<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
TYSON FOODS, INC. 2000 ANNUAL REPORT
RESULTS OF OPERATIONS Earnings for fiscal 2000 were $151 million or $0.67
per share compared to $230 million or $1.00 per share in fiscal 1999.
Earnings in fiscal 2000 were adversely affected by an oversupply of chicken
and a $33 million charge on non-recurring items including a bad debt
writeoff related to AmeriServe and growout issues at Tyson de Mexico. The
Company's accounting cycle resulted in a 52-week year for both 2000 and
1999 compared to a 53-week year for 1998.
2000 vs. 1999
Sales for 2000 decreased 2.8% from sales for 1999. This decrease is
primarily due to the sale of the seafood business on July 17, 1999, and
other divested non-core businesses. Comparable sales increased 0.6% on a
volume increase of 0.3% compared to 1999. Additionally, the operating
results for 2000 were negatively affected by a weak domestic market for
chicken and reduced volume by the Company's Mexican subsidiary. In
response to the oversupply of chicken, the Company maintained throughout
fiscal 2000 a 3% cut in the number of chickens produced. Management
anticipates this oversupply of chicken to continue into fiscal 2001.
The Company presently identifies segments based on the products
offered and the nature of customers resulting in four reported business
segments: Food Service, Consumer Products, International and Swine. The
Company's seafood business, which was sold on July 17, 1999, is listed as a
business segment for fiscal 1999 and 1998.
The following is an analysis of sales by segment:
dollars in
millions
----------------------------------------------------------------------
2000 1999 Change
----------------------------------------------------------------------
Food Service $3,312 $3,354 $(42)
Consumer Products 2,250 2,252 (2)
International 657 645 12
Swine 157 110 47
Seafood - 189 (189)
Other 782 813 (31)
----------------------------------------------------------------------
Total $7,158 $7,363 $(205)
======================================================================
46
<PAGE>
Segment profit, defined as gross profit less selling expenses, by
segment is as follows:
dollars in millions
----------------------------------------------------------------------
2000 1999 Change
----------------------------------------------------------------------
Food Service $197 $311 $(114)
Consumer Products 145 241 (96)
International 50 68 (18)
Swine 19 (63) 82
Seafood - 22 (22)
Other 140 155 (15)
----------------------------------------------------------------------
Total $551 $734 $(183)
======================================================================
Food Service sales decreased $42 million or 1.3% compared to 1999,
with a 1.4% decrease in average sales prices partially offset by a 0.2%
increase in volume. Segment profit for Food Service decreased $114 million
or 36.7% from 1999 primarily due to lower market prices, product mix
changes and higher grain costs. Food Service includes fresh, frozen and
value-added chicken products sold through domestic food service, specialty
and commodity distributors who deliver to restaurants, schools and other
accounts.
Consumer Products sales decreased $2 million or 0.1% compared to 1999,
with a 0.6% decrease in average sales prices partially offset by a 0.6%
increase in volume. Segment profit for Consumer Products decreased $96
million or 39.7% from 1999 primarily due to lower market prices and higher
grain costs, which more than offset the improved product mix. Consumer
Products include fresh, frozen and value-added chicken products sold
through domestic retail markets for at-home consumption and through
wholesale club markets targeted to small foodservice operators, individuals
and small businesses.
International sales increased $12 million or 1.9% over 1999, with a
4.2% increase in average sales prices partially offset by a 2.3% decrease
in volume. International segment profit decreased $18 million or 26.5% from
1999 primarily due to losses incurred by the Company's Mexican subsidiary
resulting from the outbreak of Exotic Newcastle disease and associated
decreases in production. The Newcastle disease had been eradicated from
our facilities by fiscal year end and production volumes had returned to
normal levels. The Company's International segment markets and sells the
full line of Tyson chicken products throughout the world.
Swine sales increased $47 million or 42.7% over 1999, with a 56.5%
increase in average sales prices partially offset by an 8.3% decrease in
volume. Swine segment profit improved $82 million or 130.2% over 1999
primarily due to the increase in average sales prices. The Company's swine
segment includes feeder pig finishing and marketing of swine to regional
and national packers.
47
<PAGE>
Other sales decreased $31 million or 3.8% from 1999 primarily due to
non-core businesses sold during fiscal 1999. Other segment profit decreased
$15 million or 9.7% from 1999. The majority of revenue included in the
Other segment is derived from the Company's Specialty Products and Prepared
Foods groups and the Company's wholly owned subsidiary involved in
supplying chicken breeding stock.
Cost of sales for 2000 decreased 0.2% as compared to 1999. This decrease is
primarily the result of decreased sales. As a percent of sales, cost of
sales was 84.4% for 2000 compared to 82.2% for 1999. The increase in cost
of sales as a percent of sales was due to the weak domestic market for
chicken, the reduction in volume associated with the Company's ongoing
production cut, losses incurred by the Company's Mexican subsidiary and
higher grain costs.
Operating expenses for 2000 decreased 6.8% from 1999, primarily due to
impairment and other charges of $77 million recorded in 1999 partially
offset by a $21 million increase in current year expenses, primarily
general and administrative. As a percent of sales, selling expense
increased to 7.9% in 2000 compared to 7.8% in 1999, primarily due to the
decrease in sales. Selling expense decreased $12 million in 2000 compared
to 1999 due to a decrease in sales promotion expenses. General and
administrative expense, as a percent of sales, was 2.4% in 2000 compared to
1.8% in 1999. The increase in general and administrative expense is
primarily due to a $24 million bad debt writeoff related to the January 31,
2000, bankruptcy filing by AmeriServe Food Distribution, Inc. and other
increases related to ongoing litigation costs. Amortization expense, as a
percent of sales, was 0.5% in both 2000 and 1999.
[BAR GRAPH]
EXPENSES AS A PERCENT OF SALES
2000 1999 1998
General and Administrative 2.0%* 1.8% 1.8%
Selling 7.9% 7.8% 8.0%**
* Excludes $24 million bad debt writeoff
** Excludes $48 million impairment loss
Interest expense in 2000 decreased 7.3% compared to 1999. As a percent of
sales, interest expense was 1.6% in 2000 compared to 1.7% in 1999. The
Company had a lower level of borrowing in 2000, which decreased the
Company's average indebtedness by 14.8% over the same period last year. 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
was 6.9% for 2000 compared to 6.2% for 1999.
The effective tax rate for 2000 increased to 35.6% compared to 34.9% for
1999 primarily due to an increase in foreign subsidiary earnings effective
tax rate.
Return on invested capital (ROIC), defined as earnings before interest and
taxes divided by average total assets less current liabilities excluding
current debt, was 8.2% for 2000 compared to 10.9% for 1999.
48
<PAGE>
[BAR GRAPH]
RETURN ON INVESTED CAPITAL
2000 8.2%(WHITE) 8.7%(BLACK)
1999 10.9%(WHITE) 12.6%(BLACK)
1998 4.9%(WHITE) 9.9%(BLACK)
ROIC(WHITE)
ROIC excluding bad debt charge of $24 million in 2000 and impairment
and other charges of $77 million in 1999 and $211 million in 1998(BLACK)
ACQUISITIONS On January 9, 1998, the Company completed the acquisition of
Hudson Foods, Inc. (Hudson or Hudson Acquisition). At the effective time of
the acquisition, the Class A and Class B shareholders of Hudson received
approximately 18.4 million shares of the Company's Class A common stock
valued at approximately $364 million and approximately $257 million in
cash. The Company borrowed funds under its commercial paper program to
finance the cash portion of the Hudson Acquisition and to repay
approximately $61 million under Hudson's revolving credit facilities. The
Hudson Acquisition was 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 July 17, 1999, the Company completed the sale of the assets
of Tyson Seafood Group in two separate transactions. Under the terms of the
agreements, the Company received net proceeds of approximately $165
million, which was used to reduce indebtedness, and subsequently collected
receivables totaling approximately $16 million. The Company recognized a
pretax loss of approximately $19 million on the sale of the seafood assets.
Effective December 31, 1998, the Company sold Willow Brook Foods, its
integrated turkey production and processing business, and its Albert Lea,
Minn., processing facility which primarily produced sausages, lunch and
deli meats. In addition, on December 31, 1998, the Company sold its
National Egg Products Company operations in Social Circle, Ga. These
facilities were sold for amounts that approximated their carrying values.
These operations were acquired as part of the Hudson Acquisition.
IMPAIRMENT AND OTHER CHARGES In the fourth quarter of fiscal 1999, the
Company recorded a pretax charge totaling $35 million related to the
anticipated loss on the sale and closure of the Pork Group assets. In the
first quarter of fiscal 2000, the Company ceased negotiations for the sale
of the Pork Group. Additionally, in the fourth quarter of fiscal 1999, the
Company recorded pretax charges totaling $23 million for impairment of
property and equipment and write-down of related excess of investments over
net assets acquired of Mallard's Food Products.
In the fourth quarter of fiscal 1998, as a result of the Company's
restructuring plan, pretax charges totaling $215 million were recorded.
These charges were classified in the Consolidated Statements of Income as
$142 million asset impairment and other charges, $48 million in selling
expenses, $21 million in cost of sales and $4 million in other expense.
49
<PAGE>
1999 vs. 1998
Sales for 1999 decreased 0.7% from sales for 1998. The operating results
for 1999 were affected negatively by the excess supply of chicken and other
meats during the last six months of the fiscal year, partially offset by
the volume gained from the Hudson Acquisition and the inclusion of Tyson de
Mexico on a consolidated basis.
