UNITED STATES

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 March 30, 2002

        OR

(  )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the transition period from _________to________

0-3400
(Commission File Number)

TYSON FOODS, INC.
 (Exact name of registrant as specified in its charter)

 

Delaware

71-0225165

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer Identification No.)
   

2210 West Oaklawn Drive, Springdale, Arkansas

72762-6999

(Address of principal executive offices)

(Zip Code)
   

(479) 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
March 30, 2002.

Class 

Outstanding Shares

Class A Common Stock, $0.10 Par Value

251,815,840

Class B Common Stock, $0.10 Par Value

101,644,598

 

TYSON FOODS, INC.
INDEX

     
 

PART I. FINANCIAL INFORMATION

  
     

Item 1.  Financial Statements

PAGE
     
 

Consolidated Condensed Statements of Income
for the Three Months and Six Months Ended
March 30, 2002 and March 31, 2001



3
     
 

Consolidated Condensed Balance Sheets
March 30, 2002 and September 29, 2001


4
     
 

Consolidated Condensed Statements of Cash Flows
for the Three Months and Six Months Ended
March 30, 2002 and March 31, 2001



5
     
 

Notes to Consolidated Condensed Financial Statements

6-19
     

Item 2.  Management's Discussion and Analysis of Financial Condition
                 and Results of Operations

20-23
     

Item 3.  Quantitative and Qualitative Disclosure About Market Risks

24
     
 

PART II. OTHER INFORMATION

  
     

Item 1.  Legal Proceedings

24
     

Item 2.  Changes in Securities and Use of Proceeds

24
     

Item 3.  Defaults Upon Senior Securities

24
     

Item 4.  Submission of Matters to a Vote of Security Holders

25
     

Item 5.  Other Information

25
     

Item 6.  Exhibits and Reports on Form 8-K

25
     

EXHIBIT INDEX

26
     

SIGNATURES

27

2

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions except per share data)
(Unaudited)

Three Months Ended

Six Months Ended

March 30,
2002

March 31,
2001

March 30,
2002

March 31,
2001

Sales

$

5,839

$

1,857 

$

11,704

$

3,626 

Cost of Sales

5,442

1,720 

10,797

3,307 

397

137 

907

319 

Selling, General and Administrative

218

114 

455

228 

Operating Income

179

23 

452

91 

Other Expense:

    Interest

76

29 

155

55 

    Other

-

4 

-

5 

76

33 

155

60 

Income (Loss) Before Income Taxes

    and Minority Interest

103

(10)

297

31 

Provision (Benefit) for Income Taxes

38

(3)

105

11 

Minority Interest

-

(1)

-

(1)

Net Income (Loss)

$

65

$

(6)

$

192

$

21 

Weighted Average Shares Outstanding: Outstanding:

    Basic

348

221

348

222

    Diluted

355

221

355

223

Earnings (Loss) Per Share:

    Basic

$

0.19

$

(0.03)

$

0.55

$

0.09

    Diluted

$

0.18

$

(0.03)

$

0.54

$

0.09

Cash Dividends Per Share:

    Class A

$

0.040

$

0.040

$

0.080

$

0.080

    Class B

$

0.036

$

0.036

$

0.072

$

0.072

See accompanying notes.

3

TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions)
 

(Unaudited)

    

March 30,
2002

September 29,
2001

Assets

Current Assets:

    Cash and cash equivalents

$

50 

$

70 

    Accounts receivable, net

1,112 

1,199 

    Inventories

1,945 

1,911 

    Other current assets

57 

110 

Total Current Assets

3,164 

3,290 

Net Property, Plant and Equipment

4,115 

4,085 

Goodwill

2,619 

2,618 

Other Assets

576 

639 

Total Assets

$

10,474 

$

10,632 

Liabilities and Shareholders' Equity

Current Liabilities:

    Current debt

$

526 

$

760 

    Trade accounts payable

743 

799 

    Other current liabilities

1,051 

857 

Total Current Liabilities

2,320 

2,416 

Long-Term Debt

3,775 

4,016 

Deferred Income Taxes

618 

609 

Other Liabilities

236 

237 

Shareholders' Equity:

    Common stock ($0.10 par value):

        Class A-authorized 900 million shares:
          issued 267 million shares at March 30, 2002
          and 267 million shares at September 29, 2001

27 

27 

        Class B-authorized 900 million shares:
          issued 102 million shares at March 30, 2002
          and 103 million shares at September 29, 2001

10 

10 

    Capital in excess of par value

1,881 

1,920 

    Retained earnings

1,934 

1,770 

    Accumulated other comprehensive loss

(25)

(35)

3,827 

3,692 

    Less treasury stock, at cost-
      16 million shares at March 30, 2002
      and 21 million shares at September 29, 2001

259 

333 

    Less unamortized deferred compensation

43 

5 

Total Shareholders' Equity

3,525 

3,354 

Total Liabilities and Shareholders' Equity

$

10,474 

$

10,632 

See accompanying notes.

4

TYSON FOODS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 

Three Months Ended

  

Six Months Ended
 

March 30,

  

March 31,

  

March 30,

  

March 31,
 

2002

  

2001

  

2002

  

2001

Cash Flows Operating Activities:

              

    Net income (loss)

$

65 

  

$

(6)

  

$

192 

  

$

21 

    Net changes in working capital

4 

  

(10)

  

207 

  

12 

    Depreciation and amortization

115 

  

75 

  

232 

  

150 

    Deferred taxes

(4)

  

(14)

  

56 

  

(16)

    Other

2 

  

4 

  

2 

  

5 
 

Cash Provided by Operating Activities

182 

  

49 

  

689 

  

172 
 

Cash Flows From Investing Activities:

              

    Additions to property, plant and equipment

(132)

  

(60)

  

(240)

  

(107)

    Proceeds from sale of assets

2 

  

3 

  

2 

  

24 

    Investment in note receivable

- 

  

(67)

  

- 

  

(67)

    Net change in investment in commercial paper

- 

  

21 

  

94 

  

23 

    Net changes in other assets and liabilities

(30)

  

(11)

  

(53)

  

(18)
 

Cash Used for Investing Activities

(160)

  

(114)

  

(197)

  

(145)
 

Cash Flows From Financing Activities:

              

   Net change in debt

(47)

  

137 

  

(475)

  

60 

   Purchases of treasury shares

(4)

  

(12)

  

(10)

  

(30)

   Dividends and other

(16)

  

(8)

  

(29)

  

(17)

Cash Provided by (Used for) Financing Activities

(67)

  

117 

  

(514)

  

13 
 

Effect of Exchange Rate Change on Cash

3 

  

(1)

  

2 

  

1 
 

Increase (Decrease) in Cash and Cash Equivalents

(42)

  

51 

  

(20)

  

41 
               

Cash and Cash Equivalents at Beginning of Period

92 

  

33 

  

70 

  

43 
 

Cash and Cash Equivalents at End of Period

$

50 

  

$

84 

  

$

50 

  

$

84 
 

See accompanying notes.

                      

5

TYSON FOODS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

Note 1:   ACCOUNTING POLICIES

BASIS OF PRESENTATION

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 accounting principles generally accepted in the United States 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 annual report for the fiscal year ended September 29, 2001. 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.

