class B Stock shall mean a person who, or an entity which, possesses the
power, either singly or jointly, to direct the voting or disposition of such
shares. The Corporation shall note on the certificates for shares of Class
B Stock the restrictions on transfer and registration of transfer imposed by
this Section C.
38
<PAGE>
D. Conversion Rights.
(1) Subject to the terms and conditions of this Section D, each share
of Class B Stock shall be convertible at any time or from time to time at
the option of the respective holders thereof, at the office of any transfer
agent for Class B Stock, and at such other place or places, if any, as the
Board of Directors may designate, or, if the Board of Directors shall fail
so to designate, at the principal office of the Corporation (attention of
the Secretary of the Corporation), into one (1) fully paid and nonassessable
share of Class A Stock. Upon conversion the Corporation shall make no
payment or adjustment on account of dividends accrued or in arrears on Class
B Stock surrendered for conversion or on account of any dividends on the
Class A Stock issuable on such conversion. Before any holder of Class B
Stock shall be entitled to convert the same into Class A Stock, he shall
surrender the certificate or certificates for such Class B Stock at the
office of said transfer agent (or other place as provided above) which
certificate or certificates, if the Corporation shall so request, shall be
duly endorsed to the Corporation or in blank or accompanied by proper
instruments of transfer to the Corporation (such endorsements or instruments
of transfer to be in form satisfactory to the Corporation), and shall give
written notice to the Corporation at said office that he elects so to
convert said Class B Stock in accordance with the terms of this Section D,
and shall state in writing therein the name or names in which he wishes the
certificate or certificates for Class A Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder
of such Class B Stock and the Corporation, whereby the holder of such Class
B Stock shall be deemed to subscribe for the amount of Class A Stock which
he shall be entitled to receive upon such conversion, and, in satisfaction
of such subscription, to deposit the Class B Stock to be converted and to
release the Corporation from all liability thereunder, and thereby the
Corporation shall be deemed to agree that the surrender of the certificate
or certificates therefor and the extinguishment of liability thereon shall
constitute full payment of such subscription for Common Stock to be issued
upon such conversion. The Corporation will as soon as practicable after
such deposit of a certificate or certificates for Class B Stock, accompanied
by the written notice and the statement above prescribed, issue and deliver
at the office of said transfer agent (or other place as provided above) to
the person for whose account such Class B Stock was so surrendered, or to
his nominee or nominees, a certificate or certificates for the number of
full shares of Class A Stock to which he shall be entitled as aforesaid.
Subject to the provision of subsection (3) of this Section D, such
conversion shall be deemed to have been made as of the date of such
surrender of the Class B Stock to be converted; and the person or persons
entitled to receive the Class A Stock issuable upon conversion of such Class
B Stock shall be treated for all purposes as the record holder or holders of
such Class A Stock on such date.
(2) The issuance of certificates for shares of Class A Stock upon
conversion of shares of Class B Stock shall be made without charge for any
stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder of
the share or shares of Class B Stock converted, the person or persons
requesting the issuance thereof shall pay to the Corporation the amount of
any tax which may be payable in respect of any transfer involved in such
issuance or shall establish to the satisfaction of the Corporation that such
tax has been paid.
39
<PAGE>
(3) The Corporation shall not be required to convert Class B
Stock, and no surrender of Class B Stock shall be effective for that
purpose, while the stock transfer books of the Corporation are closed for
any purpose; but the surrender of Class B Stock for conversion during any
period while such books are so closed shall become effective for conversion
immediately upon the reopening of such books, as if the conversion had been
made on the date such Class B Stock was surrendered.
(4) The Corporation covenants that it will at all times reserve
and keep available, solely for the purpose of issue upon conversion of the
outstanding shares of Class B Stock, such number of shares of Class A Stock
as shall be issuable upon the conversion of all such outstanding shares,
provided that nothing contained herein shall be construed to preclude the
Corporation from satisfying its obligations in respect of the conversion of
the outstanding shares of Class B Stock by delivery of shares of Class A
Stock which are held in the treasury of the Corporation. The Corporation
covenants that all shares of Class A Stock which shall be issued upon
conversion of the shares of Class B Stock, will, upon issue, be fully paid
and nonassessable and not entitled to any preemptive rights. All shares of
Class A Stock acquired in exchange for shares of Class B Stock and all
shares of Class B Stock converted into Class A Stock shall be cancelled and
restored to the status of authorized but unissued shares of Class A Stock or
Class B Stock, as the case may be.
(5) At any time when the Board of Directors and the holders of a
majority of the outstanding shares of Class B Stock approve the conversion
of all of the Class B Stock into Class A Stock, then the outstanding shares
of Class B Stock shall be converted into shares of Class A Stock. In the
event of such a conversion, certificates formerly representing outstanding
shares of Class B Stock shall thereupon and thereafter be deemed to
represent the like number of shares of Class A Stock.
E. Liquidation Rights.
In the event of any dissolution, liquidation or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the
Corporation, the remaining assets and funds of the Corporation, if any,
shall be divided among and paid ratably to the holders of Class A Stock and
the holders of Class B Stock. A merger or consolidation of the Corporation
with or into any other corporation or a sale or conveyance of all or any
part of the assets of the Corporation (which shall not in fact result in the
liquidation of the Corporation and the distribution of assets to
shareholders) shall not be deemed to be a voluntary or involuntary
liquidation or dissolution or winding up of the Corporation within the
meaning of this Section E.
40
<PAGE>
F. Preemptive Rights.
Subject to any conversion rights of the holders of Class B Stock, no
holder of either Class A Stock or Class B Stock of the Corporation shall be
entitled as of right to subscribe for or receive any part of the authorized
stock of the Corporation or any part of any new, additional or increased
issues of stock of any class or of any obligations convertible into any
class or classes of stock, but the Board of Directors may, without offering
any such shares of stock or obligations convertible into stock to
shareholders of any class, issue and sell or dispose of the sale to such
persons and for such considerations permitted by law as it may from time to
time in its absolute discretion determine.
FIFTH: I. All corporate powers of the Corporation shall be
exercised by or under the direction of the Board of Directors except as
otherwise provided herein or by law.
In furtherance and not in limitation of the powers conferred by law,
the Board of Directors is expressly authorized:
(i) to fix, abolish, determine and vary from time to time the
amount or amounts to be set apart as reserves,
(ii) to adopt, amend and repeal Bylaws of the Corporation;
(iii) to authorize and cause to be executed mortgages and
liens, with or without limit as to amount, upon the real or personal
property of the Corporation;
(iv) from time to time to determine whether and to what
extent, at what time and place, and under what conditions and
regulations the accounts and books of the Corporation, or any of them,
shall be open to the inspection of any shareholder; and no shareholder
shall have any right to inspect any account or book or document of the
Corporation except as conferred by statute or bylaw or as authorized by
resolution of the shareholders or Board of Directors;
(v) to authorize the payment of compensation to the directors for
services to the Corporation, including fees for attendance at meetings
of the Board of Directors or of any committee thereof and/or salaries
for serving as such directors or committee members, and to determine
the amount of such compensation;
(vi) from time to time to formulate, establish, promote, and carry
out, and to amend, alter, change, revise, recall, repeal or abolish, a
plan or plans for the participation by all or any of the employees,
including directors and officers, of the Corporation, or of any
corporation, company, association, trust or organization in which or in
the welfare of which the Corporation has any interest, and those
actively engaged in the conduct of the Corporation's business, in the
profits, gains, or business of the Corporation or any branch or
division thereof, as part of the Corporation's legitimate expenses,
and/or for the furnishing to such employees, directors, officers or
persons, or any of them, at the Corporation's expense, of medical
services, insurance against accident, sickness, or death, pensions
during old age, disability
41
<PAGE>
or unemployment, education, housing, social services, recreation, or
other similar aids for their relief or general welfare, in such manner
and upon such terms and conditions as the Board of Directors shall
determine; and
(vii) to authorize the guaranty by the Corporation of
securities, evidences of indebtedness, and obligations of other
persons, firms, associations and corporations.
II. Except to the extent prohibited by law, the Board of Directors
shall have the right (which, to the extent exercised, shall be exclusive) to
establish the rights, powers, duties, rules and procedures that from time to
time shall govern the Board of Directors and each of its members, including,
without limitation, the vote required for any such action by the Board of
Directors, and that from time to time shall affect the directors' power to
manage the business and affairs of the Corporation; and no Bylaw shall be
adopted by shareholders which shall impair or impede the implementation of
the foregoing.
SIXTH: To the fullest extent permitted by Delaware General
Corporation Law as the same exists or may hereafter be amended, a director
of this Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as director.
SEVENTH: Meetings of shareholders may be held within or without the
State of Delaware, as the Corporation's Bylaws may provide. The books of
the Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of
the Corporation.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its shareholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or shareholder
thereof or on the application of any receiver or receivers appointed for
this Corporation under the provisions of Section 291 of the GCL or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of the
GCL, order a meeting of the creditors or class of creditors, and/or of the
shareholders or class of shareholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the shareholders or class of shareholders of this
Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of this Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the shareholders or class of shareholders, of this
Corporation, as the case may be, and also on this Corporation.
42
<PAGE>
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
TENTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind the Bylaws of the Corporation.
ELEVENTH: Elections of directors at an annual or special meeting of the
shareholders shall be by written ballot unless the Bylaws of the Corporation
shall otherwise provide.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
signed by R. Read Hudson, its authorized officer this 14th day of December,
1998.
TYSON FOODS, INC.
__________________________
By: R. Read Hudson
Title: Secretary
43
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
THIS SENIOR EXECUTIVE EMPLOYMENT AGREEMENT dated November 20, 1998 is
by and between TYSON FOODS, INC., a corporation organized under the laws of
Delaware (the "Company"), and Leland E. Tollett ("Employee").
WITNESSETH:
WHEREAS, following Employee's retirement from full time employment, the
Company wishes to retain Employee's services and access to Employee's
experience and knowledge; and
WHEREAS, the Employee wishes to furnish advisory services to the
Company upon the terms, provisions and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the agreements
hereinafter contained, the parties hereby agree as follows:
1. The term of this Agreement (the "Term") shall begin January 1, 1999 and
end December 31, 2009.
2. During the Term, Employee will, upon reasonable request, provide
advisory services to the Company as follows:
(a) Services hereunder shall be provided as an employee of the
Company;
(b) Employee may be required to devote up to twenty (20) hours
per month to the Company;
(c) Employee may perform advisory services hereunder at any
location but may be required to be at the offices of the Company
upon reasonable notice; and
(d) Employee shall not be obligated to render services under this
Agreement during any period when he is disabled due to illness or
injury.
3. Beginning January 1, 1999, the Company shall (i) pay Employee each year
for three (3) years the sum of $350,000 per year, for the next two (2)
years the sum of $310,000 per year, and for the next five (5) years
the sum of $125,000 per year, such sums to be payable as the parties
may from time to time agree; (ii) provide Employee and his spouse with
health insurance during the Term as generally available to Employee at
the time of retirement, and (iii) permit Employee to continue all
options to purchase Company stock existing on the date of this
Agreement. In the event of the Employee's death, the benefits
described above shall continue to be paid to the Employee's spouse for
the duration of the Term. In the event of death by both Employee and
his spouse, all benefits under this Agreement shall cease.
44
<PAGE>
4. In the event of Employee's death the Company will, upon written notice
given within sixty (60) days of death by Employee's designated
beneficiary, if any, or otherwise by the administrator of Employee's
estate, terminate all Employee owned options to purchase Company common
stock, whether or not then currently vested, in exchange for payment
equal to the aggregate spread between the option strike price and the
market value of such stock at the close of business on the next
business day succeeding Employee's death.
5. While this Agreement is in effect and thereafter, the Employee shall
not divulge to anyone, except in the regular course of the Company's
business, any confidential or proprietary information regarding the
Company's records, plans or any other aspects of the Company's business
which it considers confidential or proprietary.
6. This Agreement shall terminate in the event Employee accepts employment
from anyone deemed by the Company to be a competitor.
7. The right of the Employee or any other beneficiary under this Agreement
to receive payments may not be assigned, pledged or encumbered, except
by will or by the laws of descent and distribution, without the
permission of the Company which it may withhold in its sole and
absolute discretion.
8. This Agreement represents the complete agreement between Company and
Employee concerning the subject matter hereof and supersedes all prior
employment or benefit agreements or understandings, written or oral.
No attempted modification or waiver of any of the provisions hereof
shall be binding on either party unless in writing and signed by both
Employee and Company.
9. It is the intention of the parties hereto that all questions with
respect to the construction and performance of this Agreement shall be
determined in accordance with the laws of the State of Arkansas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written above.
TYSON FOODS, INC.