The following is an analysis of sales by segment:
dollars in millions
-----------------------------------------------------------
1999 1998 Change
-----------------------------------------------------------
Food Service $3,354 $3,329 $ 25
Consumer Products 2,252 2,074 178
International 645 592 53
Swine 110 161 (51)
Seafood 189 214 (25)
Other 813 1,044 (231)
-----------------------------------------------------------
Total $7,363 $7,414 $ (51)
===========================================================
Segment profit, defined as gross profit less selling expenses,
is as follows:
dollars in millions
-----------------------------------------------------------
1999 1998 Change
-----------------------------------------------------------
Food Service $311 $232 $ 79
Consumer Products 241 179 62
International 68 9 59
Swine (63) (21) (42)
Seafood 22 3 19
Other 155 110 45
-----------------------------------------------------------
Total $734 $512 $222
===========================================================
Food Service sales for 1999 increased $25 million or 0.8% compared
1998, with a 2.6% increase in volume primarily offset by a 1.8% decrease in
average sales prices. Segment profit for Food Service increased $79 million
over 1998 primarily due to lower grain prices and a change in product mix.
Consumer Products sales for 1999 increased $178 million or 8.6%
compared to 1998. This increase was primarily due to a 10.5% increase in
volume partially offset by a 1.8% decrease in average sales prices.
Consumer Products segment profit increased $62 million resulting from the
increase in volume and lower grain costs.
50
<PAGE>
International sales for 1999 increased $53 million or 9% compared to
1998. This increase is primarily the result of a 29.6% increase in volume
partially offset by a 15.9% decrease in average sales prices. Segment
profit for International increased $59 million. The increase in volume and
segment profit for the International segment is primarily due to the
consolidation of Tyson de Mexico.
Swine sales for 1999 decreased $51 million or 31.7% compared to 1998.
Swine segment loss increased $42 million. The Swine business experienced a
significant decrease in market prices during 1999 compared to 1998,
resulting in a Swine group net loss of $0.18 per share for 1999.
Seafood sales for 1999 decreased $25 million or 11.7% compared to
1998. This decrease was primarily due to the sale of the seafood business
at the beginning of the fourth quarter of 1999. Segment profit for Seafood
increased $19 million.
Other sales for 1999 decreased $231 million or 22.1% compared to 1998,
primarily due to the sale of non-core businesses at the end of the first
quarter of 1999. Other segment profit increased $45 million.
Cost of sales for 1999 decreased 3.3% compared to 1998. This decrease was
primarily the result of decreased sales and lower grain costs. As a percent
of sales, cost of sales was 82.2% for 1999 compared to 84.4% for 1998
primarily due to lower grain costs.
Operating expenses for 1999 decreased 13.5% from 1998, primarily due to
impairment and other charges of $77 million in 1999 compared to $142
million in 1998. As a percent of sales, selling expense decreased to 7.8%
in 1999 compared to 8.7% in 1998, primarily due to the $48 million charge
in 1998 for losses in the Company's export business to Russia. General and
administrative expense, as a percent of sales, was 1.8% in both 1999 and
1998. Amortization expense, as a percent of sales, was 0.5% in 1999
compared to 0.4% in 1998.
Interest expense in 1999 decreased 10.9% compared to 1998. As a percent of
sales, interest expense was 1.7% in 1999 compared to 1.9% in 1998. The
Company had a lower level of borrowing in 1999, which decreased the
Company's average indebtedness by 6.4% from 1998. The Company's short-term
interest rates were slightly lower than in 1998, and the net average
effective interest rate on total debt was 6.2% for 1999 compared to 6.6%
for 1998.
The effective tax rate for 1999 was 34.9% compared to 64.7% for 1998. The
1998 effective tax rate was affected by certain costs related to asset
impairment and foreign losses not deductible for tax purposes.
Return on invested capital for 1999 was 10.9% compared to 4.9% for 1998.
51
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations continues to be the Company's primary
source of funds to finance operating needs and capital expenditures. In
2000, net cash of $587 million was provided by operating activities, an
increase of $40 million from 1999. The Company's foreseeable cash needs for
operations and capital expenditures will continue to be met primarily
through cash flows from operations. At September 30, 2000, the Company had
construction projects in progress that will require approximately $121
million to complete.
[BAR GRAPH]
CASH PROVIDED BY OPERATING ACTIVITIES
dollars in millions
2000 $587
1999 $547
1998 $496
Total debt at September 30, 2000, was $1.5 billion, a decrease of $262
million from October 2, 1999. The Company has an unsecured revolving credit
agreement totaling $1 billion that supports the Company's commercial paper
program. This $1 billion facility expires in May 2002. At September 30,
2000, $260 million in commercial paper was outstanding under this $1
billion facility. Additional outstanding debt at September 30, 2000,
consisted of $880 million of public debt, $112 million of institutional
notes, $155 million of leveraged equipment loans, $62 million of notes
payable and $73 million of other indebtedness.
[BAR GRAPH]
TOTAL CAPITALIZATION
dollars in billions
2000 1999 1998
Debt 1.5 1.8 2.1
Equity 2.2 2.1 2.0
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 these covenants at
fiscal year end.
Shareholders' equity increased 2.2% during 2000 and has grown at a
compounded annual rate of 8.2% over the past five years.
52
<PAGE>
IMPACT OF YEAR 2000
The Company has completed its Year 2000 Project as scheduled. The Company's
products, computing and communications infrastructure systems have operated
without Year 2000 related problems. The Company is not aware that any of
its major customers or third-party suppliers has experienced significant
Year 2000 related problems.
The Company believes all its critical systems are Year 2000 ready;
however, there is no guarantee that the Company has discovered all possible
failure points including all systems, non-ready third parties whose systems
and operations affect the Company and other uncertainties.
As of September 30, 2000, the Year 2000 Project was considered
complete and no further actions were required.
MARKET RISK
Market risks relating to the Company's operations result primarily from
changes in commodity prices, interest rates and foreign exchange rates as
well as credit risk concentrations. To address certain of these risks the
Company enters into various hedging transactions as described below.
Financial instruments that do not qualify for hedge accounting are marked
to fair value and the gains or losses are recognized currently in earnings.
Commodities Risk The Company is a purchaser of certain commodities,
primarily corn and soybeans. The Company periodically uses commodity
futures and options for hedging purposes to reduce the effect of changing
commodity prices and as a mechanism to procure these grains. Generally,
contract terms of a hedge instrument closely mirror those of the hedged
item providing a high degree of risk reduction and correlation. Contracts
that effectively meet this risk reduction and correlation criteria are
recorded using hedge accounting. Gains and losses on closed hedge
transactions are recorded as a component of the underlying inventory
purchase.
The following table provides information about the Company's corn,
soybean and other feed ingredient inventory and financial instruments that
are sensitive to changes in commodity prices. The table presents the
carrying amounts and fair values at September 30, 2000, and October 2,
1999. Additionally, for puts and futures contracts, the latest of which
expires or matures eight months from the reporting date, the table presents
the notional amounts in units of purchase and the weighted average contract
prices.
<TABLE>
<CAPTION>
volume and dollars in millions, except per unit amounts
Volume Weighted avg Fair value
strike price
per unit
2000 1999 2000 1999 2000 1999
<S> <C> <C> <C> <C> <C> <C>
Recorded Balance Sheet Commodity Position:
Commodity inventory(book value of $33 and $34) - - - - $33 $34
Hedging Positions
Corn futures contracts (volume in bushels)
Long (buy) positions 17 84 $2.50 $2.21 (9) (8)
Short (sell) positions - 1 - 2.32 - -
Soybean oil futures contracts (volume in cwt)
Long (buy) positions 9 - 0.16 - - -
Short (sell) positions 6 - 0.16 - - -
Trading Positions
Corn puts - 28 - 2.10 - (3)
</TABLE> 53
<PAGE>
Interest Rate and Foreign Currency Risks The Company hedges exposure to
changes in interest rates on certain of its financial instruments. Under
the terms of various leveraged equipment loans, the Company enters into
interest rate swap agreements to effectively lock in a fixed interest rate
for these borrowings. The maturity dates of these leveraged equipment loans
range from 2005 to 2008 with interest rates ranging from 4.7% to 6%.
The Company also periodically enters into foreign exchange forward
contracts and option contracts to hedge some of its foreign currency
exposure. At September 30, 2000, the Company did not have any outstanding
instruments or transactions that are sensitive to foreign currency exchange
rates. In 1999, the Company used such contracts to hedge exposure to
changes in foreign currency exchange rates, primarily the Mexican peso,
associated with debt denominated in U.S. dollars held by Tyson de Mexico.
At October 2, 1999, the notional amount of these forward exchange contracts
to sell Mexican pesos for U.S. dollars was $7 million due in 2000, with a
weighted average strike price of $10.13 and a negative fair value of $1
million. 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 or expirations not exceeding 12 months.
The following tables provide information about the Company's
derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates. The tables present the Company's
debt obligations, principal cash flows and related weighted average
interest rates by expected maturity dates and fair values. For interest
rate swaps, the tables present 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.
