UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended October 3, 2009
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________________ to ________________
Commission File No. 001-14704
TYSON FOODS, INC.
(Exact Name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
71-0225165
(I.R.S. Employer Identification No.)
2200 Don Tyson Parkway, Springdale, Arkansas
(Address of principal executive offices)
72762-6999
(Zip Code)
Registrant's telephone number, including area code:
(479) 290-4000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Class A Common Stock, Par Value $0.10
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: Not Applicable
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No
[X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer [X]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
On March 28, 2009, the aggregate market value of the registrant’s Class A Common Stock, $0.10 par value (Class A stock), and
Class B Common Stock, $0.10 par value (Class B stock), held by non-affiliates of the registrant was $2,902,509,297 and $208,165,
respectively. Class B stock is not publicly listed for trade on any exchange or market system. However, Class B stock is convertible
into Class A stock on a share-for-share basis, so the market value was calculated based on the market price of Class A stock.
On October 31, 2009, there were 306,647,117 shares of the registrant's Class A stock and 70,021,155 shares of its Class B stock
outstanding.
INCORPORATION BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the registrant's Annual Meeting of Shareholders to be held February 5,
2010, are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
PAGE
3
7
12
12
13
15
16
18
19
36
38
81
81
81
82
82
82
83
83
83
Selected Financial Data
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
2
PART I
ITEM 1. BUSINESS
GENERAL
Founded in 1935, Tyson Foods, Inc. and its subsidiaries (collectively, “Company,” “we,” “us” or “our”) are the world’s largest meat
protein company and the second-largest food production company in the Fortune 500 with one of the most recognized brand names in
the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related allied products. Our operations
are conducted in four segments: Chicken, Beef, Pork and Prepared Foods. Some of the key factors influencing our business are
customer demand for our products; the ability to maintain and grow relationships with customers and introduce new and innovative
products to the marketplace; accessibility of international markets; market prices for our products; the cost of live cattle and hogs, raw
materials and grain; and operating efficiencies of our facilities.
We operate a fully vertically integrated poultry production process. Our integrated operations consist of breeding stock, contract
growers, feed production, processing, further-processing, marketing and transportation of chicken and related allied products,
including animal and pet food ingredients. Through our wholly-owned subsidiary, Cobb-Vantress, Inc. (Cobb), we are one of the
leading poultry breeding stock suppliers in the world. Investing in breeding stock research and development allows us to breed into
our flocks the characteristics found to be most desirable.
We also process live fed cattle and hogs and fabricate dressed beef and pork carcasses into primal and sub-primal meat cuts, case
ready beef and pork and fully-cooked meats. In addition, we derive value from allied products such as hides and variety meats sold to
further processors and others.
We produce a wide range of fresh, value-added, frozen and refrigerated food products. Our products are marketed and sold primarily
by our sales staff to national and regional grocery retailers, regional grocery wholesalers, meat distributors, warehouse club stores,
military commissaries, industrial food processing companies, national and regional chain restaurants or their distributors, international
export companies and domestic distributors who serve restaurants, foodservice operations such as plant and school cafeterias,
convenience stores, hospitals and other vendors. Additionally, sales to the military and a portion of sales to international markets are
made through independent brokers and trading companies.
We have been exploring ways to commercialize our supply of poultry litter and animal fats. In June 2007, we announced a 50/50 joint
venture with Syntroleum Corporation, called Dynamic Fuels LLC. Dynamic Fuels LLC will produce renewable synthetic fuels
targeting the renewable diesel and jet fuel markets. Construction of production facilities is expected to continue through early 2010,
with production targeted soon thereafter.
FINANCIAL INFORMATION OF SEGMENTS
We operate in four segments: Chicken, Beef, Pork and Prepared Foods. The contribution of each segment to net sales and operating
income (loss), and the identifiable assets attributable to each segment, are set forth in Note 20, “Segment Reporting” of the Notes to
Consolidated Financial Statements.
DESCRIPTION OF SEGMENTS
Chicken: Chicken operations include breeding and raising chickens, as well as processing live chickens into fresh, frozen and
value-added chicken products and logistics operations to move products through the supply chain. Products are marketed
domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as
schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. It also includes
sales from allied products and our chicken breeding stock subsidiary.
Beef: Beef operations include processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts
and case-ready products. This segment also includes sales from allied products such as hides and variety meats, as well as logistics
operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors,
restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military
and other food processors, as well as to international markets. Allied products are marketed to manufacturers of pharmaceuticals and
technical products.
Pork: Pork operations include processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and
case-ready products. This segment also includes our live swine group, related allied product processing activities and logistics
operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors,
restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military
and other
3
food processors, as well as to international markets. We sell allied products to pharmaceutical and technical products manufacturers,
as well as a limited number of live swine to pork processors.
Prepared Foods: Prepared Foods operations include manufacturing and marketing frozen and refrigerated food products, as well as
logistics operations to move products through the supply chain. Products include pepperoni, bacon, beef and pork pizza toppings,
pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and
processed meats. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and
noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors,
as well as to international markets.
RAW MATERIALS AND SOURCES OF SUPPLY
Chicken: The primary raw materials used in our chicken operations are corn and soybean meal used as feed and live chickens raised
primarily by independent contract growers. Our vertically-integrated chicken process begins with the grandparent breeder flocks and
ends with broilers for processing. Breeder flocks (i.e., grandparents) are raised to maturity in grandparent growing and laying farms
where fertile eggs are produced. Fertile eggs are incubated at the grandparent hatchery and produce pullets (i.e., parents). Pullets are
sent to breeder houses, and the resulting eggs are sent to our hatcheries. Once chicks have hatched, they are sent to broiler farms.
There, contract growers care for and raise the chicks according to our standards, with advice from our technical service personnel,
until the broilers reach the desired processing weight. Adult chickens are transported to processing plants, and finished products are
sent to distribution centers, then delivered to customers.
We operate our own feed mills to produce scientifically-formulated feeds. In fiscal 2009, corn and soybean meal were major
production costs, representing roughly 45% of our cost of growing a live chicken. In addition to feed ingredients to grow the
chickens, we use cooking ingredients, packaging materials and cryogenic agents. We believe our sources of supply for these materials
are adequate for our present needs, and we do not anticipate any difficulty in acquiring these materials in the future. While we
produce nearly all our inventory of breeder chickens and live broilers, from time-to-time we purchase live, ice-packed or deboned
chicken to meet production requirements.
Beef: The primary raw materials used in our beef operations are live cattle. We do not have facilities of our own to raise cattle but
have cattle buyers located throughout cattle producing areas who visit independent feed yards and buy live cattle on the open spot
market. These buyers are trained to select high quality animals, and we continually measure their performance. We also enter into
various risk-sharing and procurement arrangements with producers to secure a supply of livestock for our facilities. We believe the
sources of supply of live cattle are adequate for our present needs.
Pork: The primary raw materials used in our pork operations are live hogs. The majority of our live hog supply is obtained through
various procurement relationships with independent producers. We also employ buyers who purchase hogs on a daily basis, generally
a few days before the animals are processed. These buyers are trained to select high quality animals, and we continually measure their
performance. We believe the sources of supply of live hogs are adequate for our present needs. Additionally, we raise a number of
weanling swine to sell to independent finishers and supply a minimal amount of live swine for our own processing needs.
Prepared Foods: The primary raw materials used in our prepared foods operations are commodity based raw materials, including
chicken, beef, pork, corn, flour and vegetables. Some of these raw materials are provided by the Chicken, Beef and Pork segments,
while others may be purchased from numerous suppliers and manufacturers. We believe the sources of supply of raw materials are
adequate for our present needs.
SEASONAL DEMAND
Demand for chicken and beef products generally increases during the spring and summer months and generally decreases during the
winter months. Pork and prepared foods products generally experience increased demand during the winter months, primarily due to
the holiday season, while demand decreases during the spring and summer months.
CUSTOMERS
Wal-Mart Stores, Inc. accounted for 13.8% of our fiscal 2009 consolidated sales. Sales to Wal-Mart Stores, Inc. were included in the
Chicken, Beef, Pork and Prepared Foods segments. Any extended discontinuance of sales to this customer could, if not replaced, have
a material impact on our operations. No other single customer or customer group represents more than 10% of fiscal 2009
consolidated sales.
4
COMPETITION
Our food products compete with those of other national and regional food producers and processors and certain prepared food
manufacturers. Additionally, our food products compete in markets around the world.
We seek to achieve a leading market position for our products via our principal marketing and competitive strategy, which includes:
●
●
● utilizing our national distribution systems and customer support services.
identifying target markets for value-added products;
concentrating production, sales and marketing efforts to appeal to and enhance demand from those markets; and
Past efforts indicate customer demand can be increased and sustained through application of our marketing strategy, as supported by
our distribution systems. The principal competitive elements are price, product safety and quality, brand identification, breadth and
depth of the product offering, availability of products, customer service and credit terms.
INTERNATIONAL
We exported to more than 90 countries in fiscal 2009. Major export markets include Canada, Central America, China, the European
Union, Japan, Mexico, the Middle East, Russia, South Korea, Taiwan and Vietnam.
We have the following international operations:
● Tyson de Mexico, a Mexican subsidiary, is a vertically-integrated poultry production company;
● Cobb-Vantress, a chicken breeding stock subsidiary, has business interests in Argentina, Brazil, the Dominican Republic,
India, Ireland, Italy, Japan, the Netherlands, Peru, the Philippines, Spain, Sri Lanka, the United Kingdom and Venezuela;
● Tyson do Brazil, a Brazilian subsidiary, is a vertically-integrated poultry production company;
● Shandong Tyson Xinchang Foods, joint ventures in China in which we have a majority interest, is a vertically-integrated
poultry production company;
● Tyson Dalong, a joint venture in China in which we have a majority interest, is a chicken further processing facility;
● Jiangsu-Tyson, a Chinese poultry breeding company, is building a vertically-integrated poultry operation with production
expected to begin in fiscal 2011;
● Godrej Tyson Foods, a joint venture in India in which we have a majority interest, is a poultry processing business; and
● Cactus Argentina, a majority interest in a vertically-integrated beef operation joint venture in Argentina; however, we do
not consolidate the entity due to the lack of controlling interest.
We continue to explore growth opportunities in foreign countries. Additional information regarding export sales, long-lived assets
located in foreign countries and income (loss) from foreign operations is set forth in Note 20, “Segment Reporting” of the Notes to
Consolidated Financial Statements.
RESEARCH AND DEVELOPMENT
We conduct continuous research and development activities to improve product development, to automate manual processes in our
processing plants and growout operations, and to improve chicken breeding stock. In 2007, we opened the Discovery Center, which
includes 19 research kitchens and a USDA-inspected pilot plant. The Discovery Center brings new market-leading retail and
foodservice products to the customer faster and more effectively.
ENVIRONMENTAL REGULATION AND FOOD SAFETY
Our facilities for processing chicken, beef, pork and prepared foods, milling feed and housing live chickens and swine are subject to a
variety of federal, state and local environmental laws and regulations, which include provisions relating to the discharge of materials
into the environment and generally provide for protection of the environment. We believe we are in substantial compliance with such
applicable laws and regulations and are not aware of any violations of such laws and regulations likely to result in material penalties
or material increases in compliance costs. The cost of compliance with such laws and regulations has not had a material adverse effect
on our capital expenditures, earnings or competitive position, and except as described below, is not anticipated to have a material
adverse effect in the future.
Congress and the United States Environmental Protection Agency are considering various options to control greenhouse gas
emissions. It is unclear at this time when or if such options will be finalized, or what the final form may be. Due to the uncertainty
surrounding this issue, it is premature to speculate on the specific nature of impacts that imposition of greenhouse gas emission
controls would have on us, and whether such impacts would have a material adverse effect.
5
We work to ensure our products meet high standards of food safety and quality. In addition to our own internal Food Safety and
Quality Assurance oversight and review, our chicken, beef, pork and prepared foods products are subject to inspection prior to
distribution, primarily by the United States Department of Agriculture (USDA) and the United States Food and Drug Administration
(FDA). We are also participants in the United States Hazard Analysis Critical Control Point (HACCP) program and are subject to the
Sanitation Standard Operating Procedures and the Public Health Security and Bioterrorism Preparedness and Response Act of 2002.
EMPLOYEES AND LABOR RELATIONS
As of October 3, 2009, we employed approximately 117,000 employees. Approximately 100,000 employees were employed in the
United States and 17,000 employees were in foreign countries, primarily China, Mexico and Brazil. Approximately 33,000 employees
in the United States were subject to collective bargaining agreements with various labor unions, with approximately 6% of those
employees included under agreements expiring in fiscal 2010. These agreements expire over periods throughout the next several
years. Approximately 7,000 employees in foreign countries were subject to collective bargaining agreements. We believe our overall
relations with our workforce are good.
MARKETING AND DISTRIBUTION
Our principal marketing objective is to be the primary provider of chicken, beef, pork and prepared foods products for our customers
and consumers. As such, we utilize our national distribution system and customer support services to achieve the leading market
position for our products. On an ongoing basis, we identify distinct markets and business opportunities through continuous consumer
and market research. In addition to supporting strong regional brands across multiple protein lines, we build the Tyson brand
primarily through well-defined product-specific advertising and public relations efforts focused toward key consumer targets with
specific needs. These efforts are designed to present key Tyson products as everyday solutions to relevant consumer problems thereby
gaining adoption into regular eating routines. Further, we use a coordinated mix of activities designed to connect with our customers
and consumers on both rational and emotional levels. We utilize our national distribution system and customer support services to
achieve the leading market position for our products.
We have the ability to produce and ship fresh, frozen and refrigerated products worldwide. Domestically, our distribution system
extends to a broad network of food distributors and is supported by our owned or leased cold storage warehouses, public cold storage
facilities and our transportation system. Our distribution centers accumulate fresh and frozen products so we can fill and consolidate
less-than-truckload orders into full truckloads, thereby decreasing shipping costs while increasing customer service. In addition, we
provide our customers a wide selection of products that do not require large volume orders. Our distribution system enables us to
supply large or small quantities of products to meet customer requirements anywhere in the continental United States. Internationally,
we utilize both rail and truck refrigerated transportation to domestic ports, where consolidations take place to transport to foreign
destinations. We use ocean and air transportation to meet the delivery needs of our foreign customers.
PATENTS AND TRADEMARKS
We have filed a number of patents and trademarks relating to our processes and products that either have been approved or are in the
process of application. Because we do a significant amount of brand name and product line advertising to promote our products, we
consider the protection of our trademarks to be important to our marketing efforts. We also have developed non-public proprietary
information regarding our production processes and other product-related matters. We utilize internal procedures and safeguards to
protect the confidentiality of such information and, where appropriate, seek patent and/or trademark protection for the technology we
utilize.
INDUSTRY PRACTICES
Our agreements with customers are generally short-term, primarily due to the nature of our products, industry practices and
fluctuations in supply, demand and price for such products. In certain instances where we are selling further processed products to
large customers, we may enter into written agreements whereby we will act as the exclusive or preferred supplier to the customer,
with pricing terms that are either fixed or variable. Due to volatility of the cost of raw materials, fixed price contracts are generally
limited to three months in duration.
AVAILABILITY OF SEC FILINGS AND CORPORATE GOVERNANCE DOCUMENTS ON INTERNET WEBSITE
We maintain an internet website for investors at http://ir.tyson.com. On this website, we make available, free of charge, annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to any of those reports, as soon as
reasonably practicable after we electronically file such reports with, or furnish to, the Securities and Exchange Commission. Also
available on the website for investors are the Corporate Governance Principles, Audit Committee charter, Compensation Committee
charter, Governance Committee charter, Nominating Committee charter, Code of Conduct and Whistleblower Policy. Our corporate
governance documents are available in print, free of charge to any shareholder who requests them.