By:____________________________
Title:___________________________
/s/ Leland E. Tollett
__________________________________
Leland E. Tollett
45
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
THIS SENIOR EXECUTIVE EMPLOYMENT AGREEMENT dated November 20, 1998 is
by and between TYSON FOODS, INC., a corporation organized under the laws of
Delaware (the "Company"), and Donald E. Wray ("Employee").
WITNESSETH:
WHEREAS, following Employee's retirement from full time employment, the
Company wishes to retain Employee's services and access to Employee's
experience and knowledge; and
WHEREAS, the Employee wishes to furnish advisory services to the
Company upon the terms, provisions and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the agreements
hereinafter contained, the parties hereby agree as follows:
1. The term of this Agreement (the "Term") shall begin on first day of the
month after the Employee retires from active employment with the
Company and end ten (10) years thereafter.
2. During the Term, Employee will, upon reasonable request, provide
advisory services to the Company as follows:
(a) Services hereunder shall be provided as an employee of the
Company;
(b) Employee may be required to devote up to twenty (20) hours per
month to the Company;
(c) Employee may perform advisory services hereunder at any location
but may be required to be at the offices of the Company upon
reasonable notice; and
(d) Employee shall not be obligated to render services under this
Agreement during any period when he is disabled due to illness or
injury.
3. Beginning on the initial date of the Term, the Company shall (i) pay
Employee each year for five (5) years the sum of $200,000 per year, and
for the next five (5) years the sum of $100,000 per year, such sums to
be payable as the parties may from time to time agree; (ii) provide
Employee and his spouse with health insurance during the Term as
generally available to Employee at the time of retirement, and (iii)
permit Employee to continue all options to purchase Company stock
existing on the date of this Agreement. In the event of the Employee's
death, the benefits described above shall continue to be paid to the
Employee's spouse for the duration of the Term. In the event of death
by both Employee and his spouse, all benefits under this Agreement
shall cease.
4. In the event of Employee's death the Company will, upon written notice
given within sixty (60) days of death by Employee's designated
beneficiary, if any, or otherwise by the administrator of Employee's
estate, terminate all Employee owned options to purchase Company common
stock, whether or not then currently vested, in exchange for payment
46
<PAGE>
equal to the aggregate spread between the option strike price and
the market value of such stock at the close of business on the next
business day succeeding Employee's death.
5. While this Agreement is in effect and thereafter, the Employee shall
not divulge to anyone, except in the regular course of the Company's
business, any confidential or proprietary information regarding the
Company's records, plans or any other aspects of the Company's business
which it considers confidential or proprietary.
6. This Agreement shall terminate in the event Employee accepts employment
from anyone deemed by the Company to be a competitor.
7. The right of the Employee or any other beneficiary under this Agreement
to receive payments may not be assigned, pledged or encumbered, except
by will or by the laws of descent and distribution, without the
permission of the Company which it may withhold in its sole and
absolute discretion.
8. This Agreement represents the complete agreement between Company and
Employee concerning the subject matter hereof and supersedes all prior
employment or benefit agreements or understandings, written or oral.
No attempted modification or waiver of any of the provisions hereof
shall be binding on either party unless in writing and signed by both
Employee and Company.
9. It is the intention of the parties hereto that all questions with
respect to the construction and performance of this Agreement shall be
determined in accordance with the laws of the State of Arkansas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date written above.
TYSON FOODS, INC.
By:____________________________
Title: Chairman
/s/ Donald E. Wray
________________________________
Donald E. Wray
47
<PAGE>
Exhibit 12
<TABLE>
<CAPTION>
Tyson Foods, Inc.
Ratio of Earnings to Fixed Charges
October 3, 1998
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
Fixed Charges:
Interest Expense 139,113 110,410 132,934 114,840 86,062
Interest Income 8,754 7,232 4,907 - -
Interest Capitalized 1,766 3,434 3,774 3,068 1,822
Interest Allocated to Beef and Pork and Other (96) 872 - - -
Interest of 50% Owned Subsidiaries-CVI - - - - 281
Amortization of Debt Discount 2,486 4,471 3,414 3,747 5,003
Interest Portion of Rental Expense (33%) 11,831 11,333 11,909 12,637 8,594
Interest Portion of Cobb-Vantress (50%*33%) - - 949
--------------------------------------------------------
Total Fixed Charges (A) 163,854 137,752 156,938 134,292 102,711
Earnings:
Net Income(Loss) 25,099 185,799 86,867 219,191 (2,128)
Provision for Income Taxes 45,937 143,922 49,048 131,036 120,745
Fixed Charges 163,854 137,752 156,938 134,292 102,711
Less Capitalized Interest (1,766) (3,434) (3,774) (3,068) (1,822)
--------------------------------------------------------
Earnings and Fixed Charges (B) 233,124 464,039 289,079 481,451 219,506
Ratio of Earnings to Fixed Charges (B/A) 1.42 3.37 1.84 3.59 2.14
</TABLE>
For purposes of computing the above ratios of earnings to
fixed charges, "earnings" consist of income from
continuing operations before income taxes and fixed
charges (excluding capitalized interest). "Fixed charges"
consist of (i) interest on indebtedness, whether expensed
or capitalized, but excluding interest to fifty-percent
owned subsidiaries (ii) the Company's proportionate share
of interest of fifty-percent owned subsidiaries, (iii)
that portion of rental expense the Company believes to be
representative of interest (one-third of rental expense)
and (iv) amortization of debt discount and expense.
48
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR FINANCIAL SUMMARY
TYSON FOODS,INC.
(In millions except per share data)
- ------------------------------------------------------------------------------------------
OPERATING RESULTS FOR FISCAL YEAR 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $7,414.1 $6,355.7 $6,453.8 $5,511.2
Cost of Sales 6,260.1 5,318.0 5,505.7 4,423.1
Gross Profit 1,154.0 1,037.7 948.1 1,088.1
Operating Expenses 950.4 637.8 678.5 616.4
Interest Expense 139.1 110.4 132.9 114.9
Provision for Taxes 45.9 143.9 49.0 131.0
Net Income (Loss) 25.1 185.8 86.9 219.2
Diluted Earnings (Loss) Per Share 0.11 0.85 0.40 1.01
Basic Earnings (Loss) Per Share 0.11 0.86 0.40 1.01
Dividends Per Share:
Class A 0.100 0.095 0.080 0.053
Class B $ 0.090 $ 0.086 0.072 0.044
- --------------------------------------------------------------------------------------------
Capital Expenditures $ 310.4 $ 291.2 $ 214.0 $ 347.2
Depreciation and Amortization 276.4 230.4 239.3 204.9
Total Assets 5,242.5 4,411.0 4,544.1 4,444.3
Net Property, Plant and Equipment 2,256.5 1,924.8 1,869.2 2,013.5
Total Debt 2,128.9 1,690.1 1,975.1 1,984.7
Shareholders' Equity 1,970.4 1,621.5 1,541.7 1,467.7
Year-End Shares Outstanding 230.9 213.4 217.4 217.2
Diluted Average Shares Outstanding 227.9 218.2 218.0 217.7
Book Value Per Share 8.53 $ 7.60 $ 7.09 $ 6.76
Total Debt to Capitalization 51.9% 51.0% 56.2% 57.5%
- --------------------------------------------------------------------------------------------
Return on Sales 0.3% 2.9% 1.4% 4.0%
Annual Sales Growth (Decline) 16.7% (1.5)% 17.1% 7.9%
Five-Year Compounded Annual Sales Growth 9.5% 8.8% 10.5% 7.6%
Gross Margin 15.6% 16.3% 14.7% 19.7%
Return on Beginning Assets 0.6% 4.1% 2.0% 6.0%
Return on Beginning Shareholders' Equity 1.5% 12.1% 5.9% 17.0%
Five-Year Return on Beginning
Shareholders' Equity 7.1% 10.1% 10.9% 13.8%
Effective Tax Rate 64.7% 43.6% 37.0% 38.1%
Closing Stock Price High $ 24.44 $ 23.63 $ 18.58 $ 18.17
Closing Stock Price Low 16.50 17.75 13.83 13.83
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$5,110.3 $4,707.4 $4,168.8 $3,922.1 $3,825.3 $2,538.2 $1,936.0
4,149.1 3,796.5 3,390.3 3,147.5 3,081.7 2,056.1 1,627.6
961.2 910.9 778.5 774.6 743.6 482.1 308.4
766.0 535.4 446.8 441.4 423.4 271.5 184.0
86.1 72.8 76.9 95.5 128.6 45.0 19.5
120.7 129.3 100.5 97.0 80.1 62.9 23.0
(2.1) 180.3 160.5 145.5 120.0 100.6 81.4
(0.01) 0.81 0.77 0.70 0.60 0.52 0.42
(0.01) 0.82 0.78 0.71 0.61 0.52 0.43
0.047 0.027 0.027 0.020 0.013 0.013 0.013
$ 0.039 $ 0.022 $ 0.022 $ 0.017 $ 0.011 $ 0.011 $ 0.011
- ---------------------------------------------------------------------------------------
$ 232.1 $ 225.3 $ 108.0 $ 213.6 $ 163.8 $ 128.9 $ 86.3
188.3 176.6 148.9 135.8 123.4 84.8 70.3
3,668.0 3,253.5 2,617.7 2,645.8 2,501.1 2,586.1 889.1
1,610.0 1,435.3 1,142.2 1,162.0 1,071.1 1,020.8 430.0
1,455.1 1,024.3 825.6 984.0 1,020.5 1,374.4 211.3
1,289.4 1,360.7 980.2 822.5 663.0 447.7 341.4
217.8 220.9 206.2 206.1 204.9 194.0 191.4
221.7 222.5 207.6 207.1 199.3 194.6 192.0
$ 5.92 $ 6.16 $ 4.75 $ 3.99 $ 3.24 $ 2.31 $ 1.78
53.0% 42.9% 45.7% 54.5% 60.6% 75.4% 38.2%
- ---------------------------------------------------------------------------------------
0.0% 3.8% 3.9% 3.7% 3.1% 4.0% 4.2%
8.6% 12.9% 6.3% 2.5% 50.7% 31.1% 8.4%
15.0% 19.5% 18.5% 21.1% 27.5% 27.6% 26.3%
18.8% 19.4% 18.7% 19.8% 19.4% 19.0% 15.9%
(0.1)% 6.9% 6.1% 5.8% 4.6% 11.3% 10.1%
(0.2)% 18.4% 19.5% 22.0% 26.8% 29.5% 30.2%
14.1% 21.7% 23.9% 26.8% 29.7% 31.8% 32.4%
101.8% 41.8% 38.5% 40.0% 40.0% 38.5% 22.0%
$ 16.67 $ 18.08 $ 15.08 $ 15.58 $ 11.79 $ 8.63 $ 7.25
12.50 12.83 10.17 8.46 7.17 4.92 3.63
</TABLE>
[FN]
1. Significant business combinations accounted for as purchases: Hudson
Foods, Inc., Arctic Alaska Fisheries Corporation and Holly Farms
Corporation on Jan. 9, 1998, Oct. 5, 1992 and July 19, 1989,
respectively. See Footnote 2 to the Consolidated Financial Statements
for acquisitions during the three-year period ended Oct. 3, 1998.
50
<PAGE>
2. The results for 1998 include a $214.6 million pre-tax charge, or $0.68
per share, for asset impairment and other charges.
3. The results for 1997 include a $41 million pre-tax gain ($4 million after-
tax) from the sale of the beef division assets.
4. The results for 1994 include a $205 million after-tax charge, or $0.93
per share, due to the writedown of certain long-lived assets of Arctic Alaska
Fisheries Corporation.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS
TYSON FOODS, INC.
ACQUISITIONS
On Jan. 9, 1998, the Company completed the acquisition of Hudson Foods, Inc.
(Hudson) pursuant to which Hudson merged with and into a wholly-owned
subsidiary of the Company (the Hudson Acquisition). At the effective time of
merger, the Class A and Class B shareholders of Hudson received an aggregate
of approximately 18.4 million shares of the Company's Class A common stock
valued at approximately $363.5 million and approximately $257.4 million in
cash. The Company borrowed funds under its commercial paper program to
finance the $257.4 million cash portion of the Hudson Acquisition
and repay approximately $61 million under Hudson's revolving credit
facilities. The Hudson Acquisition has been accounted for as a purchase and
the excess of investment over net assets acquired is being amortized
straight-line over 40 years. The Company's consolidated results of
operations include the operations of Hudson since the acquisition date.