<TABLE>
<CAPTION>
dollars in millions
-----------------------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total Fair
Value
9/30/00
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 2000
Liabilities
Long-term debt
including current portion
Fixed rate $123 $31 $178 $29 $180 $613 $1,154 $1,104
Average interest rate 8.23% 7.84% 6.18% 7.09% 6.80% 6.78% 6.88%
Variable rate - $276 - - - $50 $326 $326
Average interest rate - 6.78% - - - 5.64% 6.61%
Interest rate derivative
financial instruments
related to debt
Interest rate swaps
Pay fixed $18 $20 $22 $21 $16 $13 $110 -
Average pay rate 6.72% 6.73% 6.73% 6.71% 6.44% 6.60% 6.66%
Average receive rate-
USD 6 month LIBOR
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
dollars in millions
-----------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair
Value
10/2/99
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of October 2, 1999
Liabilities
Long-term debt
Including current portion
fixed rate $173 $126 $30 $178 $29 $794 $1,330 $1,299
average interest rate 6.82% 8.18% 7.83% 6.18% 7.08% 6.78% 6.87%
Variable rate $50 $17 $291 - - $50 $408 $408
Average interest rate 5.51% 7.67% 5.85% - - 3.90% 5.65%
Interest rate derivative
Financial instruments
Related to debt
Interest rate swaps
Pay fixed $17 $18 $20 $22 $21 $29 $127 $(1)
Average pay rate 6.71% 6.69% 6.73% 6.73% 6.71% 6.50% 6.66%
Average receive rate-
USD 6 month LIBOR
</TABLE>
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 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
On October 1, 2000, the Company adopted Financial Accounting Standards
Board Statement (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended by SFAS Nos. 137 and 138. This statement
establishes accounting and reporting standards, which requires that all
derivative instruments be recorded on the balance sheet at fair value. This
statement also establishes "special accounting" for fair value hedges, cash
flow hedges and hedges of foreign currency exposures of net investments in
foreign operations. The Company has determined the business processes
related to hedging activities mainly consist of grain procurement and
certain financing activities. The adoption on October 1, 2000, resulted in
the cumulative effect of an accounting change of approximately $9 million
being charged to other comprehensive loss.
55
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the Commission. SAB 101A was released on March 24, 2000, and
delayed for one fiscal quarter the implementation date of SAB 101 for
registrants with fiscal years beginning between December 16, 1999, and
March 15, 2000. Since the issuance of SAB 101 and SAB 101A, the staff has
continued to receive requests from a number of groups asking for additional
time to determine the effect, if any, on registrant's revenue recognition
practices. SAB 101B issued June 26, 2000, further delayed the
implementation date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The Company
believes the adoption of SAB 101 in fiscal 2001 will not have a material
impact on its financial position or results of operations.
SUBSEQUENT EVENT On October 17, 2000, a Washington County (Arkansas)
Chancery Court jury awarded the Company approximately $20 million in its
lawsuit against ConAgra, Inc. and ConAgra Poultry Company. In its suit,
the Company alleged that ConAgra, Inc. and ConAgra Poultry Company violated
the Arkansas Trade Secrets Act when they improperly obtained and
implemented Tyson's confidential feed nutrient profile. The court ruled
that the Company's feed nutrient profile is a trade secret under the
Arkansas Trade Secrets Act and that ConAgra, Inc. and ConAgra Poultry
Company misappropriated the feed nutrient profile. The court's ruling and
the award are subject to appeal; therefore, the Company has not recorded
this award at September 30, 2000.
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION
This annual report and other written reports and oral statements made from
time to time by the Company and its representatives contain forward-looking
statements, including forward-looking statements made in this report, with
respect to their current views and estimates of future economic
circumstances, industry conditions, company performance and financial
results. These forward-looking statements are subject to a number of
factors and uncertainties that could cause the Company's actual results and
experiences to differ materially from the anticipated results and
expectations, expressed in such forward-looking statements. In light of
these risks, uncertainties and assumptions, the Company wishes to caution
readers not to place undue reliance on any forward-looking statements. The
Company undertakes no obligation to publicly update or revise any forward-
looking statements based on the occurrence of future events, the receipt of
new information or otherwise.
56
<PAGE>
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) risks associated with effectively evaluating derivatives and
hedging activities (viii) changes in regulations and laws, including
changes in accounting standards, environmental laws, occupational, health
and safety laws; (ix) adverse results from ongoing litigation; (x) access
to foreign markets together with foreign economic conditions, including
currency fluctuations; and (xi) the effect of, or changes in, general
economic conditions.
57
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
TYSON FOODS, INC. 2000 ANNUAL REPORT
Three years ended September 30, 2000 in millions, except per share data
--------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $7,158 $7,363 $7,414
Cost of Sales 6,044 6,054 6,260
--------------------------------------------------------------------------------
1,114 1,309 1,154
--------------------------------------------------------------------------------
Operating Expenses:
Selling 563 575 642
General and administrative 169 134 133
Amortization 34 36 33
Asset impairment and other charges - 77 142
-------------------------------------------------------------------------------
766 822 950
--------------------------------------------------------------------------------
Operating Income 348 487 204
Other Expense (Income):
Interest 115 124 139
Foreign currency exchange - (3) -
Other (1) (5) (6)
--------------------------------------------------------------------------------
114 116 133
--------------------------------------------------------------------------------
Income Before Taxes on Income and
Minority Interest 234 371 71
Provision for Income Taxes 83 129 46
Minority Interest in Net Income of
Consolidated Subsidiary - 12 -
--------------------------------------------------------------------------------
Net Income $ 151 $ 230 $ 25
================================================================================
Basic Earnings Per Share $0.67 $ 1.00 $ 0.11
Diluted Earnings Per Share $0.67 $ 1.00 $ 0.11
================================================================================
See accompanying notes
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
TYSON FOODS, INC. 2000 ANNUAL REPORT
September 30, 2000 and October 2, 1999 in millions, except per share data
<S> <C> <C>
Assets 2000 1999
Current Assets:
Cash and cash equivalents $ 43 $ 30
Accounts receivable 520 603
Inventories 965 989
Assets held for sale 2 75
Other current assets 46 30
---------------------------------------------------------------------------
Total Current Assets 1,576 1,727
Net Property, Plant and Equipment 2,141 2,185
Excess of Investments Over Net Assets Acquired 937 962
Other Assets 200 209
---------------------------------------------------------------------------
Total Assets $4,854 $5,083
===========================================================================
Liabilities and Shareholders' Equity
Current Liabilities:
Notes payable $ 62 $ 66
Current portion of long-term debt 123 223
Trade accounts payable 346 390
Accrued compensation and benefits 104 105
Other current liabilities 251 203
---------------------------------------------------------------------------
Total Current Liabilities 886 987
Long-Term Debt 1,357 1,515
Deferred Income Taxes 385 398
Other Liabilities 51 55
Shareholders' Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares:
Issued 138 million shares in 2000 and 1999 14 14
Class B-authorized 900 million shares:
Issued 103 million shares in 2000 and 1999 10 10
Capital in excess of par value 735 740
Retained earnings 1,715 1,599
Accumulated other comprehensive loss (5) (1)
2,469 2,362
Less treasury stock, at cost-
16 million shares in 2000 and
12 million shares in 1999 284 232
Less unamortized deferred compensation 10 2
Total Shareholders' Equity 2,175 2,128
---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $4,854 $5,083
===========================================================================
see accompanying notes
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
TYSON FOODS, INC. 2000 ANNUAL REPORT
Three years ended September 30, 2000
in millions, except per share data
---------------------------------------------------------------------------------------------------------------------------
Class A Class B Capital Treasury Stock
------------------------------ In Excess Of Retained ------------------------
Shares Amount Shares Amount Par Value Earnings Shares Amount
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-September 27, 1997 120 $12 103 $10 $379 $1,391 9 $(166)
Comprehensive Income:
Net income 25
Other comprehensive income(loss)-
net of tax of $0.7 million
Currency translation adjustment
Total Comprehensive Income
Purchase of Treasury Shares 1 (22)
Exercise of Options 3
Business Acquisitions 18 2 362
Dividends Paid
----------------------------------------------------------------------------------------------------------------------------
Balance-October 3, 1998 138 14 103 10 741 1,394 10 (185)
Comprehensive Income:
Net income 230
Other comprehensive income(loss)
Total Comprehensive Income
Purchase of Treasury Shares 3 (52)
Exercise of Options (1) (1) 6
Restricted Shares Cancelled (1)
Dividends Paid (25)
----------------------------------------------------------------------------------------------------------------------------
Balance-October 2, 1999 138 14 103 10 740 1,599 12 (232)
Comprehensive Income:
Net Income 151
Other comprehensive income(loss)-
net of tax of $(1.3) million
Currency translation adjustment
Total Comprehensive Income
Purchase of Treasury Shares 5 (69)
Exercise of Options 1
Restricted Shares Issued (5) (1) 16
Dividends Paid (35)
Amortization of Deferred Compensation
------------------------------------------------------------------------------------------------------------------------------
Balance-September 30, 2000 138 $14 103 $10 $735 $1,715 16 $(284)
See accompanying notes
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Accumulated
Unamortized Other Total
Deferred Comprehensive Shareholders'
Compensation Income(Loss) Equity
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance-September 27, 1997 $(2) $(3) $1,621
Comprehensive Income:
Net Income 25
Other comprehensive income(loss)-
net of tax of $0.7 million
Currency translation adjustment 2 2
-----
Total Comprehensive Income 27
-----
Purchase of Treasury Shares (22)
Exercise of Options 3
Business Acquisitions 364
Dividends Paid (22)
--------------------------------------------------------------------------------------
Balance-October 3, 1998 (2) (1) 1,971
Comprehensive Income:
Net income 230
Other comprehensive income(loss)
----
Total Comprehensive Income 230
----
Purchase of Treasury Shares (52)
Exercise of Options 5
Restricted Shares Cancelled (1)
Dividends Paid (25)
--------------------------------------------------------------------------------------
Balance-October 2, 1999 (2) (1) 2,128
Comprehensive Income:
Net Income 151
Other comprehensive income(loss)-
net of tax of $(1.3) million
Currency translation adjustment (4) (4)
-----
Total Comprehensive Income 147
-----