6
CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain information in this report constitutes forward-looking statements. Such forward-looking statements include, but are not
limited to, current views and estimates of future economic circumstances, industry conditions in domestic and international markets,
our performance and financial results, including, without limitation, debt-levels, return on invested capital, value-added product
growth, capital expenditures, tax rates, access to foreign markets and dividend policy. These forward-looking statements are subject
to a number of factors and uncertainties that could cause our actual results and experiences to differ materially from anticipated
results and expectations expressed in such forward-looking statements. We wish to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future events or otherwise.
Among the factors that may cause actual results and experiences to differ from anticipated results and expectations expressed in such
forward-looking statements are the following: (i) the effect of, or changes in, general economic conditions; (ii) fluctuations in the cost
and availability of inputs and raw materials, such as live cattle, live swine, feed grains (including corn and soybean meal) and energy;
(iii) market conditions for finished products, including competition from other global and domestic food processors, supply and
pricing of competing products and alternative proteins and demand for alternative proteins; (iv) successful rationalization of existing
facilities and operating efficiencies of the facilities; (v) risks associated with our commodity trading risk management activities; (vi)
access to foreign markets together with foreign economic conditions, including currency fluctuations, import/export restrictions and
foreign politics; (vii) outbreak of a livestock disease (such as avian influenza (AI) or bovine spongiform encephalopathy (BSE)),
which could have an effect on livestock we own, the availability of livestock we purchase, consumer perception of certain protein
products or our ability to access certain domestic and foreign markets; (viii) changes in availability and relative costs of labor and
contract growers and our ability to maintain good relationships with employees, labor unions, contract growers and independent
producers providing us livestock; (ix) issues related to food safety, including costs resulting from product recalls, regulatory
compliance and any related claims or litigation; (x) changes in consumer preference and diets and our ability to identify and react to
consumer trends; (xi) significant marketing plan changes by large customers or loss of one or more large customers; (xii) adverse
results from litigation; (xiii) risks associated with leverage, including cost increases due to rising interest rates or changes in debt
ratings or outlook; (xiv) compliance with and changes to regulations and laws (both domestic and foreign), including changes in
accounting standards, tax laws, environmental laws and occupational, health and safety laws; (xv) our ability to make effective
acquisitions or joint ventures and successfully integrate newly acquired businesses into existing operations; (xvi) effectiveness of
advertising and marketing programs; and (xvii) those factors listed under Item 1A. “Risk Factors.”
ITEM 1A. RISK FACTORS
These risks, which should be considered carefully with the information provided elsewhere in this report, could materially adversely
affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we
currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.
Fluctuations in commodity prices and in the availability of raw materials, especially feed grains, live cattle, live swine and
other inputs could negatively impact our earnings.
Our results of operations and financial condition are dependent upon the cost and supply of raw materials such as feed grains, live
cattle, live swine, energy and ingredients, as well as the selling prices for our products, many of which are determined by constantly
changing market forces of supply and demand over which we have limited or no control. Corn and soybean meal are major
production costs in the poultry industry, representing roughly 45% of our cost of growing a chicken in fiscal 2009. As a result,
fluctuations in prices for these feed ingredients, which include competing demand for corn and soybean meal for use in the
manufacture of renewable energy, can adversely affect our earnings. Production of feed ingredients is affected by, among other
things, weather patterns throughout the world, the global level of supply inventories and demand for grains and other feed ingredients,
as well as agricultural and energy policies of domestic and foreign governments.
We have cattle under contract at feed yards owned by third parties; however, most of the cattle we process are purchased from
independent producers. We have cattle buyers located throughout cattle producing areas who visit feed yards and buy live cattle on
the
7
open spot market. We also enter into various risk-sharing and procurement arrangements with producers who help secure a supply of
livestock for daily start-up operations at our facilities. The majority of our live swine supply is obtained through various procurement
arrangements with independent producers. We also employ buyers who purchase hogs on a daily basis, generally a few days before
the animals are required for processing. In addition, we raise live swine and sell feeder pigs to independent producers for feeding to
processing weight and have contract growers feed a minimal amount of company-owned live swine for our own processing needs.
Any decrease in the supply of cattle or swine on the spot market could increase the price of these raw materials and further increase
per head cost of production due to lower capacity utilization, which could adversely affect our financial results.
Market demand and the prices we receive for our products may fluctuate due to competition from global and domestic food
producers and processors.
We face competition from other global and domestic food producers and processors. Some of the factors on which we compete and
which may drive demand for our products include:
● price;
● product safety and quality;
● brand identification;
● breadth and depth of the product offering;
●
●
●
availability of our products;
customer service; and
credit terms.
Demand for our products also is affected by competitors’ promotional spending, the effectiveness of our advertising and marketing
programs and the availability or price of competing proteins.
We attempt to obtain prices for our products that reflect, in part, the price we must pay for the raw materials that go into our products.
If we are not able to obtain higher prices for our products when the price we pay for raw materials increases, we may be unable to
maintain positive margins.
Outbreaks of livestock diseases can adversely impact our ability to conduct our operations and demand for our products.
Demand for our products can be adversely impacted by outbreaks of livestock diseases, which can have a significant impact on our
financial results. Efforts are taken to control disease risks by adherence to good production practices and extensive precautionary
measures designed to ensure the health of livestock. However, outbreaks of disease and other events, which may be beyond our
control, either in our own livestock or cattle and hogs owned by independent producers who sell livestock to us, could significantly
affect demand for our products, consumer perceptions of certain protein products, the availability of livestock for purchase by us and
our ability to conduct our operations. Moreover, the outbreak of livestock diseases, particularly in our Chicken segment, could have a
significant effect on the livestock we own by requiring us to, among other things, destroy any affected livestock. Furthermore, an
outbreak of disease could result in governmental restrictions on the import and export of our products to or from our suppliers,
facilities or customers. This could also result in negative publicity that may have an adverse effect on our ability to market our
products successfully and on our financial results.
We are subject to risks associated with our international operations, which could negatively affect our sales to customers in
foreign countries, as well as our operations and assets in such countries.
In fiscal 2009, we exported to more than 90 countries. Major export markets include Canada, Central America, China, the European
Union, Japan, Mexico, the Middle East, Russia, South Korea, Taiwan and Vietnam. Our export sales for fiscal 2009 totaled $2.7
billion. In addition, we had approximately $329 million of long-lived assets located in foreign countries, primarily Brazil, China and
Mexico, at the end of fiscal 2009. In fiscal 2009, approximately 3% of the loss from continuing operations before income taxes and
minority interest was from foreign operations.
8
As a result, we are subject to various risks and uncertainties relating to international sales and operations, including:
●
imposition of tariffs, quotas, trade barriers and other trade protection measures imposed by foreign countries regarding the
import of poultry, beef and pork products, in addition to import or export licensing requirements imposed by various
foreign countries;
● closing of borders by foreign countries to the import of poultry, beef and pork products due to animal disease or other
●
perceived health or safety issues;
impact of currency exchange rate fluctuations between the U.S. dollar and foreign currencies, particularly the Canadian
dollar, the Chinese renminbi, the Mexican peso, the European euro, the British pound sterling, and the Brazilian real;
● political and economic conditions;
● difficulties and costs associated with complying with, and enforcing remedies under, a wide variety of complex domestic
and international laws, treaties and regulations, including, without limitation, the United States' Foreign Corrupt Practices
Act and economic and trade sanctions enforced by the United States Department of the Treasury's Office of Foreign Assets
Control;
● different regulatory structures and unexpected changes in regulatory environments;
●
tax rates that may exceed those in the United States and earnings that may be subject to withholding requirements and
incremental taxes upon repatriation;
● potentially negative consequences from changes in tax laws; and
● distribution costs, disruptions in shipping or reduced availability of freight transportation.
Negative consequences relating to these risks and uncertainties could jeopardize or limit our ability to transact business in one or
more of those markets where we operate or in other developing markets and could adversely affect our financial results.
We depend on the availability of, and good relations with, our employees.
We have approximately 117,000 employees, of whom approximately 40,000 are covered by collective bargaining agreements or are
members of labor unions. Our operations depend on the availability and relative costs of labor and maintaining good relations with
employees and the labor unions. If we fail to maintain good relations with our employees or with the unions, we may experience labor
strikes or work stoppages, which could adversely affect our financial results.
We depend on contract growers and independent producers to supply us with livestock.
We contract primarily with independent contract growers to raise the live chickens processed in our poultry operations. A majority of
our cattle and hogs are purchased from independent producers who sell livestock to us under marketing contracts or on the open
market. If we do not attract and maintain contracts with growers or maintain marketing relationships with independent producers, our
production operations could be negatively affected.
If our products become contaminated, we may be subject to product liability claims and product recalls.
Our products may be subject to contamination by disease-producing organisms or pathogens, such as Listeria monocytogenes,
Salmonella and generic E. coli. These pathogens are found generally in the environment; therefore, there is a risk they, as a result of
food processing, could be present in our products. These pathogens also can be introduced to our products as a result of improper
handling at the further processing, foodservice or consumer level. These risks may be controlled, but may not be eliminated, by
adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling
procedures once our products have been shipped for distribution. Even an inadvertent shipment of contaminated products may be a
violation of law and may lead to increased risk of exposure to product liability claims, product recalls (which may not entirely
mitigate the risk of product liability claims), increased scrutiny and penalties, including injunctive relief and plant closings, by federal
and state regulatory agencies, and adverse publicity, which could exacerbate the associated negative consumer reaction. Any of these
occurrences may have an adverse effect on our financial results.
Our operations are subject to general risks of litigation.
We are involved on an on-going basis in litigation arising in the ordinary course of business or otherwise. Trends in litigation may
include class actions involving consumers, shareholders, employees or injured persons, and claims relating to commercial, labor,
employment, antitrust, securities or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with
certainty and adverse litigation trends and outcomes could adversely affect our financial results.
9
Our level of indebtedness and the terms of our indebtedness could negatively impact our business and liquidity position.
Our indebtedness, including borrowings under our revolving credit facility, may increase from time to time for various reasons,
including fluctuations in operating results, working capital needs, capital expenditures and possible acquisitions, joint ventures or
other significant initiatives. Our consolidated indebtedness level could adversely affect our business because:
it may limit or impair our ability to obtain financing in the future;
●
● our credit rating could restrict or impede our ability to access capital markets at desired rates and increase our borrowing
●
costs;
it may reduce our flexibility to respond to changing business and economic conditions or to take advantage of business
opportunities that may arise;
● a portion of our cash flow from operations must be dedicated to interest payments on our indebtedness and is not available
for other purposes; and
it may restrict our ability to pay dividends.
●
Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to:
create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or
transfer assets; pay dividends or make other payments in respect of our capital stock; amend material documents; change the nature of
our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging
transactions, in each case, subject to certain qualifications and exceptions. If availability under this facility is less than the greater of
15% of the commitments and $150 million, we will be required to maintain a minimum fixed charge coverage ratio.
Our 10.50% Senior notes due March 2014 also contain affirmative and negative covenants that, among other things, may limit or
restrict our ability to: incur additional debt and issue preferred stock; make certain investments and restricted payments; create liens;
create restrictions on distributions from restricted subsidiaries; engage in specified sales of assets and subsidiary stock; enter into
transactions with affiliates; enter new lines of business; engage in consolidation, mergers and acquisitions; and engage in certain
sale/leaseback transactions.
An impairment in the carrying value of goodwill could negatively impact our consolidated results of operations and net worth.
Goodwill is initially recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more frequently if
impairment indicators are present. In assessing the recoverability of goodwill, we make estimates and assumptions about sales,
operating margin growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash
flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment in applying these
factors. Goodwill valuations have been calculated using an income approach based on the present value of future cash flows of each
reporting unit. Under the income approach, we are required to make various judgmental assumptions about appropriate discount rates.
The recent disruptions in global credit and other financial markets and deterioration of economic conditions, could, among other
things, cause us to increase the discount rate used in the goodwill valuations. We could be required to evaluate the recoverability of
goodwill prior to the annual assessment if we experience disruptions to the business, unexpected significant declines in operating
results, divestiture of a significant component of our business or sustained market capitalization declines. These types of events and
the resulting analyses could result in goodwill impairment charges in the future. Impairment charges could substantially affect our
financial results in the periods of such charges. In fiscal 2009, we recorded a non-cash partial impairment of $560 million of our beef
reporting unit’s goodwill. As of October 3, 2009, we had $1.9 billion of goodwill, which represented approximately 18.1% of total
assets.
Domestic and international government regulations could impose material costs.
Our operations are subject to extensive federal, state and foreign laws and regulations by authorities that oversee food safety standards
and processing, packaging, storage, distribution, advertising, labeling and export of our products. Our facilities for processing
chicken, beef, pork, prepared foods and milling feed and for housing live chickens and swine are subject to a variety of international,
federal, state and local laws relating to the protection of the environment, including provisions relating to the discharge of materials
into the environment, and to the health and safety of our employees. Our chicken, beef and pork processing facilities are participants
in the HACCP program and are subject to the Public Health Security and Bioterrorism Preparedness and Response Act of 2002. In
addition, our products are subject to inspection prior to distribution, primarily by the USDA and the FDA. Loss of or failure to obtain
necessary
10
permits and registrations could delay or prevent us from meeting current product demand, introducing new products, building new
facilities or acquiring new businesses and could adversely affect operating results. Additionally, we are routinely subject to new or
modified laws, regulations and accounting standards, such as country of origin labeling (COOL) requirements. If we are found to be
out of compliance with applicable laws and regulations in these or other areas, we could be subject to civil remedies, including fines,
injunctions, recalls or asset seizures, as well as potential criminal sanctions, any of which could have an adverse effect on our
financial results.
A material acquisition, joint venture or other significant initiative could affect our operations and financial condition.
We have recently completed acquisitions and entered into joint venture agreements and periodically evaluate potential acquisitions,
joint ventures and other initiatives (collectively, “transactions”), and we may seek to expand our business through the acquisition of
companies, processing plants, technologies, products and services, which could include material transactions. A material transaction
may involve a number of risks, including:
failure to realize the anticipated benefits of the transaction;
●
● difficulty integrating acquired businesses, technologies, operations and personnel with our existing business;
● diversion of management attention in connection with negotiating transactions and integrating the businesses acquired;
●
●
exposure to unforeseen or undisclosed liabilities of acquired companies; and
the need to obtain additional debt or equity financing for any transaction.
We may not be able to address these risks and successfully develop these acquired companies or businesses into profitable units. If we
are unable to do this, such expansion could adversely affect our financial results.
Market fluctuations could negatively impact our operating results as we hedge certain transactions.
Our business is exposed to fluctuating market conditions. We use derivative financial instruments to reduce our exposure to various
market risks including changes in commodity prices, interest rates and foreign exchange rates. We hold certain positions, primarily in
grain and livestock futures, that do not qualify as hedges for financial reporting purposes. These positions are marked to fair value,
and the unrealized gains and losses are reported in earnings at each reporting date. Therefore, losses on these contracts will adversely
affect our reported operating results. While these contracts reduce our exposure to changes in prices for commodity products, the use
of such instruments may ultimately limit our ability to benefit from favorable commodity prices.
Deterioration of economic conditions could negatively impact our business.
Our business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates,
availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges) and the effects of
governmental initiatives to manage economic conditions. Any such changes could adversely affect the demand for our products, or
the cost and availability of our needed raw materials, cooking ingredients and packaging materials, thereby negatively affecting our
financial results.
The recent disruptions in global credit and other financial markets and deterioration of economic conditions, could, among other
things:
● make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the
future;
● cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any
●
amendment of, or waivers under, our credit agreement to the extent we may seek them in the future;
impair the financial condition of some of our customers and suppliers thereby increasing customer bad debts or
non-performance by suppliers;
● negatively impact global demand for protein products, which could result in a reduction of sales, operating income and cash
flows;
● decrease the value of our investments in equity and debt securities, including our marketable debt securities,
company-owned life insurance and pension and other postretirement plan assets;
● negatively impact our commodity risk management activities if we are required to record additional losses related to
derivative financial instruments; or
impair the financial viability of our insurers.