DISPOSITIONS
On June 9, 1998, the Company and Pierre Foods, LLC (Pierre), a wholly owned
subsidiary of Fresh Foods, Inc., completed an asset purchase agreement for
Pierre to acquire the Pierre Foods division from the Company. The Pierre
Foods division, based in Cincinnati, Ohio, is primarily engaged in producing
and distributing packaged, precooked food products to the foodservice
industry. On Aug. 28, 1998, the Company sold its Caryville, Tenn., meat
processing facility to Advance Food Company, Inc. of Enid, Okla. Both
facilities were acquired with the Hudson Acquisition. Under the terms of
both agreements, the Company received $128 million in cash. The Company
recognized no gain or loss on the sale of these assets. In addition, no pro
forma information is provided as the operations of these facilities were not
significant to the Company.
On Oct. 27, 1998, the Company and Rose Acre Farms, Inc. signed an asset
purchase agreement whereby Rose Acre Farms, Inc. will acquire the Company's
National Egg Products Company operations in Social Circle, Ga. This
operation, which is reflected in assets held for sale at Oct. 3, 1998, was
acquired with the Hudson Acquisition. This transaction is expected to be
finalized in the first quarter of fiscal 1999 at an amount which
approximates its carrying value.
51
<PAGE>
The Company also intends to sell Willow Brook Foods, its integrated turkey
production and processing business, and its Albert Lea, Minn., processing
facility which primarily produces the Schweigert brand of sausages, lunch
and deli meats and other related products. These operations, which are
reflected in assets held for sale at Oct. 3, 1998, were acquired with the
Hudson Acquisition.
IMPAIRMENT AND OTHER CHARGES
The Company recorded charges totaling $214.6 million on a pre-tax basis
($0.68 per share) during the fourth quarter of 1998. These charges consist
of $142.2 million for asset impairment of property, plant and equipment,
writedown of related excess of investments over net assets acquired and
severance costs, $48.4 million for losses in the Company's export business
to Russia which has been adversely affected by the continuing economic
problems in Russia and $24.0 million for other charges related primarily to
workers compensation and employment practice liabilities. These charges have
been classified in the Consolidated Statements of Income as $142.2 million
asset impairment and other charges, $48.4 million included in selling
expenses, $20.5 million included in cost of sales and $3.5 million in other
expense. During the fourth quarter of 1998, the Russian Ruble devalued
resulting in the losses described above. The Company recognizes that
conducting business in or selling products into foreign countries, including
Russia, entails inherent risks. The Company, however, is continually
monitoring its international business practices and, whenever possible, will
attempt to minimize the Company's financial exposure to these risks.
As previously announced, the Company's Board of Directors approved
management's proposed restructure plan on Aug. 28, 1998. The restructuring,
which resulted in asset impairment and related charges, is in furtherance of
the Company's previously stated objective to focus on its core business,
chicken. The recent acquisition of Hudson and the assimilation of Hudson's
facilities and operations into the Company's business have permitted the
Company to review and rationalize the productive capabilities and cost
structure of its core business. Further, the Company intends to continue the
rationalization of its seafood assets. This rationalization may include
divestiture, redeployment, and other possible business transactions,
exploring all alternatives in an orderly fashion. The restructuring
includes, among other things, the closure of eight plants and feedmills
resulting in work force reductions, the writedown of excess of investments
over net assets acquired allocated to closed facilities, the
reconfiguration of various production facilities and the writedown of
certain seafood assets to estimated net realizable value. The anticipated
three-year net benefit, including anticipated proceeds from the sale of
certain assets identified for disposition is approximately $130 million.
The restructuring is expected to result in annual after-tax savings of $12-
$15 million through reduced depreciation, amortization and production costs.
The future cash outflows for severance and related costs is not expected to
be material.
RESULTS OF OPERATIONS
The Company's accounting cycle resulted in a 53-week year for 1998 compared
to a 52-week year for both 1997 and 1996.
52
<PAGE>
1998 vs. 1997
Sales for 1998 increased 16.7% over sales for 1997. Consumer poultry sales,
excluding turkey, accounted for an increase of 12.3% of the total change in
sales for 1998 as compared to 1997. This increase was mainly due to a 21%
increase in tonnage offset slightly by a 5.1% decrease in average sales
prices. A significant portion of the increase in total sales and consumer
poultry sales for 1998 compared to 1997 is due to the Hudson Acquisition.
The operating results for 1998 were affected negatively by the excess
supply of poultry during the first six months of the fiscal year, excess
supply of other proteins for the entire fiscal year and the more commodity-
based Hudson sales mix. Additionally, the collapse of the Russian economy
and the devaluation of the Ruble weakened leg quarter prices and slowed
volume.
The prepared foods group sales, consisting of Mexican Original, Culinary
Foods and Mallard's, accounted for an increase of 0.8% of the change in
total sales for 1998 as compared to 1997. This increase primarily was due
to a 19.6% increase in average sales prices as well as a 2.1% increase in
tonnage, largely due to the acquisition of Mallard's in August 1997. Seafood
sales accounted for a decrease of 0.8% of the change in total sales for 1998
as compared to 1997. This decrease was due to a 25.9% decrease in tonnage
partially offset by a 8.6% increase in average sales prices. Decreased
seafood volume was mainly due to weakness in the surimi business caused in
large part by the Asian economic crisis. However, this is partially offset
by improvements in the analog business. The seafood operations continue to
be affected by the availability of some species of fish as well as
regulations that limit its source of supply. Other miscellaneous sales
accounted for an increase of 4.4% of the change in total sales for 1998 as
compared to last year.
Cost of goods sold increased 17.7% for 1998 as compared to 1997. This
increase is mainly the result of the Hudson Acquisition. As a percent of
sales, cost of sales was 84.4% for 1998 compared to 83.7% for 1997.
Operating expenses for 1998 increased 49% from 1997, mostly due to the asset
impairment and other charges. As a percent of sales, selling expense
increased to 8.7% in 1998 compared to 8.1% in 1997 mainly due to a $48.4
million charge for losses in the Company's export business to Russia.
Selling expense, as a percent of sales excluding the $48.4 million loss in
1998, was 8%. General and administrative expense, as a percent of sales,
increased to 1.8% in 1998 compared to 1.6% in 1997, partly due to 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 0.4% in 1998 and 1997.
[GRAPH]
Expenses as a Percent of Sales
1996 1997 1998
Selling 8.5% 8.1% 8.0% *
General and Administrative 1.6% 1.6% 1.8%
* Excludes $48.4 million loss
53
<PAGE>
Interest expense increased 26% in 1998 compared to 1997. As a percent of
sales, interest expense was 1.9% in 1998 compared to 1.7% in 1997. The
Company had a higher level of borrowing in 1998, which increased the
Company's average indebtedness by 18% over the same period last year mainly
due to the Hudson Acquisition. The Company's short-term interest rates were
slightly higher than the same period last year, and the net average
effective interest rate on total debt for 1998 was 6.6% compared to 6.2% for
1997.
The effective tax rate for 1998 was 64.7% compared to 43.6% for 1997. The
1998 effective tax rate was affected by certain costs related to asset
impairment and foreign losses not deductible for tax purposes.
Return on beginning assets for 1998 was 0.6% compared to 4.1% for 1997, with
a five-year average of 2.5%. Return on beginning assets for 1998, excluding
the $214.6 million for asset impairment and other charges, was 4.1%. Return
on beginning shareholders' equity for 1998 was 1.5% compared to 12.1% for
1997, with a five-year average of 7.1%. Return on beginning shareholders'
equity for 1998, excluding the $214.6 million for asset impairment and other
charges, was 11.1%.
[GRAPH]
Return on Beginning Assets
1996 2.0%
1997 4.1%
1998 4.1% *
* Excluding $214.6 million asset impairment and other charges.
1997 vs. 1996
Sales for 1997 decreased 1.5% from sales for 1996. This decrease is largely
attributable to the sale of the Company's beef division assets in the first
quarter of 1997. Excluding sales related to these operations, total sales
for 1997 increased 4.5% over comparable sales for 1996. Consumer poultry
sales accounted for an increase of 4.1% of the total change in sales for
1997 as compared to 1996. This increase was mainly due to a 0.8% increase in
average sales prices and a 4.2% increase in tonnage.
In 1997, the Company experienced intermittent sales disruptions and lower
than expected prices for leg quarters and related dark meat products in its
Russian markets. Such lower prices, together with tariffs, custom
regulations and other increased costs associated with these exports,
diminished net returns.
The prepared foods group sales, consisting of Mexican Original, Culinary
Foods and Mallards, accounted for a decrease of 0.1% of the total change in
sales for 1997 as compared to 1996. This decrease was primarily due to a
2.1% decrease in tonnage partially offset by a 0.8% increase in average
sales prices. Seafood sales accounted for a decrease of 0.5% of the change
in total sales for 1997 as compared to 1996. This decrease was due to an
11.7% decrease in average sales prices, partially offset by a 0.5% increase
in tonnage. The decrease in average sales prices is mainly due to a shift in
product mix. The seafood operations were affected by the availability of
54
<PAGE>
some species of fish as well as reduced pricing on some products and
regulations that limit supply sources. Other miscellaneous sales accounted
for an increase of 1.0% of the change in total sales for 1997 as compared to
1996.
Cost of goods sold for 1997 decreased 3.4% compared to 1996, which is
largely attributable to the sale of the Company's beef division assets in
the first quarter of 1997. Excluding cost of sales related to these
operations, total cost of sales for 1997 increased 2.5% over last year's
comparable cost of sales. The cost of ingredients used in feed for poultry
and swine and the ingredients used in Mexican Original operations during
1997 decreased in comparison with 1996. However, these costs did not
moderate as much as management had anticipated. As a percent of sales, cost
of sales was 83.7% for 1997 compared to 85.3% in 1996.
Operating expenses for 1997 decreased 5.7% from 1996. This decrease is
mainly the result of the sale of the beef division assets in the first
quarter of fiscal 1997 and cost reductions. As a percent of sales, selling
expense decreased to 8.1% in 1997 compared to 8.5% in 1996; general and
administrative expense was 1.6% in 1997 and 1996; and amortization expense
was 0.4% in 1997 and 1996.
Interest expense decreased 16.9% in 1997 compared to 1996. As a percent of
sales, interest expense was 1.7% in 1997 compared to 2.1% in 1996. The
Company had a lower level of borrowing in 1997, which decreased the
Company's average indebtedness by 12.8% over the same period last year due
to paying down debt with funds generated from operations and proceeds from
the sale of the beef division assets. The Company's short-term interest
rates were slightly lower than the same period last year and the gross
average effective interest rate on total debt for 1997 was 6.8% compared to
6.9% for 1996.
Included in other income in 1997 is a $41.0 million pre-tax gain from the
sale of the beef division assets.
The effective tax rate for 1997 was 43.6% compared to 37% for 1996. The 1997
effective tax rate was affected by the taxes on the gain from the sale of
the beef division assets. Certain costs were allocated to the beef division
which are not deductible for tax purposes, resulting in a higher effective
tax rate.
LIQUIDITY AND CAPITAL RESOURCES
In 1998, net cash of $496.4 million was provided by operating activities,
a decrease of $44.6 million from 1997. The Company used cash from operations
to pay down debt, to fund additions to property, plant and equipment and for
acquisitions. The expenditures for property, plant and equipment were
related to acquiring new equipment, upgrading facilities to maintain
competitive standing and to position the Company for future opportunities.
Additionally, the Company makes a continuing effort to increase
efficiencies, reduce overall cost and meet or exceed environmental laws and
regulations, which requires investments.
55
<PAGE>
[GRAPH]
Cash Provided by Operating Activities
Dollars in Millions
1996 $173.3
1997 $541.0
1998 $496.4
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.
At 1998 year end, working capital was $934.1 million compared to $851.5
million at the end of 1997, an increase of $82.6 million. The current ratio
for 1998 was 2.12 to 1 compared to 2.18 to 1 for 1997. Working capital has
increased over 1997 primarily due to the Hudson Acquisition. Total assets
have increased by $2 billion or 61.1% over the past five years inclusive of
acquisitions.
Additions, net of dispositions, to total property, plant and equipment for
the last five years were $1.5 billion including acquisitions, an increase of
68.6% over the last five years. At 1998 year end, the Company had
construction projects in progress that will require approximately $193.2
million to complete. Funding for these expenditures will be provided by
cash from operations or additional borrowings.
Total debt at 1998 year end was $2.1 billion, an increase of $438.8 million
from the end of 1997. 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 Oct. 3, 1998,
$506.9 million in commercial paper was outstanding under this $1 billion
facility. Additional outstanding long-term debt at Oct. 3, 1998, consisted
of $1,028.4 million of public debt, $169.1 million of institutional notes,
$170.5 million of leveraged equipment loans and $91.7 million of other
indebtedness. On Jan. 9, 1998, the Company borrowed funds under its
commercial paper program for the Hudson Acquisition. Subsequent to the
Hudson Acquisition, the Company refinanced $270 million in outstanding long-
term debt assumed pursuant to the Hudson Acquisition with commercial paper.