Purchase of Treasury Shares (69)
Exercise of Options 1
Restricted Shares Issued (11) -
Dividends Paid (35)
Amortization of Deferred Compensation 3 3
--------------------------------------------------------------------------------------
Balance-September 30, 2000 $(10) $(5) $2,175
See accompanying notes
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
TYSON FOODS, INC. 2000 ANNUAL REPORT
Three years ended September 30, 2000 in millions
----------------------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 151 $ 230 $ 25
Adjustments to reconcile net income
To cash provided by operating activities:
Depreciation 257 255 243
Amortization 34 36 33
Amortization of deferred compensation 3 - -
Provision for doubtful accounts 25 16 2
Asset impairment and other charges - 77 215
Deferred income taxes 47 (13) (145)
Minority interest - 12 -
Foreign currency exchange loss - (3) -
Loss (gain) on dispositions of property, plant and equipment 4 (1) (2)
Decrease in accounts receivable 57 9 31
Decrease (increase) in inventories 84 (99) 80
(Decrease) increase in trade accounts payable (46) 21 (7)
Net change in other current assets and liabilities (29) 7 21
----------------------------------------------------------------------------------------------
Cash Provided by Operating Activities 587 547 496
Cash Flows From Investing Activities:
Net cash paid for acquisitions - - (259)
Additions to property, plant and equipment (196) (363) (310)
Proceeds from sale of assets 4 234 136
Net change in other assets and liabilities (14) (37) (13)
----------------------------------------------------------------------------------------------
Cash Used for Investing Activities (206) (166) (446)
Cash Flows From Financing Activities:
Decrease in notes payable (4) (19) (74)
Proceeds from long-term debt 7 76 1,027
Repayments of long-term debt (266) (382) (955)
Purchase of treasury shares (69) (52) (22)
Other (34) (18) (3)
----------------------------------------------------------------------------------------------
Cash Used for Financing Activities (366) (395) (27)
Effect of Exchange Rate Change on Cash (2) (2) -
----------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents 13 (16) 23
Cash and Cash Equivalents at Beginning of Year 30 46 23
----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 43 $ 30 $ 46
----------------------------------------------------------------------------------------------
see accompanying notes
</TABLE>
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TYSON FOODS, INC. 2000 ANNUAL REPORT
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Tyson Foods, Inc., headquartered in Springdale,
Ark., is the world's largest fully integrated producer, processor and
marketer of chicken and chicken-based convenience foods, with 68,000 team
members and 7,400 contract growers in 100 communities. Tyson has
operations in 18 states and 15 countries and exports to 73 countries
worldwide. Tyson is the recognized market leader in almost every retail
and foodservice market it serves. Through its Cobb-Vantress subsidiary,
Tyson is also a leading chicken breeding stock supplier. In addition,
Tyson is the nation's second largest maker of corn and flour tortillas
under the Mexican Original brand, as well as a leading provider of live
swine.
Consolidation: The consolidated financial statements include the accounts
of subsidiaries including the Company's majority ownership in Tyson de
Mexico. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year: The Company utilizes a 52- or 53-week accounting period that
ends on the Saturday closest to September 30.
Reclassifications: Certain reclassifications have been made to prior
periods to conform to current presentations.
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 $126 million at September 30, 2000, and $135 million at
October 2, 1999, are included in trade accounts payable, accrued
compensation and benefits and other current liabilities.
Inventories: Live chicken 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. Breeder costs are accumulated up to
the production stage and amortized into broiler costs over the estimated
production lives based on historical egg production. Live swine consist of
breeding stock and finishing, which are carried at lower of cost (first-in,
first-out) or market. The cost of live swine is included in cost of sales
when the swine are sold. Additionally, dressed and further-processed
products, hatchery eggs and feed and supplies are valued at the lower of
cost (first-in, first-out) or market. At September 30, 2000, live swine
inventory has been reclassified to inventory from assets held for sale.
63
<PAGE>
in millions
---------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------
Dressed and further-processed products $460 $549
Live chickens 291 291
Live swine 75 -
Hatchery eggs and feed 67 67
Supplies 72 82
---------------------------------------------------------------------------
Total inventory $965 $989
---------------------------------------------------------------------------
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 and other of
three to 20 years.
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 Company reviews the carrying value
of excess of investments over net assets acquired at each balance sheet
date to assess recoverability from future operations using undiscounted
cash flows based upon historical results and current projections of
earnings before interest and taxes. If impairment is indicated by using
undiscounted cash flows, the Company measures impairment using discounted
cash flows of future operating results based upon a rate that corresponds
to the Company's cost of capital. Impairments are recognized in operating
results to the extent that carrying value exceeds fair value. At September
30, 2000, and October 2, 1999, the accumulated amortization of excess of
investments over net assets acquired was $256 million and $225 million,
respectively.
Other Current Liabilities: Insurance reserves totaling $102 million and $95
million at September 30, 2000, and October 2, 1999, respectively, are
included in other current liabilities.
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 10 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. 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. The Company pays quarterly cash dividends to
Class A and Class B shareholders. The Company paid Class A dividends per
share of $0.16, $0.115 and $0.10 and Class B dividends per share of $0.144,
$0.104 and $0.09 in 2000, 1999 and 1998, respectively.
Stock-Based Compensation: Stock-based compensation is recognized using the
intrinsic value method. For disclosure purposes, pro forma net income and
earnings per share impacts are provided as if the fair value method had
been applied.
64
<PAGE>
Financial Instruments: Periodically, the Company uses derivative financial
instruments to reduce its exposure to various market risks. The Company
does not regularly engage in speculative transactions, nor does the Company
regularly hold or issue financial instruments for trading purposes.
Generally, contract terms of a hedge instrument closely mirror those of the
hedged item providing a high degree of risk reduction and correlation.
Contracts that effectively meet the risk reduction and correlation
criteria are recorded using hedge accounting. Financial instruments that do
not meet the criteria for hedge accounting are marked to fair value with
gains or losses reported currently in earnings. 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. 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 sales, and generally
have terms of less than 15 months. Foreign currency forwards and option
contracts are used to hedge sale and debt transactions denominated in
foreign currencies to reduce the currency risk associated with fluctuating
exchange rates. Such contracts generally have terms of less than 12
months. Unrealized gains and losses are deferred as part of the basis of
the underlying transaction.
Revenue Recognition: The Company recognizes sales revenue upon shipment of
product. Certain international sales revenue and live swine sales revenue
are recognized after transfer of title or delivery of product, which may
occur after shipment.
Advertising and Promotion Expenses: Advertising and promotion expenses are
charged to operations in the period incurred. Advertising and promotion
expenses for 2000, 1999 and 1998 were $280 million, $301 million and $294
million, respectively.
Use of Estimates: The consolidated financial statements are prepared in
conformity with accounting principles generally accepted in the United
States which require 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.
Recently Issued Accounting Standards: On October 1, 2000, the Company
adopted Financial Accounting Standards Board Statement (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which is required to be adopted in years beginning after June 15, 2000.
This Statement requires the Company to recognize all derivatives on the
balance sheet at fair value. 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 assets, liabilities or firm commitments 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 adoption on October 1, 2000, resulted in the cumulative effect of
an accounting change of approximately $9 million being charged to other
comprehensive loss. The Company does not believe the adoption of SFAS No.
133 will cause a significant change in normal business practices.
65
<PAGE>
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the Commission. SAB 101A was released on March 24, 2000, and
delayed for one fiscal quarter the implementation date of SAB 101 for
registrants with fiscal years beginning between December 16, 1999, and
March 15, 2000. Since the issuance of SAB 101 and SAB 101A, the staff has
continued to receive requests from a number of groups asking for additional
time to determine the effect, if any, on registrant's revenue recognition
practices. SAB 101B issued June 26, 2000 further delayed the
implementation date of SAB 101 until no later than the fourth fiscal
quarter of fiscal years beginning after December 15, 1999. The Company
believes the adoption of SAB 101 in fiscal 2001 will not have a material
impact on its financial position or results of operations.
NOTE 2: ACQUISITIONS
On January 9, 1998, the Company completed the acquisition of Hudson Foods,
Inc. (Hudson or Hudson Acquisition). At the effective time of the
acquisition, the Class A and Class B shareholders of Hudson received
approximately 18.4 million shares of the Company's Class A common stock
valued at approximately $364 million and approximately $257 million in
cash. The Company borrowed funds under its commercial paper program to
finance the 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.
in millions, except per share data
----------------------------
1998 1997
----------------------------
Sales $7,831 $8,021
Net income 17 140
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.
NOTE 3: DISPOSITIONS
On July 17, 1999, the Company completed the sale of the assets of
Tyson Seafood Group in two separate transactions. Under the terms of the
agreements, the Company received proceeds of approximately $165 million,
which was used to reduce indebtedness, and subsequently collected
receivables totaling approximately $16 million. The Company recognized a
pretax loss of approximately $19 million on the sale of the seafood assets.
66
<PAGE>
Effective December 31, 1998, the Company sold Willow Brook Foods, its
integrated turkey production and processing business, and its Albert Lea,
Minn., processing facility which primarily produced sausages, lunch and
deli meats. In addition, on December 31, 1998, the Company sold its
National Egg Products Company operations in Social Circle, Ga. These
facilities were sold for amounts that approximated their carrying values.
These operations were acquired as part of the Hudson Acquisition.