Management believes the accompanying consolidated condensed financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position as of March 30, 2002 and September 29, 2001, and the results of operations and cash flows for the three months and six months ended March 30, 2002 and March 31, 2001. The results of operations and cash flows for the three months and six months ended March 30, 2002 and March 31, 2001 are not necessarily indicative of the results to be expected for the full year.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually, or more frequently if impairment indicators arise, for impairment. Separable intangible assets that have finite lives will continue to be amortized over their useful lives. The Company elected to early adopt the provisions of SFAS 142 and discontinued the amortization of its goodwill balances and intangible assets with indefinite useful lives effective September 30, 2001. The Company assessed its goodwill for impairment upon adoption, and will test for impairment at least annually thereafter. The Company's transitional impairment test did not indicate any impairment losses. Had the provisions of SFAS 142 been in effect during the three and six months ended March 31, 2001, a reduction in amortization expense and an increase to net income of $5 million or $.02 per diluted share and $9 million or $.04 per diluted share respectively, would have been recorded.

In accordance with the guidance provided in Emerging Issues Task Force (EITF) Issue No. 00-14, "Accounting for Certain Sales Incentives", and EITF Issue No. 00-25, "Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor's Products", beginning in the first quarter of fiscal 2002, the Company classifies the costs associated with sales incentives provided to retailers and payments such as slotting fees and cooperative advertising to vendors as a reduction in sales. These costs were previously included in selling, general and administrative expense. These reclassifications resulted in a reduction to sales and selling, general and administrative expense of approximately $36 million and $77 million for the three and six months ended March 31, 2001, respectively; and had no impact on reported income before income taxes and minority interest, net income, or earnings per share amounts.

6

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement requires the Company to recognize the fair value of a liability associated with the cost the Company would be obligated to incur in order to retire an asset at some point in the future. The liability would be recognized in the period in which it is incurred and can be reasonably estimated. The standard is effective for fiscal years beginning after June 15, 2002. The Company expects to adopt this standard at the beginning of its fiscal 2003. The Company has not yet completed its assessment of the anticipated adoption impact, if any, of SFAS No. 143.

Additionally, in October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 develops an accounting model, based upon the framework established in SFAS No. 121, for long-lived assets to be disposed by sales. The accounting model applies to all long-lived assets, including discontinued operations, and it replaces the provisions of ABP Opinion No. 30, "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for disposal of segments of a business. SFAS No. 144 requires long-lived assets held for disposal to be measured at the lower of carrying amount or fair values less costs to sell, whether reported in continuing operations or in discontinued operations. The statement is effective for fiscal years beginning after December 15, 2001. The Company intends to adopt this standard at the beginning of its fiscal 2003. The Company has not yet completed its assessment of the anticipated adoption impact, if any, of SFAS No. 144.

RECLASSIFICATIONS

Certain reclassifications have been made to prior periods to conform to current presentations.

Note 2:   ACQUISITIONS

During the fourth quarter of fiscal 2001, the Company acquired IBP, inc. (IBP). Headquartered in Dakota Dunes, South Dakota, IBP is the world's largest supplier of premium fresh beef and pork products, with more than 60 production sites in North America, joint venture operations in China, Ireland and Russia and sales offices throughout the world.

In August 2001, the Company acquired 50.1% of IBP by paying $1.7 billion in cash. In September 2001, the Company issued 129 million shares of Class A common stock, with a fair value of $1.2 billion, to acquire the remaining IBP shares, and assumed $1.7 billion of IBP debt. The total acquisition cost of $4.6 billion was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations." Accordingly, the tangible and identifiable intangible assets and liabilities have been adjusted to fair values with the remainder of the purchase price recorded as goodwill. The allocation of the purchase price has been completed.

The pro forma unaudited results of operations, assuming the purchase of IBP had been consummated as of October 1, 2000, follows. Pro forma adjustments have been made to reflect additional interest from debt associated with the acquisition and additional common shares issued.

7

 

 

in millions, except per share data
 

Three Months Ended

  

Six Months Ended
 

March 30,

  

March 31,

  

March 30,

  

March 31,
 

2002
(Actual)

  

2001
(Pro forma)

  

2002
(Actual)

  

2001
(Pro forma)
 
 
 
 

Sales

 $

5,839

  

$

5,959 

  

$

11,704

  

$

12,113

Net income (loss) before extraordinary item

65

  

(13)

  

192

  

8

Net income (loss)

65

  

(14)

  

192

  

7

Earnings (loss) per share before

              

  extraordinary item:

0.19

  

(0.04)

  

0.55

  

0.02

    Basic

 0.18

  

(0.04)

  

0.54

  

0.02

    Diluted

             

Earnings (loss) per share:

0.19

  

(0.04)

  

0.55

  

0.02

    Basic

0.18

  

(0.04)

  

0.54

  

0.02

    Diluted

             

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 fiscal 2000, or the results that may occur in the future.

Note 3:   INVENTORIES

Processed products, livestock (excluding breeders) and supplies and other are valued at the lower of cost (first-in, first-out) or market. Breeders are stated at cost less amortization. Livestock includes live cattle, live chicken and live swine. Live chicken consists of broilers and breeders. Total inventory consists of the following (in millions):

 

March 30,
2002

  

September 29,
2001

Processed products

$

1,126

  

$

1,095

Livestock

565

  

561

Supplies and other

254

  

255
Total inventory

$

1,945

$

1,911

 

Note 4:   PROPERTY, PLANT AND EQUIPMENT

The major categories of property, plant and equipment and accumulated depreciation, at cost, are as follows (in millions):

 

March 30,
2002

  

September 29,
2001

Land

$

114

  

$

114

Buildings and leasehold improvements

2,148

  

2,085

Machinery and equipment

3,374

  

3,218

Land improvements and other

176

  

174

Buildings and equipment under construction

392

  

379
 

6,204

  

5,970

Less accumulated depreciation

2,089

  

1,885

Net property, plant and equipment

$

4,115

  

$

4,085

8

Note 5:   OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):

 

March 30,
2002

  

September 29,
2001

Accrued salaries, wages and benefits

$

299

  

$

270

Income taxes payable

172

  

109

Self insurance reserves

206

  

189

Property and other taxes

57

  

63

Other

317

  

226
Total other current liabilities

$

1,051

$

857

 

Note 6:   LONG-TERM DEBT

The major components of long-term debt are as follows (in millions):

 

Maturity

  

March 30,
2002

  

September 29,
2001

Commercial paper (2.95% effective rate at 3/30/02

2002

  

$

89

  

$

210

    and 4.01% effective rate at 9/29/01)

          

Revolver (4.05% effective rate at 9/29/01)

2006

  

-

  

500

Bridge Facility (4.01% effective rate at 9/29/01)

2002

  

-

  

2,300

Senior notes and Notes
    (rates ranging from 6% to 8.25%)

2001-2028

  

3,609

  

1,456

Accounts Receivable Securitization Debt
    (2.42% effective rate at 3/30/02)

2002

  

330

  

-

Institutional notes
    (10.84% effective rate at 3/30/02 and 9/29/01)

2001-2006

  

50

  

50

Leveraged equipment loans
    (rates ranging from 4.7% to 6.0%)

2005-2008

  

129

  

138

Other

Various

  

94

  

122

Total debt

    

4,301

  

4,776

Less current debt

    

526

  

760

Total long-term debt

    

$

3,775

  

$

4,016

The revolving credit agreement, senior notes, notes and accounts receivable securitization debt contain various covenants, the more restrictive of which contain a maximum allowed leverage ratio and a minimum required interest coverage ratio. The Company is in compliance with these covenants at March 30, 2002.

