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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to_________________
Commission File Number 0-3400
TYSON FOODS, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0225165
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2210 West Oaklawn Drive, Springdale, Arkansas 72762-6999
(Address of principal executive offices and zip code)
(501) 290-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding April 1, 2000
- ------------------------------------ -------------------------
Class A Common Stock, $.10 Par Value 122,812,876 Shares
Class B Common Stock, $.10 Par Value 102,645,423 Shares
Page 1
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TYSON FOODS, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets
April 1, 2000 and October 2, 1999 3
Consolidated Condensed Statements of Income
for the Three Months and Six Months Ended
April 1, 2000 and April 3, 1999 4
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended
April 1, 2000 and April 3, 1999 5
Notes to Consolidated Condensed Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosure About
Market Risks 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
EXHIBIT INDEX 17
SIGNATURES 18
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions except per share amounts)
(Unaudited)
April 1, October 2,
2000 1999
ASSETS ________ _________
Current Assets:
Cash and cash equivalents $ 31.3 $ 30.3
Accounts receivable, net of allowance
for doubtful accounts 506.2 602.5
Inventories 1,045.7 989.4
Assets held for sale 2.4 74.5
Other current assets 13.1 30.2
_______ _______
Total Current Assets 1,598.7 1,726.9
Net Property, Plant, and Equipment 2,161.9 2,184.5
Excess of Investments over Net Assets Acquired 947.4 962.5
Investments and Other Assets 208.8 208.8
________ ________
Total Assets $4,916.8 $5,082.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 22.0 $ 65.9
Current portion of long-term debt 122.4 222.7
Trade accounts payable 309.5 351.9
Other accrued liabilities 346.7 346.5
_______ _______
Total Current Liabilities 800.6 987.0
Long-Term Debt 1,525.9 1,515.2
Deferred Income Taxes 379.6 398.0
Other Liabilities 58.2 54.5
Shareholders' Equity:
Common stock ($.10 par value):
Class A-Authorized 900 million shares;
issued 137.9 million shares at
4-1-00 and 10-2-99 13.8 13.8
Class B-Authorized 900 million shares;
issued 102.7 million shares at
4-1-00 and 10-2-99 10.3 10.3
Capital in excess of par value 739.9 740.0
Retained earnings 1,674.3 1,599.0
Other accumulated comprehensive income(loss) (3.2) (1.5)
_______ _______
2,435.1 2,361.6
Less treasury stock, at cost-
15.1 million shares at 4-1-00 and
12.0 million shares at 10-2-99 281.3 232.0
Less unamortized deferred compensation 1.3 1.6
________ ________
Total Shareholders' Equity 2,152.5 2,128.0
________ ________
Total Liabilities and Shareholders' Equity $4,916.8 $5,082.7
======== ========
The accompanying notes are an integral part of these financial statements.
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TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions except per share data)
(Unaudited)
Three Months Ended Six Months Ended
__________________ ________________
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
________ ________ _______ ________
Sales $1,790.8 $1,841.3 $3,569.5 $3,666.0
Cost of Sales 1,493.5 1,519.1 2,959.1 3,038.5
------- ------- ------- -------
Gross Profit 297.3 322.2 610.4 627.5
Expenses:
Selling 140.9 146.0 286.9 291.7
General and administrative 56.5 33.1 92.2 65.7
Amortization 8.6 8.9 17.1 17.5
------- ------- ------- -------
Operating Income 91.3 134.2 214.2 252.6
Other Expense (Income):
Interest 29.8 31.9 58.5 63.2
Foreign currency exchange (0.8) (2.3) (0.2) (4.0)
Other 1.1 0.1 2.7 (2.7)
------- ------- ------- -------
Income Before Taxes on Income 61.2 104.5 153.2 196.1
Provision for Income Taxes 21.8 37.0 54.6 69.8
Minority Interest 3.7 2.9 5.9 5.9
------- ------- ------- -------
Net Income $ 35.7 $ 64.6 $ 92.7 $ 120.4
======= ======= ======= =======
Basic Average Shares Outstanding 225.7 230.5 226.8 230.6
===== ===== ===== =====
Basic Earnings Per Share $0.16 $0.28 $0.41 $0.52
===== ===== ===== =====
Diluted Average Shares Outstanding 225.7 231.6 227.0 231.9
===== ===== ===== =====
Diluted Earnings Per Share $0.16 $0.28 $0.41 $0.52
===== ===== ===== =====
Cash Dividends Per Share:
Class A $0.0400 $0.0250 $0.0800 $0.0500
Class B $0.0360 $0.0225 $0.0720 $0.0450
The accompanying notes are an integral part of these financial statements.