On Jan. 21, 1998 the Company issued, in two separate series, $150 million 6%
Notes due Jan. 15, 2003 and $150 million 7% Notes due Jan. 15, 2028. On Feb.
4, 1998, the Company issued $100 million 6.08% Mandatory Par Put Remarketed
SecuritiesSM (MOPPRSSM) due Feb. 1, 2010 and $50 million Floating Rate
MOPPRSSM due Feb. 1, 2010. On April 28, 1998, the Company issued debt
securities in the form of $240 million 7% Notes due May 1, 2018. The net
proceeds from these debt offerings were used by the Company to repay a
portion of the borrowings under its commercial paper program. The Company
may use funds borrowed under its revolving credit facility, 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.
56
<PAGE>
[GRAPH]
Total Capitalization
Dollars in Billions
1996 1997 1998
Equity 1.5 1.6 2.0
Debt 2.0 1.7 2.1
--- --- ---
Total 3.5 3.3 4.1
The revolving credit agreement and notes contain various covenants, the more
restrictive of which require maintenance of a minimum net worth, current
ratio, cash flow coverage of interest and a maximum total debt-to-
capitalization ratio. The Company is in compliance with most of these
covenants at year end and has obtained waivers for covenants in which the
Company is not in compliance.
The Company prefers to maintain a mix of fixed and floating debt.
Management believes that, over the long-term, variable-rate debt may provide
more cost-effective financing than fixed-rate debt; however, the Company
issues fixed-rate debt when advantageous market opportunities arise.
Shareholders' equity increased 21.5% during 1998 and has grown at a
compounded annual rate of 7.7% over the past five years, inclusive of $214.6
million in asset impairment and other charges in 1998, $363.5 million for
the purchase of Hudson in 1998, $20.8 million for the purchase of Mallard's
in 1997 and a $213.9 million writedown of assets in 1994.
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.
57
<PAGE>
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.
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 $1.2
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 rest to be completed by
Dec. 31, 1998.
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
58
<PAGE>
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.
MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in interest rates, foreign exchange rates and commodity prices, as
well as credit risk concentrations. 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
soybeans. 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 grains. The contracts that
effectively meet risk reductions 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 Oct. 3, 1998. Additionally, for futures
contracts, the latest of which matures 15 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 oil to be exchanged under the futures contracts.
DOLLARS AND VOLUME IN MILLIONS, EXCEPT PER UNIT AMOUNTS
- ------------------------------------------------------------------------------
Contract/ Weighted Weighted
Book Ave. Price Fair Ave.Price
Volume Value Per Unit Value Per Unit
- ----------------------------------------------------------------------------
Recorded Balance Sheet Commodity Position:
Commodity Inventory - $36.0 $ - $36.0 $ -
Corn Futures Contracts
(volume in bushels)
Long (Buy) Positions 7.5 17.4 2.33 17.0 2.27
Short (Sell) Positions 9.7 20.5 2.11 20.2 2.08
Soybean Oil Futures Contracts
(volume in cwt)
Long (Buy) Positions 0.1 2.1 24.24 2.1 24.05
Short (Sell) Positons 0.1 1.5 24.40 1.5 24.06
===========================================================================
59
<PAGE>
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 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
____________________________________________________________________________
There- Fair
1999 2000 2001 2002 2003 after Total Value
(dollars in millions) 10/3/98
____________________________________________________________________________
Liabilities
Long-term Debt, including Current Portion
Fixed Rate $73.6 $226.7 $125.2 $31.4 $178.5 $823.3 $1,458.7 $1,533.7
Average Interest
Rate 9.37% 6.39% 8.25% 7.88% 6.20% 6.79% 6.93%
Variable Rate $4.0 $24.6 - $506.9 - $50.0 $ 585.5 $ 585.5
Average Interest
Rate 4.15% 7.67% - 5.57% - 3.73% 5.49%
Interest Rate Derivative Financial Instruments Related to Debt
Interest Rate Swaps
Pay Fixed $16.1 $17.2 $18.4 $19.6 $20.2 $50.2 $141.7 ($8.1)
Average Pay Rate 6.71% 6.71% 6.69% 6.73% 6.74% 6.59% 6.67%
Average Receive Rate- USD 6 Month Libor.
===========================================================================
60
<PAGE>
The following table summarizes information on instruments and transactions
that are sensitive to foreign currency exchange rates. The table presents
the notional amounts, weighted-average exchange rates by expected
(contractual) maturity dates and fair values. These notional amounts
generally are used to calculate the contractual payments to be exchanged
under the contract.
Exposures Related to Derivative Contracts
with United States Dollar Functional Currency
Principal (Notional) Amount by Expected Maturity
Average Forward Foreign Currency Exchange Rate (USD/Foreign Currency)
(dollars in millions)
____________________________________________________________________________
1999 2000 - 2003 There- Total Fair
after Value
10/3/98
____________________________________________________________________________
Sold Option Contracts to Sell Foreign Currencies for US$
Japanese Yen
Notional Amount $6.5 - - $6.5 -
Weighted Average
Strike Price Y109.48
Purchased Option Contracts to Sell Foreign Currencies for US$
Japanese Yen
Notional Amount $5.6 - - $5.6 $0.4
Weighted Average
Strike Price Y126.69
============================================================================
61
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
TYSON FOODS, INC.
THREE YEARS ENDED OCTOBER 3, 1998
(IN MILLIONS EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $7,414.1 $6,355.7 $6,453.8
Cost of Sales 6,260.1 5,318.0 5,505.7
- --------------------------------------------------------------------------------
1,154.0 1,037.7 948.1
- --------------------------------------------------------------------------------
Operating Expenses:
Selling 642.2 513.3 550.0
General and administrative 132.7 96.9 100.9
Amortization 33.3 27.6 27.6
Asset impairment and other charges 142.2
impairment
- --------------------------------------------------------------------------------
950.4 637.8 678.5
- --------------------------------------------------------------------------------
Operating Income 203.6 399.9 269.6
Other Expense (Income):
Interest 139.1 110.4 132.9
Foreign currency exchange 9.0
Other (6.5) (40.2) (4.9)
- --------------------------------------------------------------------------------
132.6 70.2 137.0
- --------------------------------------------------------------------------------
Income Before Taxes on Income and
Minority Interest 71.0 329.7 132.6
Provision for Income Taxes 45.9 143.9 49.0
Minority Interest in Net Loss of
Consolidated Subsidiary 3.3
- --------------------------------------------------------------------------------
Net Income $ 25.1 $ 185.8 $ 86.9
================================================================================
Basic Earnings Per Share $0.11 $0.86 $0.40
Diluted Earnings Per Share $0.11 $0.85 $0.40
================================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
TYSON FOODS, INC.
OCTOBER 3, 1998 AND SEPTEMBER 27, 1997 (IN MILLIONS EXCEPT PER SHARE DATA)
ASSETS 1998 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 46.5 $ 23.6
Accounts receivable 631.0 617.8
Inventories 984.1 886.1
Assets held for sale 65.2 6.2
Other current assets 38.3 38.8
Total Current Assets 1,765.1 1,572.5
Net Property, Plant and Equipment 2,256.5 1,924.8
Excess of Investments Over Net Assets Acquired 1,035.8 731.1
Investments and Other Assets 185.1 182.6
Total Assets $5,242.5 $4,411.0
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 84.7 $ 37.3
Current portion of long-term debt 77.6 94.6
Trade accounts payable 330.6 290.3
Accrued salaries and wages 98.4 80.9
Federal and state income taxes payable 0.9 27.2
Accrued interest payable 22.3 27.3
Other current liabilities 216.5 163.4
Total Current Liabilities $ 831.0 721.0
Long-Term Debt 1,966.6 1,558.2
Deferred Income Taxes 434.4 506.1
Other Liabilities 40.1 4.2
Shareholders' Equity:
Common stock ($.10 par value):
Class A-authorized 900 million shares:
Issued 137.9 million shares in 1998 13.8 11.9
and 119.5 million shares in 1997
Class B-authorized 900 million shares:
Issued 102.6 million shares in 1998 10.3 10.3
and 102.7 million shares in 1997
Capital in excess of par value 740.5 379.1
Retained earnings 1,394.2 1,390.8
Currency translation adjustment (1.0) (2.5)
2,157.8 1,789.6
Less treasury stock, at cost-
9.7 mi shares in 1998 and 8.8 mi shares in 1997 185.1 165.6
Less unamortized deferred compensation 2.3 2.5
Total Shareholders' Equity 1,970.4 1,621.5
Total Liabilities and Shareholders' Equity $5,242.5 $4,411.0
===========================================================================
SEE ACCOMPANYING NOTES.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TYSON FOODS, INC.
THREE YEARS ENDED OCTOBER 3, 1998 (IN MILLIONS EXCEPT PER SHARE DATA)
1998 1997 1996
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
CLASS A COMMON STOCK
Beginning Balance 119.5 $11.9 79.7 8.0 79.7 $8.0
Three-for-two stock split
Acquisition 18.4 1.9 39.8 3.9
-----------------------------------------------------------
Ending Balance 137.9 13.8 119.5 11.9 79.7 $8.0
CLASS B COMMON STOCK
Beginning Balance 102.7 10.3 68.5 6.8 68.5 6.8
Three-for-two stock split 34.2 3.5
-----------------------------------------------------------
Ending Balance 102.7 10.3 102.7 10.3 68.5 6.8
CAPITAL IN EXCESS OF PAR VALUE
Beginning Balance 379.1 375.4 377.9
Exercise of Options (0.2) (0.3) (2.5)
Acquisitions 361.6 4.0
-----------------------------------------------------------
Ending Balance 740.5 379.1 375.4
RETAINED EARNINGS
Beginning Balance 1,390.8 1,232.4 1,162.3
Net income 25.1 185.8 86.9
Three-for-two stock split (7.4)
Dividends: Class A per share (21.7) (20.0) (16.8)
(1998-$.10;1997-$.095;1996-$.09)
Class B per share (1998-$.09;
1997-$.086; 1996-$.072)
-----------------------------------------------------------
Ending Balance 1,394.2 1,390.8 1,232.4
CURRENCY TRANSLATION ADJUSTMENT
Beginning Balance (2.5) (2.8) (5.2)
Currency translation adjustment 1.5 0.3 2.4
-----------------------------------------------------------
Ending Balance (1.0) (2.5) (2.8)
TREASURY STOCK
Beginning Balance 8.8 (165.6) 3.2 (75.4) 3.4 (79.2)
Purchases 1.1 (22.3) 5.2 (109.6) 0.1 (1.3)
Exercise of options (0.2) 2.8 (0.2) 2.6 (0.3) 5.1
Acquisition (1.0) 16.8
Three-for-two stock split 1.6
-----------------------------------------------------------
Ending Balance 9.7 (185.1) 8.8 (165.6) 3.2 (75.4)
UNAMORTIZED DEFERRED COMPENSATION
Beginning Balance (2.5) (2.7) (2.9)
Amortization of deferred
compensation 0.2 0.2 0.2
-----------------------------------------------------------
Ending Balance (2.3) (2.5) (2.7)
-----------------------------------------------------------
Total Shareholders' Equity $1,970.4 $1,621.5 $1,541.7
===========================================================
SEE ACCOMPANYING NOTES.
</TABLE> 64
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
TYSON FOODS, INC.
THREE YEARS ENDED OCTOBER 3, 1998 (IN MILLIONS)
- ----------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25.1 $185.8 $86.9
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation 243.1 202.8 211.7
Amortization 33.3 27.6 27.6
Restructuring and related asset impairment 214.6
Deferred income taxes (144.5) 10.5 15.9
Minority interest (3.3)
Foreign currency exchange loss 9.0
(Gain) Loss on dispositions of property, plant and (2.3) (34.8) 2.2
equipment
Decrease (increase) in accounts receivable 32.8 (68.4) (66.9)
Decrease (increase) in inventories 79.8 143.6 (126.7)
(Decrease) increase in trade accounts payable (6.6) 19.2 (4.7)
Net change in other current assets and liabilities 21.1 54.7 21.6
- ----------------------------------------------------------------------------------------------
Cash Provided by Operating Activities 496.4 541.0 173.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash paid for acquisitions (258.5) (4.3)
Additions to property, plant and equipment (310.4) (291.2) (214.0)
Proceeds from sale of assets 136.0 223.4 21.1
Net change in other assets and liabilities (13.3) (63.8) (29.5)
- ----------------------------------------------------------------------------------------------
Cash Used for Investing Activities (446.2) (135.9) (222.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (74.4) (2.2) (55.7)
Proceeds from long-term debt 1,027.1 131.4 475.6
Repayments of long-term debt (954.7) (420.8) (351.5)
Purchase of treasury shares (22.3) (109.6) (1.3)
Other (2.9) (17.2) (15.0)
- ----------------------------------------------------------------------------------------------
Cash Provided by (Used for) Financing Activities (27.2) (418.4) 52.1
Effect of Exchange Rate Change on Cash (0.1) 0.3 0.5
- ----------------------------------------------------------------------------------------------
(Decrease) Increase in Cash 22.9 (13.0) 3.5
Cash and Cash Equivalents at Beginning of Year 23.6 36.6 33.1
- ----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 46.5 $23.6 $36.6
- ----------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TYSON FOODS, INC.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements include the accounts of
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Description of Business: The Company is a fully integrated producer,
processor and marketer of chicken, chicken-based food products and
convenience food items. The Company's food products are sold in the domestic
foodservice, retail and wholesale club markets as well as internationally.