●
Changes in consumer preference could negatively impact our business.
The food industry in general is subject to changing consumer trends, demands and preferences. Trends within the food industry
change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price
reductions for our products, and could have an adverse effect on our financial results.
11
The loss of one or more of our largest customers could negatively impact our business.
Our business could suffer significant set backs in sales and operating income if our customers’ plans and/or markets should change
significantly, or if we lost one or more of our largest customers, including, for example, Wal-Mart Stores, Inc., which accounted for
13.8% of our sales in fiscal 2009. Many of our agreements with our customers are generally short-term, primarily due to the nature of
our products, industry practice and the fluctuation in demand and price for our products.
The consolidation of customers could negatively impact our business.
Our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated in recent years, and consolidation is
expected to continue throughout the United States and in other major markets. These consolidations have produced large,
sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price
increases, and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also
may use shelf space currently used for our products for their own private label products. Because of these trends, our volume growth
could slow or we may need to lower prices or increase promotional spending for our products, any of which would adversely affect
our financial results.
Extreme factors or forces beyond our control could negatively impact our business.
Natural disasters, fire, bioterrorism, pandemic or extreme weather, including droughts, floods, excessive cold or heat, hurricanes or
other storms, could impair the health or growth of livestock or interfere with our operations due to power outages, fuel shortages,
damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors,
as well as disruptions in our information systems, could have an adverse effect on our financial results.
Our renewable energy ventures and other initiatives might not be as successful as we expect.
We have been exploring ways to commercialize animal fats and other by-products from our operations, as well as the poultry litter of
our contract growers, to generate energy and other value-added products. For example, in fiscal 2007, we announced the formation of
Dynamic Fuels LLC, a joint venture with Syntroleum Corporation. We will continue to explore other ways to commercialize
opportunities outside our core business, such as renewable energy and other technologically-advanced platforms. These initiatives
might not be as financially successful as we initially announced or would expect due to factors that include, but are not limited to,
possible discontinuance of tax credits, competing energy prices, failure to operate at the volumes anticipated, abilities of our joint
venture partners and our limited experience in some of these new areas.
Members of the Tyson family can exercise significant control.
Members of the Tyson family beneficially own, in the aggregate, 99.97% of our outstanding shares of Class B Common Stock, $0.10
par value (Class B stock) and 2.36% of our outstanding shares of Class A Common Stock, $0.10 par value (Class A stock), giving
them control of approximately 70% of the total voting power of our outstanding voting stock. In addition, three members of the Tyson
family serve on our Board of Directors. As a result, members of the Tyson family have the ability to exert substantial influence or
actual control over our management and affairs and over substantially all matters requiring action by our stockholders, including
amendments to our restated certificate of incorporation and by-laws, the election and removal of directors, any proposed merger,
consolidation or sale of all or substantially all of our assets and other corporate transactions. This concentration of ownership may
also delay or prevent a change in control otherwise favored by our other stockholders and could depress our stock price. Additionally,
as a result of the Tyson family’s significant ownership of our outstanding voting stock, we have relied on the “controlled company”
exemption from certain corporate governance requirements of the New York Stock Exchange. Pursuant to these exemptions, our
compensation committee, which is made up of independent directors, does not have sole authority to determine the compensation of
our executive officers, including our chief executive officer.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We have sales offices and production and distribution operations in the following states: Alabama, Arizona, Arkansas, California,
Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Mississippi, Missouri, Nebraska, New Jersey, New Mexico,
New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington and
Wisconsin. Additionally, we, either directly or through our subsidiaries, have sales offices, facilities or participate in joint venture
operations in Argentina, Brazil, Canada, China, the Dominican Republic, Hong Kong, India, Ireland, Italy, Japan, Mexico, the
Netherlands, Peru, the Philippines, Russia, South Korea, Spain, Sri Lanka, Taiwan, the United Arab Emirates, the United Kingdom
and Venezuela.
12
Chicken Segment:
Processing plants
Rendering plants
Blending mills
Feed mills
Broiler hatcheries
Breeder houses
Broiler farm houses
Beef Segment Production Facilities
Pork Segment Production Facilities
Prepared Foods Segment Processing Plants
Distribution Centers
Cold Storage Facilities
Chicken Processing Plants
Beef Production Facilities
Pork Production Facilities
Prepared Foods Processing Plants
Owned
Number of Facilities
Leased
61
14
2
42
62
483
864
12
9
22
10
65
2
-
-
-
7
747
812
-
-
1
2
10
Total
63
14
2
42
69
1,230
1,676
12
9
23
12
75
Capacity(1)
Fiscal 2009
per week at Average Capacity
Utilization
90%
82%
90%
82%
October 3, 2009
48 million head
170,000 head
437,000 head
45 million pounds
(1) Capacity based on a five day week for Chicken and Prepared Foods, while Beef and Pork are based on a six day week.
Chicken: Chicken processing plants include various phases of slaughtering, dressing, cutting, packaging, deboning and
further-processing. We also have 17 pet food operations, which are part of the Chicken processing plants. The blending mills, feed
mills and broiler hatcheries have sufficient capacity to meet the needs of the chicken growout operations.
Beef: Beef plants include various phases of slaughtering live cattle and fabricating beef products. Some also treat and tan hides. The
Beef segment includes three case-ready operations that share facilities with the Pork segment. One of the beef facilities contains a
tallow refinery. Carcass facilities reduce live cattle to dressed carcass form. Processing facilities conduct fabricating operations to
produce boxed beef and allied products.
Pork: Pork plants include various phases of slaughtering live hogs and fabricating pork products and allied products. The Pork
segment includes three case-ready operations that share facilities with the Beef segment.
Prepared Foods: Prepared Foods plants process fresh and frozen chicken, beef, pork and other raw materials into pizza toppings,
branded and processed meats, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, pizza crusts, flour and corn tortilla
products and meat dishes.
We believe our present facilities are generally adequate and suitable for our current purposes; however, seasonal fluctuations in
inventories and production may occur as a reaction to market demands for certain products. We regularly engage in construction and
other capital improvement projects intended to expand capacity and improve the efficiency of our processing and support facilities.
ITEM 3. LEGAL PROCEEDINGS
Refer to the discussion of our certain legal proceedings pending against us under Part II, Item 8, Notes to Consolidated Financial
Statements, Note 22: “Contingencies,” which discussion is incorporated herein by reference. Listed below are certain additional legal
proceedings for which we are involved.
On October 23, 2001, a putative class action lawsuit styled R. Lynn Thompson, et al. vs. Tyson Foods, Inc. was filed in the District
Court for Mayes County, Oklahoma by three property owners on behalf of all owners of lakefront property on Grand Lake O’ the
Cherokees. Simmons Foods, Inc. and Peterson Farms, Inc. also are defendants. The plaintiffs allege the defendants’ operations
diminished the water quality in the lake thereby interfering with the plaintiffs’ use and enjoyment of their properties. The plaintiffs
13
sought injunctive relief and an unspecified amount of compensatory damages, punitive damages, attorneys’ fees and costs. While the
District Court certified a class, on October 4, 2005, the Court of Civil Appeals of the State of Oklahoma reversed, holding the
plaintiffs’ claims were not suitable for disposition as a class action. This decision was upheld by the Oklahoma Supreme Court and
the case was remanded to the District Court with instructions that the matter proceed only on behalf of the three named plaintiffs.
Plaintiffs seek injunctive relief, restitution and compensatory and punitive damages in an unspecified amount in excess of $10,000.
We and the other defendants have denied liability and asserted various defenses. Defendants have requested a trial date, but the court
has not yet scheduled the matter for trial.
In 2004, representatives of our subsidiary, Tyson Fresh Meats, Inc. (“TFM”), met with the U.S. Environmental Protection Agency
(“USEPA”) staff to discuss alleged wastewater and late report filing violations under the Clean Water Act relating to the 2002 Second
and Final Consent Decree that governed compliance requirements for TFM’s Dakota City, Nebraska, facility. TFM vigorously
disputed these allegations. The U.S. Department of Justice (“DOJ”), on behalf of USEPA, recently requested that TFM enter into a
tolling agreement concerning possible civil penalties and injunctive relief for Clean Water Act violations, which was executed in July
2008, and enter into negotiations with DOJ and USEPA regarding a potential settlement of this matter. Pursuant to negotiations with
DOJ and USEPA, a settlement in principal was reached on December 30, 2008, which would require the payment of $2,026,500 in
penalties. On August 20, 2009 a Joint Stipulation Motion was filed in the U.S. District Court for the District of Nebraska
documenting the settlement agreement. The Court approved the settlement on August 31, 2009. The penalties were paid by TFM on
September 15, 2009, and the matter was resolved.
On January 9, 2003, we received a notice of liability letter from Union Pacific Railroad Company (“Union Pacific”) relating to our
alleged contributions of waste oil to the Double Eagle Refinery Superfund Site in Oklahoma City, Oklahoma. On August 22, 2006,
the United States and the State of Oklahoma filed a lawsuit styled United States of America, et al. v. Union Pacific Railroad Co. in the
United States District Court for the Western District of Oklahoma seeking more than $22 million (the amount sought has
subsequently increased to more than $30 million) to remediate the Double Eagle site. Certain Tyson entities joined a “potentially
responsible parties” group on October 31, 2006. A settlement between the “potentially responsible parties” group, the United States,
and the State of Oklahoma was reached and the Tyson entities paid $625,586 (for 135,997 alleged gallons of waste oil) into escrow
towards the settlement of the matter. In furtherance of finalizing the settlement, on June 20, 2008 the DOJ filed a complaint styled
United States of America, et al. v. Albert Investment Co., Inc. et al. against numerous alleged responsible parties, including various
Tyson entities (the “Litigation”). A proposed Consent Decree addressing all alleged liability of Tyson for the site was lodged on June
27, 2008. On August 15, 2008, Union Pacific submitted to the United States its Comments and Objections to the proposed Consent
Decree. In its Comments and Objections, Union Pacific claimed that the Tyson entities' alleged gallons of waste oil should be 160,819
rather than the 135,997 gallons set forth in the proposed Consent Decree. On October 10, 2008, Union Pacific initiated litigation to
challenge the proposed Consent Decree by filing a motion to intervene in the Litigation, which the court denied. Union Pacific
appealed this decision to the United States Court of Appeals for the Tenth Circuit. The "potentially responsible parties" group and
other parties filed briefs in the Tenth Circuit, and oral arguments occurred on September 21, 2009. If the proposed Consent Decree is
entered, the escrowed amount will be paid to the United States and the State of Oklahoma.
In November 2006, the Audit Committee of our Board of Directors engaged outside counsel to conduct a review of certain payments
that had been made by one of our subsidiaries in Mexico, including payments to individuals employed by Mexican governmental
bodies. The payments were discontinued in November 2006. Although the review process is ongoing, we believe the amount of these
payments is immaterial, and we do not expect any material impact to our financial statements. We have contacted the Securities and
Exchange Commission and the U.S. Department of Justice to inform them of our review and preliminary findings and are cooperating
fully with these governmental authorities.
Since 2003, nine lawsuits have been brought against Tyson and several other poultry companies by approximately 150 plaintiffs in
Washington County, Arkansas Circuit Court (Green v. Tyson Foods, Inc., et al., Bible v. Tyson Foods, Inc., Beal v. Tyson Foods,
Inc., et al., McWhorter v. Tyson Foods, Inc., et al., McConnell v. Tyson Foods, Inc., et al., Carroll v. Tyson Foods, Inc., et al., Belew
v. Tyson Foods, Inc., et al., Gonzalez v. Tyson Foods, Inc., et al., and Rasco v. Tyson Foods, Inc., et al.) alleging that the land
application of poultry litter caused arsenic and pathogenic mold and fungi contamination of the air, soil and water in and around
Prairie Grove, Arkansas. In addition to the poultry company defendants, plaintiffs sued Alpharma, the manufacturer of a feed
ingredient containing an organic arsenic compound that has been used in the broiler industry. Plaintiffs are seeking recovery for
several types of personal injuries, including several forms of cancer. On August 2, 2006, the Court granted summary judgment in
favor of Tyson and the other poultry company defendants in the first case to go to trial and denied summary judgment as to Alpharma.
The case was tried against Alpharma and the jury returned a verdict in favor of Alpharma. Plaintiffs appealed the summary judgment
in favor of the poultry company defendants and the Court stayed the remaining eight lawsuits pending the appeal. On May 8, 2008,
the Arkansas Supreme Court reversed the summary judgment in favor of the poultry company defendants. The remanded trial in this
case against the poultry company defendants began on April 30, 2009 and on May 14, 2009, the jury returned a verdict in favor of us
and the other poultry company defendants. On July 13, 2009, plaintiffs filed a notice of appeal to the Arkansas Supreme Court.
14
Other Matters: We have approximately 117,000 employees and, at any time, have various employment practices matters
outstanding. In the aggregate, these matters are significant to the Company, and we devote significant resources to managing
employment issues. Additionally, we are subject to other lawsuits, investigations and claims (some of which involve substantial
amounts) arising out of the conduct of our business. While the ultimate results of these matters cannot be determined, they are not
expected to have a material adverse effect on our consolidated results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE COMPANY
Our Officers serve one year terms from the date of their election, or until their successors are appointed and qualified. No family
relationships exist among these officers. The name, title, age and year of initial election to executive office of our executive officers
are listed below:
Name
Richard A. Greubel, Jr.
Craig J. Hart
Kenneth J. Kimbro
Dennis Leatherby
James V. Lochner
Donnie Smith
David L. Van Bebber
Jeffrey D. Webster
Title
Group Vice President and International President
Senior Vice President, Controller and Chief Accounting Officer
Senior Vice President, Chief Human Resources Officer
Executive Vice President and Chief Financial Officer
Chief Operating Officer
President and Chief Executive Officer
Executive Vice President and General Counsel
Group Vice President, Renewable Products
Age
47
53
56
49
57
50
53
48
Year Elected
2007
2004
2009
1994
2005
2008
2008
2008
Richard A. Greubel, Jr. was appointed Group Vice President and International President in May 2007, after serving as Group
Vice President, International since August 2006, and President and Managing Director for Monsanto’s Brazil business since 2001.
Craig J. Hart was appointed Senior Vice President, Controller and Chief Accounting Officer in September 2004 after serving
as Vice President of Special Projects since 2001. Mr. Hart was initially employed by IBP in 1978.
Kenneth J. Kimbro was appointed Senior Vice President, Chief Human Resources Officer in 2001. Mr. Kimbro was initially
employed by IBP in 1995.
Dennis Leatherby was appointed Executive Vice President and Chief Financial Officer in June 2008 after serving as Senior
Vice President, Finance and Treasurer since 1998. He also served as Interim Chief Financial Officer from July 2004 to June 2006.
Mr. Leatherby was initially employed by the Company in 1990.
James V. Lochner was appointed Chief Operating Officer on November 19, 2009, after serving as Senior Group Vice
President, Fresh Meats and Margin Optimization since May 2006, Senior Group Vice President, Margin Optimization, Purchasing
and Logistics since October 2005, Group Vice President, Purchasing, Travel, and Aviation since November 2004 and Group Vice
President, Fresh Meats since 2001. Mr. Lochner was initially employed by IBP in 1983.
Donnie Smith was appointed President and Chief Executive Officer on November 19, 2009, after serving as Senior Group
Vice President, Poultry and Prepared Foods since January 2009, Group Vice President of Consumer Products since January 2008,
Group Vice President of Logistics and Operations Services since April 2007, Senior Vice President Information Systems, Purchasing
and Distribution since May 2006, Senior Vice President and Chief Information Officer since November 2005, and Senior Vice
President, Supply Chain Management since October 2001. Mr. Smith was initially employed by the Company in 1980.