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TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
________________
April 1, April 3,
2000 1999
_______ ________
Cash Flows from Operating Activities:
Net income $ 92.7 $ 120.4
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 126.7 126.0
Amortization 17.1 17.5
Foreign currency exchange (0.2) (4.0)
Minority Interest 5.9 5.9
Deferred income taxes (18.4) (71.9)
Gain on dispositions of assets 3.0
Decrease in accounts receivable, net 96.3 10.7
Decrease(Increase) in inventories 1.2 (71.4)
(Decrease)Increase in trade accounts payable (42.4) 46.7
Net change in other current assets
and liabilities 17.0 110.7
_____ ______
Cash Provided by Operating Activities 298.9 290.6
Cash Flows from Investing Activities:
Additions to property, plant and equipment (94.3) (179.2)
Proceeds from sale of property, plant and equipment 1.7 54.6
Net change in other assets and liabilities (4.1) (23.3)
_____ ______
Cash Used for Investing Activities (96.7) (147.9)
Cash Flows from Financing Activities:
Net change in notes payable (43.9) (17.1)
Additions to long-term debt 82.9 73.5
Repayments of long-term debt (172.2) (169.8)
Purchases of treasury shares (50.5) (14.1)
Other (16.4) (6.3)
_____ ______
Cash Used for Financing Activities (200.1) (133.8)
Effect of Exchange Rate Change on Cash (1.1) (7.3)
_____ ______
Increase in Cash and Cash Equivalents 1.0 1.6
Cash and Cash Equivalents at Beginning of Period 30.3 46.5
______ ______
Cash and Cash Equivalents at End of Period $ 31.3 $ 48.1
====== ======
Supplemental Cash Flow Information
Cash paid during the period for:
Interest $55.1 $64.5
Income taxes $47.0 $60.5
The accompanying notes are an integral part of these financial statements.
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TYSON FOODS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Accounting Policies
The consolidated condensed financial statements have been prepared by Tyson
Foods, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Although the management of the Company believes that the
disclosures are adequate to make the information presented not misleading,
these consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest annual report for the fiscal year ended
October 2, 1999. The preparation of consolidated condensed financial
statements requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. In the opinion of the management of the
Company, the accompanying consolidated condensed financial statements
contain all adjustments, consisting of normal recurring accruals necessary
to present fairly the financial position as of April 1, 2000 and
October 2, 1999 and the results of operations for the three months and six
months ended April 1, 2000 and April 3, 1999 and cash flows for the six
months ended April 1, 2000 and April 3, 1999. The results of operations for
the three months and six months ended and cash flows for the six months
ended April 1, 2000 and April 3, 1999 are not necessarily indicative of the
results to be expected for the full year.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("FAS No. 133"), Accounting for Derivative Instruments
and Hedging Activities. In May 1999, the FASB voted to delay the effective
date of FAS No. 133 by one year. The Company will be required to adopt FAS
No. 133 in the first quarter of fiscal year 2001. 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 not completed its determination of the
impact of the adoption of this new accounting standard on its financial
position and results of operations.
The Notes to Consolidated Financial Statements for the fiscal year
ended October 2, 1999, reflect the significant accounting policies, debt
provisions, borrowing arrangements, dividend restrictions, contingencies
and commitments of the Company. There were no material changes in such
items during the six months ended April 1, 2000, except as disclosed in
these notes.