Fiscal Year: The Company utilizes a 52- or 53- week accounting period which
ends on the Saturday closest to Sept. 30.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Cash and Cash Equivalents: Cash equivalents consist of investments in short-
term, highly liquid securities having original maturities of three months or
less, which are made as part of the Company's cash management activity. The
carrying values of these assets approximate their fair market values. As a
result of the Company's cash management system, checks issued, but not
presented to the banks for payment, may create negative cash balances.
Checks outstanding in excess of related cash balances totaling approximately
$158.8 million at Oct. 3, 1998, and $147 million at Sept. 27, 1997, are
included in trade accounts payable, accrued salaries and wages and other
current liabilities.
Inventories: Live poultry consists of broilers and breeders. Broilers are
stated at the lower of cost (first-in, first-out) or market and breeders are
stated at cost less amortization. Breeders costs are accumulated up to the
production stage and amortized into broiler costs over the estimated
production lives based on historical egg production. Live hogs consist of
breeding stock and finishing hogs which are carried at lower of cost (first-
in, first-out) or market. The cost of live hogs is included in cost of
sales when the hogs are sold. Broilers, live hogs, dressed and further-
processed products, seafood-related products, hatchery eggs and feed and
supplies are valued at the lower of cost (first-in, first-out) or market.
(IN MILLIONS)
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
Dressed and further-processed products $ 410.4 $ 366.1
Live poultry and hogs 374.2 353.4
Seafood related products 49.2 39.5
Hatchery eggs and feed 71.5 57.8
Supplies 78.8 69.3
- ---------------------------------------------------------------------------
$ 984.1 $ 886.1
- ---------------------------------------------------------------------------
66
<PAGE>
Property, Plant and Equipment and Depreciation: Depreciation is provided
primarily by the straight-line method using estimated lives for buildings
and leasehold improvements of 10 to 39 years; machinery and equipment of
three to 12 years; vessels of 16 to 30 years; and other of three to 20
years.
The Company capitalized interest costs of $1.8 million in 1998, $3.4 million
in 1997 and $3.8 million in 1996 as part of the cost of major asset
construction projects. Approximately $193.2 million will be required to
complete construction projects in progress at Oct. 3, 1998.
The major categories of property, plant and equipment and accumulated
depreciation, at cost, are as follows:
(IN MILLIONS)
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Land $ 57.8 $ 47.7
Buildings and leasehold improvements 1,163.0 931.9
Machinery and equipment 2,004.6 1,838.9
Vessels 83.8 101.7
Land improvements and other 112.6 90.7
Buildings and equipment under construction 262.6 152.3
- ----------------------------------------------------------------------------
3,684.4 3,163.2
Less accumulated depreciation 1,427.9 1,238.4
- ----------------------------------------------------------------------------
$2,256.5 $1,924.8
- ----------------------------------------------------------------------------
Excess of Investments Over Net Assets Acquired: Costs in excess of net
assets of businesses purchased are amortized on a straight-line basis over
periods ranging from 15 to 40 years. The carrying value of excess of
investments over net assets acquired is reviewed at each balance sheet date
to determine if facts and circumstances suggest that it may be impaired. If
this review indicates that the excess of investments over net assets
acquired may not be recoverable, an estimate of the undiscounted cash flows
of the entity acquired is prepared and the Company's carrying value of
excess of investments over net assets acquired will be reduced by the
estimated shortfall of cash flows. At Oct. 3, 1998 and Sept. 27, 1997, the
accumulated amortization of excess of investments over net assets acquired
was $196.4 million and $165.8 million, respectively. See also Footnote 4
Impairment and Other Charges.
Capital Stock: Holders of Class B common stock (Class B stock) may convert
such stock into Class A common stock (Class A stock) on a share-for-share
basis. Holders of Class B stock are entitled to ten votes per share while
holders of Class A stock are entitled to one vote per share on matters
submitted to shareholders for approval. Cash dividends cannot be paid to
holders of Class B stock unless they are simultaneously paid to holders of
Class A stock, and the per share amount of the cash dividend paid to
holders of Class B stock cannot exceed 90% of the cash dividend
simultaneously paid to holders of Class A stock.
67
<PAGE>
On Jan. 10, 1997, the Company's Board of Directors authorized a three-for-
two stock split in the form of a stock dividend, effective Feb. 15, 1997,
for shareholders of record on Feb. 1, 1997.
Stock-Based Compensation: The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related interpretations in accounting for its employee stock
options. Under APB 25, because the exercise price of employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recorded. The Company has adopted the disclosure-
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123).
Financial Instruments: Periodically, the Company uses derivative financial
instruments to reduce its exposure to various risks. As a policy, the
Company does not engage in speculative transactions not does the Company
hold or issue financial instruments for trading purposes. Contracts that
effectively meet risk reduction and correlation criteria are recorded using
hedge accounting. Interest rate swaps are used to hedge exposure to changes
in interest rates under various leveraged equipment loans. Settlements of
interest rate swaps are accounted for as an adjustment to interest expense.
Gains and losses are recognized immediately if the underlying instrument is
settled. Commodity futures and options are used to hedge a portion of the
Company's purchases of certain commodities for future processing
requirements. Such contracts are accounted for as hedges, with gains and
losses recognized as part of cost of goods sold, and generally have terms of
less than 15 months. Foreign currency forwards and option contracts are
used to hedge sale transactions denominated in foreign currencies, primarily
Japanese Yen, to reduce the currency risk associated with fluctuating
exchange rates. Such contracts generally have terms of less than one year.
Unrealized gains and losses are deferred as part of the basis of the
underlying transaction.
Earnings Per Share: The Company adopted FASB statement No. 128, "Earnings
Per Share," effective for the year ending Oct. 3, 1998. All prior-period
earnings per share data have been restated. This Statement requires dual
presentation of basic and diluted earnings per share on the face of the
income statement. Stock options issued pursuant to Company compensation
plans are the only dilutive securities in all periods presented.
68
<PAGE>
The following table sets forth the computation of basic and diluted earnings
per share:
(In millions)
1998 1997
---------- -------------
Numerator:
Net Income $ 25.1 $ 185.8
===== ======
Denominator:
Denominator for basic
earnings per share-
weighted average shares 226.7 216.3
Effect of dilutive securities:
Employee stock options 1.2 1.9
------- -------
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 227.9 218.2
======= =======
Basic earnings per share $ 0.11 $ 0.86
======= =======
Diluted earnings per share $ 0.11 $ 0.85
======= =======
Income Taxes: The Company follows the liability method in accounting for
deferred income taxes. The liability method provides that deferred tax
liabilities are recorded at currently enacted 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.
Advertising and Promotion Expenses: Advertising and promotion expenses are
charged to operations in the period incurred. Advertising and promotion
expenses for 1998, 1997 and 1996 were $294.2 million, $233.2 million and
$228 million, respectively.
Comprehensive Income: In June 1997, the FASB issued 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 Company's comprehensive income items, primarily
foreign currency translation adjustments, are not material; accordingly, the
effect of adopting this statement will not be material when it becomes
effective for fiscal 1999.
Segment Reporting: In June 1997, the FASB issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS No. 131). Under the provisions of SFAS No.
131, public business enterprises must report financial and descriptive
69
<PAGE>
information about its reportable segments. Management is finalizing its
study of SFAS No. 131 as well as the Company's operations to determine all
of the Company's reportable segments. Based upon this analysis, the Company
believes that one segment, consumer poultry, will account for at least 75%
of revenue and operating income. This statement will be effective for
fiscal 1999.
Derivative Instruments and Hedging Activities: 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 2000.
Costs Associated with Computer Software: In March 1998, the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use (SOP 98-1). This statement provides guidance on the
capitalization of certain costs incurred in developing or acquiring internal-
use computer software. The Company believes the adoption of SOP 98-1 in
fiscal 2000 will not have a material impact on its financial position or
results of operations.
NOTE 2: ACQUISITIONS
On Jan. 9, 1998, the Company completed the acquisition of Hudson Foods, Inc.
(Hudson) pursuant to which Hudson merged with and into a wholly-owned
subsidiary of the Company (the Hudson Acquisition). At the effective time of
the acquisition, the Class A and Class B shareholders of Hudson received an
aggregate of approximately 18.4 million shares of the Company's Class A
common stock valued at approximately $363.5 million and approximately $257.4
million in cash. The Company borrowed funds under its commercial paper
program to finance the $257.4 million cash portion of the Hudson
Acquisition and repay approximately $61 million under Hudson's revolving
credit facilities. The Hudson Acquisition has been accounted for as a
purchase and the excess of investment over net assets acquired is being
amortized straight-line over 40 years. The Company's consolidated results of
operations include the operations of Hudson since the acquisition date. The
following unaudited pro forma information shows the results of operations as
though the purchase of Hudson had been made at the beginning of fiscal 1997.
70
<PAGE>
(In millions, except per share data)
1998 1997
--------------------------
Net sales $7,831.0 $8,020.8
Net income 16.8 140.3
Basic Earnings Per Share 0.07 0.60
Diluted Earnings Per Share $ 0.07 $ 0.59
The unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the purchase actually
been made at the beginning of 1997, or the results that may occur in the
future.
On Aug. 1, 1997, the Company acquired Mallard's Food Products, Inc.
(Mallard's) for a combination of one million shares of the Company's Class A
stock valued at $20.8 million and cash of $4.0 million. Mallard's, with two
plants in Modesto, Calif., has annual sales of approximately $33 million.
This transaction has been accounted for as a purchase, and the results of
operations for this acquisition has been included in the Company's
consolidated results of operations since the acquisition date. No pro forma
information is provided as the results of operations for this acquisition
are not significant to the Company.
NOTE 3: DISPOSITIONS
On June 9, 1998, the Company and Pierre Foods, LLC (Pierre), a wholly owned
subsidiary of Fresh Foods, Inc. completed an asset purchase agreement for
Pierre to acquire the Pierre Foods division from the Company. The Pierre
Foods division, based in Cincinnati, Ohio, is primarily engaged in producing
and distributing packaged, precooked food products to the foodservice
industry. On Aug. 28, 1998, the Company sold its Caryville, Tenn. meat
processing facility to Advance Food Company, Inc. of Enid, Okla. Both of
these facilities were acquired with the Hudson Acquisition. Under the terms
of both agreements, the Company received $128 million in cash. The Company
recognized no gain or loss on the sale of these assets. In addition, no pro
forma information is provided as the operations of these facilities were not
significant to the Company.
NOTE 4: IMPAIRMENT AND OTHER CHARGES
The Company recorded charges totaling $214.6 million on a pre-tax basis
($0.68 per share) during the fourth quarter of 1998. These charges consist
of $142.2 million for asset impairment of property, plant and equipment,
writedown of related excess of investments over net assets acquired and
severance costs, $48.4 million for losses in the Company's export business
to Russia which has been adversely affected by the continuing economic
problems in Russia and $24 million for other charges related primarily to
workers compensation and employment practice liabilities. These charges have
been classified in the Consolidated Statements of Income as $142.2 million
in asset impairment and other charges, $48.4 million included in selling
expenses, $20.5 million included in cost of sales and $3.5 million included
in other expense. Additionally, the foreign losses have been netted with
accounts receivable on the Consolidated Balance Sheets.