David L. Van Bebber was appointed Executive Vice President and General Counsel in May 2008, after serving as Senior
Vice President and Deputy General Counsel since September 2004 and Senior Vice President, Legal Services since November 2000.
Mr. Van Bebber was initially employed by Lane Processing in 1982. Lane Processing was acquired by the Company in 1986.
Jeffrey D. Webster was appointed Group Vice President, Renewable Products in November 2008, after serving as Senior
Vice President, Renewable Products since April 2006, Senior Vice President, Strategy and Development since June 2005 and Vice
President, Strategy since January 2004. Mr. Webster was initially employed by the Company in 2004.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
We have issued and outstanding two classes of capital stock, Class A stock and Class B stock. Holders of Class B stock may convert
such stock into Class A stock on a share-for-share basis. Holders of Class B stock are entitled to 10 votes per share while holders of
Class A stock are entitled to one vote per share on matters submitted to shareholders for approval. As of October 31, 2009, there were
approximately 34,000 holders of record of our Class A stock and 10 holders of record of our Class B stock, excluding holders in the
security position listings held by nominees.
DIVIDENDS
Cash dividends cannot be paid to holders of Class B stock unless they are simultaneously paid to holders of Class A stock. The per
share amount of the cash dividend paid to holders of Class B stock cannot exceed 90% of the cash dividend simultaneously paid to
holders of Class A stock. We have paid uninterrupted quarterly dividends on common stock each year since 1977 and expect to
continue our cash dividend policy during fiscal 2010. In both fiscal 2009 and 2008, the annual dividend rate for Class A stock was
$0.16 per share and the annual dividend rate for Class B stock was $0.144 per share.
MARKET INFORMATION
The Class A stock is traded on the New York Stock Exchange under the symbol “TSN.” No public trading market currently exists for
the Class B stock. The high and low closing sales prices of our Class A stock for each quarter of fiscal 2009 and 2008 are represented
in the table below.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
Fiscal 2009
High
12.87 $
9.93
13.88
13.23
Low
4.40 $
7.59
9.33
10.95
Fiscal 2008
High
18.53 $
16.95
19.44
17.07
Low
14.11
13.26
13.68
12.14
ISSUER PURCHASES OF EQUITY SECURITIES
The table below provides information regarding our purchases of Class A stock during the periods indicated.
Period
June 28 to July 25, 2009
July 26 to Aug. 29, 2009
Aug. 30 to Oct. 3, 2009
Total
Total
Number of
Shares
Purchased
207,871 $
172,107
248,339
(2) 628,317 $
Average
Price Paid
per Share
12.73
11.42
12.44
12.26
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
-
-
-
-
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (1)
22,474,439
22,474,439
22,474,439
22,474,439
(1) On February 7, 2003, we announced our board of directors approved a plan to repurchase up to 25 million shares of Class A
stock from time to time in open market or privately negotiated transactions. The plan has no fixed or scheduled termination date.
(2) We purchased 628,317 shares during the period that were not made pursuant to our previously announced stock repurchase plan,
but were purchased to fund certain company obligations under our equity compensation plans. These transactions included
541,476 shares purchased in open market transactions and 86,841 shares withheld to cover required tax withholdings on the
vesting of restricted stock.
16
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for our Class A stock, the S&P 500 Index and a group
of peer companies described below.
Tyson Foods, Inc.
S&P 500 Index
Peer Group
Base Period
Years Ending
10/2/04
100
100
100
10/1/05
110.73
112.25
105.63
9/30/06
98.44
124.37
116.75
9/29/07
111.59
144.81
125.17
9/27/08
80.14
112.99
124.24
10/3/09
79.15
105.18
113.10
The total cumulative return on investment (change in the year-end stock price plus reinvested dividends), which is based on the stock
price or composite index at the end of fiscal 2004, is presented for each of the periods for the Company, the S&P 500 Index and a
peer group. The peer group includes: Campbell Soup Company, ConAgra Foods, Inc., General Mills, Inc., H.J. Heinz Co., Hershey
Foods Corp., Hormel Foods Corp., Kellogg Co., McCormick & Co., Pilgrim’s Pride Corporation, Sara Lee Corp. and Smithfield
Foods, Inc. The graph compares the performance of the Company with that of the S&P 500 Index and peer group, with the investment
weighted on market capitalization.
17
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY
$
Summary of Operations
Sales
Goodwill impairment
Operating income (loss)
Net interest expense
Income (loss) from continuing operations
Income (loss) from discontinued operation
Cumulative effect of change in accounting principle
Net income (loss)
Diluted earnings (loss) per share:
Income (loss) from continuing operations
Income (loss) from discontinued operation
Cumulative effect of change in accounting
principle
Net income (loss)
Dividends per share:
Class A
Class B
Balance Sheet Data
Total assets
Total debt
Shareholders' equity
Other Key Financial Measures
Depreciation and amortization
Capital expenditures
Return on invested capital
Effective tax rate
Total debt to capitalization
Book value per share
Closing stock price high
Closing stock price low
$
$
$
2009
2008
in millions, except per share and ratio data
2005
2007
2006
$
$
26,704
560
(215 )
293
(536 )
(1 )
-
(537 )
(1.44 )
-
-
(1.44 )
0.160
0.144
$
26,862
-
331
206
86
-
-
86
0.24
-
-
0.24
0.160
0.144
$
25,729
-
613
224
268
-
-
268
0.75
-
-
0.75
0.160
0.144
24,589
-
(50 )
238
(174 )
(17 )
(5 )
(196 )
(0.51 )
(0.05 )
(0.02 )
(0.58 )
0.160
0.144
$
10,595
3,552
4,352
$
10,850
2,896
5,014
$
10,227
2,779
4,731
11,121
3,979
4,440
$
24,801
-
655
227
314
58
-
372
0.88
0.16
-
1.04
0.160
0.144
10,504
2,995
4,671
$
496
368
(2.7 )%
(2.7 )%
44.9 %
$
11.56
13.88
4.40
$
493
425
4.3%
44.6%
36.6%
$
13.28
19.44
12.14
$
514
285
7.7 %
34.6 %
37.0 %
$
13.31
24.08
14.20
$
517
531
(0.6 )%
35.0 %
47.3 %
$
12.51
18.70
12.92
501
571
8.6 %
28.7 %
39.1 %
13.19
19.47
14.12
Notes to Five-Year Financial Summary
a. Fiscal 2009 was a 53-week year, while the other years presented were 52-week years.
b. Fiscal 2009 included a $560 million non-tax deductible charge related to Beef segment goodwill impairment and a $15 million pretax charge
related to closing a prepared foods plant.
c. Fiscal 2008 included $76 million of pretax charges related to: restructuring a beef operation; closing a poultry plant; asset impairments for
packaging equipment, intangible assets, unimproved real property and software; flood damage; and severance charges. Additionally, fiscal
2008 included an $18 million non-operating gain related to the sale of an investment.
d. Fiscal 2007 included tax expense of $17 million related to a fixed asset tax cost correction, primarily related to a fixed asset system
conversion in 1999.
e. Fiscal 2006 included $63 million of pretax charges primarily related to closing one poultry plant, two beef plants and two prepared foods
plants.
f. Fiscal 2005 included $33 million of pretax charges related to a legal settlement involving our live swine operations, a non-recurring income
tax net benefit of $15 million including benefit from the reversal of certain income tax reserves, partially offset by an income tax charge
related to the one-time repatriation of foreign income under the American Jobs Creation Act and $14 million of pretax charges primarily
related to closing two poultry plants and one prepared foods plant. Additionally, the effective tax rate was affected by the federal income tax
effect of the Medicare Part D subsidy in fiscal 2005 of $55 million because this amount was not subject to federal income tax.
g. Return on invested capital is calculated by dividing operating income (loss) by the sum of the average of beginning and ending total debt
and shareholders’ equity.
h. The 2006 total debt to capitalization ratio is not adjusted for the $750 million short-term investment we had on deposit at September 30,
i.
2006. When adjusted for the $750 million short-term investment, the debt to capitalization ratio was 42.1%.
In March 2009, we completed the sale of the beef processing, cattle feed yard and fertilizer assets of three of our Alberta, Canada
subsidiaries (collectively, Lakeside). Lakeside was reported as a discontinued operation for all periods presented.
18
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DESCRIPTION OF THE COMPANY
We are the world’s largest meat protein company and the second-largest food production company in the Fortune 500 with one of the
most recognized brand names in the food industry. We produce, distribute and market chicken, beef, pork, prepared foods and related
allied products. Our operations are conducted in four segments: Chicken, Beef, Pork and Prepared Foods. Some of the key factors
influencing our business are customer demand for our products; the ability to maintain and grow relationships with customers and
introduce new and innovative products to the marketplace; accessibility of international markets; market prices for our products; the
cost of live cattle and hogs, raw materials and grain; and operating efficiencies of our facilities.
OVERVIEW
● Chicken Segment – Fiscal 2009 operating results were negatively impacted in the first half of fiscal 2009 by high grain
costs and net losses on our commodity risk management activities related to grain and energy purchases. The second half of
fiscal 2009 benefited as we had worked through the majority of our long grain positions, had more stable grain prices and
made several operational improvements. Operating margins in the first half of fiscal 2009 were negative 7.2%, while the
second half improved to positive 3.5%.
● Beef Segment – Fiscal 2009 operating loss was $346 million, which included a $560 million non-cash goodwill
impairment. Excluding the goodwill impairment charge, operating results doubled as compared to fiscal 2008. We
sustained our operational improvements made in fiscal 2008 and continue to have strong performance, which shows in our
fiscal 2009 operating results.
● Beef Goodwill Impairment – We perform our annual goodwill impairment test on the first day of the fourth
quarter. We estimate the fair value of our reporting units using a discounted cash flow analysis. This analysis requires
us to make various judgmental estimates and assumptions about sales, operating margins, growth rates and discount
factors. The recent disruptions in global credit and other financial markets and deterioration of economic conditions led
to an increase in our discount rate. The discount rate used in our annual goodwill impairment test increased to 10.1% in
fiscal 2009 from 9.3% in fiscal 2008. There were no significant changes in the other key estimates and
assumptions. The increased discount rate resulted in the non-cash partial impairment of our beef reporting unit's
goodwill. The impairment has no impact on management’s estimates of the Beef segment’s long-term profitability or
value.
● Pork Segment – While our operating income was down as compared to the record year we had in fiscal 2008, we still had
solid operating earnings of $160 million, or 4.7%, with strong demand for our products and adequate supplies of hogs.
● Prepared Foods Segment – In fiscal 2009, we had improvements in our sales volumes, which led to operating margins of
4.7%. In addition, we made several operational improvements that allow us to run our plants more efficiently.
● Liquidity – In March 2009, we replaced our then existing $1.0 billion revolving credit facility set to expire in fiscal 2010
with a new $1.0 billion revolving credit facility which expires in March 2012. In addition, we issued $810 million of senior
notes. In conjunction with these transactions, we paid down and terminated our accounts receivable securitization
agreement. These transactions, as well as a significant decrease in our working capital needs, helped to strengthen our
liquidity position. At October 3, 2009, we had nearly $1.2 billion in total cash (including restricted cash), as well as $733
million available for borrowing under our revolving credit facility.
● Acquisitions –
●
●
In October 2008, we completed the acquisition of three vertically-integrated poultry companies in southern Brazil.
In August 2009, we acquired 60% equity interest in a joint venture with a vertically-integrated poultry operation in
eastern China.
●
In March 2009, we completed the sale of the beef processing, cattle feed yard and fertilizer assets of three of our Alberta,
Canada subsidiaries (collectively, Lakeside) to XL Foods Inc., a Canadian-owned beef processing business, and an entity
affiliated with XL Foods. We received total consideration of $145 million, which included cash received at closing,
collateralized notes receivable and XL Foods Preferred Stock.
● Our accounting cycle resulted in a 53-week year for fiscal 2009 and a 52-week year for both fiscal 2008 and 2007.
19
Net income (loss)
Net income (loss) per diluted share
$
in millions, except per share data
2007
268
0.75
2009
(537 ) $
(1.44 )
2008
86 $
0.24
2009 – Net loss includes the following items:
● $560 million non-cash, non-tax deductible charge related to a goodwill impairment in our Beef segment; and
● $15 million charge related to the closing of our Ponca City, Oklahoma, processed meats plant.
2008 – Net income includes the following items:
● $33 million of charges related to asset impairments, including packaging equipment, intangible assets, unimproved real
property and software;
● $17 million charge related to restructuring our Emporia, Kansas, beef operation;
● $13 million charge related to closing our Wilkesboro, North Carolina, Cooked Products poultry plant;
● $13 million of charges related to flood damage at our Jefferson, Wisconsin, plant and severance charges related to the
FAST initiative; and
● $18 million non-operating gain related to sale of an investment.
2007 – Net income includes the following item:
● $17 million of tax expense related to a fixed asset tax cost correction, primarily related to a fixed asset system conversion
in 1999.
FISCAL 2010 OUTLOOK
Segments:
Chicken – At the end of fiscal 2009, industry pullet placements were down 5-6% as a result of weaker demand. However, we
expect demand will improve as we get further into fiscal 2010, and we expect the pricing environment to improve aided by cold
storage inventories which are down relative to the levels we have seen over the last several years. We also currently expect to see
grain costs down as compared to fiscal 2009. Additionally, we will continue to focus on making operational improvements to help
maximize our margins.
Beef – While we expect a reduction in cattle supplies of 1-2% in fiscal 2010, we do not expect a significant change in the
fundamentals of our Beef business as it relates to fiscal 2009. We expect adequate supplies to operate our plants. We will manage
our spreads by maximizing our revenues through product mix, minimizing our operating costs, while keeping our focus on quality
and customer service.
Pork – We expect to see a gradual decline in hog supplies through the first half of fiscal 2010, which will accelerate into the
second half of fiscal 2010, resulting in industry slaughter slightly higher than 2007 (or roughly 4% less than fiscal 2009).
However, we still believe we will have adequate supplies in the regions in which we operate. We will manage our spreads by
continuing to control our costs and maximizing our revenues.
Prepared Foods – Raw material costs will likely increase in fiscal 2010, but we have made some changes in our sales contracts
that move us further away from fixed price contracts toward formula pricing, which will better enable us to absorb rising raw
material costs. With the changes we have made with our sales contracts and the operational efficiencies we made during fiscal
2009, we expect strong results in fiscal 2010.
20
SUMMARY OF RESULTS – CONTINUING OPERATIONS
Sales
Sales
Change in sales volume
Change in average sales price
Sales growth (decline)
2009
$ 26,704
$
4.4 %
(4.8 )%
(0.6 )%
in millions
2007
25,729
2008
26,862
$
(0.7 )%
5.1 %
4.4 %
2009 vs. 2008 –
● Average Sales Price - The decline in sales was largely due to a reduction in average sales prices, which accounted for a
decrease of approximately $1.2 billion. While all segments had a reduction in average sales prices, the majority of the
decrease was driven by the Beef and Pork segments.
● Sales Volume - Sales were positively impacted by an increase in sales volume, which accounted for an increase of
approximately $1.0 billion. This was primarily due to an extra week in fiscal 2009, increased sales volume in our Chicken
segment, which was driven by inventory reductions, and sales volume related to recent acquisitions.
2008 vs. 2007 –
● Average Sales Price - The improvement in sales was largely due to improved average sales prices, which accounted for an
increase of approximately $1.5 billion. While all segments had improved average sales prices, the majority of the increase
was driven by the Chicken and Beef segments.
● Sales Volume - Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of
approximately $318 million. This was primarily due to a decrease in Beef volume and the sale of two poultry production
facilities in fiscal 2007, partially offset by an increase in Pork volume.
Cost of Sales
Cost of sales
Gross margin
Cost of sales as a percentage of sales
2009
$ 25,501
1,203
$
$
$
95.5 %
2008
25,616
1,246
$
$
95.4 %
in millions
2007
24,300
1,429
94.4 %
2009 vs. 2008 –
● Cost of sales decreased $115 million. Cost per pound contributed to a $1.1 billion decrease, offset partially by an increase in
sales volume increasing cost of sales $987 million.