In October 2001, the Company refinanced the $2.3 billion outstanding under a bridge financing facility through the issuance of $2.25 billion of notes offered in three tranches consisting of $500 million of 6.625% notes due October 2004, $750 million of 7.25% notes due October 2006 and $1 billion of 8.25% notes due October 2011.

In October 2001, the Company entered into a receivables purchase agreement with three co-purchasers to sell up to $750 million of trade receivables. The receivables purchase agreement has an interest rate based on commercial paper issued by the co-purchasers. Funds from the receivables purchase agreement were used to repay $710 million outstanding under the $1 billion revolving credit agreements. Under this agreement, substantially all of the Company's accounts receivable were sold to a special purpose entity, Tyson Receivables Corporation (TRC), which is a wholly owned consolidated subsidiary of the Company. TRC has its own separate creditors that are entitled to be satisfied out of all of the assets of TRC prior to any value becoming available to TRC's equity holders.

9

The Company has fully and unconditionally guaranteed $545 million of senior notes issued by IBP, a wholly owned subsidiary of the Company.

The following condensed consolidating financial information is provided for the Company, as guarantor, and for IBP, as issuer, as an alternative to providing separate financial statements for the issuer.

Condensed Consolidating Statement of Income (unaudited) for the three months ended March 30, 2002

   
 

(in millions)

Tyson

IBP

Reclasses

Consolidated

Sales

$

1,915

$

3,930

$

(6)

$

5,839

Cost of Sales

1,688

3,760

(6)

5,442

227

170

- 

397

Selling, General and Administrative

122

96

- 

218

Operating Income

105

74

- 

179

Interest and Other Expense

57

19

- 

76

Income Before Income Taxes

48

55

- 

103

Provision for Income Taxes

18

20

- 

38

Net Income

$

30

$

35

$

- 

$

65

Condensed Consolidating Statement of Income (unaudited) for the six months ended March 30, 2002

   
 

(in millions)

Tyson

IBP

Reclasses

Consolidated

Sales

$

3,807

$

7,911

$

(14)

$

11,704 

Cost of Sales

3,309

7,502

(14)

10,797 

498

409

- 

907 

Selling, General and Administrative

253

202

- 

455 

Operating Income

245

207

- 

452 

Interest and Other Expense

115

40

- 

155 

Income Before Income Taxes

130

167

- 

297

Provision for Income Taxes

43

62

- 

105

Net Income

$

87

$

105

$

- 

$

192

10

 

Condensed Consolidating Balance Sheet (unaudited) as of March 30, 2002

  
   
 

(in millions)

Tyson

IBP

Reclasses

Consolidated

Assets

Current Assets:

    Cash and cash equivalents

$

34

$

16

$

- 

$

50

    Accounts receivable, net

1,286

648

(822)

1,112

    Inventories

1,076

869

- 

1,945

    Other current assets

16

100

(59)

57

Total Current Assets

2,412

1,633

(881)

3,164

Net Property, Plant and Equipment

2,119

1,996

- 

4,115

Goodwill

927

1,692

- 

2,619

Other Assets

3,109

372

(2,905)

576

Total Assets

$

8,567

$

5,693

$

(3,786)

$

10,474

Liabilities and Shareholders' Equity

Current Liabilities:

    Current debt

$

523

$

3

$

- 

$

526

    Trade accounts payable

307

436

- 

743

    Other current liabilities

696

2,928

(2,573)

1,051

Total Current Liabilities

1,526

3,367

(2,573)

2,320

Long-Term Debt

3,196

579

- 

3,775

Deferred Income Taxes

358

260

- 

618

Other Liabilities

78

158

- 

236

Shareholders' Equity

3,409

1,329

(1,213)

3,525

Total Liabilities and Shareholders' Equity

$

8,567

$

5,693

$

(3,786)

$

10,474

Condensed Consolidating Statement of Cash Flows (unaudited) for the three months ended March 30, 2002

(in millions)

Tyson

IBP

Reclasses

Consolidated

Cash Flows From Operating Activities:

    Net income

$

30 

$

35 

$

$

65 

    Net changes in working capital

1 

3 

4 

    Depreciation and amortization

77 

38 

115 

    Deferred income taxes and other

(2)

- 

(2)

Cash Provided by Operating Activities

106 

76 

182 

Cash Flows From Investing Activities:

    Additions to property, plant and equipment

(84)

(48)

(132)

    Net change in other assets and liabilities

(21)

(7)

(28)

Cash Provided by (Used for) Investing Activities

(105)

(55)

(160)

Cash Flows From Financing Activities:

    Net change in debt

(3)

(44)

(47)

    Purchase of treasury shares

(4)

- 

(4)

    Dividends and other

(17)

1 

(16)

Cash Used for Financing Activities

(24)

(43)

(67)

Effect of Exchange Rate Change on Cash

4 

(1)

3 

Increase in Cash and Cash Equivalents

(19)

(23)

(42)

Cash and Cash Equivalents at Beginning of Period

53 

39 

92 

Cash and Cash Equivalents at End of Period

$

34 

$

16 

$

$

50 

11

Condensed Consolidating Statement of Cash Flows (unaudited) for the six months ended March 30, 2002

(in millions)

Tyson

IBP

Reclasses

Consolidated

Cash Flows From Operating Activities:

    Net income

$

87 

$

105 

$

$

192 

    Net changes in working capital

247 

(40)

207 

    Depreciation and amortization

147 

85 

232 

    Deferred income taxes and other

34 

24 

58 

Cash Provided by Operating Activities

515 

174 

689 

Cash Flows From Investing Activities:

    Additions to property, plant and equipment

(145)

(95)

(240)

    Net change in investment in commercial paper

94 

- 

94 

    Net change in other assets and liabilities

(50)

(1)

(51)

Cash Provided by (Used for) Investing Activities

(101)

(96)

(197)

Cash Flows From Financing Activities:

    Net change in debt

(394)

(81)

(475)

    Purchase of treasury shares

(10)

- 

(10)

    Dividends and other

(26)

(3)

(29)

Cash Used for Financing Activities

(430)

(84)

(514)

Effect of Exchange Rate Change on Cash

3 

(1)

2 

Increase in Cash and Cash Equivalents

(13)

(7)

(20)

Cash and Cash Equivalents at Beginning of Period

47 

23 

70 

Cash and Cash Equivalents at End of Period

$

34 

$

16 

$

$

50 

Note 7:   COMPREHENSIVE INCOME (LOSS)

The components of comprehensive income (loss) are as follows (in millions):

 

Three Months Ended

  

Six Months Ended
 

March 30,

  

March 31,

  

March 30,

  

March 31,
 

2002

  

2001

  

2002

  

2001
 
 
 
 

Net income (loss)

$

65 

  

$

(6)

  

$

192 

  

$

21 

Other comprehensive income (loss)

             

    Currency translation adjustment

4

  

(1)

  

7 

  

(1)

    Unrealized gain (loss) on investments

-

  

(3)

  

(1)

  

(3)

    Cumulative effect of SFAS No. 133 adoption

-

  

- 

  

- 

  

(5)

    Derivative unrealized gain (loss)

1

  

(9)

  

2 

  

(6)

    Derivative gain recognized in cost of sales

1

  

1 

  

2 

  

2 

Total comprehensive income (loss)

$

71

  

$

(18)

  

$

202 

  

$

8 

Other comprehensive income (loss) is net of tax benefit (expense) of $(1.0) million and $6.6 million for the three months and $(0.9) million and $7.2 million for the six months ended March 30, 2002 and March 31, 2001, respectively.