71
<PAGE>
As previously announced, the Company's Board of Directors approved
management's proposed restructure plan on Aug. 28, 1998. The restructuring,
which resulted in asset impairment and other charges, is in furtherance of
the Company's previously stated objective to focus on its core business,
chicken. The recent acquisition of Hudson Foods, Inc. and the assimilation
of Hudson's facilities and operations into the Company's business have
permitted the Company to review and rationalize the productive capabilities
and cost structure of its core business. Further, the Company intends to
continue the rationalization of its seafood assets. This rationalization
may include divestiture, redeployment, and other possible business
transactions, exploring all alternatives in an orderly fashion. The
restructuring includes, among other things, the closure of eight plants and
feedmills resulting in work force reductions, the writedown of excess of
investments over net assets acquired allocated to closed facilities, the
reconfiguration of various production facilities and the writedown of
certain seafood assets to estimated net realizable value.
The major components of the asset impairment and related charges consist of
the following:
(IN MILLIONS)
- --------------------------------------------------------------------
Impairment of property, plant and equipment $120.7
Writedown of related excess of investments
over net assets acquired 19.3
Severance and other related costs 2.2
- --------------------------------------------------------------------
$142.2
====================================================================
The impairment charge represents the excess of the carrying value of those
assets discussed above over their fair value less cost to sell. Impaired
assets which are expected to be disposed of within the next 12 months are
included in assets held for sale.
The writedown of excess of investments over net assets acquired is related
to plant closings and related book value impairments, which originated from
prior business acquisitions. Substantially, all of the severance and
related costs will be paid in fiscal 1999.
During the fourth quarter, the Russian Ruble was devalued from 6.3 to 16.0.
This event and other related economic factors in Russia resulted in the
Company recognizing losses of $48.4 million.
The majority of the $24.0 million charge noted above relates primarily to
revisions to the Company's estimated liabilities for workers compensation
and employment practice related matters. This charge is based upon two
separate actuarial studies completed during the fourth quarter.
NOTE 5: ASSETS HELD FOR SALE
On Oct. 27, 1998, the Company and Rose Acre Farms, Inc. signed an asset
purchase agreement whereby Rose Acre Farms, Inc. will acquire the Company's
National Egg Products Company operations in Social Circle, Ga. This
operation, which is reflected in assets held for sale at Oct. 3, 1998, was
acquired with the Hudson Acquisition. This transaction is expected to be
finalized in the first quarter of fiscal 1999 at an amount which
approximates its carrying value.
72
<PAGE>
The Company also intends to sell Willow Brook Foods, its integrated turkey
production and processing business, and its Albert Lea, Minn., processing
facility which primarily produces the Schweigert brand of sausages, lunch
and deli meats and other related products. These operations, which are
reflected in assets held for sale at Oct. 3, 1998, were acquired with the
Hudson Acquisition.
During 1996, the Company announced its intention to sell its beef and pork
further-processing operations in its effort to return to its core business.
On Nov. 25, 1996, the Company sold its beef further-processing operations,
known as Gorges/Quik-to-Fix Foods, resulting in a pre-tax gain of $41
million which was recorded in other income for fiscal 1997 in the
Consolidated Statements of Income. The operating results of this facility
were not material to the Company in 1997. During 1997, the Company recorded
an impairment loss of $11.2 million for the pork further-processing assets,
which was classified as an operating charge in the Consolidated Statements
of Income. The Company has closed the pork further-processing facility and
recorded an additional $4 million writedown of this facility in fiscal 1998.
NOTE 6: FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATION
Interest Rate Instruments: Interest rate swaps with notional amounts of
$141.7 million and $147.7 million were in effect at Oct. 3, 1998, and Sept.
27, 1997, respectively. Fair values of these swaps were ($8.1) million and
($1.3) million at Oct. 3, 1998, and Sept. 27, 1997, respectively. Fair
values of interest rate instruments are estimated amounts the Company would
receive or pay to terminate the agreements at the reporting dates. These
swaps mature from 2005 to 2008.
Commodity and Foreign Currency Contracts: At Oct. 3, 1998, and Sept. 27,
1997, the Company held the following commodity and foreign currency
contracts:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER UNIT CONTRACT/STRIKE PRICES)
Notional Weighted Average Fair Value
Amount Contract/Strike Price
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Long position in corn $17.4 $ - $2.32 $ - $17.0 $ -
Short position in corn 20.5 10.1 2.11 2.65 20.2 9.9
Long positions in soybean oil 2.1 - 24.24 - 2.1 -
Short positions in soybean oil 1.5 - 24.40 - 1.5 -
Short positions in soybean meal - 7.1 - 215.00 - 6.5
Sold option contracts to sell
Japanese Yen for US$ 6.5 42.5 109.48 113.20 - (1.0)
Purchased option contracts to
Purchase Japanese Yen for US$ 5.6 38.0 126.69 126.75 0.4 0.5
Foreign forward exchange contracts - 0.5 - 102.45 - 0.4
</TABLE>
Fair Value of On-Balance Sheet Financial Instruments: The Company's
significant financial instruments include cash and cash equivalents,
investments and debt. In evaluating the fair value of significant financial
instruments, the Company generally uses quoted market prices of the same or
similar instruments or calculates an estimated fair value on a discounted
cash flow basis using the rates available for instruments with the same
73
<PAGE>
remaining maturities. As of Oct. 3, 1998, and Sept. 27, 1997, the fair
value of financial instruments held by the Company approximated the recorded
value except for long-term debt. Fair value of long-term debt was $2.1
billion and $1.7 billion at Oct. 3, 1998, and Sept. 27, 1997, respectively.
Concentrations of Credit Risk: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash
equivalents and trade receivables. The Company's cash equivalents are in
high quality securities placed with major banks and financial institutions.
Concentrations of credit risk with respect to receivables are limited due to
the large number of customers and their dispersion across geograhic areas.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. No single group or
customer represents greater than 10% of total accounts receivable.
NOTE 7: CONTINGENCIES AND COMMITMENTS
The Company is involved in various lawsuits and claims made by third parties
on an ongoing basis as a result of its day-to-day operations. Although the
outcome of such items cannot be determined with certainty, the Company's
general counsel and management are of the opinion that the final outcome
should not have a material effect on the Company's results of operations or
financial position.
On Dec. 29, 1997, the Company entered into a plea agreement resolving the
Office of Independent Counsel's (OIC) investigation of the Company in
connection its investigation of former Secretary of Agriculture Michael
Espy. The Company entered a guilty plea to a single count of violating the
illegal gratuity statute, 18 U.S.C. 201(c)(1). The Company was sentenced
on Jan. 12, 1998 to pay a fine of $4 million, costs of prosecution of $2
million and was placed on probation for four years. At the time of its
plea, the Company also entered a Compliance Agreement with the OIC and the
U.S. Department of Agriculture requiring it to implement a compliance
program.
Following the entry of its guilty plea, the Company and others were named as
defendants in a putative class action suit brought on behalf of all
individuals who sold beef cattle to beef packers for processing between
certain dates in 1993 and 1998. This action, captioned Wayne Newton, et al.
v. Tyson Foods, Inc., et al., U.S. District Court, Northern District of
Iowa, Civil Action No. 98-30, asserts claims under the Racketeer Influenced
and Corrupt Organizations statute as well as a common-law claim for
intentional interference with prospective economic advantage. Plaintiffs
allege that the gratuities which were the subject of the Company's plea
resulted in a competitive advantage for poultry products vis-a-vis beef
products. Plaintiffs request trebled damages in excess of $3 billion, plus
attorney's fees and costs. While management is not able to determine the
outcome of this matter at this time, based upon information currently
available, management presently does not believe that this lawsuit has merit
and will not have a material adverse effect on the Company's financial
position or its results of operations.
On July 28, 1997, Hudson received notice from the U.S. Department of Justice
(DOJ) that it was prepared to bring an action against Hudson for the alleged
violation of the Clean Water Act at Hudson's Berlin, Md., poultry processing
facility. The DOJ alleged that over the past five years, Hudson had
74
<PAGE>
repeatedly discharged pollutants in quantities in excess of its National
Pollutant Discharge Elimination System (NPDES) permit limits, violated
monitoring and sampling requirements of its NPDES permit and failed to
provide notice of NPDES violations. On Sept. 19, 1997, Hudson entered into
an agreement in principle with the DOJ for the settlement of these claims.
On May 8, 1998, a Consent Decree between the United States, Hudson and the
Company was filed with the U.S. District Court together with a Complaint
alleging these violations. On Oct. 6, 1998, the U.S. District Court approved
and entered the Consent Decree. The Consent Decree, while stating that
Hudson denies the violations alleged in the Complaint, provides for the
payment to the United States of $4 million and the expenditure of $2 million
in supplemental environmental projects (SEPs).
On or about July 23, 1998, the Maryland Department of the Environment (MDE)
filed a Complaint for Injunctive Relief and Civil Penalty (the Complaint)
against the Company in the Circuit Court of Worcester County, Md., for the
alleged violation of certain Maryland water pollution control laws with
respect to the Company's land application of sludge to Company owned
agricultural land near Berlin, Md. The MDE seeks, in addition to injunctive
and equitable relief, civil penalties of up to $10,000 per day for each day
the Company had allegedly operated in violation of the Maryland water
pollution control laws. The Company has only recently received the
Complaint, is reviewing and researching the factual matters asserted
therein, and intends to vigorously defend against the same. The Company
does not believe any penalties, if imposed, would have a material adverse
effect on the Company's results of operations or financial condition.
The Company leases certain farms and other properties and equipment for
which the total rentals thereon approximated $46.7 million in 1998, $34
million in 1997 and $35.7 million in 1996. Most farm leases have terms
ranging from one to 10 years with various renewal periods. The most
significant obligations assumed under the terms of the leases are the upkeep
of the facilities and payments of insurance and property taxes.
Minimum lease commitments under noncancelable leases at Oct. 3, 1998, total
$141.8 million composed of $46.8 million for 1999, $37.2 million for 2000,
$26.0 million for 2001, $16.2 million for 2002, $9.8 million for 2003 and
$5.8 million for later years. These future commitments are expected to be
offset by future minimum lease payments to be received under subleases of
approximately $16.7 million.
The Company assists certain of its swine and poultry growers in obtaining
financing for growout facilities by providing the growers with extended
growout contracts and conditional operation of the facilities should a
grower default under their growout or loan agreement. The Company also
guarantees debt of outside third parties of $60 million.
NOTE 8: LONG-TERM DEBT
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 Oct. 3, 1998, $506.9 million in commercial
paper was outstanding under this facility. The Company's $250 million
facility was terminated effective May 4, 1998.
75
<PAGE>
At Oct. 3, 1998, the Company had outstanding letters of credit totaling
approximately $108.5 million issued primarily in support of
workers' compensation insurance programs, industrial revenue bonds and the
leveraged equipment loans.
Under the terms of the leveraged equipment loans, the Company had restricted
cash totaling approximately $44.7 million which is included in investments
and other assets at Oct. 3, 1998. Under these leveraged loan agreements, the
Company entered into interest rate swap agreements to effectively lock in a
fixed interest rate for these borrowings.
Annual maturities of long-term debt for the five years subsequent to Oct. 3,
1998 are: 1999-$77.6 million; 2000-$251.3 million; 2001-$125.2 million; 2002-
$538.3 million and 2003-$178.5 million.
The revolving credit agreement and notes contain various covenants, the more
restrictive of which require maintenance of a minimum net worth, current
ratio, cash flow coverage of interest and fixed charges and a maximum total
debt-to-capitalization ratio. The Company is in compliance with most of
these covenants at year end and has obtained waivers for covenants in which
the Company is not in compliance.
The weighted average interest rate on all outstanding short-term borrowing
was 5.6% at Oct. 3, 1998, and Sept. 27, 1997.