● Increase due to net losses of $257 million in fiscal 2009, as compared to net gains of $206 million in fiscal 2008, from our
commodity risk management activities related to grain and energy purchases, which exclude the effect from related
physical purchase transactions which impact current and future period operating results.
● Increase due to sales volumes, which included an extra week in fiscal 2009, as well as increased sales volume in our
Chicken segment, which was driven by inventory reductions and sales volume related to recent acquisitions.
● Decrease in average domestic live cattle and hog costs of approximately $1.2 billion.
2008 vs. 2007 –
● Cost of sales increased $1.3 billion. Cost per pound contributed to a $1.6 billion increase, offset partially by a decrease in
sales volume reducing cost of sales $323 million.
● Increase of over $1.0 billion in costs in the Chicken segment, which included increased input costs of approximately $900
million, including grain costs, other feed ingredient costs and cooking ingredients. Plant costs, including labor and
logistics, increased by approximately $200 million. These increases were partially offset by increased net gains of $127
million from our commodity risk management activities related to grain purchases, which exclude the impact from related
physical purchase transactions which impact current and future period operating results.
● Increase in average domestic live cattle costs of approximately $271 million.
● Increase in operating costs in the Beef and Pork segments of approximately $180 million.
● Decrease due to sales volume included lower Beef and Chicken sales volume, partially offset by higher Pork sales volume.
● Decrease due to net gains of $173 million from our commodity risk management activities related to forward futures
contracts for live cattle and hog purchases as compared to the same period of fiscal 2007. These amounts exclude the
impact from related physical purchase transactions, which impact future period operating results.
● Decrease in average live hog costs of approximately $117 million.
21
Selling, General and Administrative
Selling, general and administrative
As a percentage of sales
$
2009
841
$
3.1 %
2008
879
$
3.3 %
in millions
2007
814
3.2 %
2009 vs. 2008 –
● Decrease of $33 million related to advertising and sales promotions.
● Decrease of $11 million related to the change in investment returns on company-owned life insurance, which is used to fund
non-qualified retirement plans.
● Other reductions include decreases in our payroll-related expenses and professional fees.
● Increase of $20 million due to our newly acquired foreign operations.
2008 vs. 2007 –
● Increase of $29 million related to unfavorable investment returns on company-owned life insurance, which is used to fund
non-qualified retirement plans.
● Increase of $16 million related to advertising and sales promotions.
● Increase of $14 million due to a favorable actuarial adjustment related to retiree healthcare plan recorded in fiscal 2007.
● Increase of $9 million due to a gain recorded in fiscal 2007 on the disposition of an aircraft.
Goodwill Impairment
2009
560
$
$
in millions
2007
-
2008
- $
2009 – We perform our annual goodwill impairment test on the first day of the fourth quarter. We estimate the fair value of our
reporting units using a discounted cash flow analysis. This analysis requires us to make various judgmental estimates and
assumptions about sales, operating margins, growth rates and discount factors. The recent disruptions in global credit and other
financial markets and deterioration of economic conditions led to an increase in our discount rate. The discount rate used in our
annual goodwill impairment test increased to 10.1% in fiscal 2009 from 9.3% in fiscal 2008. There were no significant changes
in the other key estimates and assumptions. The increased discount rate resulted in the non-cash partial impairment of our beef
reporting unit's goodwill. The impairment has no impact on managements' estimates of the Beef segment’s long-term
profitability or value.
Other Charges
2009
17
$
2008
36
$
in millions
2007
2
$
2009 – Included $15 million charge related to closing our Ponca City, Oklahoma, processed meats plant.
2008 –
● Included $17 million charge related to restructuring our Emporia, Kansas, beef operation.
● Included $13 million charge related to closing our Wilkesboro, North Carolina, Cooked Products poultry plant.
● Included $6 million of severance charges related to the FAST initiative.
Interest Income
2009
17
$
2008
9
$
in millions
2007
8
$
2009 – The increase is due to the increase in our cash balance.
22
Interest Expense
Cash interest expense
Non-cash interest expense
Total Interest Expense
2009
273
37
310
$
$
2008
214
1
215
$
$
in millions
2007
229
3
232
$
$
2009 vs. 2008 –
● Cash interest expense includes interest expense related to the coupon rates for senior notes, commitment/letter of credit fees
incurred on our revolving credit facilities, as well as other miscellaneous recurring cash payments. The increase was due
primarily to higher average weekly indebtedness of approximately 13%. We also had an increase in the overall average
borrowing rates.
● Non-cash interest expense primarily includes interest related to the amortization of debt issuance costs and
discounts/premiums on note issuances. The increase was primarily due to debt issuance costs incurred on the new credit
facility in fiscal 2009, the 10.5% Notes due March 2014 (2014 Notes) issued in fiscal 2009 and amendment fees paid in
December 2008 on our then existing credit agreements. In addition, we had an increase due to the accretion of the debt
discount on the 2014 Notes. Non-cash interest expense also includes an unrealized loss on our interest rate swap and the
gain/loss on bond buybacks.
2008 vs. 2007 – The reduction in cash interest expense was due to a lower average borrowing rate, as well as lower average
weekly indebtedness of approximately 2%.
Other (Income) Expense, net
2009
18
$
2008
(29 )
$
in millions
2007
(21 )
$
2009 – Included $24 million in foreign currency exchange loss.
2008 – Included $18 million non-operating gain related to the sale of an investment.
2007 – Included $14 million in foreign currency exchange gain.
Effective Tax Rate
2009
(2.7 )%
2008
44.6 %
2007
34.6 %
Increased the effective tax rate 2.3% due to general business credits.
Increased the effective tax rate 1.8% due to tax planning in foreign jurisdictions.
2009 –
● Reduced the effective tax rate 37.2% due to impairment of goodwill, which is not deductible for income tax purposes.
● Reduced the effective tax rate 3.9% due to increase in foreign valuation allowances.
●
●
2008 –
●
●
●
Increased the effective tax rate 5.0% due to increase in state valuation allowances.
Increased the effective tax rate 4.4% due to increase in unrecognized tax benefits.
Increased the effective tax rate 3.8% due to net negative returns on company-owned life insurance policies, which is not
deductible for federal income tax purposes.
● Reduced the effective tax rate 3.8% due to general business credits.
2007 –
●
Increased the effective tax rate 4.2% due to a fixed asset tax cost correction, primarily related to a fixed asset system
conversion in 1999.
Increased the effective tax rate 3.2% due to the federal income tax effect of the reductions in estimated Medicare Part D
subsidy in fiscal 2007, which is not deductible for federal income tax purposes.
●
● Reduced the effective tax rate 4.6% due to the reduction of income tax reserves based on favorable settlement of disputed
matters.
23
SEGMENT RESULTS
We operate in four segments: Chicken, Beef, Pork and Prepared Foods. The following table is a summary of sales and operating
income (loss), which is how we measure segment income (loss). Segment results exclude the results of our discontinued operation,
Lakeside.
Chicken
Beef
Pork
Prepared Foods
Other
Total
2009
9,660
10,782
3,426
2,836
-
26,704
$
$
$
$
Sales
2008
8,900
11,664
3,587
2,711
-
26,862
$
$
Operating Income (Loss)
in millions
2007
8,210
11,540
3,314
2,665
-
25,729
$
$
2009
(157 )
(346 )
160
133
(5 )
(215 )
$
$
2008
(118) $
106
280
63
-
331 $
2007
325
51
145
92
-
613
Chicken Segment Results
Sales
Sales Volume Change
Average Sales Price Change
Operating Income (Loss)
Operating Margin
$
$
2009
9,660
$
2008
8,900
Change 2009
vs. 2008
760
$
8.8 %
(0.2 )%
$
2007
8,210
in millions
Change 2008
vs. 2007
690
(0.4 )%
8.9 %
$
(157 )
$
(1.6 )%
(118 )
$
(1.3 )%
(39 )
$
325
$
4.0 %
(443 )
2008 – Operating loss included $26 million of charges related to: plant closings; impairments of unimproved real property and
software; and severance.
2007 – Operating income included a $10 million gain on the sale of two poultry plants and related support facilities.
2009 vs. 2008 –
● Sales Volume – The increase in sales volume for fiscal 2009 was due to the extra week in fiscal 2009, as well as inventory
reductions and sales volume related to recent acquisitions.
● Average Sales Price – The inventory reductions and recent acquisitions lowered the average sales price, as most of the
inventory reduction related to commodity products shipped internationally and sales volume from recent acquisitions was
on lower priced products.
● Operating Loss –
● Operational Improvements – Operating results were positively impacted by operational improvements, which included:
yield, mix and live production performance improvements; additional processing flexibility; and reduced interplant
product movement.
● Derivative Activities – Operating results included the following amounts for commodity risk management activities
related to grain and energy purchases. These amounts exclude the impact from related physical purchase transactions,
which impact current and future period operating results.
2009 – Loss
2008 – Income
Decline in operating results
$(257) million
206 million
$(463) million
● SG&A Expenses – We reduced our selling, general and administrative expenses during fiscal 2009 by approximately
$37 million.
● Grain Costs – Operating results were positively impacted in fiscal 2009 by a decrease in grain costs of $28 million.
2008 vs. 2007 –
● Sales and Operating Income (Loss) – Sales increased as a result of an increase in average sales prices, partially offset by
a decrease in sales volume due to the sale of two poultry plants in fiscal 2007. Operating results were adversely impacted
by increased input costs of approximately $900 million, including grain costs, other feed ingredient costs and cooking
ingredients. Plant costs, including labor and logistics, increased by approximately $200 million. This was partially offset by
increased net gains of $127 million from our commodity trading risk management activities related to grain purchases,
which exclude the impact from related physical purchase transactions which impact current and future period operating
results. Operating results were also negatively impacted by increased selling, general and administrative expenses of $43
million.
24
Beef Segment Results
Sales
Sales Volume Change
Average Sales Price Change
2009
$ 10,782
2008
$ 11,664
Change 2009
vs. 2008
(882 )
$
$
0.5 %
(8.0 )%
2007
11,540
in millions
Change 2008
vs. 2007
124
(4.6)%
5.9%
$
Operating Income (Loss)
Operating Margin
$
(346)
$
(3.2)%
106
$
0.9 %
(452 )
$
51
$
0.4%
55
2009 – Operating loss included a $560 million non-cash charge related to the partial impairment of goodwill.
2008 – Operating income included $35 million of charges related to: plant restructuring, impairments of packaging equipment
and intangible assets, and severance.
2009 vs. 2008 –
● Sales and Operating Income (Loss) –
● While our average sales prices have decreased as compared to fiscal 2008, we have still maintained a margin as the
average live costs decreased in line with the drop in our average sales price.
● Derivative Activities – Operating results included the following amounts for commodity risk management activities
related to forward futures contracts for live cattle. These amounts exclude the impact from related physical sale and
purchase transactions, which impact current and future period operating results.
2009 – Income
2008 – Income
Improvement in operating results
$102 million
53 million
$49 million
2008 vs. 2007 –
● Sales and Operating Income – Sales and operating income were impacted positively by higher average sales prices and
improved operational efficiencies, partially offset by decreased sales volume due primarily to closure of the Emporia,
Kansas, slaughter operation. Operating results were also negatively impacted by higher operating costs. Fiscal 2008
operating results include realized and unrealized net gains of $53 million from our commodity risk management activities
related to forward futures contracts for live cattle, excluding the related impact from the physical sale and purchase
transactions, compared to realized and unrealized net losses of $2 million recorded in fiscal 2007. Operating results were
positively impacted by an increase in average sales prices exceeding the increase in average live prices.
25
Pork Segment Results
Sales
Sales Volume Change
Average Sales Price Change
Operating Income
Operating Margin
$
$
2009
3,426
$
2008
3,587
$
Change 2009
vs. 2008
(161 )
1.7 %
(6.1 )%
$
2007
3,314
$
160
$
4.7%
280
$
7.8%
(120 )
$
145
$
4.4 %
in millions
Change 2008
vs. 2007
273
6.1%
2.1%
135
2008 – Operating income included $5 million of charges related to impairment of packaging equipment and severance.
2009 vs. 2008 –
● Sales and Operating Income –
● Operating results for fiscal 2009 were strong, but down when compared to the record year we had in fiscal 2008. While
sales volume was relatively flat versus fiscal 2008, results were negatively impacted by a decrease in our average sales
prices, which were only partially offset by the decrease in average live costs.
● Derivative Activities – Operating results included the following amounts for commodity risk management activities
related to forward futures contracts for live hogs. These amounts exclude the impact from related physical sale and
purchase transactions, which impact current and future period operating results.
2009 – Income
2008 – Income
Decline in operating results
$55 million
95 million
($40) million
2008 vs. 2007 –
● Sales and Operating Income – Operating results were impacted positively by lower average live prices and strong export
sales, which led to increased sales volume and a record year for operating margins. Fiscal 2008 operating results include
realized and unrealized net gains of $95 million from our commodity risk management activities related to forward futures
contracts for live hogs, excluding the related impact from the physical sale and purchase transactions, compared to realized
and unrealized net gains of $3 million recorded in fiscal 2007. This was partially offset by higher operating costs, as well as
lower average sales prices.
Prepared Foods Segment Results
Sales
Sales Volume Change
Average Sales Price Change
Operating Income
Operating Margin
$
$
2009
2,836
$
2008
2,711
Change 2009
vs. 2008
125
$
5.2 %
(0.6 )%
$
2007
2,665
in millions
Change 2008
vs. 2007
46
1.5 %
0.2 %
$
133
$
4.7%
63
$
2.3%
70
$
92
$
3.5 %
(29 )
2009 – Operating income included a $15 million charge related to closing our Ponca City, Oklahoma, processed meats plant.
2008 – Operating income included $10 million of charges related to flood damage, an intangible asset impairment and
severance.
2007 – Operating income included $7 million of charges related to intangible asset impairments.
2009 vs. 2008 –
● Sales and Operating Income – Operating results improved due to an increase in sales volume, as well as a reduction in
raw material costs that exceeded the decrease in our average sales prices. In addition, we made several operational
improvements in fiscal 2009 that allow us to run our plants more efficiently. We began realizing the majority of these
improvements in our operating results during the latter part of fiscal 2009.
2008 vs. 2007 –
● Sales and Operating Income – Operating results were negatively impacted by higher raw material costs, which include
wheat, dairy and cooking ingredient costs, partially offset by lower pork costs. Results were positively impacted by an
increase in average sales prices.
26
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs for working capital, capital expenditures and growth opportunities are expected to be met with current cash on hand,
cash flows provided by operating activities, or short-term borrowings. Based on our current expectations, we believe our liquidity and
capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional
liquidity or refinance through capital market transactions. The amount, nature and timing of any capital market transactions will
depend on our operating performance and other circumstances, our then-current commitments and obligations; the amount, nature and
timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Cash Flows from Operating Activities
Net income (loss)
Non-cash items in net income (loss):
Depreciation and amortization
Deferred taxes
Impairment of goodwill
Impairment and write-down of assets
Other, net
Changes in working capital
Net cash provided by operating activities
2009
(537 ) $
496
(26 )
560
32
68
432
1,025 $
$
$
in millions
2007
268
2008
86 $
493
35
-
57
26
(409)
288 $
514
5
-
14
(15 )
(108 )
678
Changes in working capital:
● 2009 – Increased primarily due to a reduction in inventory and accounts receivable balances, partially offset by a reduction
in accounts payable. The lower inventory balance was primarily due to the reduction of inventory volumes, as well as a
decrease in raw material costs.
● 2008 – Decreased primarily due to higher inventory and accounts receivable balances, partially offset by a higher accounts
payable balance. Higher inventory balances were driven by an increase in raw material costs and inventory volume.