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Note 2: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three and six months ended:
(In millions except per share amounts)
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
------- -------- ------- --------
Numerator: Net Income $35.7 $64.6 $92.7 $120.4
===== ===== ===== ======
Denominator:
Denominator for basic
earnings per share-
weighted average shares 225.7 230.5 226.8 230.6
Effect of dilutive securities:
Employee stock options - 1.1 0.2 1.3
----- ----- ----- -----
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 225.7 231.6 227.0 231.9
===== ===== ===== =====
Basic earnings per share $0.16 $0.28 $0.41 $0.52
===== ===== ===== =====
Diluted earnings per share $0.16 $0.28 $0.41 $0.52
===== ===== ===== =====
The Company had approximately 11.6 million option shares outstanding at
April 1, 2000, that were not included in the dilutive earnings per share
calculation because they would have been antidilutive.
Note 3: Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of the following:
(In millions)
April 1, October 2,
2000 1999
--------- ----------
Finished and work-in-process $ 535.0 $549.2
Live poultry and hogs 359.0 290.8
Hatchery eggs and feed 75.4 67.4
Supplies 76.3 82.0
________ ______
Total $1,045.7 $989.4
======== ======
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Note 4: Assets held for sale
On September 28, 1999, the Company signed a letter of intent to sell its
wholly-owned subsidiary, The Pork Group, Inc. ("Pork Group") to Smithfield
Foods, Inc. ("Smithfield"). As a result, the Pork Group's swine assets
valued at approximately $70 million were included in assets held for sale
at October 2, 1999. On December 6, 1999, the Company and Smithfield ceased
negotiations for the sale of the Pork Group. Therefore, the swine assets at
April 1, 2000, have been reclassified to inventory and net property, plant
and equipment. The Company has no plan to actively market the Pork Group
and/or its assets at this time. The balance of assets held for sale at
April 1, 2000, relates to facilities identified for closing under the
Company's restructuring program which are expected to be disposed of within
the next twelve months.
Note 5: Segments
The Company is a fully integrated producer, processor and marketer of a
variety of food products. The Company identifies segments based on the
products offered and the nature of customers which results in four reported
business segments: Food Service, Consumer Products, International and
Swine. Food Service includes fresh, frozen and value-enhanced poultry
products sold through foodservice and specialty distributors who deliver to
restaurants, schools and other accounts. Consumer Products include fresh,
frozen and value-enhanced poultry products sold through retail markets for
at-home consumption and through wholesale club markets targeted to small
foodservice operators, individuals and small businesses. International
markets and sells the full line of Tyson chicken products throughout the
world. Swine 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 also listed as a business segment for fiscal
1999. 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 poultry 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. Total assets for
each segment at April 1, 2000 approximate those at October 2, 1999.
Net Sales by operating segment were as follows: (in millions)
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
_______ _______ _______ _______
Food Service $ 813.1 $ 813.1 $1,637.9 $1,638.0
Consumer Products 562.7 577.1 1,100.4 1,098.5
International 171.1 167.1 358.7 318.1
Swine 38.3 24.7 70.4 46.3
Seafood - 77.4 - 138.1
Other 205.6 181.9 402.1 427.0
________ ________ _______ _______
Total Net Sales $1,790.8 $1,841.3 $3,569.5 $3,666.0
======== ======== ======== ========
8
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The Company measures segment profit as gross profit less selling expenses.
Segment profit and a reconciliation to income before taxes on income and
minority interest are as follows: (in millions)
Three Months Ended Six Months Ended
April 1, April 3, April 1, April 3,
2000 1999 2000 1999
_______ _______ _______ _______
Food Service $ 49.9 $ 68.6 $119.5 $164.2
Consumer Products 39.3 65.0 92.4 125.1
International 19.8 12.4 44.1 18.3
Swine 6.5 (12.9) 5.5 (34.8)
Seafood - 14.9 - 18.7
Other 40.9 28.2 62.0 44.3
_____ _____ _____ _____
Total Gross Profit
less Selling Expense $156.4 $176.2 $323.5 $335.8
Other Operating Expenses 65.1 42.0 109.3 83.2
Other Expense (Income) 30.1 29.7 61.0 56.5
_____ _____ _____ _____
Income Before Taxes on Income
and Minority Interest $ 61.2 $104.5 $153.2 $196.1
====== ====== ====== ======
Note 6: Comprehensive Income
The only difference between total comprehensive income and net income
reported on the Consolidated Condensed Statements of Income arises from
foreign currency translation adjustment. The Company's total comprehensive
income for the three months ended April 1, 2000 and April 3, 1999 was $36.3
million and $62.8 million, respectively. The Company's total comprehensive
income for the six months ended April 1, 2000 and April 3, 1999 was $91.0
million and $119.6 million, respectively.