Long-term debt consists of the following:
(IN MILLIONS)
- -------------------------------------------------------------------------------
Maturity 1998 1997
- -------------------------------------------------------------------------------
Commercial paper
(5.6% effective rate at 10/3/98) 2002 $ 506.9 $ 638.7
Debt securities:
6.75% notes 2005 149.3 149.1
6.625% notes 2005 149.5 149.3
6.39-6.41% notes 2000 50.0 50.1
6% notes 2003 146.8 -
7% notes 2028 145.9 -
7% notes 2018 236.3 -
Institutional notes:
10.33% notes 1999 - 33.7
10.61% notes 1999-2001 106.3 125.0
10.84% notes 2002-2006 50.0 50.0
11.375% notes 1999-2002 12.8 17.1
Mandatory Par Put Remarketed
Securities (5.88% effective rate at 10/3/98) 2010 50.2 -
6.08% notes 2010 100.4 -
Revolving credit facility 2002 - 130.0
Leveraged equipment loans
(rates ranging from 4.7% to 6.0%) 2005-2008 170.5 166.5
Other various 91.7 48.7
- -------------------------------------------------------------------------------
$1,966.6 $1,558.2
===============================================================================
76
<PAGE>
NOTE 9: INCOME TAXES
Detail of the provision for income taxes consists of:
(IN MILLIONS)
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
Federal $ 50.1 $129.7 $49.9
State (4.2) 14.2 (0.9)
- ----------------------------------------------------------------------------
$ 45.9 $143.9 $49.0
============================================================================
Current $ 80.6 $133.4 $33.1
Deferred (34.7) 10.5 15.9
- ----------------------------------------------------------------------------
$ 45.9 $143.9 $49.0
============================================================================
The reasons for the difference between the effective income tax rate and the
statutory U.S. federal income tax rate are as follows:
- ---------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------
U.S. federal income tax rate 35.0% 35.0% 35.0%
Amortization of excess of investments
Over net assets acquired 23.6 8.6 5.9
State income taxes (benefit) (3.8) 2.8 (0.4)
Foreign sales corp benefit (9.6) - -
Foreign Losses 20.5 - -
Other (1.0) (2.8) (3.5)
- ---------------------------------------------------------------------------
64.7% 43.6% 37.0%
===========================================================================
The Company follows the liability method in accounting 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. Significant components of the
Company's deferred tax liabilities as of Oct. 3, 1998, and Sept. 27, 1997,
are as follows:
(IN MILLIONS)
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
Basis difference in property, plant and equipment $289.9 $267.9
Suspended taxes from conversion to accrual method 135.1 142.7
Other 9.4 95.5
- ----------------------------------------------------------------------------
$434.4 $506.1
============================================================================
77
<PAGE>
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, legislation was enacted in
1997 which now requires the Company to pay down the suspense account over 20
years.
NOTE 10: RESTRICTED STOCK AND STOCK OPTIONS
The Company has outstanding 189,000 restricted shares of Class A stock. The
restriction expires over periods ranging from 10 to 26 years. The
unamortized portion is classified on the Consolidated Balance Sheets as
deferred compensation in shareholders' equity.
The Company has a nonqualified stock option plan which provides for granting
options for shares of Class A stock at a price not less than the fair market
value at the date of grant. The options generally become exercisable ratably
over four to eight years from the date of grant and must be exercised within
10 years of the grant date.
A summary of the Company's stock option activity for the plan is as follows:
- -------------------------------------------------------------------------------
Shares Weighted Average
Under Exercise Price
Option Per Share
- -------------------------------------------------------------------------------
Outstanding, Sept. 30, 1995 4,118,171 $13.79
Exercised (320,535) 8.05
Canceled (459,150) 14.49
Granted 2,129,775 15.04
- -------------------------------------------------------------------------------
Outstanding, Sept. 28, 1996 5,468,261 14.55
Exercised (163,906) 13.83
Canceled (560,296) 15.06
Granted 3,598,275 17.92
- -------------------------------------------------------------------------------
Outstanding, Sept. 27, 1997 8,342,334 15.99
Exercised (178,467) 14.18
Canceled (313,019) 15.84
Granted 504,700 18.00
- -------------------------------------------------------------------------------
Outstanding, Oct. 3, 1998 8,355,548 $16.15
===============================================================================
The number of options exercisable was as follows: Oct. 3, 1998- 1,202,498,
Sept. 27, 1997- 806,837 and Sept. 28, 1996- 442,616. The remainder of the
options outstanding at Oct. 3, 1998, are exercisable ratably through
November 2007. The number of shares available for future grants was
6,459,402 and 6,651,083 at Oct. 3, 1998, and Sept. 27, 1997, respectively.
78
<PAGE>
The following table summarizes information about stock options outstanding
at Oct. 3, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Shares Weighted Weighted Shares Weighted
Exercise Outstanding Average Average Exercisable Average
Prices Remaining Exercise Exercise
Contractual Price Price
Life(in years)
<S> <C> <C> <C> <C> <C>
$ 4.82 - 6.58 27,389 4.3 $ 5.79 27,389 $ 5.79
14.33 - 14.50 2,619,609 5.9 14.40 1,174,359 14.40
14.58 - 15.17 1,815,825 8.0 15.02 750 15.17
17.92 - 18.00 3,892,725 8.1 17.93 - -
- -------------------------------------------------------------------------------------------
8,355,548 1,202,498
</TABLE>
The weighted average fair value of options granted during 1998 and 1997 is
approximately $7.10 and $7.15, respectively. The fair value of each option
grant is established on the date of grant using the Black-Scholes option-
pricing model. Assumptions include an expected life of eight years, weighted
average risk-free interest rates ranging from 5.5% to 6.4%, expected
volatility of 0.2% and dividend yield of 0.5% in both 1998 and 1997.
As permitted by SFAS No. 123, the Company chose to continue accounting for
stock options at their intrinsic value. Accordingly, no compensation expense
was recognized for its stock option compensation plans. Had the fair value
method of accounting been applied to the Company's stock option plans, the
tax-effected impact would be as follows:
____________________________________________________________________________
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996
____________________________________________________________________________
Net Income
As reported $25.1 $185.8 $86.9
Pro forma 21.0 182.0 85.7
Earnings Per Share
As reported
Basic 0.11 0.86 0.40
Diluted 0.11 0.85 0.40
Pro forma
Basic 0.09 0.84 0.39
Diluted 0.09 0.83 0.39
____________________________________________________________________________
Pro forma net income reflects only options granted in 1998, 1997 and 1996.
79
<PAGE>
NOTE 11: TRANSACTIONS WITH RELATED PARTIES
The Company has operating leases for farms, equipment and other facilities
with the Senior Chairman of the Board of Directors of the Company and
certain members of his family, as well as a trust controlled by him, for
rentals of $5.4 million in 1998, $5.6 million in 1997 and $7 million in
1996. Other facilities, including a cold storage distribution facility in
1996, have been leased from the Company's profit sharing plan and other
officers and directors for rentals totaling $3.4 million in 1998, $5.3
million in 1997 and $6.6 million in 1996. In 1997, the Company purchased
the cold storage distribution facility as well as other facilities from the
profit sharing plan.
Certain officers and directors are engaged in poultry and swine growout
operations with the Company whereby these individuals purchase animals,
feed, housing and other items to raise the animals to market weight. The
total value of these transactions amounted to $11.5 million in 1998, $12.3
million in 1997 and $11.7 million in 1996.
NOTE 12: BENEFIT PLANS
The Company has defined contribution retirement and incentive benefit
programs for various groups of Company personnel. Company discretionary
contributions, which are determined by the Board of Directors, totaled $31.8
million, $26.8 million and $24.0 million for 1998, 1997 and 1996,
respectively.
NOTE 13: SUPPLEMENTAL INFORMATION
(IN MILLIONS)
- ----------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $159.9 $123.4 $114.1
Income Taxes 196.9 124.1 40.5
- ----------------------------------------------------------------------------
SUPPLEMENTAL SALES INFORMATION: The Company sells certain of its products in
foreign markets, primarily Canada, China, Georgia, Guatemala, Japan, Puerto
Rico, Russia and Singapore as well as certain Middle Eastern countries and
countries in the Caribbean. The Company's export sales for 1998, 1997 and
1996 totaled $687 million, $762.5 million and $790.9 million, respectively.
Substantially all of the Company's export sales are transacted through
unaffiliated brokers, marketing associations and foreign sales staffs.
Foreign sales were less than 10% of total consolidated sales for 1998, 1997
and 1996, respectively.
80
<PAGE>
NOTE 14: QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN MILLIONS EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------
1998 First Second Third Fourth
Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,520.8 $1,870.8 $1,953.6 $2,068.9
Gross Margin 260.7 268.8 308.4 316.1
Net Income (Loss) 44.9 23.3 46.6 (89.7)
Basic Earnings (Loss) Per Share 0.21 0.10 0.20 (0.39)
Diluted Earnings (Loss) Per Share 0.21 0.10 0.20 (0.39)
====================================================================================
1997
- ------------------------------------------------------------------------------------
Sales $1,527.9 $1,574.3 $1,591.2 $1,662.3
Gross Margin 248.4 262.2 268.0 259.1
Net Income 44.6 48.2 45.2 47.8
Basic Earnings Per Share 0.21 0.22 0.21 0.22
Diluted Earnings Per Share 0.20 0.22 0.21 0.22
====================================================================================
</TABLE>
81
<PAGE>
REPORT OF MANAGEMENT
TYSON FOODS, INC.
The management of Tyson Foods, Inc., (the Company) has the responsibility of
preparing the accompanying financial statements and is responsible for their
integrity and objectivity. The statements were prepared in conformity with
generally accepted accounting principles applied on a consistent basis. Such
financial statements are necessarily based, in part, on best estimates and
judgments.
The Company maintains a system of internal accounting controls, and a
program of internal auditing designed to provide reasonable assurance that
the Company's assets are protected and that transactions are executed in
accordance with proper authorization, and are properly recorded. This system
of internal accounting controls is continually reviewed and modified in
response to changing business conditions and operations and to
recommendations made by the independent auditors and the internal auditors.
During 1998, certain of these controls were reviewed and strengthened.
Additionally, the Company has adopted a code of conduct and has hired an
experienced full-time compliance officer. The management of the Company
believes that the accounting and control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Audit Committee of the Board of Directors meets regularly with the
Company's financial management and counsel, with the Company's internal
auditors, and with the independent auditors engaged by the Company. These
meetings include discussions of internal accounting controls and the quality
of financial reporting. The independent auditors and the Internal Audit
Department have free and independent access to the Audit Committee to
discuss the results of their audits or any other matters relating to the
Company's financial affairs.
The accompanying consolidated financial statements have been audited by
Ernst & Young LLP, independent auditors.
November 20, 1998
/s/Wayne Britt /s/ Steven Hankins
----------------- --------------------
Wayne Britt Steven Hankins
Chief Executive Officer Executive Vice President and
Chief Financial Officer
82
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
Tyson Foods, Inc.
We have audited the accompanying consolidated balance sheets of Tyson Foods,
Inc., as of October 3, 1998, and September 27, 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended October 3, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tyson
Foods, Inc., at October 3, 1998, and September 27, 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended October 3, 1998, in conformity with
generally accepted accounting principles.
Tulsa, Oklahoma /s/Ernst & Young LLP
November 20, 1998 --------------------
Ernst & Young LLP
83
<PAGE>
BOARD OF DIRECTORS
TYSON FOODS, INC.
DON TYSON, 68, senior chairman of the board of directors, served as chairman
of the board until April 1995 when he was named senior chairman. Mr. Tyson
served as chief executive officer until March 1991 and has been a member of
the board since 1952. 1
JOE STARR, 65, a private investor, served as a vice president of Tyson until
1996. Mr. Starr has been a member of the board since 1969.
NEELY CASSADY, 70, is chairman of the board of Cassady Investments, Inc. and
served as a senator in the Arkansas General Assembly from 1983 to 1996. Mr.
Cassady has been a member of the board since 1974. 2,3,4
FRED VORSANGER, 70, is a private business consultant, manager of Bud Walton
Arena and vice president emeritus of finance and administration at the
University of Arkansas. He is a director of McIlroy Bank & Trust Co. of
Fayetteville, Ark. Mr. Vorsanger was a city director and mayor of
Fayetteville and was a vice president at the U of A from 1968 until 1988.
He has been a member of the board since 1977. 2,3,4
LELAND TOLLETT, 61, retired as chairman and chief executive officer Oct. 1,
1998. He had been chairman of the board since April 1995. He had served as
vice chairman, president and chief executive officer since March 1991 and as
president and chief operating officer from 1983 until 1991. Mr. Tollett has
been a member of the board since 1984. 1
JOHN TYSON, 45, was named chairman of the board of directors effective Oct.
1, 1998. He had served as vice chairman since 1997. Previously he was
president of the beef and pork division and director of governmental, media
and public relations. He also has served as vice president and director of
engineering/environmental/capital spending, as vice president of
marketing/corporate accounts and as special projects manager. Mr. Tyson has
been a member of the board since 1984. 1
SHELBY MASSEY, 65, is a farmer and a private investor. He served as senior
vice chairman of the board of directors from 1985 to 1988 and has been a
member of the board since 1985. 3,4
BARBARA TYSON, 49, is vice president of the company. Ms. Tyson has served in
related capacities for the past seven years and was previously a regional
sales manager in the foodservice division. Ms. Tyson has been a member of
the board since 1988.
LLOYD HACKLEY, 57, is president and chief executive officer of Lloyd V.
Hackley and Associates, Inc. He was president of the North Carolina
Community College System from 1995 to 1997 and was chancellor and a tenured
professor of political science at Fayetteville State University,
Fayetteville, N.C., from 1988 to 1995. Mr. Hackley has been a member of the
board since 1992. 2,4
DONALD WRAY, 61, is president and chief operating officer of Tyson Foods. He
has held his current titles since April 1995 after serving as chief
operating officer since 1991 and as senior vice president of the sales and
marketing division since 1985. Mr. Wray has been a member of the board
since 1994.