● 2007 – Decreased primarily due to higher inventory and accounts receivable balances, partially offset by a higher accounts
payable balance.
Cash Flows from Investing Activities
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment
Proceeds from sale (purchase) of marketable securities, net
Proceeds from sale of short-term investment
Proceeds from sale of investments
Acquisitions, net of cash acquired
Proceeds from sale of discontinued operation
Change in restricted cash to be used for investing activities
Other, net
Net cash provided by (used for) investing activities
2009
(368 ) $
9
19
-
15
(93 )
75
(43 )
(41 )
(427 ) $
$
$
in millions
2007
(285)
76
16
770
-
-
-
-
2
579
2008
(425) $
26
(3)
-
22
(17)
-
-
(2)
(399) $
● Additions to property, plant and equipment include acquiring new equipment and upgrading our facilities to maintain
competitive standing and position us for future opportunities. In fiscal 2009, our capital spending included spending for:
improvements made in our prepared foods operations to increase efficiences; Dynamic Fuels LLC’s (Dynamic Fuels) first
facility; and foreign operations. In fiscal 2008, our capital spending included equipment updates in our chicken plants, as
well as packaging equipment upgrades in our Fresh Meats case-ready facilities. In fiscal 2007, we focused on reducing our
capital spending.
● Capital spending for fiscal 2010 is expected to be approximately $600 million, and includes:
● approximately $400 million on current core business capital spending;
● approximately $150 million on foreign operations, which includes post-acquisition capital spending related to our
Brazil and China acquisitions; and
● approximately $50 million related to Dynamic Fuels, most of which relates to the completion of Dynamic Fuels’
first facility. Construction of the first facility is expected to continue through early 2010, with production targeted
soon thereafter. At October 3, 2009, we had $43 million in restricted cash available for spending on this facility.
27
● Acquisitions – In October 2008, we acquired three vertically integrated poultry companies in southern Brazil. The
aggregate purchase price was $67 million, of which $4 million of mandatory deferred payments remains to be paid
through fiscal 2011. In addition, we have $15 million of contingent purchase price based on production volumes
anticipated to be paid through fiscal 2011. The joint ventures in China called Shandong Tyson Xinchang Foods
received the necessary government approvals during fiscal 2009. The aggregate purchase price for our 60% equity
interest was $21 million, which excludes $93 million of cash transferred to the joint venture for future capital needs.
● Proceeds from sale of assets in fiscal 2007 include $40 million received related to the sale of two poultry plants and
related support facilities.
● Short-term investment was purchased in fiscal 2006 with proceeds from $1.0 billion of senior notes maturing on April
1, 2016 (2016 Notes). The short-term investment was held in an interest bearing account with a trustee. In fiscal 2007,
we used proceeds from sale of the short-term investment to repay our outstanding $750 million 7.25% Notes due
October 1, 2006.
● Change in restricted cash – In October 2008, Dynamic Fuels received $100 million in proceeds from the sale of Gulf
Opportunity Zone tax-exempt bonds made available by the federal government to the regions affected by Hurricanes
Katrina and Rita in 2005. The cash received from these bonds is restricted and can only be used towards the
construction of the Dynamic Fuels’ facility.
Cash Flows from Financing Activities
Net borrowings (payments) on revolving credit facilities
Payments on debt
Net proceeds from borrowings
Net proceeds from Class A stock offering
Convertible note hedge transactions
Warrant transactions
Purchases of treasury shares
Dividends
Stock options exercised
Change in negative book cash balances
Change in restricted cash to be used for financing activities
Debt issuance costs
Other, net
Net cash provided by (used for) financing activities
2009
15 $
(380 )
852
-
-
-
(19 )
(60 )
1
(65 )
(140 )
(59 )
5
150 $
$
$
in millions
2007
53
(1,263 )
-
-
-
-
(61 )
(56 )
74
9
-
-
(8 )
(1,252 )
2008
(213) $
(147)
449
274
(94)
44
(30)
(56)
9
67
-
-
18
321 $
● Net borrowings (payments) on revolving credit facilities primarily include activity related to the accounts receivable
securitization facility. With the entry into the new revolving credit facility and issuance of the 2014 Notes in March 2009, we
repaid all outstanding borrowings under our accounts receivable securitization facility and terminated the facility.
● Payments on debt include –
● In fiscal 2009, we bought back $293 million of notes, which included: $161 million 8.25% Notes due October 2011 (2011
Notes); $94 million 7.95% Notes due February 2010 (2010 Notes); and $38 million 2016 Notes.
● In fiscal 2008, we bought back $40 million 2016 Notes and repaid the remaining $25 million outstanding Lakeside term
loan.
● In fiscal 2007, we used proceeds from sale of the short-term investment to repay our outstanding $750 million 7.25%
Notes due October 1, 2006. In addition, we used cash from operations to reduce the amount outstanding under the
Lakeside term loan by $320 million, repay the outstanding $125 million 7.45% Notes due June 1, 2007, and reduce other
borrowings.
● Net proceeds from borrowings include –
● In fiscal 2009, we issued $810 million of 2014 Notes. After the original issue discount of $59 million, based on an issue
price of 92.756% of face value, we received net proceeds of $751 million. We used the net proceeds towards the
repayment of our borrowings under our accounts receivable securitization facility and for other general corporate
purposes.
● In fiscal 2009, Dynamic Fuels received $100 million in proceeds from the sale of Gulf Opportunity Zone tax-exempt
bonds made available by the Federal government to the regions affected by Hurricane Katrina and Rita in 2005. These
floating rate bonds are due October 1, 2033.
● In fiscal 2008, we issued $458 million 3.25% Convertible Senior Notes due October 15, 2013. Net proceeds were used for
the net cost of the related Convertible Note Hedge and Warrant Transactions, toward the repayment of our borrowings
under the accounts receivable securitization facility, and for other general corporate purposes.
28
● In fiscal 2008, we issued 22.4 million shares of Class A stock in a public offering. Net proceeds were used toward repayment
of our borrowings under the accounts receivable securitization facility and for other general corporate purposes.
● In conjunction with the entry into our new credit facility and the issuance of the 2014 Notes during fiscal 2009, we paid $48
million for debt issuance costs.
● We have $140 million of 2010 Notes outstanding. We originally placed $234 million of the net proceeds from the 2014
Notes in a blocked cash collateral account to be used for the payment, prepayment, repurchase or defeasance of the 2010
Notes. At October 3, 2009, we had $140 million remaining in the blocked cash collateral account.
● At October 3, 2009, we had $839 million outstanding 2011 Notes. We plan presently to use current cash on hand and cash
flows from operations for payment on the 2011 Notes.
Liquidity
in millions
Cash and cash equivalents
Revolving credit facility
Total liquidity
Commitments
Expiration Date
Facility
Amount
March 2012 $
1,000 $
Outstanding Letters
of Credit under
Revolving Credit
Facility
(no draw downs)
Amount
Borrowed
$
- $
$
Amount
Available
1,004
733
1,737
267 $
● The revolving credit facility supports our short-term funding needs and letters of credit. Letters of credit are issued primarily
in support of workers’ compensation insurance programs, derivative activities and Dynamic Fuels’ Gulf Opportunity Zone
tax-exempt bonds.
● We completed the sale of Lakeside in March 2009. Inclusive of the working capital of Lakeside initially retained by us at
closing, as well as consideration received from XL Foods, we expect the following future cash flows based on the October 3,
2009, currency exchange rate: approximately $10 million in fiscal 2010; $45 million in notes receivable, plus interest, to be
paid by March 2011 by XL Foods; and $24 million of XL Foods preferred stock redeemable through March 2014. The
discontinuance of Lakeside’s operation will not have a material effect on our future operating cash flows.
● Our current ratio at October 3, 2009, and September 27, 2008, was 2.20 to 1 and 2.07 to 1, respectively.
Deterioration of Credit and Capital Markets
Credit market conditions deteriorated rapidly during our fourth quarter of fiscal 2008 and continued into fiscal 2009. Several major
banks and financial institutions failed or were forced to seek assistance through distressed sales or emergency government measures.
While not all-inclusive, the following summarizes some of the impacts to our business:
Credit Facility
Cash flows from operating activities and current cash on hand are our primary sources of liquidity for funding debt service and capital
expenditures. We also have a revolving credit facility, with a committed capacity of $1.0 billion, to provide additional liquidity for
working capital needs, letters of credit, and as a source of financing for growth opportunities. As of October 3, 2009, we had
outstanding letters of credit under our revolving credit agreement totaling $267 million, none of which were drawn upon, which left
$733 million available for borrowing. Our revolving credit facility is funded by a syndicate of 19 banks, with commitments ranging
from $6 million to $115 million per bank. If any of the banks in the syndicate were unable to perform on their commitments to fund
the facility, our liquidity could be impaired, which could reduce our ability to fund working capital needs, support letters of credit or
finance our growth opportunities.
Customers/Suppliers
The financial condition of some of our customers and suppliers could also be impaired by current market conditions. Although we
have not experienced a material increase in customer bad debts or non-performance by suppliers, current market conditions increase
the probability we could experience losses from customer or supplier defaults. Should current credit and capital market conditions
result in a prolonged economic downturn in the United States and abroad, demand for protein products could be reduced, which could
result in a reduction of sales, operating income and cash flows. In addition, we rely on livestock producers throughout the country to
supply our live cattle and hogs. If these producers are adversely impacted by the current economic conditions and go out of business,
our livestock supply for processing could be significantly impacted.
Additionally, we have cash flow assistance programs in which certain livestock suppliers participate. Under these programs, we pay
an amount for livestock equivalent to a standard cost to grow such livestock during periods of low market sales prices. The amounts
of such payments that are in excess of the market sales price are recorded as receivables and accrue interest. Participating suppliers
are obligated to repay these receivables balances when market sales prices exceed this standard cost, or upon termination of the
29
agreement. Our maximum obligation associated with these programs is limited to the fair value of each participating livestock
supplier’s net tangible assets. Although we believe the aggregate maximum obligation under the program is unlikely to ever be
reached, the potential maximum obligation as of October 3, 2009, is approximately $250 million. The total receivables under these
programs were $72 million and $7 million at October 3, 2009 and September 27, 2008, respectively. Even though these programs are
limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk associated with
these programs by obtaining security interests in livestock suppliers' assets. After analyzing residual credit risks and general market
conditions, we have recorded an allowance for these programs' estimated uncollectible receivables of $20 million and $2 million at
October 3, 2009, and September 27, 2008, respectively.
Investments
The value of our investments in equity and debt securities, including our marketable debt securities, company-owned life insurance
and pension and other postretirement plan assets, has been impacted by the market volatility over the past year. These instruments
were recorded at fair value as of October 3, 2009. During fiscal 2009, we had a reduction in fair value resulting in the recognition
through earnings of $11 million.
We currently oversee two domestic and one foreign subsidiary non-contributory qualified defined benefit pension plans. All three
pension plans are frozen to new participants and no additional benefits will accrue for participants. Based on our 2009 actuarial
valuation, we anticipate contributions of $2 million to these plans for fiscal 2010. We also have one domestic unfunded defined
benefit plan. Based on our 2009 actuarial valuation, we anticipate contributions of $2 million to this plan for fiscal 2010.
Financial Instruments
As part of our commodity risk management activities, we use derivative financial instruments, primarily futures and options, to
reduce our exposure to various market risks related to commodity purchases. Similar to the capital markets, the commodities markets
have been volatile over the past year. Grain and some energy prices reached an all-time high during our fourth quarter of fiscal 2008
before falling sharply. While the reduction in grain and energy prices benefit us long-term, we recorded losses related to these
financial instruments in fiscal 2009 of $257 million. We have recently implemented policies to reduce our earnings volatility
associated with mark-to-market derivative activities, including more use of normal physical purchases and normal physical sales
which are not required to be marked to market.
Insurance
We rely on insurers as a protection against liability claims, property damage and various other risks. Our primary insurers maintain an
A.M. Best Financial Strength Rating of A or better. Nevertheless, we continue to monitor this situation as insurers have been and are
expected to continue to be impacted by the current capital market environment.
Capitalization
Senior notes
GO Zone tax-exempt bonds
Other indebtedness
Total Debt
Total Equity
Debt to Capitalization Ratio
$
$
$
$
in millions
2008
2,858
-
38
2,896
$
2009
3,323
100
129
3,552
4,352
$
5,014
44.9%
36.6 %
●
●
In fiscal 2009, we issued $810 million of 2014 Notes. The 2014 Notes had an original issue discount of $59 million, based on
an issue price of 92.756% of face value. We used the net proceeds towards the repayment of our borrowings under our
accounts receivable securitization facility and for other general corporate purposes. In addition, Dynamic Fuels received $100
million in proceeds from the sale of Gulf Opportunity Zone tax-exempt bonds made available by the Federal government to
the regions affected by Hurricane Katrina and Rita in 2005. These floating rate bonds are due October 1, 2033.
In fiscal 2009, we bought back $293 million of notes, which included: $161 million 2011 Notes; $94 million 2010 Notes; and
$38 million 2016 Notes.
● At October 3, 2009, we had a total of approximately $1.2 billion of cash and cash equivalents and restricted cash.
30
Credit Ratings
2016 Notes
On September 4, 2008, Standard & Poor’s (S&P) downgraded the credit rating from “BBB-” to “BB.” This downgrade increased the
interest rate on the 2016 Notes from 6.85% to 7.35%, effective beginning with the six-month interest payment due October 1, 2008.
On November 13, 2008, Moody’s Investors Services, Inc. (Moody’s) downgraded the credit rating from “Ba1” to “Ba3.” This
downgrade increased the interest rate on the 2016 Notes from 7.35% to 7.85%, effective beginning with the six-month interest
payment due April 1, 2009.
S&P currently rates the 2016 Notes “BB.” Moody’s currently rates this debt “Ba3.” A further one-notch downgrade by either ratings
agency would increase the interest rates on the 2016 Notes by an additional 0.25%.
Revolving Credit Facility
S&P’s corporate credit rating for Tyson Foods, Inc. is “BB.” Moody’s corporate credit rating for Tyson Foods, Inc. is “Ba3.” If S&P
were to downgrade our corporate credit rating to “B+” or lower or Moody’s were to downgrade our corporate credit rating to “B1” or
lower, our letter of credit fees would increase by an additional 0.25%.
Debt Covenants
Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to:
create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or
transfer assets; pay dividends or make other payments in respect to our capital stock; amend material documents; change the nature of
our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging
transactions, in each case, subject to certain qualifications and exceptions. If availability under this facility is less than the greater of
15% of the commitments and $150 million, we will be required to maintain a minimum fixed charge coverage ratio.
Our 2014 Notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: incur
additional debt and issue preferred stock; make certain investments and restricted payments; create liens; create restrictions on
distributions from restricted subsidiaries; engage in specified sales of assets and subsidiary stock; enter into transactions with
affiliates; enter new lines of business; engage in consolidation, mergers and acquisitions; and engage in certain sale/leaseback
transactions.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements material to our financial position or results of operations. The off-balance sheet
arrangements we have are guarantees of debt of outside third parties, including a lease and grower loans, and residual value
guarantees covering certain operating leases for various types of equipment. See Note 10, “Commitments” of the Notes to
Consolidated Financial Statements for further discussion.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of October 3, 2009:
Debt and capital lease obligations:
Principal payments (1)
Interest payments (2)
Guarantees (3)
Operating lease obligations (4)
Purchase obligations (5)
Capital expenditures (6)
Other long-term liabilities (7)
Total contractual commitments
in millions
Payments Due by Period
2010 2011-2012 2013-2014
2015 and
thereafter
$
$
219 $
289
22
79
423
267
13
1,312 $
866 $
444
33
120
55
11
5
1,534 $
1,280 $
327
43
55
19
-
5
1,729 $
1,241 $
220
16
22
22
-
36
1,557 $
Total
3,606
1,280
114
276
519
278
59
6,132
(1)
(2)
In the event of a default on payment, acceleration of the principal payments could occur.