Note 8:   CONTINGENCIES

Wage and Hour/ Labor Matters  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 specifically alleges that (1) 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 (2) 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 5,000 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.

12

Substantially similar suits have been filed against several 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 had discussions with the DOL regarding its investigation and the possible resolution of potential claims relating thereto.

On August 22, 2000, seven employees of the Company filed the case of De Asencio v. Tyson Foods, Inc. in the U.S. District Court for the Eastern District of Pennsylvania. This lawsuit is similar to Fox v. Tyson in that the employees claim violations of the Fair Labor Standards Act for allegedly failing to pay for time taken to put on, take off and sanitize certain working supplies. Plaintiffs seek to represent themselves and all similarly situated current and former employees of the poultry processing plants in New Holland, Pennsylvania. Currently, there are approximately 500 additional current or former employees who have filed consents to join the lawsuit. The court, on January 30, 2001, ordered that notice of the lawsuit be issued to all potential plaintiffs at the New Holland facilities, but the class has not been ordered certified. The Company believes it has substantial defenses to the claims made and intends to defend the case vigorously; 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.

On November 5, 2001, a lawsuit entitled Maria Chavez, et al. vs. IBP, Lasso Acquisition Corporation and Tyson Foods, Inc. was filed in the U.S. District Court for the Eastern District of Washington against IBP and Tyson by several employees of IBP's Pasco, Washington, beef slaughter and processing facility alleging various violations of the Fair Labor Standards Act, 29 U.S.C. Sections 201 - 219 (FLSA) claims, as well as violations of the Washington State Minimum Wage Act, RCW chapter 49.46, Industrial Welfare Act, RCW chapter 49.12, and the Wage Deductions-Contribution-Rebates Act, RCW chapter 49.52. The lawsuit alleges IBP and/or Tyson required employees to perform unpaid work related to the donning and doffing of certain personal protective clothing, both prior to and after their shifts, as well as during meal periods. Plaintiffs further allege that similar prior litigation entitled Alvarez, et al. vs. IBP, which resulted in a $3.1 million final judgment against IBP, supports a claim of collateral estoppel and/or is res judicata as to the issues raised in this new litigation. IBP filed a timely Notice of Appeal and will vigorously pursue reversal of the Alvarez judgment before the Ninth Circuit Court of Appeals.

Environmental Matters  On January 15, 1997, the Illinois EPA brought suit in the Circuit Court for the 14th Judicial Circuit, Rock Island, Illinois, Chancery Division against IBP alleging that IBP's operations at its Joslin, Illinois, facility are violating the "odor nuisance" regulations enacted in the State of Illinois. IBP has already completed additional improvements at its Joslin facility to further reduce odors from this operation, but denies Illinois EPA's contention that its operations at any time amounted to a "nuisance." IBP is attempting to discuss these issues with the State of Illinois in an effort to reach a settlement.

13

On January 12, 2000, The U.S. Department of Justice (DOJ), on behalf of the Environmental Protection Agency (EPA), filed a lawsuit against IBP in U.S. District Court for the District of Nebraska (the "Nebraska Court"), alleging violations of various environmental laws at IBP's Dakota City facility. This action alleges, among other things, violations of: (1) the Clean Air Act; (2) the Clean Water Act; (3) the Resource, Conservation and Recovery Act (RCRA); (4) the Comprehensive Environmental Response Compensation and Liability Act (CERCLA); and (5) the Emergency Planning and Community Right to Know Act (EPCRA). IBP reserved $3.5 million in 1999 for the claims raised in this lawsuit. On October 12, 2001, a Second and Final Partial Consent Decree was filed with the Nebraska Court, which, combined with a Partial Consent Decree entered May 19, 2000, fully resolves all allegations raised in this lawsuit for a civil penalty of $4.1 million. In addition, pursuant to the Second and Final Partial Consent Decree, IBP agreed to make additional wastewater improvements at its Dakota City facility including a full nitrification system. On the same date, an amended complaint was filed adding Clean Water Act and RCRA allegations at IBP's former Palestine, Texas, facility, Clean Water Act allegations at IBP's Gibbon, Nebraska, facility and alleged EPCRA/CERCLA claims at other IBP facilities located in Region VII. These issues are fully resolved in the Second and Final Partial Consent Decree proposed to the court. Also on the same date, a separate administrative consent agreement with EPA was entered resolving alleged EPCRA/CERCLA claims at IBP's Joslin, Illinois facility for a $200,000 civil penalty. Notice of the Second and Final Partial Consent Decree was published in the Federal Register on November 15, 2001, for a 30-day comment period. Motions for entry of the Second and Final Partial Consent Decree have been filed by the DOJ and IBP. It is anticipated that the Second and Final Partial Consent Decree will be approved by the Nebraska Court, ending this litigation.

On October 23, 2001, a putative class action lawsuit was filed in the District Court for Mayes County, Oklahoma, against the Company by R. Lynn Thompson and Deborah S. Thompson on behalf of all owners of Grand Lake O' the Cherokee's littoral (lake front) property. The suit alleges that the Company "or entities over which it has operational control" conduct operations in such a way as to interfere with the putative class action plaintiffs' use and enjoyment of their property, allegedly caused by diminished water quality in the lake. The Company believes the complaint allegations are unfounded and intends to vigorously defend the case.

The Company has been advised by the U.S. Attorney's office for the Western District of Missouri that the government intends to seek indictment of the Company for alleged violations of the Clean Water Act related to activities at its Sedalia, Missouri, facility. The Company is presently discussing the possible resolution of this matter but neither the likelihood of an unfavorable outcome nor the amount of ultimate liability, if any, with respect to this matter can be determined at this time.

On December 10, 2001, the City of Tulsa, Oklahoma and the Tulsa Metropolitan Utility Authority filed in the United States District Court for the Northern District of Oklahoma the case styled the The City of Tulsa and the Tulsa Municipal Utility Authority v. Tyson Foods, Inc., et al. against the Company, Cobb-Vantress, Inc., a wholly owned subsidiary of the Company, four other fully integrated poultry companies and the City of Decatur, Arkansas. With respect to the Company and Cobb-Vantress, Inc., the suit alleges that degradation of the Tulsa water supply is attributable, in whole or in part, to the non-point source run-off from the land application of poultry litter in the watershed feeding the lakes that act as the City of Tulsa's water supply, and that the Company and Cobb-Vantress, Inc. are, together with the other defendants named in the lawsuit, jointly and severally responsible for the alleged over application of poultry litter in the watershed. The Company believes that the allegations in the complaint are unfounded and intends to vigorously defend the case.