Note 7: Bad Debt Reserve
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. Tyson is a major supplier to several
AmeriServe customers. All current sales to these customers are either
direct billed or made through another distributor. The Company recorded a
$24.2 million bad debt reserve in the second quarter of fiscal 2000, to
fully reserve the AmeriServe receivable. At April 1, 2000 and October 2,
1999, allowance for doubtful accounts was $50.2 million and $21.8 million,
respectively.
9
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FINANCIAL CONDITION
For the six months ended April 1, 2000 net cash totaling $298.9 million was
provided by operating activities. Operations provided $226.8 million in
cash and $72.1 million was provided by net changes in receivables,
inventories, payables and other items. The Company used cash from
operations to fund $94.3 million of property, plant and equipment
additions, to pay down debt by $133.2 million and to repurchase $50.5
million of the Company's Class A common stock in the open market. The
expenditures for property, plant and equipment were related to acquiring
new equipment and upgrading facilities in order to maintain competitive
standing and position the Company for future opportunities.
At April 1, 2000, working capital was $798.1 million compared to $739.9
million at 1999 fiscal year-end, an increase of $58.2 million. The current
ratio at April 1, 2000 was 2 to 1 compared to 1.7 to 1 at October 2, 1999.
Working capital has increased since year-end primarily due to decreases in
notes payable, current portion of long-term debt and trade payables. Net
accounts receivable has decreased since year-end mainly due to the
AmeriServe Food Distribution, Inc. ("AmeriServe") reserve and improved
collections. Total debt, including current portion of long-term debt, has
decreased 7.4% since year end. At April 1, 2000, total debt was 43.7% of
total capitalization compared to 45.9% at October 2, 1999. The Company's
foreseeable cash needs for operations and capital expenditures will
continue to be met through cash flows from operations and borrowings
supported by existing credit facilities as well as additional credit
facilities which the Company believes are available.
The Company has an unsecured revolving credit agreement totaling $1 billion
which supports the Company's commercial paper program. This $1 billion
facility expires in May 2002. At April 1, 2000, $373.5 million in
commercial paper was outstanding under this $1 billion facility. Additional
outstanding long-term debt at April 1, 2000 consisted of $830.5 million of
public debt, $107.3 million of institutional notes, $146.2 million in
leveraged equipment loans and $68.4 million of other indebtedness. The
Company may use funds borrowed under its revolving credit facilities,
commercial paper program or through the issuance of additional debt
securities from time to time in the future to finance acquisitions as
opportunities may arise, to refinance other indebtedness or capital leases
of the Company and for other general corporate purposes.
RESULTS OF OPERATIONS
Sales for the second quarter of fiscal 2000 decreased 2.7% from the same
period of fiscal 1999. This decrease is mainly due to the sale of the
seafood group on July 17, 1999. Comparable sales for the quarter increased
1.5% on a volume decrease of 0.7% compared to the same period last year.
Second quarter operating results were negatively impacted by increased
reserves resulting from the bankruptcy filing by AmeriServe and a weak
domestic market for poultry. The Company initiated a 3% production cut in
an attempt to reduce some of the oversupply of chicken.
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Food Service second quarter sales were comparable to the same period last
year, with a 2.1% increase in volume offset by a 2.1% decrease in average
sales prices. Segment profit for Food Service, defined as gross profit less
selling expenses, decreased $18.7 million from the same period last year
due primarily to low market prices from an oversupply of chicken and
product mix changes.
Consumer Products second quarter sales decreased 2.5% over the same period
last year, with a 2.7% decrease in volume and a 0.2% increase in average
sales prices. Consumer Products segment profit decreased $25.7 million from
the same period last year due primarily to lower market prices from an
oversupply of chicken, which more than offset the improved product mix .