Interest payments include interest on all outstanding debt. Payments are estimated for variable rate and variable term debt
based on effective rates at October 3, 2009, and expected payment dates.
(3) Amounts include guarantees of debt of outside third parties, which consist of a lease and grower loans, all of which are
substantially collateralized by the underlying assets, as well as residual value guarantees covering certain operating leases for
various types of equipment. The amounts included are the maximum potential amount of future payments.
31
(4) Amounts include minimum lease payments under lease agreements.
(5) Amounts include agreements to purchase goods or services that are enforceable and legally binding and specify all
significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and
the approximate timing of the transaction. The purchase obligations amount included items, such as future purchase
commitments for grains, livestock contracts and fixed grower fees that provide terms that meet the above criteria. We have
excluded future purchase commitments for contracts that do not meet these criteria. Purchase orders have not been included
in the table, as a purchase order is an authorization to purchase and may not be considered an enforceable and legally binding
contract. Contracts for goods or services that contain termination clauses without penalty have also been excluded.
(6) Amounts include estimated amounts to complete buildings and equipment under construction as of October 3, 2009.
(7) Amounts include items that meet the definition of a purchase obligation and are recorded in the Consolidated Balance Sheets.
In addition to the amounts shown above in the table, we have unrecognized tax benefits of $233 million and related interest and
penalties of $71 million at October 3, 2009, recorded as liabilities. During fiscal 2010, tax audit resolutions could potentially reduce
these amounts by approximately $30 million, either because tax positions are sustained on audit or because we agree to their
disallowance.
The maximum contractual obligation associated with our cash flow assistance programs at October 3, 2009, based on the estimated
fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $250 million, or approximately
$178 million remaining maximum commitment after netting the cash flow assistance related receivables.
The minority partner in our Shandong Tyson Xinchang Foods joint ventures in China has the right to exercise put options to require
us to purchase their entire 40% equity interest at a price equal to the minority partner’s contributed capital plus (minus) its pro-rata
share of the joint venture's accumulated and undistributed net earnings (losses). The put options are exercisable for a five-year term
commencing the later of (i) April 2011 or (ii) the date upon which a shareholder of the minority partner is no longer general manager
of the joint venture operations. At October 3, 2009, the put options, if they had been exercisable, would have resulted in a purchase
price of approximately $74 million for the minority partner’s entire equity interest.
RECENTLY ISSUED/ADOPTED ACCOUNTING PRONOUNCEMENTS
Refer to the discussion under Part II, Item 8, Notes to Consolidated Financial Statements, Note 1: Business and Summary of
Significant Accounting Policies for recently issued accounting pronouncements and Note 2: Change in Accounting Principles for
recently adopted accounting pronouncements.
32
CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements requires us 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 estimates we consider critical.
Description
Judgments and Uncertainties
Effect if Actual Results Differ From
Assumptions
Our contingent liabilities contain
uncertainties because the eventual
outcome will result from future events,
and determination of current reserves
requires estimates and judgments related
to future changes in facts and
circumstances, differing interpretations
of the law and assessments of the
amount of damages, and the
effectiveness of strategies or other
factors beyond our control.
Contingent liabilities
We are subject to lawsuits, investigations
and other claims related to wage and
hour/labor, environmental, product, taxing
authorities and other matters, and are
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
and disclosures required, if any, for these
contingencies are made after considerable
analysis of each individual issue. We
accrue for contingent liabilities when an
assessment of the risk of loss is probable
and can be reasonably estimated. We
disclose contingent liabilities when the
risk of loss is reasonably possible or
probable.
We have not made any material changes
in the accounting methodology used to
establish our contingent liabilities during
the past three fiscal years.
We do not believe there is a reasonable
likelihood there will be a material
change in the estimates or assumptions
used to calculate our contingent
liabilities. However, if actual results are
not consistent with our estimates or
assumptions, we may be exposed to
gains or losses that could be material.
Marketing and advertising costs
We incur advertising, retailer incentive
and consumer incentive costs to promote
products through marketing programs.
These programs include cooperative
advertising, volume discounts, in-store
display incentives, coupons and other
programs.
Marketing and advertising costs are
charged in the period incurred. We accrue
costs based on the estimated performance,
historical utilization and redemption of
each program.
Cash consideration given to customers is
considered a reduction in the price of our
products, thus recorded as a reduction to
sales. The remainder of marketing and
advertising costs is recorded as a selling,
general and administrative expense.
Recognition of the costs related to these
programs contains uncertainties due to
judgment required in estimating the
potential performance and redemption of
each program.
We have not made any material changes
in the accounting methodology used to
establish our marketing accruals during
the past three fiscal years.
These estimates are based on many
factors, including experience of similar
promotional programs.
We do not believe there is a reasonable
likelihood there will be a material
change in the estimates or assumptions
used to calculate our marketing accruals.
However, if actual results are not
consistent with our estimates or
assumptions, we may be exposed to
gains or losses that could be material.
A 10% change in our marketing accruals
at October 3, 2009, would impact pretax
earnings by approximately $9 million.
33
Description
Judgments and Uncertainties
Effect if Actual Results Differ From
Assumptions
Accrued self insurance
We are self insured for certain losses
related to health and welfare, workers’
compensation, auto liability and general
liability claims.
Our self-insurance liability contains
uncertainties due to assumptions
required and judgment used.
We have not made any material changes
in the accounting methodology used to
establish our self-insurance liability
during the past three fiscal years.
Costs to settle our obligations, including
legal and healthcare costs, could increase
or decrease causing estimates of our
self-insurance liability to change.
Incident rates, including frequency and
severity, could increase or decrease
causing estimates in our self-insurance
liability to change.
We do not believe there is a reasonable
likelihood there will be a material
change in the estimates or assumptions
used to calculate our self-insurance
liability. However, if actual results are
not consistent with our estimates or
assumptions, we may be exposed to
gains or losses that could be material.
We use an independent third-party actuary
to assist in determining our self-insurance
liability. We and the actuary consider a
number of factors when estimating our
self-insurance liability, including claims
experience, demographic factors, severity
factors and other actuarial assumptions.
We periodically review our estimates and
assumptions with our third-party actuary
to assist us in determining the adequacy of
our self-insurance liability. Our policy is
to maintain an accrual within the central
to high point of the actuarial range.
A 10% increase in the actuarial range at
October 3, 2009, would result in an
increase in the amount we recorded for
our self-insurance liability of
approximately $15 million. A 10%
decrease in the actuarial range at October
3, 2009, would result in a reduction in
the amount we recorded for our
self-insurance liability of approximately
$3 million.
We have not made any material changes
in the accounting methodology used to
evaluate the impairment of long-lived
assets during the last three fiscal years.
We do not believe there is a reasonable
likelihood there will be a material
change in the estimates or assumptions
used to calculate impairments of
long-lived assets. However, if actual
results are not consistent with our
estimates and assumptions used to
calculate estimated future cash flows, we
may be exposed to impairment losses
that could be material.
Impairment of long-lived assets
Long-lived assets are evaluated for
impairment whenever events or changes
in circumstances indicate the carrying
value may not be recoverable. Examples
include a significant adverse change in the
extent or manner in which we use a
long-lived asset or a change in its physical
condition.
Our impairment analysis contains
uncertainties due to judgment in
assumptions and estimates surrounding
undiscounted future cash flows of the
long-lived asset, including forecasting
useful lives of assets and selecting the
discount rate that reflects the risk
inherent in future cash flows to
determine fair value.
When evaluating long-lived assets for
impairment, we compare the carrying
value of the asset to the asset’s estimated
undiscounted future cash flows. An
impairment is indicated if the estimated
future cash flows are less than the
carrying value of the asset. The
impairment is the excess of the carrying
value over the fair value of the long-lived
asset.
We recorded impairment charges related
to long-lived assets of $25 million, $52
million and $6 million, respectively, in
fiscal years 2009, 2008 and 2007.
34
Description
Judgments and Uncertainties
Effect if Actual Results Differ From
Assumptions
Impairment of goodwill and other intangible assets
Goodwill impairment is determined using a
two-step process. The first step is to identify if
a potential impairment exists by comparing the
fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of
a reporting unit exceeds its carrying amount,
goodwill of the reporting unit is not considered
to have a potential impairment and the second
step of the impairment test is not necessary.
However, if the carrying amount of a reporting
unit exceeds its fair value, the second step is
performed to determine if goodwill is impaired
and to measure the amount of impairment loss
to recognize, if any.
We estimate the fair value of our reporting
units, generally our operating segments,
using various valuation techniques, with the
primary technique being a discounted cash
flow analysis. A discounted cash flow
analysis requires us to make various
judgmental assumptions about sales,
operating margins, growth rates and discount
rates. Assumptions about sales, operating
margins and growth rates are based on our
budgets, business plans, economic
projections, anticipated future cash flows and
marketplace data. Assumptions are also made
for varying perpetual growth rates for periods
beyond the long-term business plan period.
The second step compares the implied fair
value of goodwill with the carrying amount of
goodwill. If the implied fair value of goodwill
exceeds the carrying amount, then goodwill is
not considered impaired. However, if the
carrying amount of goodwill exceeds the
implied fair value, an impairment loss is
recognized in an amount equal to that excess.
The implied fair value of goodwill is
determined in the same manner as the amount
of goodwill recognized in a business
combination (i.e., the fair value of the
reporting unit is allocated to all the assets and
liabilities, including any unrecognized
intangible assets, as if the reporting unit had
been acquired in a business combination and
the fair value of the reporting unit was the
purchase price paid to acquire the reporting
unit).
For other intangible assets, if the carrying
value of the intangible asset exceeds its fair
value, an impairment loss is recognized in an
amount equal to that excess.
We have elected to make the first day of the
fourth quarter the annual impairment
assessment date for goodwill and other
intangible assets. However, we could be
required to evaluate the recoverability of
goodwill and other intangible assets prior to
the required annual assessment if we
experience disruptions to the business,
unexpected significant declines in operating
results, divestiture of a significant component
of the business or a sustained decline in market
capitalization.
While estimating the fair value of our
Chicken and Beef reporting units, we
assumed operating margins in future years in
excess of the annualized margins realized in
the most current year. The fair value
estimates for these reporting units assume
normalized operating margin assumptions
and improved operating efficiencies based on
long-term expectations and margins
historically realized in the beef and chicken
industries. We estimate the fair value of our
Chicken reporting unit would be in excess of
its carrying amount, including goodwill, by
sustaining long-term operating margins of
approximately 5.0%. After the $560 million
non-cash impairment recognized in fiscal
2009, we estimate the fair value of our Beef
reporting unit would be in excess of its
carrying amount, including goodwill, by
sustaining long-term operating margins of
approximately 2.0%.
Other intangible asset fair values have been
calculated for trademarks using a royalty rate
method. Assumptions about royalty rates are
based on the rates at which similar brands
and trademarks are licensed in the
marketplace.
Our impairment analysis contains
uncertainties due to uncontrollable events that
could positively or negatively impact the
anticipated future economic and operating
conditions.
35
We have not made any material changes in
the accounting methodology used to evaluate
impairment of goodwill and other intangible
assets during the last three years.
The recent disruptions in global credit and
other financial markets and deterioration of
economic conditions led to an increase in our
discount rate. The discount rate used in our
annual goodwill impairment test increased to
10.1% in fiscal 2009 from 9.3% in fiscal
2008. There were no significant changes in
the other key estimates and assumptions. As
a result of the significantly increased discount
rate, we failed the first step of the fiscal 2009
goodwill impairment analysis for our Beef
reporting unit and performed the second step.
The second step resulted in a $560 million
non-cash partial impairment of the Beef
reporting unit's goodwill.
No other reporting units failed the first step
of the annual goodwill impairment analysis in
fiscal 2009, 2008 and 2007 and therefore, the
second step was not necessary. However, a
10% decline in fair value of our Chicken
reporting unit would have caused the carrying
value for this reporting unit to be in excess of
fair value which would require the second
step to be performed. The second step could
have resulted in an impairment loss for the
Chicken reporting unit's goodwill.
After the $560 million non-cash impairment
recognized in fiscal 2009, a 17% decline in
fair value of our Beef reporting unit would
have caused the adjusted carrying value for
this reporting unit to be in excess of fair
value.
Some of the inherent estimates and
assumptions used in determining fair value of
the reporting units are outside the control of
management, including interest rates, cost of
capital, tax rates, and our credit
ratings. While we believe we have made
reasonable estimates and assumptions to
calculate the fair value of the reporting units
and other intangible assets, it is possible a
material change could occur. If our actual
results are not consistent with our estimates
and assumptions used to calculate fair value,
we may be required to perform the second
step which could result in additional material
impairments of our goodwill.
Our fiscal 2009 other intangible asset
impairment analysis did not result in a
material impairment charge. A hypothetical
10% decrease in the fair value of intangible
assets would not result in a material
impairment.
Description
Judgments and Uncertainties
Effect if Actual Results Differ From
Assumptions
Income taxes
We estimate total income tax expense
based on statutory tax rates and tax
planning opportunities available to us in
various jurisdictions in which we earn
income.
Federal income tax includes an estimate
for taxes on earnings of foreign
subsidiaries expected to be remitted to the
United States and be taxable, but not for
earnings considered indefinitely invested
in the foreign subsidiary.
Deferred income taxes are recognized for
the future tax effects of temporary
differences between financial and income
tax reporting using tax rates in effect for
the years in which the differences are
expected to reverse.
Valuation allowances are recorded when it
is likely a tax benefit will not be realized
for a deferred tax asset.
We record unrecognized tax benefit
liabilities for known or anticipated tax
issues based on our analysis of whether,
and the extent to which, additional taxes
will be due.
Changes in tax laws and rates could
We do not believe there is a reasonable
affect recorded deferred tax assets and
liabilities in the future.
Changes in projected future earnings
could affect the recorded valuation
allowances in the future.
Our calculations related to income taxes
contain uncertainties due to judgment
used to calculate tax liabilities in the
application of complex tax regulations
across the tax jurisdictions where we
operate.
Our analysis of unrecognized tax
benefits contains uncertainties based on
judgment used to apply the more likely
than not recognition and measurement
thresholds.
likelihood there will be a material
change in the tax related balances or
valuation allowances. However, due to
the complexity of some of these
uncertainties, the ultimate resolution
may result in a payment that is
materially different from the current
estimate of the tax liabilities.
To the extent we prevail in matters for
which unrecognized tax benefits have
been established, or are required to pay
amounts in excess of our recorded
unrecognized tax benefits, our effective
tax rate in a given financial statement
period could be materially affected. An
unfavorable tax settlement would require
use of our cash and result in an increase
in our effective tax rate in the period of
resolution. A favorable tax settlement
would be recognized as a reduction in
our effective tax rate in the period of
resolution.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk relating to our operations results primarily from changes in commodity prices, interest rates and foreign exchange rates,
as well as credit risk concentrations. To address certain of these risks, we enter into various derivative transactions as described
below. If a derivative instrument is accounted for as a hedge, depending on the nature of the hedge, changes in the fair value of the
instrument either will be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings,
or be recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an
instrument’s change in fair value is recognized immediately. Additionally, we hold certain positions, primarily in grain and livestock
futures that either do not meet the criteria for hedge accounting or are not designated as hedges. With the exception of normal
purchases and normal sales that are expected to result in physical delivery, we record these positions at fair value, and the unrealized
gains and losses are reported in earnings at each reporting date. Changes in market value of derivatives used in our risk management
activities relating to forward sales contracts are recorded in sales. Changes in market value of derivatives used in our risk
management activities surrounding inventories on hand or anticipated purchases of inventories are recorded in cost of sales.
The sensitivity analyses presented below are the measures of potential losses of fair value resulting from hypothetical changes in
market prices related to commodities. Sensitivity analyses do not consider the actions we may take to mitigate our exposure to
changes, nor do they consider the effects such hypothetical adverse changes may have on overall economic activity. Actual changes
in market prices may differ from hypothetical changes.