Securities Matters  Between January and March 2001, a number of lawsuits were filed by certain stockholders in the U.S. District Court for the District of South Dakota and one suit filed in the U.S. District Court for the Southern District of New York seeking to certify a class of all persons who purchased IBP stock between February 7, 2000, and January 25, 2001. The plaintiff in the New York action has voluntarily dismissed and refiled its complaint in South Dakota, where the suits have been consolidated under the name In re IBP, inc. Securities Litigation. The complaints, seeking unspecified damages, allege that IBP and certain members of management violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and claims IBP issued materially false statements about IBP's financial results in order to inflate its stock price. IBP filed a Motion to Dismiss on December 21, 2001, which is now fully briefed and pending before the Court. IBP intends to vigorously contest these claims.

14

On or about June 6, 2001, IBP was advised the SEC had commenced a formal investigation related to the restatement of earnings made by IBP in March 2001, including matters relating to certain improprieties in the financial statements of DFG, a wholly-owned subsidiary. IBP is cooperating with this investigation.

IBP Stockholder and Merger Agreement Related Litigation  Between October 2 and November 1, 2000, 14 class actions were filed in the Delaware Court of Chancery (the Delaware Court) against IBP, inc. (IBP) and the members of the IBP Board of Directors. On November 13, 2000, these actions were consolidated as In re IBP, inc. Shareholders Litigation, C.A. No. 18373 (the Consolidated Action).

On March 29, 2001, the Company filed an action in the Chancery Court of Washington County, Arkansas, entitled Tyson Foods, Inc., et al. v. IBP, inc., Case No. E 2001-749-4, alleging that the Company had been inappropriately induced to enter into a Merger Agreement with IBP dated January 1, 2001 (the Merger Agreement), and that IBP was in breach of various representations and warranties made in the Merger Agreement.

On March 30, 2001, IBP filed an answer to the amended consolidated complaint and a cross-claim (amended on April 2, 2001) against the Company in the Consolidated Action. As amended, IBP's cross-claim sought a declaration that the Company could not rescind or terminate the Merger Agreement, specific enforcement of the Merger Agreement and damages for breach of a Confidentiality Agreement.

Following expedited discovery, the Delaware Court conducted a nine day trial, beginning on May 14, 2001, on IBP's and the plaintiffs' claims for specific performance with respect to the terminated cash tender offer and the Merger Agreement and the Company's counterclaims. On June 15, 2001, following expedited post-trial briefing, the Delaware Court issued a memorandum opinion, which was issued in revised form on June 18, 2001 (the Post-Trial Opinion), in which the Delaware Court concluded, among other things, that (1) the Merger Agreement is a valid and enforceable contract that was not induced by any material misrepresentation or omission, (2) the Company did not breach the Merger Agreement or any duty to IBP's stockholders by failing to close the terminated cash tender offer, (3) the Company did not have a basis to terminate the Merger Agreement under its terms, and (4) specific performance of the Merger Agreement was the only method by which to adequately redress the harm threatened to IBP and its stockholders.

After negotiations and in accordance with the Post-Trial Opinion, the Company and IBP presented an Order, Judgment and Decree to the Delaware Court, entered on June 27, 2001, requiring the Company and its affiliates to specifically perform the Merger Agreement as modified by, and subject to the conditions contained in, a Stipulation between the Company and IBP, including making a cash tender offer for 50.1% of IBP's shares and effecting the merger with IBP.

On August 3, 2001, the Delaware Court entered an order approving the settlement of the Consolidated Action and extinguished all claims that were or could have been asserted by the IBP stockholders in the Consolidated Action in exchange for, among other things, the acceleration of the closing of a new Cash Tender Offer to August 3, 2001.

On January 7, 2002, the Company filed a motion in the Delaware Court asking that court to vacate its Post-Trial Opinion on grounds of mootness or, in the alternative, to enter final judgment so that an appeal could be taken. The Delaware Court denied this motion on February 11, 2002, and the Company has appealed that decision, as well as the Post-Trial Opinion and certain earlier rulings by the Delaware Court, to the Delaware Supreme Court. Certain of the plaintiffs in the Delaware Federal Actions discussed below have filed a motion to dismiss the Company's appeal as untimely as to all matters except the Delaware Court's denial of the motion to vacate the Post-Trial Opinion, and that motion is pending.

15

On June 19, 2001, a purported Company stockholder commenced a derivative action in the Delaware Court entitled Alan Shapiro v. Barbara R. Allen, et al., C.A. No. 18967-NC seeking monetary damages on behalf of the Company, a nominal defendant, from the members of the Company's Board of Directors. The complaint alleges the directors violated their fiduciary duties by attempting to terminate the Merger Agreement. The defendants intend to vigorously defend these claims and, on July 17, 2001, moved to dismiss the complaint, which motion is pending.

Between June 22 and July 20, 2001, various plaintiffs commenced actions (the Delaware Federal Actions) against the Company, Don Tyson, John Tyson and Les Baledge in the U.S. District Court for the District of Delaware, seeking monetary damages on behalf of a purported class of those who sold IBP stock or traded in certain IBP options from March 29, 2001, when the Company announced its intention to terminate the Merger Agreement with IBP, and June 15, 2001, when the Delaware Court rendered its Post-Trial Opinion in the Consolidated Action. The actions, entitled Meyer v. Tyson Foods, Inc., et al., C.A. No. 01-425 SLR; Banyan Equity Mgt. v. Tyson Foods, Inc., et al., C.A. No. 01-426 GMS; Steiner v. Tyson Foods, Inc., et al., C.A. No. 01-462 GMS; Aetos Corp., et al. v. Tyson, et al., C.A. No. 01-463 GMS; Meyers, et al. v. Tyson Foods, Inc., et al., C.A. No. 01-480; Binsky v. Tyson Foods, Inc., et al., C.A. No. 01-495; Management Risk Trading LP v. Tyson Foods, Inc., et al., C.A. No. 01-496; and Stark Investments, L.P., et al. v. Tyson et al., C.A. No. 01-565 allege that the defendants violated federal securities laws by making, or causing to be made, false and misleading statements in connection with the Company's attempted termination of the Merger Agreement. The various actions were subsequently consolidated under the caption In re Tyson Foods, Inc. Securities Litigation. On December 4, 2001, the plaintiffs in the consolidated action filed a Consolidated Class Action Complaint. The plaintiffs allege that, as a result of the defendants' alleged conduct, the purported class members were harmed. On January 22, 2002, the Defendants filed a motion to dismiss the consolidated complaint. A hearing on this motion is scheduled for June 3, 2002. The defendants intend to vigorously defend these claims.

In December 2001, two stockholder derivative lawsuits were filed, respectively, in the Court of Chancery of the state of Delaware and in the Circuit Court of Arkansas, against the Company's Board of Directors and, nominally the Company. The complaints concern the alleged violations of immigration laws that are the subject of the indictment by the United States Department of Justice (see below). In general, the complaints allege that the members of the Company's Board failed to exercise reasonable control and supervision over the Company's employees and processes, implement adequate internal controls, adequately inform themselves, or take adequate and good faith remedial actions with respect to the Company's immigration practices and matters giving rise to the indictment. The complaints seek unspecified damages against the individual Board members; no relief is sought against the Company. The Company and members of its Board, which have filed a motion to stay or dismiss the complaint in the Circuit Court of Arkansas, and have filed a motion to dismiss in the Chancery Court of Delaware, intend to vigorously defend these claims.