NOTE 4: IMPAIRMENT AND OTHER CHARGES
In the fourth quarter of fiscal 1999, the Company recorded a pretax charge
totaling $35 million related to the anticipated loss on the sale and
closure of the Pork Group assets. In the first quarter of fiscal 2000, the
Company ceased negotiations for the sale of the Pork Group. Additionally,
in the fourth quarter of fiscal 1999, the Company recorded pretax charges
totaling $23 million for impairment of property and equipment and write-
down of related excess of investments over net assets acquired of Mallard's
Food Products.
In the fourth quarter of fiscal 1998, as a result of the Company's
restructuring plan, pretax charges totaling $215 million were recorded.
These charges were classified in the Consolidated Statements of Income as
$142 million asset impairment and other charges, $48 million in selling
expenses, $21 million in cost of sales and $4 million in other expense.
NOTE 5: ALLOWANCE FOR DOUBTFUL ACCOUNTS
On January 31, 2000, AmeriServe Food Distribution, Inc. (AmeriServe), a
significant distributor of products to fast food and casual dining
restaurant chains, filed for reorganization in Delaware under Chapter 11 of
the federal Bankruptcy Code. The Company is a major supplier to several
AmeriServe customers. In the second quarter of fiscal 2000, the Company
recorded a $24 million bad debt reserve to fully reserve the AmeriServe
receivable. At September 30, 2000, and October 2, 1999, allowance for
doubtful accounts, excluding the AmeriServe writeoff, was $17 million and
$22 million, respectively.
NOTE 6: FINANCIAL INSTRUMENTS
Commodity and Foreign Currency Contracts: At September 30, 2000, and
October 2, 1999, the Company held the following commodity and foreign
currency contracts:
<TABLE>
<CAPTION>
dollars in millions, except per unit contract/strike prices
---------------------------------------------------------------------------------------------------
Notional amount Weighted average Fair Value
Contract/strike
Price
--------------------------------------------------------------
Units 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hedging positions:
Long positions in corn bushels 17 84 $2.50 $2.21 $(9) $(8)
Short positions in corn bushels - 1 - $2.32 - -
Long positions in soybean oil cwt 9 - 0.16 - - -
Short positions in soybean oil cwt 6 - 0.16 - - -
Foreign forward exchange contracts dollars - $7 - $10.13 - (1)
Trading positions:
Short positions in corn puts bushels - 28 - 2.10 - (3)
---------------------------------------------------------------------------------------------------
</TABLE> 67
<PAGE>
Fair Value of 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 remaining maturities. As
of September 30, 2000, and October 2, 1999, 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 including current portion was
$1.4 billion and $1.7 billion at September 30, 2000, and October 2, 1999,
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 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.
Interest Rate Instruments: The Company uses interest rate swap contracts on
certain borrowing transactions. Interest rate swaps with notional amounts
of $110 million and $127 million were in effect at September 30, 2000, and
October 2, 1999, respectively. Fair values of these swaps were $500,000 and
a negative $1 million at September 30, 2000, and October 2, 1999,
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.
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
The major categories of property, plant and equipment and accumulated
depreciation, at cost, are as follows:
(IN MILLIONS)
----------------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------------
Land $ 61 $ 57
Buildings and leasehold improvements 1,291 1,180
Machinery and equipment 2,219 2,033
Land improvements and other 110 112
Buildings and equipment under construction 103 224
----------------------------------------------------------------------------
3,784 3,606
Less accumulated depreciation 1,643 1,421
----------------------------------------------------------------------------
Net property, plant and equipment $2,141 $2,185
----------------------------------------------------------------------------
The Company capitalized interest costs of $2 million in 2000, $5
million in 1999 and $2 million in 1998 as part of the cost of major asset
construction projects. Approximately $121 million will be required to
complete construction projects in progress at September 30, 2000.
68
<PAGE>
In fiscal 2000, the Company adopted American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement
provides guidance on the capitalization of certain costs incurred in
developing or acquiring internal-use computer software. At September 30,
2000, the Company has capitalized $25 million in software costs and
recorded $3 million of related software depreciation.
NOTE 8: CONTINGENCIES
The Company is involved in various lawsuits and claims made by third
parties on an ongoing basis as a result of its day-to-day operations.
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 June 22, 1999, 11 current and former employees of the Company filed
the case of M.H. Fox, et al. v. Tyson Foods, Inc. (Fox v. Tyson) in the
U.S. District Court for the Northern District of Alabama claiming the
Company violated requirements of the Fair Labor Standards Act. The suit
alleges the Company failed to pay employees for all hours worked and/or
improperly paid them for overtime hours. The suit generally alleges that
(i) employees should be paid for time taken to put on and take off certain
working supplies at the beginning and end of their shifts and breaks and
(ii) the use of "mastercard" or "line" time fails to pay employees for all
time actually worked. Plaintiffs seek to represent themselves and all
similarly situated current and former employees of the Company. At filing
159 current and/or former employees consented to join the lawsuit and, to
date, approximately 4,900 consents have been filed with the court.
Discovery in this case is ongoing. A hearing was held on March 6, 2000, to
consider the plaintiff's request for collective action certification and
court-supervised notice. No decision has been rendered. The Company
believes it has substantial defenses to the claims made and intends to
vigorously defend the case; however, neither the likelihood of unfavorable
outcome nor the amount of ultimate liability, if any, with respect to this
case can be determined at this time.
Substantially similar suits have been filed against other integrated
poultry companies. In addition, organizing activity conducted by
representatives or affiliates of the United Food and Commercial Workers
Union against the poultry industry has encouraged worker participation in
Fox v. Tyson and the other lawsuits.
On February 9, 2000, the Wage and Hour Division of the U.S. Department
of Labor (DOL) began an industry-wide investigation of poultry producers,
including the Company, to ascertain compliance with various wage and hour
issues. As part of this investigation, the DOL inspected 14 of the
Company's processing facilities. The Company has begun preliminary
discussions with the DOL regarding its investigation to discuss a
resolution of potential claims that might be asserted by the DOL.
The Company has been advised of an investigation by the Immigration
and Naturalization Service (INS) and the U.S. Attorney's Office for the
Eastern District of Tennessee into possible violations of the Immigration
and Naturalization Act at several of the Company's locations. On October
5, 2000, the Company was advised that, in addition to a number of its
employees, the Company itself is a subject of the investigation. The
outcome of the investigation and any potential liability on the part of the
Company cannot be determined at this time.
69
<PAGE>
On January 20, 2000, McCarty Farms, Inc. (McCarty), a former
subsidiary of the Company which has been merged into the Company, was
indicted in the U.S. District Court for the Southern District of
Mississippi, Jackson Division, for conspiracy to violate the federal Clean
Water Act. The alleged conspiracy arose out of McCarty's partial ownership
of Central Industries, Inc. (Central), which operates a rendering plant in
Forest, Miss. On November 3, 2000, Central pled to 25 counts of knowing
violations of the Act and one count of conspiracy pursuant to a plea
agreement, which resulted in a $14 million fine against Central payable
over five years. The conspiracy indictment against McCarty and other
Central shareholders was dismissed. A related civil proceeding by the
United States arising from the same circumstances, and a state
environmental administrative complaint were also fully resolved and
dismissed as a part of Central's Plea Agreement.
The Company's Sedalia, Mo., facility is currently under investigation
by the U.S. Attorney's office of the Western District of Missouri for
possible violations of environmental laws or regulations. Neither the
likelihood of an unfavorable outcome nor the amount of ultimate liability,
if any, with respect to this investigation can be determined at this time.
On October 17, 2000, a Washington County (Arkansas) Chancery Court
jury awarded the Company approximately $20 million in its lawsuit against
ConAgra, Inc. and ConAgra Poultry Company. In its suit, the Company
alleged that ConAgra, Inc. and ConAgra Poultry Company violated the
Arkansas Trade Secrets Act when they improperly obtained and implemented
Tyson's confidential feed nutrient profile. The court ruled that the
Company's feed nutrient profile is a trade secret under the Arkansas Trade
Secrets Act and that ConAgra, Inc. and ConAgra Poultry Company
misappropriated the feed nutrient profile. The court's ruling and the
award are subject to appeal; therefore, the Company has not recorded this
award at September 30, 2000.
NOTE 9: COMMITMENTS
The Company leases certain farms and other properties and equipment for
which the total rentals thereon approximated $66 million in 2000, $64
million in 1999 and $47 million in 1998. 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 September 30,
2000, total $124 million composed of $54 million for 2001, $34 million for
2002, $18 million for 2003, $9 million for 2004, $5 million for 2005 and $4
million for later years. These future commitments are expected to be offset
by future minimum lease payments to be received under subleases of
approximately $12 million.
The Company assists certain of its swine and chicken 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 $41 million.
NOTE 10: LONG-TERM DEBT
The Company has an unsecured revolving credit agreement totaling $1 billion
that supports the Company's commercial paper program. This $1 billion
facility expires in May 2002. At September 30, 2000, $260 million in
commercial paper was outstanding under this facility.
70
<PAGE>
At September 30, 2000, the Company had outstanding letters of credit
totaling approximately $99 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 $49 million which is included in
other assets at September 30, 2000. 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
September 30, 2000, are: 2001-$123 million; 2002-$307 million; 2003-$178
million; 2004-$29 million and 2005-$180 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 these covenants at fiscal year end.
Industrial revenue bonds are secured by facilities with a net book
value of $64 million at September 30, 2000. The weighted average interest
rate on all outstanding short-term borrowing was 6.8% at September 30,
2000, and 5.5% at October 2, 1999.