International second quarter sales increased 2.4% over the same period last
year, with a 15.9% increase in average sales prices mostly offset by an
11.6% decrease in volume. International segment profit increased $7.4
million over the same period last year as price improvements for leg
quarters and continued improvements by Tyson de Mexico more than offset the
decreased volume that resulted from last year's aggressive inventory
reductions.
Swine second quarter sales increased 55.1% over the same period last year,
with a 57.4% increase in average sales prices offset slightly by a 1.6%
decrease in volume. Swine segment profit improved $19.4 million over the
same period last year due to the increase in average sales prices.
Other second quarter sales increased 13% from the same period last year
mostly due to the prepared foods group and the poultry breeding stock
group. Other segment profit increased $12.7 million over the same period
last year mostly due to the sales increase in prepared foods and the
poultry breeding stock group.
Cost of goods sold decreased 1.7% for the second quarter of fiscal 2000 as
compared to the same period last year. This decrease is mainly the result
of the decrease in sales. As a percent of sales, cost of sales was 83.4%
for the second quarter of fiscal 2000 compared to 82.5% for the same period
last year. Cost of goods sold was impacted by the depressed poultry market
and the increased costs associated with the Company's production cut.
Operating expenses increased 9.6% for the second quarter of fiscal 2000
over the same period last year. Selling expense, as a percent of sales, was
7.9% for the second quarter of fiscal 2000 and fiscal 1999. General and
administrative expense, as a percent of sales, was 3.2% for the second
quarter of fiscal 2000 and 1.8% in the second quarter of fiscal 1999. The
increase in general and administrative expenses is primarily due to $24.2
million ($0.07 per share) in bad debt reserve recorded in the second
quarter of fiscal 2000 resulting from the bankruptcy filing by AmeriServe.
Amortization expense, as a percent of sales, was 0.5% in the second quarter
of fiscal 2000 and fiscal 1999.
Interest expense decreased 6.6% for the second quarter of fiscal 2000
compared to the same period last year primarily as a result of an 14.7%
decrease in the Company's average indebtedness over the same period last
year. Although short-term rates were slightly higher than last year, the
overall weighted average borrowing rate remained comparable at 6.9%,
primarily as a result of paying off more expensive long-term debt.
The effective income tax rate for the second quarter of fiscal 2000 was
11
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35.6% compared to 35.4% for the same period last year. The Company's
foreign subsidiary earnings are taxed at the applicable foreign rate.
Sales for the first six months of fiscal 2000 decreased 2.6% from the same
period of fiscal 1999. This decrease is mainly due to the sale of the
seafood group on July 17, 1999 and other divested non-core businesses.
Comparable sales for the first six months increased 2.8% on a volume
increase of 2.2% compared to the same period last year.
Food Service first six months sales were comparable to the same period last
year, with a 2.8% increase in volume offset by a 2.7% decrease in average
sales prices. Segment profit for Food Service, defined as gross profit less
selling expenses, decreased $44.7 million from the same period last year
due primarily to low market prices from an oversupply of chicken and
product mix changes.
Consumer Products first six months sales were comparable to the same period
last year, with a 1.1% decrease in volume offset by a 1.3% increase in
average sales prices. Consumer Products segment profit decreased $32.7
million from the same period last year due primarily to lower market prices
from an oversupply of chicken, which more than offset the improved product
mix.
International first six months sales increased 12.8% over the same period
last year, with a 3.9% increase in volume and an 8.5% increase in average
sales prices. International segment profit increased $25.8 million over the
same period last year due to price improvements on leg quarters, volume
increases that resulted from inventory reductions in the first quarter, a
shift in the product sales mix toward value added products and continued
improvements by Tyson de Mexico.
Swine first six months sales increased 52.1% over the same period last
year, with a 67.3% increase in average sales prices offset somewhat by a
9.2% decrease in volume. Swine segment profit improved $40.3 million over
the same period last year due to the increase in average sales prices.
Other first six months sales decreased 5.8% from the same period last year
mostly due to non-core businesses sold during fiscal 1999. Other segment
profit increased $17.7 million over the same period last year mostly due to
prepared foods and the poultry breeding stock groups.