General Matters  In July 1996, a lawsuit was filed against IBP by certain cattle producers in the U.S. District Court, Middle District of Alabama, seeking certification of a class of all cattle producers. The complaint alleges that IBP has used its market power and alleged "captive supply" agreements to reduce the prices paid to producers for cattle. Plaintiffs have disclosed that, in addition to declaratory relief, they seek actual and punitive damages. The original motion for class certification was denied by the Court; plaintiffs then amended their motion, defining a narrower class consisting of only those cattle producers who sold cattle directly to IBP from 1994 through the date of certification. The Court approved this narrower class in April 1999. The 11th Circuit Court of Appeals reversed the District Court decision to certify a class, on the basis that there were inherent conflicts amongst class members preventing the named plaintiffs from providing adequate representation to the class. The plaintiffs then filed pleadings seeking to certify an amended class. The Court 

16

denied the plaintiffs' motion on October 17, 2000. Plaintiffs' motion for reconsideration of the judge's decision was denied, and plaintiffs then asked the Court to certify a class of cattle producers who have sold exclusively to IBP on a cash market basis, which the Court granted in December 2001. In January 2002, IBP filed a petition with the 11th Circuit Court of Appeals seeking permission to appeal the class certification decision, which the Circuit Court of Appeals denied on March 5, 2002. The District Court has set a schedule for completing the format of the class notice mailing. No trial date has been set. IBP has filed motions for summary judgment on both liability and damages filed with the District Court, which are now pending. Management believes IBP has acted properly and lawfully in its dealings with cattle producers. 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.

On August 8, 2000, the Company was served with a complaint filed in the U.S. District Court for the District of Arizona styled Lemelson Medical, Education & Research Foundation, Limited Partnership v. Alcon Laboratories, et al., CIV00-0661 PHX PGR. The plaintiff sued the Company, along with approximately 100 other defendants in the food, beverage, drug, cosmetic and tobacco industries, claiming that the defendants infringed various patents held by the Foundation. The alleged patent infringement is based on the defendants' use of the Foundation's automatic identification patents that relate to the use of bar coding and/or the Foundation's patents that relate to machine vision. The Foundation seeks treble damages for the defendants' alleged infringement. The case is currently stayed pending the resolution of related litigation. 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.

In December 2001 the Company, two current employees and four former employees were indicted in the U. S. District Court in the Eastern District of Tennessee. The indictment alleges these six employees conspired to violate and did violate immigration laws involving approximately 15 named individuals at one of the Company's poultry processing facilities. The indictment also alleges that the Company utilized the services of temporary employment agencies in furtherance of the alleged conspiracy. The indictment seeks fines and forfeiture of amounts not specified. Trial for this matter is expected in February 2003. The Company intends to vigorously defend this indictment and believes it has meritorious defenses to the government's theories of recovery; 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.

On October 17, 2000, a Washington County (Arkansas) Chancery Court awarded the Company approximately $20 million in its lawsuit alleging trade secret misappropriation by ConAgra, Inc. and ConAgra Poultry Company. On December 4, 2000, due to an intervening opinion issued by the Arkansas Supreme Court, the Chancery Court reversed its finding that the Company's nutrient profile was a trade secret and reversed the jury's $20 million verdict. On January 3, 2001, the Company appealed the Chancery Court's reversal of the trade secret determination and of the jury verdict. Oral arguments before the Arkansas Supreme Court are set for May 30, 2002.

On or around February 15, 2002, the Company learned that a processing facility owned by Zemco Industries, Inc., a subsidiary of IBP, is the subject of an investigation by the U.S. Attorney's office in Bangor, Maine, into allegedly improper testing and recording practices. The Company acquired Zemco as part of the Company's acquisition of IBP on September 28, 2001. Zemco has responded to grand jury subpoenas and is cooperating fully with the U.S. Attorney's office. Because no charges have been filed, neither the likelihood of an unfavorable outcome nor the amount of ultimate liability, if any, with respect to this matter can be determined at this time.

17

Other Matters The Company is subject to other lawsuits, investigations and claims (some of which involve substantial amounts) arising out of the conduct of its business. While the ultimate results of these matters cannot be determined, they are not expected to have a material adverse effect on the Company's consolidated results of operations or financial position.

Note 9:   EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share (in millions except per share data):

 

Three Months Ended

  

Six Months Ended
 

March 30,

  

March 31,

  

March 30,

  

March 31,
 

2002

  

2001

  

2002

  

2001

Numerator:

              

    Net income (loss)

$

65

  

$

(6)

  

$

192

  

$

21
               

Denominator:

              

    Denominator for basic earnings per share-

              

        Weighted average shares

348

  

221 

  

348

  

222

    Effect of dilutive securities:

              

        Stock options and restricted stock

7

  

- 

  

7

  

1

    Denominator for diluted earnings per share-

              

        Adjusted weighted average shares and
 
 
 

        Assumed conversions

355

  

221 

  

355

  

223
               

Basic earnings (loss) per share

$             0.19

  

$        (0.03)

  

$             0.55

  

$             0.09
               

Diluted earnings (loss) per share

$             0.18

  

$        (0.03)

  

$             0.54

  

$             0.09

Approximately 6 million shares of the Company's option shares outstanding at March 30, 2002 were antidilutive and were not included in the dilutive earnings per share calculation for the second quarter and six months.

Note 10:   SEGMENT REPORTING

In connection with the IBP acquisition, the Company became the world's largest protein provider. The Company operates in five business segments: Beef, Chicken, Pork, Prepared Foods and Other. The Company measures segment profit as operating income.

Beef segment is primarily involved in the slaughter of live fed cattle and fabrication of dressed beef carcasses into primal and sub-primal meat cuts and case-ready products. It also involves deriving value from allied products such as hides and variety meats for sale to further processors and others. The Beef segment markets its products to food retailers, distributors, wholesalers, restaurants and hotel chains and other food processors in domestic and international markets. Allied products are also marketed to manufacturers of pharmaceuticals and technical products.

Chicken segment includes fresh, frozen and value-added chicken products sold through domestic food service, domestic retail markets for at-home consumption, wholesale club markets targeted to small foodservice operations, small businesses and individuals, as well as specialty and commodity distributors who deliver to restaurants, schools and international markets throughout the world. The Chicken segment also includes sales from allied products and the chicken breeding stock subsidiary.

18

Pork segment represents the Company's live swine group, hog slaughter and fabrication operations, case-ready products and related allied product processing activities. The Pork segment markets its products to food retailers, distributors, wholesalers, restaurants and hotel chains and other food processors in domestic and international markets. It also sells allied products to pharmaceutical and technical products manufacturers, as well as live swine to pork processors.

Prepared Foods segment includes the Company's operations that manufacture and market frozen and refrigerated food products. Products include pepperoni, beef and pork toppings, pizza crusts, flour and corn tortilla products, appetizers, hors d'oeuvres, desserts, prepared meals, ethnic foods, soups, sauces, side dishes, specialty pasta and meat dishes as well as branded and processed meats.

Other segment includes the logistics group and other corporate groups not identified with specific protein groups.