Long-term debt consists of the following:
(IN MILLIONS)
-------------------------------------------------------------------------------
Maturity 2000 1999
-------------------------------------------------------------------------------
Commercial paper
(6.7% effective rate at 9/30/00) 2002 $ 260 $ 291
Debt securities:
6.75% notes 2005 149 150
6.625% notes 2006 149 150
6.39-6.41% notes 2001 - 50
6% notes 2003 149 148
7% notes 2028 147 146
7% notes 2018 237 236
Institutional notes:
10.61% notes 2001 - 53
10.84% notes 2002-2006 50 50
11.375% notes 1999-2002 4 8
Leveraged equipment loans
(rates ranging from 4.7% to 6.0%) 2005-2008 138 154
Other various 74 79
-------------------------------------------------------------------------------
Total long-term debt $1,357 $1,515
===============================================================================
NOTE 11: STOCK OPTIONS AND RESTRICTED STOCK
The Company has a nonqualified stock option plan that 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 three to eight years from the date of grant and
must be exercised within 10 years of the grant date.
71
<PAGE>
On May 4, 2000, the Company cancelled approximately 4.3 million
option shares and granted approximately 1 million restricted shares of
Class A common stock. The restriction expires over periods through
December 1, 2003. At September 30, 2000, the Company had outstanding
1,146,900 restricted shares of Class A common stock with restrictions
expiring over periods through July 1, 2020. The unearned portion of the
restricted stock is classified on the Consolidated Balance Sheets as
deferred compensation in shareholders' equity.
A summary of the Company's stock option activity for the nonqualified
stock option plan is as follows:
--------------------------------------------------------------------------------
Shares Weighted Average
Under Exercise Price
Option Per Share
--------------------------------------------------------------------------------
Outstanding, September 27, 1997 8,342,334 $15.99
Exercised (178,467) 14.18
Canceled (313,019) 15.84
Granted 504,700 18.00
--------------------------------------------------------------------------------
Outstanding, October 3, 1998 8,355,548 16.15
Exercised (359,999) 14.23
Canceled (631,717) 16.35
Granted 4,722,500 15.00
--------------------------------------------------------------------------------
Outstanding, October 2, 1999 12,086,332 15.74
Exercised (88,332) 14.23
Canceled (5,199,995) 15.17
Granted - -
--------------------------------------------------------------------------------
Outstanding, September 30, 2000 6,798,005 $16.19
================================================================================
The number of options exercisable was as follows: September 30, 2000-
2,926,980; October 2, 1999-1,870,893 and October 3, 1998-1,202,498. The
remainder of the options outstanding at September 30, 2000, are exercisable
ratably through November 2007. The number of shares available for future
grants was 7,568,614 and 2,368,619 at September 30, 2000 and October 2,
1999, respectively.
The following table summarizes information about stock options
outstanding at September 30, 2000:
<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>
$14.33-14.50 2,057,730 3.9 $14.40 1,807,110 $14.40
14.58-15.17 1,566,050 6.0 15.04 552,825 15.04
17.92-18.00 3,174,225 6.1 17.93 567,045 17.92
----------------------------------------------------------------------------------------
6,798,005 2,926,980
</TABLE>
72
<PAGE>
The Company did not grant any options during 2000. The weighted
average fair value of options granted during 1999 was approximately $5.06.
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 5.5 years, risk-free interest rates ranging from 5.5% to
6.4%, expected volatility of 0.2% and dividend yield of 0.5% in 1999.
The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for its employee stock option plans.
Accordingly, no compensation expense was recognized for its stock option
plans. Had compensation cost for the employee stock option plans been
determined based on the fair value method of accounting for the Company's
stock option plans, the tax-effected impact would be as follows:
(In millions, except per share data)
__________________________________________________________________________
2000 1999 1998
__________________________________________________________________________
Net Income
As reported $151 $230 $25
Pro forma 148 226 21
Earnings Per Share
As reported
Basic 0.67 1.00 0.11
Diluted 0.67 1.00 0.11
Pro forma
Basic 0.66 0.98 0.09
Diluted 0.65 0.98 0.09
__________________________________________________________________________
Pro forma net income reflects only options granted after 1997.
Additionally, the pro forma disclosures are not likely to be representative
of the effects on reported net income for future years.
NOTE 12: BENEFIT PLANS
The Company has defined contribution retirement and incentive benefit
programs for various groups of Company personnel. Company contributions
totaled $32 million, $33 million and $32 million in 2000, 1999 and 1998,
respectively.
NOTE 13: 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 $7 million in 2000, $7 million in 1999 and $5 million in 1998.
Other facilities have been leased from other officers and directors for
rentals totaling $3 million in 2000, 1999 and 1998.
Certain officers and directors are engaged in chicken 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 million in
2000, $10 million in 1999 and $12 million in 1998.
Certain unimproved real property was sold by the Company in June 2000
to an entity controlled by the daughter and son-in-law of the Senior
Chairman of the Board for approximately $5 million. The purchase price was
in excess of the market value as determined by a current independent
appraisal.
73
<PAGE>
NOTE 14: INCOME TAXES
Detail of the provision for income taxes consists of:
(IN MILLIONS)
----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------
Federal $78 $121 $ 50
State 5 8 (4)
----------------------------------------------------------------------------
$83 $129 $ 46
============================================================================
Current $36 $143 $ 81
Deferred 47 (14) (35)
----------------------------------------------------------------------------
$83 $129 $ 46
============================================================================
The reasons for the difference between the effective income tax rate
and the statutory U.S. federal income tax rate are as follows:
---------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------
U.S. federal income tax rate 35.0% 35.0% 35.0%
Amortization of excess of investments
over net assets acquired 4.3 5.3 23.6
State income taxes (benefit) 1.4 1.6 (3.8)
Foreign (benefit) losses (5.2) (6.3) 10.9
Other 0.1 (0.7) (1.0)
---------------------------------------------------------------------------
35.6% 34.9% 64.7%
===========================================================================
The Company follows the liability method in accounting for deferred
income taxes which provides that deferred tax liabilities are recorded at
current tax rates based on the difference between the tax basis of assets
and liabilities and their carrying amounts for financial reporting purposes
referred to as temporary differences.
The tax effects of major items recorded as deferred tax assets and
liabilities are:
-------------------------------------------------------------------------------
2000 1999
Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
-------------------------------------------------------------------------------
Property, plant and equipment $5 $200 $ - $238
Suspended taxes from conversion
to accrual method - 121 - 128
Inventory 2 91 2 40
Employee benefits 25 9 31 7
All other 26 82 53 71
----------------------------------------------
$58 $503 $86 $484
==============================================
Net deferred tax liability $445 $398
====== ======
74
<PAGE>
Net deferred tax liabilities are included in other current liabilities
and deferred income taxes on the Consolidated Balance Sheets.
The suspended taxes from conversion to accrual method represents the
1987 change from the cash to accrual method of accounting and is currently
being paid down over 20 years through 2017.
NOTE 15: EARNINGS PER SHARE
The weighted average common shares used in the computation of basic and
diluted earnings per share were as follows:
(In millions, except per share data)
2000 1999 1998
---- ---- ----
Numerator:
Net Income $151 $230 $ 25
==== ==== ====
Denominator:
Denominator for basic
earnings per share-
weighted average shares 225 230 227
Effect of dilutive securities:
Stock options and 1 1 1
restricted stock
---- ---- ----
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 226 231 228
===== ====== ======
Basic earnings per share $0.67 $ 1.00 $ 0.11
===== ====== ======
Diluted earnings per share $0.67 $ 1.00 $ 0.11
===== ====== ======
The Company had approximately seven million option shares outstanding at
September 30, 2000, that were not included in the dilutive earnings per
share calculation because they would be antidilutive.
75
<PAGE>
NOTE 16: SEGMENT REPORTING
The Company presently identifies segments based on the products
offered and the nature of customers, resulting in four reported business
segments: Food Service, Consumer Products, International and Swine. Food
Service includes fresh, frozen and value-added chicken products sold
through domestic foodservice, specialty and commodity distributors who
deliver to restaurants, schools and other accounts. Consumer Products
includes fresh, frozen and value-added chicken products sold through
domestic retail markets for at-home consumption and through wholesale club
markets targeted to small foodservice operators, individuals and small
businesses. The Company's International segment markets and sells the full
line of Tyson chicken products throughout the world. The Company's Swine
segment includes feeder pig finishing, and marketing of swine to regional
and national packers. The Company's seafood business, which was sold on
July 17, 1999, is listed as a business segment for fiscal 1999 and 1998.
The Company measures segment profit as gross profit less selling expenses.
The majority of revenue included in the other category is derived from the
Company's Specialty Products and Prepared Foods groups, the Company's
wholly-owned subsidiaries involved in supplying chicken breeding stock and
trading agricultural goods worldwide, as well as the Company's turkey and
egg products facilities, which were sold on December 31, 1998. Sales
between reportable segments are recorded at cost. The majority of
identifiable assets in the other category include excess of investments
over net assets acquired, investments and other assets and other corporate
unallocated assets.