Cost of goods sold decreased 2.6% for the first six months of fiscal 2000
as compared to the same period last year. This decrease is mainly the
result of the decrease in sales. As a percent of sales, cost of sales was
82.9% for the first six months of fiscal 2000 and fiscal 1999. Cost of
goods sold was impacted by the depressed poultry market and increased costs
associated with the Company's production cut.
Operating expenses increased 5.7% for the first six months of fiscal 2000
over the same period last year. Selling expense, as a percent of sales, was
8% for the first six months of fiscal 2000 and fiscal 1999. General and
administrative expense, as a percent of sales, was 2.6% for the first six
months of fiscal 2000 and 1.8% for the first six months of fiscal 1999. The
increase in general and administrative expenses is primarily due to $24.2
million ($0.07 per share) in bad debt reserve recorded in the second
quarter of fiscal 2000 resulting from the bankruptcy filing by AmeriServe .
Amortization expense, as a percent of sales, was 0.5% in the first six
months of fiscal 2000 and fiscal 1999.
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Interest expense decreased 7.4% for the first six months of fiscal 2000
compared to the same period last year primarily as a result of an 14.8%
decrease in the Company's average indebtedness over the same period last
year. Although the weighted average effective rate increased to 6.8%
compared to 6.7%, interest expense decreased primarily as a result of
paying off more expensive long-term debt.
The effective income tax rate for the first six months of fiscal 2000 and
fiscal 1999 was 35.6%.
IMPACT OF YEAR 2000
The Company has completed its Year 2000 Project as scheduled. As of May 8,
2000, the Company's products, computing, and communications infrastructure
systems have operated without Year 2000 related problems and appear to be
Year 2000 ready. The Company is not aware that any of its major customers
or third-party suppliers have 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 impact the Company, and other uncertainties.
Because many of the systems were already compliant, did not require
significant modifications to make them compliant, or were replaced for
other business reasons, the costs incurred specifically to address Year
2000 readiness are not material to the Company. Since 1996, the expenses
that resulted from Year 2000 readiness activities have been absorbed
through the annual Management Information Systems operational budget and
funded from internally generated funds. These costs can be primarily
described as personnel costs and have increased each year since 1996
because of increased activity from testing. The costs incurred since 1996
are approximately $1.5 million. No projects under consideration by the
Company have been deferred because of Year 2000 efforts. In certain
instances, software was purchased to provide new functionality for the
Company, replacing software that was not compliant. An example of this is
the implementation of new accounting software from SAP that the Company
installed at the beginning of fiscal year 1999. These purchases were not
predicated by the Year 2000 issue; however, the result is that the new
systems are compliant and non-compliant systems were ultimately retired.
FUTURE ACCOUNTING REQUIREMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("FAS No. 133"), Accounting for Derivative Instruments
and Hedging Activities. In May 1999, the FASB voted to delay the effective
date of FAS No. 133 by one year. The Company will be required to adopt FAS
No. 133 in the first quarter of fiscal year 2001. 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 not completed its determination of the
impact of the adoption of this new accounting standard on its financial
position and results of operations.