Information on segments and a reconciliation to income before taxes on income are as follows, with the prior period reclassified to conform to the Company's new segment reporting (in millions):

     
 

Three Months Ended

  

Six Months Ended
 
 
 

March 30, 2002

  

March 31, 2001

  

March 30, 2002

  

March 31, 2001

Sales:
 
 
 

    Beef

$

2,595

  

$

- 

  

$

5,143

  

$

- 

    Chicken

1,796

  

1,743 

  

3,570

  

3,402 

    Pork

698

  

40 

  

1,386

  

78 

    Prepared Foods

732

  

68 

  

1,568

  

129 

    Other

18

  

6 

  

37

  

17 

Total Sales

$

5,839

  

$

1,857 

  

$

11,704

  

$

3,626 
 
 
 
 

Operating income:

              

    Beef

14

  

- 

  

63

  

- 

    Chicken

114

  

25 

  

252

  

91 

    Pork

10

  

- 

  

56

  

- 

    Prepared Foods

35

  

5 

  

67

  

6 

    Other

6

  

(7)

  

14

  

(6)

Total Operating income

179

  

23 

  

452

  

91 
               

Other expense

76

  

33 

  

155

  

60 
 
 
 
 

Income (loss) before income taxes     and minority interest

$

103

  

$

(10)

  

$

297

$

31 

 

19

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Earnings for the second quarter of fiscal 2002 were $65 million or $0.18 per diluted share compared to a loss of $6 million or a $0.03 loss per diluted share for the second quarter of fiscal 2001. Earnings for the six months of fiscal 2002 were $192 million or $0.54 per diluted share compared to $21 million or $0.09 per diluted share for the same period last year. These increases are due primarily to the improved performance of the chicken segment and the IBP acquisition.

Second Quarter of Fiscal 2002 vs. Second Quarter of Fiscal 2001

Sales increased 214.3%, with a 149.4% increase in volume and a 26.0% increase in price. The increase in sales is due primarily to the inclusion of IBP's sales in 2002.

Selling, general and administrative expenses increased $104 million. This resulted primarily from additional costs related to IBP. As a percentage of sales, selling, general and administrative expenses decreased to 3.7% from 6.1%.

Interest expense increased $47 million from the same period last year. This increase resulted from an increase in average outstanding debt of $2.7 billion, due primarily to funding the IBP acquisition and assumption of IBP debt. The net average interest rate decreased to 7.1% from 7.3%.

The effective income tax rate for the second quarter of fiscal 2002 was 36.4% compared to 35.4% for the same period last year. The current year effective tax rate has increased due primarily to lower fiscal 2002 estimated foreign sales benefit compared to fiscal 2001.

Beef segment sales were $2.6 billion, including beef case ready sales of $174 million and international beef sales of $331 million. Beef segment operating income totaled $14 million. The Beef segment resulted from the acquisition of IBP in the fourth quarter of fiscal 2001. Seasonally weak domestic sales, poor demand from Japan and significantly lower values of allied products negatively impacted operating income.

Chicken segment second quarter sales increased $53 million or 3.1% from the same period last year, with a 2.9% increase in average sale prices and a slight increase in volume. Foodservice chicken sales increased 5.4%, retail chicken sales increased 2.2% and international chicken sales decreased slightly. International markets continue to be impacted by import restrictions and political pressures. Operating income for Chicken increased $89 million from the same period last year due primarily to decreases in live and production costs along with improvements in price and product mix. Prior year costs were adversely impacted by weather-related effects combined with higher grain and energy costs.

Pork segment second quarter sales were $698 million compared to $40 million for the same period last year, with current year pork case ready sales of $51 million and international pork sales of $69 million. Pork segment operating income increased $10 million from the same period last year. The increase in both sales and operating income is due to the inclusion of the IBP pork processing results, partially offset by negative earnings in the live swine operation.

Prepared Foods segment second quarter sales increased $664 million from the same period last year. The Prepared Foods segment operating income increased $30 million from the same period last year. The increase in both sales and operating income is due to the inclusion of IBP results. Operating income was positively affected by improved product mix, lower operating costs and decreased raw material costs.

20

Six Month of Fiscal 2002 vs. Six Months of Fiscal 2001

Sales increased 222.8%, with a 158.4% increase in volume and a 24.9% increase in price. The increase in sales is due primarily to the inclusion of IBP's sales in 2002.

Selling, general and administrative expenses increased $227 million. This resulted primarily from additional costs related to IBP. As a percentage of sales, selling, general and administrative expenses decreased to 3.9% from 6.3%.

Interest expense increased $100 million from the same period last year. This increase resulted from an increase in average outstanding debt of $2.9 billion, due primarily to funding the IBP acquisition and assumption of IBP debt. The net average interest rate decreased to 6.9% from 7.2%.

The effective income tax rate for the first six months of fiscal 2002 was 35.3% compared to 34.7% for fiscal 2001. The current year effective tax rate has increased due primarily to lower fiscal 2002 estimated foreign sales benefit compared to fiscal 2001.

Beef segment sales were $5.1 billion, including beef case ready sales of $334 million and international beef sales of $684 million. Beef segment operating income totaled $63 million. The Beef segment resulted from the acquisition of IBP in the fourth quarter of fiscal 2001.

Chicken segment six months sales increased $168 million or 4.9% from the same period last year, with a 2.6% increase in average sale prices and a 2.3% increase in volume. Foodservice chicken sales increased 4.7%, retail chicken sales increased 2.8% and international chicken sales increased 13.3%.  International chicken sales increased due primarily to the acquisition of a production facility in Mexico in the third quarter of 2001, partially offset by weak Asian sales demand. Operating income for Chicken increased $161 million from the same period last year due primarily to decreases in live and production costs along with improvements in price and product mix. Prior year costs were adversely impacted by weather-related effects combined with higher grain and energy costs.

Pork segment six months sales were $1.4 billion compared to $78 million for the same period last year, with current year pork case ready sales of $100 million and international pork sales of $138 million. Pork segment operating income increased $56 million from the same period last year. The increase in both sales and operating income is due to the inclusion of the IBP pork processing results.

Prepared Foods segment six months sales increased $1.4 billion from the same period last year. The Prepared Foods segment operating income increased $61 million from the same period last year. The increase in both sales and operating income is due to the inclusion of IBP results. Operating income was positively affected by improved product mix, lower operating costs and decreased raw material costs.

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FINANCIAL CONDITION

For the second quarter of fiscal 2002, net cash totaling $182 million was provided by operating activities. The Company used cash from operations to fund property, plant and equipment additions, to pay down debt and to repurchase additional shares of the Company's Class A common stock in the open market.

For the six months ended March 30, 2002, net cash totaling $689 million was provided by operating activities. The Company used cash from operations to fund additions, to pay down debt by and to repurchase additional shares 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. Capital spending for fiscal 2002 is expected to be approximately $450 million, excluding strategic asset acquisitions.

At March 30, 2002, working capital was $844 million compared to $874 million at 2001 fiscal year end, a decrease of $30 million. The current ratio at March 30, 2002 and September 29, 2001 was 1.4 to 1.

Total debt at March 30, 2002 was $4.3 billion, a decrease of $475 million from September 29, 2001. The Company has unsecured revolving credit agreements totaling $1 billion that support the Company's commercial paper program. These $1 billion in facilities consist of $500 million that expires in September 2002, and $500 million that expires in September 2006. At March 30, 2002, $89 million was outstanding under these facilities. Additional outstanding debt at March 30, 2002 consisted of $3.6 billion of debt securities, $330 million issued under accounts receivable securitization debt and other indebtedness of $273 million.