76
<PAGE>
Information on segments and a reconciliation to income before taxes
on income and minority interest are as follows:
<TABLE>
<CAPTION>
Food Consumer
Service Products International Swine Seafood Other Consolidated
Fiscal year ended September 30, 2000
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $3,312 $2,250 $ 657 $157 - $ 782 $7,158
Gross profit less selling 197 145 50 19 - 140 551
expenses
Other operating expenses 203
Other expense 114
Income before taxes on income
and minority interest 234
Depreciation 113 65 8 3 - 68 257
Identifiable assets 1,745 1,111 166 102 - 1,730 4,854
Additions to property, plant and 42 68 8 - - 78 196
equipment
------------------------------------------------------------------------------------------------------
Fiscal year ended October 2, 1999
Sales $3,354 $2,252 $ 645 $110 $189 $ 813 $7,363
Gross profit less selling 311 241 68 (63) 22 155 734
expenses
Other operating expenses 247
Other expense 116
Income before taxes on income
and minority interest 371
Depreciation 114 57 1 4 29 50 255
Asset impairment and other - - - 35 19 23 77
charges
Identifiable assets 1,925 1,161 194 70 - 1,733 5,083
Additions to property, plant and 153 130 16 4 6 54 363
equipment
------------------------------------------------------------------------------------------------------
Fiscal year ended October 3, 1998
Sales $3,329 $2,074 $ 593 $160 $214 $1,044 $7,414
Gross profit less selling 232 179 9 (21) 3 110 512
expenses
Other operating expenses 308
Other expense 133
Income before taxes on income
and minority interest 71
Depreciation 108 62 1 4 23 45 243
Asset impairment and other 51 39 48 - 47 30 215
charges
Identifiable assets 1,822 1,038 188 128 221 1,845 5,242
Additions to property, plant and 154 69 - 5 27 55 310
equipment
</TABLE>
77
<PAGE>
The majority of the Company's operations are domiciled in the United
States. Approximately 97% of sales to external customers for the fiscal
years ended 2000, 1999 and 1998 were sourced from the United States.
Approximately $3 billion of long-lived assets were located in the United
States at fiscal years ended 2000, 1999 and 1998. Approximately $74
million, $74 million and $64 million of long-lived assets were located in
foreign countries, primarily Mexico, at fiscal years ended 2000, 1999 and
1998, respectively.
The Company sells certain of its products in foreign markets,
primarily China, Hong Kong, Japan, Mexico, Puerto Rico and Russia. The
Company's export sales for 2000, 1999 and 1998 totaled $550 million, $546
million and $687 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 2000, 1999 and 1998, respectively.
NOTE 17: SUPPLEMENTAL INFORMATION
in millions
----------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $116 $128 $160
Income taxes 73 125 197
----------------------------------------------------------------------------
NOTE 18: QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
in millions, except per share data
-----------------------------------------------------------------------------
2000 First Second Third Fourth
Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $1,779 $1,791 $1,807 $1,781
Gross margin 313 297 269 235
Net income 57 36 40 18
Basic earnings per share 0.25 0.16 0.18 0.08
Diluted earnings per share 0.25 0.16 0.18 0.08
=============================================================================
1999
-----------------------------------------------------------------------------
Sales $1,825 $1,841 $1,881 $1,816
Gross margin 306 322 350 331
Net income 56 65 68 41
Basic earnings per share 0.24 0.28 0.30 0.18
Diluted earnings per share 0.24 0.28 0.30 0.18
=============================================================================
</TABLE>
78
<PAGE>
REPORT OF MANAGEMENT
TYSON FOODS, INC. 2000 ANNUAL REPORT
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 accounting principles generally accepted in the United States 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.
The Company has a code of conduct and 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 Audit Committee has discussed with the
independent auditors matters required to be discussed by Statement of
Auditing Standards No. 61 (Communication with Audit Committees). In
addition, the Committee has discussed with the independent auditors, the
auditors' independence from the Company and its management, including the
matters in the written disclosures required by the Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees). 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.
Ernst & Young LLP, independent auditors, have audited the accompanying
consolidated financial statements.
November 13, 2000
/s/John Tyson /s/Steven Hankins
----------------------- ----------------------------
John Tyson Steven Hankins
Chairman of the Board, Executive Vice President and
President and Chief Financial Officer
Chief Executive Officer
79
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TYSON FOODS, INC. 2000 ANNUAL REPORT
BOARD OF DIRECTORS AND SHAREHOLDERS
We have audited the accompanying consolidated balance sheets of Tyson
Foods, Inc., as of September 30, 2000, and October 2, 1999, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended September 30, 2000. 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 auditing standards
generally accepted in the United States. 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 September 30, 2000, and October 2, 1999, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 2000, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Ernst & Young LLP
Little Rock, Arkansas
November 13, 2000
80
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR FINANCIAL SUMMARY
TYSON FOODS, INC. 2000 ANNUAL REPORT
in millions except per share data
==========================================================================================================
2000 1999 1998 1997 1996 1995 1994
==========================================================================================================
Summary of Operations
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $7,158 $7,363 $7,414 $6,356 $6,454 $5,511 $5,110
Cost of sales 6,044 6,054 6,260 5,318 5,506 4,423 4,149
Gross profit 1,114 1,309 1,154 1,038 948 1,088 961
Operating expenses 766 822 950 638 679 616 766
Interest expense 115 124 139 110 133 115 86
Provision for income taxes 83 129 46 144 49 131 121
Net income (loss) $ 151 $ 230 $ 25 $ 186 $ 87 $ 219 $ (2)
Year end shares outstanding 225 229 231 213 217 217 218
Diluted average shares outstanding 226 231 228 218 218 218 222
Diluted earnings (loss) per share $ 0.67 $ 1.00 0.11 0.85 0.40 1.01 (0.01)
Basic earnings (loss) per share 0.67 1.00 0.11 0.86 0.40 1.01 (0.01)
Dividends per share:
Class A 0.160 0.115 0.100 0.095 0.080 0.053 0.047
Class B 0.144 0.104 0.090 0.086 0.072 0.044 0.039
Depreciation and amortization $294 $291 $276 $230 $239 $205 $188
----------------------------------------------------------------------------------------------------------
Balance Sheet Data
----------------------------------------------------------------------------------------------------------
Capital expenditures $ 196 $ 363 $ 310 $ 291 $ 214 $ 347 $ 232
Total assets 4,854 5,083 5,242 4,411 4,544 4,444 3,668
Net property, plant and equipment 2,141 2,185 2,257 1,925 1,869 2,014 1,610
Total debt 1,542 1,804 2,129 1,690 1,975 1,985 1,455
Shareholders' equity $2,175 $2,128 $1,970 $1,621 $1,542 $1,468 $1,289
----------------------------------------------------------------------------------------------------------
Other Key Financial Measures
----------------------------------------------------------------------------------------------------------
Return on sales 2.2% 3.1% 0.3% 2.9% 1.4% 4.0% 0.0%
Annual sales growth (decline) (2.8)% (0.7)% 16.7% (1.5)% 17.1% 7.9% 8.6%
Gross margin 15.6% 17.8% 15.6% 16.3% 14.7% 19.7% 18.8%
Return on invested capital 8.2% 10.9% 4.9% 10.2% 6.8% 13.3% 6.5%
Return on beginning shareholders'
equity 7.1% 11.7% 1.5% 12.1% 5.9% 17.0% (0.2)%
Effective tax rate 35.6% 34.9% 64.7% 43.6% 37.0% 38.1% 101.8%
Total debt to capitalization 41.5% 45.9% 51.9% 51.0% 56.2% 57.5% 53.0%
Book value per share $ 9.67 $ 9.31 $ 8.53 $ 7.60 $ 7.09 $ 6.76 $ 5.92
Closing stock price high 18.00 25.38 24.44 23.63 18.58 18.17 16.67
Closing stock price low 8.56 15.00 16.50 17.75 13.83 13.83 12.50
========================================================================================================
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
=============================================================================
1993 1992 1991 1990
=============================================================================
Summary of Operations
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $4,707 $4,169 $3,922 $3,825
Cost of sales 3,797 3,390 3,148 3,082
Gross profit 911 779 775 744
Operating expenses 535 447 441 423
Interest expense 73 77 96 129
Provision for income taxes 129 101 97 80
Net income (loss) $ 180 161 $ 146 $ 120
Year end shares outstanding 221 206 206 205
Diluted average shares outstanding 223 208 207 199
Diluted earnings (loss) per share 0.81 0.77 0.70 0.60
Basic earnings (loss) per share 0.82 0.78 0.71 0.61
Dividends per share:
Class A 0.027 0.027 0.020 0.013
Class B 0.022 0.022 0.017 0.011
Depreciation and amortization $177 $149 $136 $123
-----------------------------------------------------------------------------
Balance Sheet Data
-----------------------------------------------------------------------------
Capital expenditures $ 225 $ 108 $ 214 $ 164
Total assets 3,254 2,618 2,646 2,501
Net property, plant and equipment 1,435 1,142 1,162 1,071
Total debt 1,024 826 984 1,021
Shareholders' equity $1,361 $ 980 $ 823 $ 663
-----------------------------------------------------------------------------
Other Key Financial Measures
-----------------------------------------------------------------------------
Return on sales 3.8% 3.9% 3.7% 3.1%
Annual sales growth (decline) 12.9% 6.3% 2.5% 50.7%
Gross margin 19.4% 18.7% 19.8% 19.4%
Return on invested capital 14.8% 14.8% 15.4% 15.0%
Return on beginning shareholders'
equity 18.4% 19.5% 22.0% 26.8%
Effective tax rate 41.8% 38.5% 40.0% 40.0%
Total debt to capitalization 42.9% 45.7% 54.5% 60.6%
Book value per share $ 6.16 $ 4.75 $ 3.99 $ 3.24
Closing stock price high 18.08 15.08 15.58 11.79
Closing stock price low 12.83 10.17 8.46 7.17
=============================================================================
</TABLE>
82
<PAGE>
1. Return on invested capital is defined as earnings before interest and
taxes divided by average total assets less current liabilities
excluding current debt.
2. The results for 2000 include a $24 million pretax charge for bad
debt writeoff related to the January 31, 2000, bankruptcy filing of
AmeriServe Food Distribution, Inc. and a $9 million pretax charge
related to Tyson de Mexico losses.