84
<PAGE>
GERALD JOHNSTON, 55, a private investor, was executive vice president of
finance for Tyson from 1981 to 1996 when he stepped down and became a
consultant to the company. Mr. Johnston has been a member of the board
since 1996.
WAYNE BRITT, 49, was named chief executive officer and was elected to the
board of directors of Tyson effective Oct. 1, 1998. In his 26 years with
Tyson, Mr. Britt has served as executive vice president and chief financial
officer; senior vice president, international division; vice president,
wholesale club sales and marketing; secretary-treasurer; controller; cost
and budget manager; and complex controller.
1 Executive Committee
2 Audit Committee
3 Compensation Committee
4 Oversight Committee
85
<PAGE>
<TABLE>
<CAPTION>
CORPORATE AND OPERATIONAL OFFICERS
TYSON FOODS, INC.
<S> <C> <C> <C>
Roy D. Brister Gerard A. Dowd William F. Kuckuck David S. Purtle
Director, Senior Vice President, Senior Vice President, Executive Vice President,
Research and Nutrition Foodservice Division International Division Operations, Transportation
and Warehousing
Wayne Britt James G. Ennis John S. Lea
Chief Executive Officer Vice President, Controller Senior Vice President, Archie Schaffer III
and Chief Accounting Officer Retail Sales and Marketing Director, Media, Public
Roy Brown and Governmental Affairs
President, Louis C. Gottsponer, Jr.
Seafood Division Assistant Secretary and Dennis Leatherby Dan Serrano
Director of Investor Relations Senior Vice President, Vice President,
Ellis Brunton Finance and Treasurer Human Resources Operations
Vice President, Steven Hankins
Research and Quality Assurance Executive Vice President Greg W. Lee Donnie Smith
and Chief Financial Officer Executive Vice President, Vice President, Purchasing
Wayne B. Butler Sales, Marketing and
President, R. Read Hudson Technical Services John H. Tyson
Prepared Foods Group Secretary Chairman of the
Bob E. Love Board of Directors
Jim Cate Greg Huett Vice President,
Senior Vice President, Senior Vice President, Research and Development David L. Van Bebber
Specialty Products Sales and Marketing- Vice President and
Wholesale Club Division Bill Lovette Director of Legal Services
Gary D. Cooper Senior Vice President,
Vice President, William P. Jaycox Poultry Operations William E. Whitfield III
Management Information Systems Senior Vice President, Vice President, Business
Human Resources Gene A. Lovette Development and Analysis
John D. Copeland Senior Vice President,
Director, Corporate Lance E. Jensen Poultry Operations Donald E. Wray
Ethics and Compliance Vice President, President and Chief
Strategic Project Development Tim McGovern Operating Officer
John H. Curran Vice President, Distribution
Senior Vice President, Carl G. Johnson Robert Zimmerman
Retail Fresh Division Vice President, Bill Moeller Vice President,
Asset and Risk Management President, The Pork Group Engineering
</TABLE>
86
<PAGE>
CORPORATE INFORMATION
TYSON FOODS, INC.
Closing Price of Company's Common Stock
_______________________________________________________________________________
Fiscal Year 1998 Fiscal Year 1997
_______________________________________________________________________________
High Low High Low
_______________________________________________________________________________
First Quarter $23.88 $17.88 $22.42 $17.79
- -------------------------------------------------------------------------------
Second Quarter 20.81 18.06 23.63 19.88
- -------------------------------------------------------------------------------
Third Quarter 24.13 18.94 21.56 17.75
- -------------------------------------------------------------------------------
Fourth Quarter 24.44 16.50 23.56 19.00
- -------------------------------------------------------------------------------
As of Oct. 3, 1998, the Company had 33,683 Class A common shareholders of record
and 17 Class B common shareholders of record.
DIRECTSERVICE SHAREHOLDER INVESTMENT PROGRAM
Tyson has authorized First Chicago Trust Company to implement its program
for dividend reinvestment and direct purchase of shares for current as well
as new investors of Tyson Class A Common Stock. This program provides
alternatives to traditional retail brokerage methods of purchasing, holding
and selling Tyson stock. All inquiries concerning this program should be
directed to:
DirectSERVICE Program for Shareholders of Tyson Foods, Inc.
c/o First Chicago Trust Company
P.O. Box 2598
Jersey City, NJ 07303-2598
1-800-317-4445 (current shareholders)
1-800-822-7096 (non-shareholders)
CHANGE OF ADDRESS
If your Tyson stock is registered in your own name(s), send change of
address information to First Chicago Trust Company.
MULTIPLE DIVIDEND CHECKS AND DUPLICATE MAILINGS
If your Tyson stock is registered in similar but different names, e.g. Jane
A. Doe and J.A. Doe, we are required to create separate accounts and mail
dividend checks and proxy materials separately even if the mailing addresses
are the same. To consolidate accounts, contact First Chicago Trust Company.
LOST OR STOLEN STOCK CERTIFICATES OR LEGAL TRANSFERS
If your stock certificates are lost, stolen, or in some way destroyed, or if
you wish to transfer registration, notify First Chicago Trust Company in
writing. Include the exact name(s) and Social Security or tax identification
number(s) in which the stock is registered and, if possible, the numbers and
issue dates of the certificates.
87
<PAGE>
CORPORATE INFORMATION
TYSON FOODS, INC.
CORPORATE DATA INDEPENDENT AUDITORS
Tyson Foods, Inc., which employs Ernst & Young LLP
approximately 70,500 people, is the 3900 One Williams Center
world's largest fully inte- Tulsa, Oklahoma 74101
grated producer, processor and
marketer of chicken and chicken- TRANSFER AGENT
based food products. First Chicago Trust Company
of New York
STOCK EXCHANGE LISTINGS P.O. Box 2506
The Class A common stock of the Company Jersey City, NJ 07303-2506
is traded on the New York Stock Exchange 1-800-317-4445
under the symbol TSN.
Shareholders also may contact
CORPORATE HEADQUARTERS First Chicago Trust Company
2210 West Oaklawn Drive through the Internet at www.fctc.com
Springdale, Arkansas 72762-6999
Telephone (501) 290-4000 INVESTOR RELATIONS
Fax (501) 290-4000 Financial analysts and others
seeking investor-related
AVAILABILITY OF FORM 10-K information should contact:
A copy of the Company's Form 10-K Director of Investor Relations
Report, as filed with the Securities and Tyson Foods, Inc.
Exchange Commission for 1998, may be P.O. Box 2020
obtained by Tyson shareholders by Springdale, Arkansas 72765-2020
writing to: Telephone (501) 290-4826
Director of Investor Relations Fax (501) 290-4061
Tyson Foods, Inc.
P.O. Box 2020 NEWS RELEASES
Springdale, Arkansas 72765-2020 Press Releases and other
Telephone (501) 290-4826 can be faxed by calling PR Newswire
Fax (501) 290-4061 information concerning Tyson Foods
at (800)758-5804, ext. 113769.
ANNUAL MEETING
The Annual Meeting of Shareholders will TYSON ON THE INTERNET
be held at 10 a.m., January 8, 1999, at
the Walton Arts Center, Fayetteville, Information about Tyson Foods
Arkansas. Shareholders who cannot attend is available on the Internet at
the meeting are urged to exercise their www.tyson.com
right to vote by proxy.
LEGAL NOTICE
GENERAL COUNSEL The term "Tyson" and such terms as
James B. Blair, Esquire "the Company","our","we" and "us"
3422 North College, Suite 3 may refer to Tyson Foods, Inc., to
Fayetteville, Arkansas 72703 one or more of its consolidated
subsidiaries or to all of them
taken as a whole. These terms are
used for convenience only and are
not intended as a precise
description of any of the separate
companies, each of which manages
its own affairs.
88
<PAGE>
EXHIBIT 21 - SUBSIDIARIES OF TYSON FOODS, INC.
Names Under
Jurisdiction of Which Subsidiary
Name Incorporation Does Business
- ----------------- --------------- ----------------
Cobb-Vantress, Inc. Delaware Cobb-Vantress, Inc.
Cobb Breeding Company United Kingdom Cobb Breeding Company
Limited Limited
Culinary Foods, Inc. Delaware Culinary Foods, Inc.
Hudson Foods, Inc. Delaware Hudson Foods, Inc.
JAC Creative Foods Ontario JAC Creative Foods
(Canada), Inc. (Canada), Inc.
Mallard's Food Products, California Mallard's Food Products,
Inc. Inc.
Tyson Breeders, Inc. Delaware Tyson Breeders, Inc.
Tyson Export Sales, U.S. Virgin Tyson Export Sales,
Inc. Islands Inc.
Tyson Farms, Inc. Delaware Tyson Farms, Inc.
Tyson Farms of Texas, Texas Tyson Farms of Texas,
Inc. Inc.
Tyson Foods of Alabama Alabama Tyson Foods of Alabama
Inc. Inc.
Tyson International Bermuda Tyson International
Company, Ltd. Company, Ltd.
Tyson International Delaware Tyson International
Holding Company Holding Company
Tyson Marketing, Ltd. Ontario, Canada Tyson Marketing, Ltd.
Willow Brook Foods, Inc. Delaware Willow Brook Foods, Inc.
World Resource, Inc. Delaware World Resource, Inc.
The Company considers the foregoing to be its primary operating
subsidiaries. Certain other subsidiaries which do not meet in the
aggregate the definition of a significant subsidiary as defined in
Rule 1-02 (v) of Regulation S-X are as follows:
AAFC Holdings, Ltd. Yukon
AAFC International, Inc. U.S. Virgin Islands
Arctic Fisheries Washington
Benton Sales, Ltd. British Virgin Islands
Cobb Denmark A/S Denmark
Cobb-Espanola, S.A. Spain
Cobb France E.U.R.L. France
Cobb-Poland B.V. Poland
Cobb (Straffon)Ireland, Ltd Ireland
Global Employment Delaware
Services Inc.
Gorges Foodservice, Texas
Inc.
Henry House, Inc. Michigan
JAC Creative Foods (Canada) Ontario
Inc.
National Comp Care, Inc. Delaware
Oaklawn Capital Corporation Delaware
Oaklawn Capital-Mississippi, Mississippi
LLC
89
<PAGE>
Oaklawn Sales, Ltd. British Virgin Islands
Offshore Ventures, Inc. Washington
The Pork Group, Inc. Delaware
Tri-Venture Trucking, Ltd British Columbia
TPM Holding Company Delaware
TyNet Corporation Delaware
Tyson Enterprise Alaska
Protein, Inc.
Tyson Foreign Sales, Inc. Barbados
Tyson Mexican Original, Inc. Delaware
Tyson Poultry, Inc. Delaware
Tyson Sales and Delaware
Distribution, Inc.
Tyson Seafood Group- Japan
Japan, Inc.
Tyson Shared Services, Inc. Delaware
Ucluelet Seafood British Columbia
Processors, Ltd.
Universal Plan Hong Kong
Investments, Ltd.
WLR Acquisition Corp. Delaware
90
<PAGE>
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Tyson Foods, Inc. of our report dated
November 20, 1998, included in the 1998 Annual Report to
Shareholders of Tyson Foods, Inc.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 Nos. 33-30680; 333-02135;
2-81928; 2-44550; 33-53028; 333-22883; 333-22881; 33-54716;
and 33-53026, as amended by 33-57515) pertaining to certain
employee benefit plans of Tyson Foods, Inc. and the
Registration Statement (Form S-3 No. 33-53177) and the
related prospectus of our reports dated November 20, 1998,
with respect to the consolidated financial statements and
schedule of Tyson Foods, Inc. included or incorporated by
reference in this Annual Report (Form 10-K) for the year
ended October 3, 1998.
December 14, 1998 /s/ Ernst & Young LLP
Tulsa, Oklahoma ---------------------
Ernst & Young LLP
91
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
1998 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000100493
<NAME> TYSON FOODS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-3-1998
<PERIOD-END> OCT-3-1998
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 631
<ALLOWANCES> 0
<INVENTORY> 984
<CURRENT-ASSETS> 1,765
<PP&E> 2,257
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,243
<CURRENT-LIABILITIES> 831
<BONDS> 1,967
0
0
<COMMON> 24
<OTHER-SE> 1,946
<TOTAL-LIABILITY-AND-EQUITY> 5,243
<SALES> 7,414
<TOTAL-REVENUES> 7,414
<CGS> 6,260
<TOTAL-COSTS> 6,260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> 71
<INCOME-TAX> 46
<INCOME-CONTINUING> 25
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