The revolving credit agreements, senior notes, notes and accounts receivable securitization debt contain various covenants, the more restrictive of which contain a maximum allowed leverage ratio and a minimum required interest coverage ratio. The Company is in compliance with these covenants at March 30, 2002.

In October 2001, the Company refinanced the $2.3 billion outstanding under a bridge financing facility through the issuance of $2.25 billion of notes offered in three tranches consisting of $500 million of 6.625% notes due October 2004, $750 million of 7.25% notes due October 2006 and $1 billion of 8.25% notes due October 2011.

In October 2001, the Company entered into a receivables purchase agreement with three co-purchasers to sell up to $750 million of trade receivables. The receivables purchase agreement has an interest rate based on commercial paper issued by the co-purchasers. Funds from the receivables purchase agreement were used to repay $710 million outstanding under the $1 billion revolving credit agreements. Under this agreement, substantially all of the Company's accounts receivable were sold to a special purpose entity, Tyson Receivables Corporation (TRC), which is a wholly owned consolidated subsidiary of the Company. TRC has its own separate creditors that are entitled to be satisfied out of all of the assets of TRC prior to any value becoming available to TRC's equity holders.

The Company's foreseeable cash needs for operations and capital expenditures are expected to continue to be met through cash flows provided by operating activities, borrowings supported by existing credit facilities, as well as additional credit facilities which the Company believes are available and through the issuance of additional debt securities from time to time.

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CRITICAL ACCOUNTING POLICIES

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. The following is a summary of certain accounting policies considered critical by the Company.

Revenue recognition The Company recognizes revenue from product sales upon delivery to customers. The Company records estimated reductions to revenues and additions to selling, general and administrative expenses for various types of customer incentive offerings including coupons, special pricing agreements, special promotions and other volume-based programs. Adjustments to revenue and / or expense may be required based on the actual utilization of these programs as compared to the estimates used by management.

Financial instruments The Company uses derivative financial instruments to manage its exposure to various market risks, including certain livestock, interest rates and grain and feed costs. The Company may hold positions as economic hedges for which hedge accounting is not applied.

Contingent liabilities The Company is subject to lawsuits, investigations and other claims related to environmental, labor, product and other matters, and is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required, if any, for these contingencies are made after considerable analysis of each individual issue. These reserves may change in the future due to changes in the Company's assumptions, the effectiveness of strategies, or other factors beyond the Company's control.

Accrued self insurance Insurance expense for casualty claims and employee-related health care benefits are estimated using historical experience and actuarial estimates. The assumptions used to arrive at periodic expenses are reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.

Impairment of long-lived assets The Company is required to assess potential impairments to its long-lived assets, which is primarily property, plant and equipment. If impairment indicators are present, the Company must measure the fair value of the assets in accordance with SFAS 121 to determine if adjustments are to be recorded.

Goodwill and Intangible Asset Impairment In assessing the recoverability of the Company's goodwill and other intangible assets, management must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates and related assumptions change in the future, the Company may be required to record impairment charges not previously recorded. On September 30, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," and was required to assess its goodwill for impairment issues upon adoption, and then at least annually thereafter. The Company did not record any impairment losses as a result of the initial assessment.

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CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The Company and its representatives may from time to time make written or oral forward-looking statements, 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 live cattle, live swine or feed grain costs; (ii) changes in the availability and relative costs of labor and contract growers; (iii) operating efficiencies of facilities; (iv) market conditions for finished products, including the supply and pricing of alternative proteins; (v) effectiveness of advertising and marketing programs; (vi) the ability of the Company to make effective acquisitions and successfully integrate newly acquired businesses into existing operations; (vii) risks associated with leverage, including cost increases due to rising interest rates; (viii) risks associated with effectively evaluating derivatives and hedging activities; (ix) changes in regulations and laws (both domestic and foreign), including changes in accounting standards, environmental laws and occupational, health and safety laws; (x) issues related to food safety, including costs resulting from product recalls, regulatory compliance and any related claims or litigation; (xi) adverse results from ongoing litigation; (xii) access to foreign markets together with foreign economic conditions, including currency fluctuations; and (xiii) the effect of, or changes in, general economic conditions.

Item 3.   Quantitative and Qualitative Disclosure About Market Risks

Please refer to the Company's market risk disclosures set forth in the 2001 Annual Report filed on Form 10-K for a more detailed discussion of quantitative and qualitative disclosures about market risk. The Company's market risk disclosures have not changed significantly from the 2001 Annual Report.

PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

Refer to information under Part I., Item 1. Notes to Consolidated Condensed Financial Statements,
Note 10: Contingencies.

Item 2.   Changes in Securities and Use of Proceeds

Not Applicable

Item 3.   Defaults Upon Senior Securities

Not Applicable

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Item 4.   Submission of Matters to a Vote of Security Holders

The following directors were elected at the annual meeting of stockholders held February 1, 2002:

Directors

Votes For

Votes Withheld
     

Don Tyson

1,189,493,492

11,195,996

John Tyson

1,167,505,022

33,184,466

Joe F. Starr

1,192,368,853

  8,320,635

Leland E. Tollett

1,164,558,772

36,130,766

Shelby D. Massey

1,194,822,754

  5,866,734

Jim Kever

1,194,833,878

  5,855,610

Barbara A. Tyson

1,164,643,606

36,045,882

Lloyd V. Hackley

1,194,885,192

  5,834,296

Donald E. Wray

1,194,796,666

  5,892,822

Gerald M. Johnston

1,192,413,215

  8,276,273

David A. Jones

1,194,823,522

  5,865,966

Barbara Allen

1,194,831,638

  5,857,850

Robert L. Peterson

1,194,810,532

  5,878,956

Richard L. Bond

1,166,961,087

33,728,401

Jo Ann Smith

1,194,849,409

  5,840,079
     
     

A Company proposal to approve an amendment to the Tyson Foods, Inc. 2000 Stock Incentive Plan was passed by a vote of 1,121,002,727 votes for the proposal and 23,077,108 votes against the proposal and 818,355 abstentions.

No other items were voted on during the quarter ended March 30, 2002.

Item 5.   Other Information

Not Applicable

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 March 11, 2002 the Company filed a current report on Form 8-K under item 5 (Other Items) related to the ratio of earnings to fixed charges.

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EXHIBIT INDEX

The following exhibit is filed with this report.

Exhibit No.

Exhibit Description

Page

10

Amendment Agreement, dated as of April 3, 2002 to the Company's Five-Year Credit Agreement, dated as of September 24, 2001, by and among the Company, as Borrower, The Chase Manhattan Bank, as Administrative Agent, Merrill Lynch Capital Corporation, as Syndication Agent, Suntrust Bank, as Documentation Agent, Mizuho Financial Group and Rabobank International, as Co-Documentation Agents and certain lenders parties thereto.

  28-117
     
 

99

Press Release, dated April 29, 2002 of Tyson Foods, Inc.

  118-125

 

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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: April 29, 2002

/s/ Steven Hankins
 

Steven Hankins
 

Executive Vice President and
 

    Chief Financial Officer
   

Date: April 29, 2002

/s/ Rodney S. Pless
 

Rodney S. Pless
 

Senior Vice President, Controller and
 

    Chief Accounting Officer

 

 

 

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