13
<PAGE>
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE
PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Company and its representatives may from time to time make written or
oral forward-looking statements, including forward-looking statements made
in this report, with respect to their current views and estimates of
future economic circumstances, industry conditions, company performance and
financial results. These forward-looking statements are subject to a number
of factors and uncertainties which could cause the Company's actual results
and experiences to differ materially from the anticipated results and
expectations, expressed in such forward-looking statements. The Company
wishes to caution readers not to place undue reliance on any forward-
looking statements, which speak only as of the date made. Among the factors
that may affect the operating results of the Company are the following:
(i) fluctuations in the cost and availability of raw materials, such as
feed grain costs in relation to historical levels; (ii) changes in the
availability and relative costs of labor and contract growers; (iii)
market conditions for finished products, including the supply and pricing
of alternative proteins, all of which may impact the Company's pricing
power; (iv) effectiveness of advertising and marketing programs; (v) the
ability of the Company to make effective acquisitions and successfully
integrate newly acquired businesses into existing operations; (vi) risks
associated with leverage, including cost increases due to rising
interest rates; (vii) changes in regulations and laws, including changes
in accounting standards, environmental laws, occupational, health and
safety laws; (viii) issues related to food safety, including costs
resulting from product recalls, regulatory compliance and any related
claims or litigation; (ix) access to foreign markets together with foreign
economic conditions, including currency fluctuations; and (x) the effect
of, or changes in, general economic conditions.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
There have been no significant changes in market risk or market risk
factors since the 1999 annual report to shareholders.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 22, 1999, eleven current and/or former employees of the Company
filed the case of "M.H. Fox, et al. v. Tyson Foods, Inc." in the United
States District Court for the Northern District of Alabama (Fox v. Tyson)
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 4,600 consents have been filed with
the court. Discovery in this case is on-going. 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 20, 1998, the Company and others were named as defendants in a
putative class action suit brought on behalf of all individuals who sold
beef cattle to beef packers for processing between certain dates in 1993
and 1998. This action, captioned "Wayne Newton, et al. v. Tyson Foods,
Inc., et al.", U.S. District Court, Northern District of Iowa, Civil
Action No. 98-30, asserts claims under the Racketeer Influenced and Corrupt
Organizations statute as well as a common-law claim for intentional
interference with prospective economic advantage. Plaintiffs allege that
the gratuities which were the subject of a prior plea agreement by the
Company resulted in a competitive advantage for poultry products vis-a-vis
beef products. Plaintiffs' request trebled damages in excess of $3 billion,
plus attorney's fees and costs. The U.S. District Court for the Northern
District of Iowa granted the Company's Motion to Dismiss on March 26, 1999,
holding that plaintiffs lacked standing to sue. Plaintiffs timely appealed
to the U.S. Court of Appeals for the Eighth circuit. Briefing of the appeal
was completed in August 1999, oral argument was completed in January 2000
and on March 13, 2000, the Court of Appeals affirmed the decision of the
District Court to dismiss. Based on the current status of the matter,
the Company does not believe any significant exposure exists.
The Company's Sedalia, Missouri facility is currently under investigation
by the United States 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.
15
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The following directors were elected at the annual meeting of shareholders
held January 14, 2000:
DIRECTORS VOTES FOR VOTES WITHHELD
_________ _________ ______________
Wayne Britt 1,126,827,308 2,549,572
Neely Cassady 1,126,862,994 2,560,255
Lloyd V. Hackley 1,126,876,477 2,546,772
Gerald M. Johnston 1,126,851,869 2,571,380
Jim Kever 1,126,754,541 2,668,708
Shelby Massey 1,126,869,974 2,553,275
Joe F. Starr 1,126,834,574 2,588,675
Leland Tollett 1,126,871,539 2,551,710
Barbara Tyson 1,126,825,833 2,597,416
Don Tyson 1,126,836.894 2,586,355
John Tyson 1,126,827,308 2,595,941
Fred S. Vorsanger 1,126,859,787 2,563,462
Donald E. Wray 1,126,855,765 2,567,484
A shareholder proposal to recapitalize the Company's equity structure to
result in one share, one vote for all outstanding stock failed by a vote of
54,729,451 votes for the proposal, 1,052,383,619 votes against the
proposal, 21,814,369 broker non-votes and 495,810 abstained votes.
No other items were voted on at the annual meeting of shareholders or
during the quarter ended April 1, 2000.
Item 5. Other Information
On April 12, 2000, Wayne Britt announced his retirement as CEO and
President and resignation from the Board of Directors of the Company. On
that date, John Tyson, the Company's chairman, assumed the duties of CEO
and President.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The exhibits filed with this report are listed in the exhibit index at the
end of this Item 6.
(b) Reports on Form 8-K:
On February 7, 2000, the Company filed a current report on Form 8-K
relating to the bankruptcy filing of AmeriServe Food Distribution, Inc.
16
<PAGE>
EXHIBIT INDEX
The following exhibits are filed with this report.
Exhibit No. Page
- ----------- ----
3.1 Restated Certificate of Incorporation of the Company
(previously filed as Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 3, 1998, Commission File No. 0-3400, and
incorporated herein by reference).