3. The results for 1999 include a $77 million pretax charge for loss on
sale of assets and impairment write-downs.
4. Significant business combinations accounted for as purchases: Hudson
Foods, Inc. and Arctic Alaska Fisheries Corporation on January 9, 1998
and October 5, 1992, respectively. See Footnote 2 to the Consolidated
Financial Statements for acquisitions during the three-year period
ended September 30, 2000.
5. The results for 1998 include a $215 million pretax charge for asset
impairment and other charges.
6. The results for 1997 include a $41 million pretax gain ($4 million
aftertax) from the sale of the beef division assets.
7. The results for 1994 include a $214 million pretax charge ($205
million aftertax) due to the write-down of certain long-lived assets of
Arctic Alaska Fisheries Corporation.
83
<PAGE>
BOARD OF DIRECTORS
TYSON FOODS, INC. 2000 ANNUAL REPORT
DON TYSON, 70, 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, 67, 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, 72, is chairman of the board and president 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, 72, is a private business consultant, manager of Bud Walton
Arena and vice president emeritus of finance and administration at the
University of Arkansas. Mr. Vorsanger has been a member of the board since
1977.2,3,4
LELAND TOLLETT, 63, served as chairman of the board and chief executive
officer from 1995 to 1998. A Tyson team member since 1959, Mr. Tollett was
president and chief executive officer from 1991 to 1995. He has been a
member of the board since 1984.1
JOHN TYSON, 47, was named chairman of the board of directors in 1998 and
assumed responsibilities as president and chief executive officer in April
2000. 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. Mr. Tyson has been a member of the board since 1984.1
SHELBY MASSEY, 67, 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, 51, is vice president of the company. She has served in
related capacities since 1988. Ms. Tyson has been a member of the board
since 1988.
LLOYD HACKLEY, 60, 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, 63, retired as president in March 2000 after 39 years with the
Company. He served as president and chief operating officer from 1995 to
1999 after serving as chief operating officer since 1991. Mr. Wray has been
a member of the board since 1994.
GERALD JOHNSTON, 58, 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.
84
<PAGE>
JIM KEVER, 48, is a director of Quintiles Transnational and has served as
CEO of Envoy Corporation, a subsidiary of Quintiles, since Envoy was
acquired by Quintiles in March 1999. He served as president and Co-CEO of
Envoy from August 1995 until March 1999 and as a director from Envoy's
incorporation in August 1994 until March 1999. Mr. Kever has been a member
of the board since 1999.2
DAVID JONES, 51, has been chairman of the board and chief executive officer
of Rayovac Corp. since 1996. Before joining Rayovac, Mr. Jones served as
president, CEO and chairman of Thermoscan, Inc. and as president, CEO and
chairman of the Regina Company. He was previously with Electrolux
Corporation and General Electric Co. Mr. Jones was elected to the board in
August 2000. 2
BARBARA ALLEN, 48, is president and COO of Paladin Resources. Previously
Ms. Allen was president of corporate supplier solutions for Corporate
Express. She was with Quaker Oats Co. for 23 years where she held several
senior positions including executive vice president of international foods,
vice president of corporate strategic planning, president of the frozen
foods division and vice president of marketing. Ms. Allen was elected to
the board in November 2000.
1Executive Committee
2Audit Committee
3Compensation Committee
4Special Committee
85
<PAGE>
CORPORATE AND EXECUTIVE OFFICERS
TYSON FOODS, INC. 2000 ANNUAL REPORT
Mike Baker
President, Production Services
Les R. Baledge
Executive Vice President and General Counsel
James Bell
President, Cobb-Vantress, Inc.
LaDonna Bornhoft
Senior Vice President, Asset and Risk Management
Ellis Brunton
Senior Vice President, Food Safety and Quality Assurance
Wayne B. Butler
President, Prepared Foods Group
Jim Cate
President, Specialty Products Group
Gary D. Cooper
Vice President and Chief Information Officer
John D. Copeland
Executive Vice President, Ethics and Environmental Compliance
Bob Corscadden
Senior Vice President, Corporate Advertising and Marketing Services
Michelle D. Eisner
Senior Vice President, Human Resources
Louis C. Gottsponer, Jr.
Assistant Secretary and Director of Investor Relations
Steven Hankins
Executive Vice President and Chief Financial Officer
R. Read Hudson
Secretary and Corporate Counsel
Greg Huett
President, International Group
Clark Irwin
Senior Vice President and General Manager, Food Service Distribution
Carl G. Johnson
Executive Vice President, Administrative Services
Donnie King
Senior Vice President and General Manager, Food Service Commodities
86
<PAGE>
John S. Lea
Executive Vice President and Chief Marketing Officer
Dennis Leatherby
Senior Vice President, Finance and Treasurer
Greg W. Lee
Chief Operating Officer
Bernard Leonard
Senior Vice President and General Manager, Food Service QSR Chain Division
Bob E. Love
Vice President, Research and Development
William W. Lovette
President, Food Service Group
Joe Moran
Senior Vice President and General Manager, Food Service Refrigerated
and Deli Division
Wes Morris
Senior Vice President and General Manager, Wholesale Clubs
Rodney S. Pless
Vice President, Controller and Chief Accounting Officer
Cary D. Richardson
Senior Vice President and General Manager, Retail Division
Donnie Smith
Executive Vice President, Supply Chain Management
Randy Smith
Senior Vice President and General Manager, Food Service QSR Chain Division
John Thomas
President, The Pork Group, Inc.
John H. Tyson
Chairman, President and Chief Executive Officer
David L. Van Bebber
Senior Vice President, Legal Services
William E. Whitfield III
Senior Vice President and General Manager of Accounting, Poultry Operations
James Young
Senior Vice President, Live Production Services
87
<PAGE>
CORPORATE INFORMATION
TYSON FOODS, INC. 2000 ANNUAL REPORT
Closing Price of Company's Common Stock
_________________________________________________________________________
Fiscal Year 2000 Fiscal Year 1999
_________________________________________________________________________
High Low High Low
_________________________________________________________________________
First Quarter $18.00 $15.25 $25.38 $19.56
-------------------------------------------------------------------------
Second Quarter 17.19 9.00 21.75 18.56
-------------------------------------------------------------------------
Third Quarter 11.13 8.56 23.56 19.19
-------------------------------------------------------------------------
Fourth Quarter 10.00 8.88 23.31 15.00
-------------------------------------------------------------------------
As of September 30, 2000, the Company had 36,079 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.
88
<PAGE>
STOCK EXCHANGE LISTINGS
The Class A common stock of the Company is traded on the New York Stock
Exchange under the symbol TSN.
CORPORATE HEADQUARTERS
2210 West Oaklawn Drive
Springdale, Arkansas 72762-6999
Telephone (501) 290-4000
AVAILABILITY OF FORM 10-K
A copy of the Company's Form 10-K, as filed with the Securities and
Exchange Commission for fiscal 2000, may be obtained by Tyson shareholders
by writing to:
Director of Investor Relations
Tyson Foods, Inc.
P.O. Box 2020
Springdale, Arkansas 72765-2020
Telephone (501) 290-4826
Fax (501) 290-6577
E-mail: [email protected]
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10 a.m. Friday, January
12, 2001, at the Walton Arts Center, Fayetteville, Ark. A live audio
webcast will be available at www.tyson.com/investorrel. To listen via
telephone, call (800) 450-0785. Outside the United States, call (612) 332-
0418. Shareholders who cannot attend the meeting are urged to exercise
their right to vote by proxy on the Internet, by phone or by mail.
DIVIDENDS
Tyson currently pays dividends four times a year on March 15, June 15,
September 15 and December 15. The dividend is paid to everyone who holds
shares on the record date.
INDEPENDENT AUDITORS
Ernst & Young LLP
425 West Capitol, Suite 3600
Little Rock, AR 72201
Telephone (501) 370-3000
TRANSFER AGENT
First Chicago Trust Company of New York,
a division of EquiServe
P.O. Box 2500
Jersey City, NJ 07303
Telephone (800) 317-4445
Hearing Impaired Telephone TDD (201) 222-4955
Shareholders also may contact First Chicago Trust Company via the Internet
at www.equiserve.com.
89
<PAGE>
INVESTOR RELATIONS
Financial analysts and others seeking investor-related information should
contact:
Louis C. Gottsponer, Jr.
Director of Investor Relations
Tyson Foods, Inc.
P.O. Box 2020
Springdale, AR 72765-2020
Telephone (501) 290-4826
Fax (501) 290-6577
E-mail: [email protected]
MEDIA RELATIONS
Members of the news media seeking information about Tyson Foods should
contact:
Ed Nicholson
Director of Media & Community Relations
Tyson Foods, Inc.
P.O. Box 2020
Springdale, AR 72765-2020
Telephone (501) 290-4591
Fax (501) 290-7984
E-mail: [email protected]
NEWS RELEASES
News releases concerning Tyson Foods can be received by fax by calling PR
Newswire at (800) 758-5804, ext. 113769.
TYSON ON THE INTERNET
Information about Tyson Foods is available on the Internet at
www.tyson.com.
REGISTERED TRADEMARKS
Tyson, Weaver, Mexican Original, Delightful Farms, Prospect Farms,
Tastybird, Mallard's, Lady Aster, McCarty Foods, Wings of Fire,
Specialties, Chicken 2Go, Extreme Chicken, Chik Ribs, Tyson. It's what your
family deserves., Tyson For Families, Food Wise, Cooking Smart
USE OF TERMS
The term "Tyson" and such terms as "the Company," "our," "we" and "us" may
refer to Tyson Foods, Inc., to 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.
90
<PAGE>