3.2 Amended and Restated Bylaws of the Company (previously
filed as Exhibit 3.2 to the Company's Quarterly Report
on Form 10-Q for the period ended January 1, 2000,
Commission File No. 0-3400, and incorporated herein by
reference).
10 Senior Executive Employment Agreement dated April 12, 2000 19-20
between the Company and Wayne Britt.
27 Financial Data Schedule
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TYSON FOODS, INC.
Date: May 8, 2000 /s/ Steven Hankins
----------- ----------------------------
Steven Hankins
Executive Vice President and
Chief Financial Officer
Date: May 8, 2000 /s/ James G. Ennis
----------- ----------------------------
James G. Ennis
Vice President, Controller and
Chief Accounting Officer
18
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This Senior Executive Employment Agreement dated April 12, 2000 is by
and between Tyson Foods, Inc., a corporation organized under the laws of
Delaware (the "Company"), and Wayne Britt ("Employee").
WITNESSETH:
WHEREAS, the Employee is retiring and the Company wishes to retain
access to his service, experience and knowledge; and
WHEREAS, the Employee wishes to furnish advisory services to the
Company upon the terms, provisions and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the
agreements hereinafter contained, the parties hereby agree as follows:
1. The term of this Agreement (the "Term") shall begin May 1, 2000
and end seven years thereafter.
2. During the Term Employee will, upon reasonable request, provide
advisory services to the Company as follows:
(a) Services hereunder shall be provided as an employee of the
Company;
(b) Employee may be required to devote up to twenty (20) hours
per month to the Company;
(c) Employee may perform services hereunder at any location but
may be required to be at the executive offices of the Company upon
reasonable notice; and
(d) Employee shall not be obligated to render services under
this Agreement during any period when he is disabled due to illness or
injury.
3. During the Term the Company shall:
(a) pay Employee $200,000 per year until May 1, 2003 and
$100,000 per year thereafter, such sums to be payable as the
parties may from time to time agree;
(b) provide Employee and his family with benefits, including
health, disability and life insurance plans, as generally
available to Employee at the time of retirement; and
(c) continue all Employee options to purchase and rights to
restricted Company stock existing on the date of the
Agreement.
In the event of Employee's death, payments and benefits described
above shall be paid and provided to the Employee's spouse on such date for
the duration of the Term. In the event of death by both Employee and his
spouse, or the absence of a spouse, this Agreement shall terminate.
4. In the event of Employee's death the Company will, upon written
notice given within sixty (60) days of death by Employee's designated
beneficiary, if any, or otherwise by the administrator of Employee's
estate, terminate all Employee owned options to purchase Company common
19
<PAGE>
stock, whether or not then currently vested, in exchange for payment equal
to the aggregate spread between the option strike price and the market
value of such stock at the close of business on the next business day
succeeding Employee's death.
5. Upon execution of this Agreement Employee shall resign from the
Board of Directors of the Company and the National Chicken Council.
6. During the Term Employee shall not divulge to anyone, except in
the regular course of the Company's business or as may be required in any
legal proceeding, any confidential or proprietary information regarding the
Company's record, plans or business. Further, this Agreement shall
terminate in the event Employee advises, engages in consulting for or
accepts employment from anyone reasonably deemed by the Company to be a
competitor.
7. Employee's rights under this Agreement may not be assigned,
pledged or encumbered, except by will or by the laws of descent and
distribution, without the permission of the Company which it may withhold
in its sole and absolute discretion.
8. This Agreement represents the complete agreement between Company
and Employee concerning the subject matter hereof and supersedes all prior
employment or benefit agreements or understandings, written or oral. Any
modification or waiver hereof must be in writing and signed by both
Employee and Company.
9. The laws of the State of Arkansas shall govern this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of April 11, 2000.
TYSON FOODS, INC.
By: /s/ John Tyson
_______________________
John Tyson, Chairman
Employee
/s/ Wayne Britt
_______________________
Wayne Britt
20
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY FINANCIAL STATEMENTS FOR THE PERIOD ENDED APRIL 1, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> TYSON FOODS, INC.
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