36
Commodities Risk: We purchase certain commodities, such as grains and livestock, in the course of normal operations. As part of
our commodity risk management activities, we use derivative financial instruments, primarily futures and options, to reduce the effect
of changing prices and as a mechanism to procure the underlying commodity. However, as the commodities underlying our derivative
financial instruments can experience significant price fluctuations, any requirement to mark-to-market the positions that have not
been designated or do not qualify as hedges could result in volatility in our results of operations. Contract terms of a hedge instrument
closely mirror those of the hedged item providing a high degree of risk reduction and correlation. Contracts designated and highly
effective at meeting this risk reduction and correlation criteria are recorded using hedge accounting. The following table presents a
sensitivity analysis resulting from a hypothetical change of 10% in market prices as of October 3, 2009, and September 27, 2008, on
the fair value of open positions. The fair value of such positions is a summation of the fair values calculated for each commodity by
valuing each net position at quoted futures prices. The market risk exposure analysis includes hedge and non-hedge derivative
financial instruments.
Effect of 10% change in fair value
Livestock:
Cattle
Hogs
Grain
$
2009
in millions
2008
20 $
12
1
78
31
88
Interest Rate Risk: At October 3, 2009, we had fixed-rate debt of $3.3 billion with a weighted average interest rate of 7.9%. We
have exposure to changes in interest rates on this fixed-rate debt. Market risk for fixed-rate debt is estimated as the potential increase
in fair value, resulting from a hypothetical 10% decrease in interest rates. A hypothetical 10% decrease in interest rates would have
increased the fair value of our fixed-rate debt by approximately $32 million at October 3, 2009, and $45 million at September 27,
2008. The fair values of our debt were estimated based on quoted market prices and/or published interest rates.
At October 3, 2009, we had variable rate debt of $218 million with a weighted average interest rate of 4.3%. A hypothetical 10%
increase in interest rates effective at October 3, 2009, and September 27, 2008, would have a minimal effect on interest expense.
Foreign Currency Risk: We have foreign exchange gain/loss exposure from fluctuations in foreign currency exchange rates
primarily as a result of certain receivable and payable balances. The primary currency exchanges we have exposure to are the
Canadian dollar, the Chinese renminbi, the Mexican peso, the European euro, the British pound sterling and the Brazilian real. We
periodically enter into foreign exchange forward contracts to hedge some portion of our foreign currency exposure. A hypothetical
10% change in foreign exchange rates effective at October 3, 2009, and September 27, 2008, related to the foreign exchange forward
contracts would have a $15 million and $11 million, respectively, impact on pretax income. In the future, we may enter into more
foreign exchange forward contracts as a result of our international growth strategy.
Concentrations of Credit Risk: Our financial instruments exposed to concentrations of credit risk consist primarily of cash
equivalents and trade receivables. Our cash equivalents are in high quality securities placed with major banks and financial
institutions. Concentrations of credit risk with respect to receivables are limited due to our large number of customers and their
dispersion across geographic areas. We perform periodic credit evaluations of our customers’ financial condition and generally do not
require collateral. At October 3, 2009, and September 27, 2008, 13.0% and 12.2%, respectively, of our net accounts receivable
balance was due from Wal-Mart Stores, Inc. No other single customer or customer group represents greater than 10% of net accounts
receivable.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
Sales
Cost of Sales
Operating Expenses:
Selling, general and administrative
Goodwill impairment
Other charges
Operating Income (Loss)
Other (Income) Expense:
Interest income
Interest expense
Other, net
Income (Loss) from Continuing Operations before
Income Taxes and Minority Interest
Income Tax Expense
Income (Loss) from Continuing Operations
before Minority Interest
Minority Interest
Income (Loss) from Continuing Operations
Loss from Discontinued Operation, Net of Tax $11, $0, $0
Net Income (Loss)
Weighted Average Shares Outstanding:
Class A Basic
Class B Basic
Diluted
Earnings (Loss) Per Share from Continuing Operations:
Class A Basic
Class B Basic
Diluted
Loss Per Share from Discontinued Operation:
Class A Basic
Class B Basic
Diluted
Net Earnings (Loss) per Share:
Class A Basic
Class B Basic
Diluted
See accompanying notes.
Three years ended October 3, 2009
in millions, except per share data
$
2009
26,704 $
25,501
1,203
2008
26,862 $
25,616
1,246
2007
25,729
24,300
1,429
841
560
17
(215 )
(17 )
310
18
311
(526 )
14
(540 )
(4 )
(536 )
(1 )
(537 ) $
302
70
372
(1.47 ) $
(1.32 ) $
(1.44 ) $
- $
- $
- $
879
-
36
331
(9 )
215
(29 )
177
154
68
86
-
86
-
86 $
281
70
356
0.25 $
0.22 $
0.24 $
- $
- $
- $
(1.47 ) $
(1.32 ) $
(1.44 ) $
0.25 $
0.22 $
0.24 $
814
-
2
613
(8 )
232
(21 )
203
410
142
268
-
268
-
268
273
75
355
0.79
0.70
0.75
-
-
-
0.79
0.70
0.75
$
$
$
$
$
$
$
$
$
$
38
CONSOLIDATED BALANCE SHEETS
October 3, 2009, and September 27, 2008
in millions, except share and per share data
2009
2008
Assets
Current Assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Other current assets
Assets of discontinued operation held for sale
Total Current Assets
Restricted Cash
Net Property, Plant and Equipment
Goodwill
Intangible Assets
Other Assets
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt
Trade accounts payable
Other current liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Liabilities
Minority Interest
Shareholders’ Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares:
issued 322 million shares in both 2009 and 2008
Convertible Class B-authorized 900 million shares:
issued 70 million shares in both 2009 and 2008
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income
Less treasury stock, at cost-
16 million shares in 2009 and 15 million shares in 2008
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See accompanying notes.
$
$
$
1,004 $
140
1,100
2,009
122
-
4,375
43
3,576
1,917
187
497
10,595 $
219 $
1,013
761
1,993
3,333
280
539
98
250
-
1,271
2,538
143
159
4,361
-
3,519
2,511
128
331
10,850
8
1,217
878
2,103
2,888
291
525
29
32
32
7
2,180
2,409
(34 )
4,594
7
2,161
3,006
41
5,247
242
4,352
10,595 $
233
5,014
10,850
$
39
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three years ended October 3, 2009
in millions
October 3, 2009
September 27, 2008 September 29, 2007
Shares Amount Shares Amount Shares Amount
Class A Common Stock:
Balance at beginning of year
Issuance of Class A Common Stock
Conversion from Class B shares
Balance at end of year
Class B Common Stock:
Balance at beginning of year
Conversion to Class A shares
Balance at end of year
Capital in Excess of Par Value:
Balance at beginning of year
Issuance of Class A Common Stock
Convertible note hedge transactions
Warrant transactions
Stock options exercised
Restricted shares issued
Restricted shares canceled
Restricted share amortization
Reclassification and other
Balance at end of year
Retained Earnings:
Balance at beginning of year
Cumulative effect for adoption of new accounting guidance (1)
Net income (loss)
Dividends paid
Balance at end of year
Accumulated Other Comprehensive Income (Loss), Net of Tax:
Balance at beginning of year
Net hedging (gain) loss recognized in earnings
Net hedging unrealized gain (loss)
Loss on investments reclassified to other income
Unrealized gain (loss) on investments
Currency translation adjustment gain reclassified to loss from
discontinued operation
Currency translation adjustment
Net change in postretirement liabilities
Net change in pension liability, prior to adoption of new
accounting guidance (1)
Adjustment to initially apply new accounting guidance (1)
Balance at end of year
Treasury Stock:
Balance at beginning of year
Purchase of treasury shares
Stock options exercised
Restricted shares issued
Restricted shares canceled
Balance at end of year
322 $
-
-
322
32
-
-
32
300 $
22
-
322
30
2
-
32
284 $
-
16
300
70
-
70
7
-
7
70
-
70
7
-
7
86
(16 )
70
2,161
-
-
-
(5 )
(12 )
2
19
15
2,180
3,006
-
(537 )
(60 )
2,409
41
36
(30 )
3
7
(41 )
(40 )
(10 )
-
-
(34 )
1,877
272
(58 )
44
(5 )
(14 )
2
19
24
2,161
2,993
(17 )
86
(56 )
3,006
50
(25 )
23
-
(1 )
-
(2 )
(4 )
-
-
41
28
-
2
30
9
(2)
7
1,835
-
-
-
9
(26)
27
24
8
1,877
2,781
-
268
(56)
2,993
17
(20)
20
-
-
-
24
-
6
3
50
15
2
-
(1 )
-
16
(233 )
(19 )
1
12
(3 )
(242 )
14
2
-
(1 )
-
15
(226 )
(30 )
11
16
(4 )
(233 )
15
3
(4 )
(2 )
2
14
(230)
(61)
65
27
(27)
(226)
Total Shareholders’ Equity
$
4,352
$
5,014
$
4,731
Comprehensive Income (Loss):
Net income (loss)
Other comprehensive income (loss), net of tax
Total Comprehensive Income (Loss)
See accompanying notes.
$
$
(537 )
(75 )
(612 )
$
$
86
(9 )
77
$
$
268
30
298
(1) Cumulative effect for adoption of new accounting guidance relates to: 2008 – uncertainty in income taxes; 2007 – defined benefit and post
retirement plans
40
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows From Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Three years ended October 3, 2009
in millions
2009
2008
2007
$
(537 ) $
86 $
268
Depreciation
Amortization
Deferred taxes
Impairment of goodwill
Impairment and write-down of assets
Other, net
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
Increase (decrease) in trade accounts payable
Increase (decrease) in income taxes payable/receivable
Decrease in interest payable
Net change in other current assets and liabilities
Cash Provided by Operating Activities
Cash Flows From Investing Activities:
Additions to property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchases of marketable securities
Proceeds from sale of marketable securities
Proceeds from sale of investments
Proceeds from sale of short-term investment
Change in restricted cash to be used for investing activities
Proceeds from sale of discontinued operation
Acquisitions, net of cash acquired
Other, net
Cash Provided by (Used for) Investing Activities
Cash Flows From Financing Activities:
Net borrowings (payments) on revolving credit facilities
Payments of debt
Net proceeds from borrowings
Net proceeds from Class A stock offering
Convertible note hedge transactions
Warrant transactions
Purchase of treasury shares
Dividends
Debt issuance costs
Change in restricted cash to be used for financing activities
Stock options exercised
Change in negative book cash balances
Other, net
Cash Provided by (Used for) Financing Activities
Effect of Exchange Rate Change on Cash
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
See accompanying notes.
445
51
(26 )
560
32
68
137
493
(148 )
33
(60 )
(23 )
1,025
(368 )
9
(37 )
56
15
-
(43 )
75
(93 )
(41 )
(427 )
15
(380 )
852
-
-
-
(19 )
(60 )
(59 )
(140 )
1
(65 )
5
150
6
754
250
1,004 $
468
25
35
-
57
26
(59 )
(376 )
98
(22 )
-
(50 )
288
(425 )
26
(115 )
112
22
-
-
-
(17 )
(2 )
(399 )
(213 )
(147 )
449
274
(94 )
44
(30 )
(56 )
-
-
9
67
18
321
(2 )
208
42
250 $
482
32
5
-
14
(15 )
(66 )
(166 )
91
24
(35 )
44
678
(285 )
76
(131 )
147
-
770
-
-
-
2
579
53
(1,263 )
-
-
-
-
(61 )
(56 )
-
-
74
9
(8 )
(1,252 )
9
14
28
42
$
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Tyson Foods, Inc. (collectively, “Company,” “we,” “us” or “our”), founded in 1935 with world
headquarters in Springdale, Arkansas, is one of the world’s largest processor and marketer of chicken, beef and pork and the
second-largest food production company in the Fortune 500. We produce a wide variety of brand name protein-based and prepared
food products marketed in the United States and approximately 90 countries around the world.
Consolidation: The consolidated financial statements include the accounts of all wholly-owned subsidiaries, as well as
majority-owned subsidiaries for which we have a controlling interest. All significant intercompany accounts and transactions have
been eliminated in consolidation.
We have an investment in a joint venture, Dynamic Fuels LLC (Dynamic Fuels), in which we have a 50 percent ownership interest.
Dynamic Fuels qualifies as a variable interest entity. Effective June 30, 2008, we began consolidating Dynamic Fuels since we are
the primary beneficiary.
Fiscal Year: We utilize a 52- or 53-week accounting period ending on the Saturday closest to September 30. The Company's
accounting cycle resulted in a 53-week year for fiscal year 2009 and a 52-week year for fiscal years 2008 and 2007.
Reclassification: Certain reclassifications were made to prior periods to conform to current presentations in the Consolidated
Financial Statements. The effect of these reclassifications was not significant to the Consolidated Financial Statements.
Discontinued Operation: In June 2008, we executed a letter of intent with XL Foods Inc. (XL Foods) to sell the beef processing,
cattle feed yard and fertilizer assets of three of our Alberta, Canada subsidiaries (collectively, Lakeside), which were part of our Beef
segment. In March 2009, we completed the sale and sold these assets and related inventories. The financial statements report Lakeside
as a discontinued operation. See Note 4: Discontinued Operation in the Notes to Consolidated Financial Statements for further
information.
Cash and Cash Equivalents: Cash equivalents consist of investments in short-term, highly liquid securities having original
maturities of three months or less, which are made as part of our cash management activity. The carrying values of these assets
approximate their fair market values. We primarily utilize a cash management system with a series of separate accounts consisting of
lockbox accounts for receiving cash, concentration accounts where funds are moved to, and several “zero-balance” disbursement
accounts for funding payroll, accounts payable, livestock procurement, grower payments, etc. As a result of our cash management
system, checks issued, but not presented to the banks for payment, may result in negative book cash balances. These negative book
cash balances are included in trade accounts payable and other current liabilities. At October 3, 2009, and September 27, 2008, checks
outstanding in excess of related book cash balances totaled approximately $254 million and $322 million, respectively.
Accounts Receivable: We record accounts receivable at net realizable value. This value includes an appropriate allowance for
estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and charged to the provision for
doubtful accounts. We calculate this allowance based on our history of write-offs, level of past due accounts and relationships with
and economic status of our customers. At October 3, 2009, and September 27, 2008, our allowance for uncollectible accounts was
$33 million and $12 million, respectively. We generally do not have collateral for our receivables, but we do periodically evaluate the
credit worthiness of our customers.
Inventories: Processed products, livestock and supplies and other are valued at the lower of cost or market. Cost includes purchased
raw materials, live purchase costs, growout costs (primarily feed, contract grower pay and catch and haul costs), labor and
manufacturing and production overhead, which are related to the purchase and production of inventories.
Processed products:
Weighted-average method – chicken and prepared foods
First-in, first-out method – beef and pork
Livestock – first-in, first-out method
Supplies and other – weighted-average method
Total inventory, net
in millions
2008
2009
$
$
629 $
414
631
335
2,009 $
920
571
701
346
2,538
42
Property, Plant and Equipment: Property, plant and equipment are stated at cost and primarily depreciated on a straight-line
method, using estimated lives for buildings and leasehold improvements of 10 to 33 years, machinery and equipment of three to 12
years and land improvements and other of three to 20 years. Major repairs and maintenance costs that significantly extend the useful
life of the related assets are capitalized. Normal repairs and maintenance costs are charged to operations.
We review the carrying value of long-lived assets at each balance sheet date if indication of impairment exists. Recoverability is
assessed using undiscounted cash flows based on historical results and current projections of earnings before interest and taxes. We
measure impairment as the excess of carrying cost over the fair value of an asset. The fair value of an asset is measured using
discounted cash flows of future operating results based on a discount rate that corresponds to our cost of capital.
Goodwill and Other Intangible Assets: Goodwill and indefinite life intangible assets are initially recorded at fair value and not
amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators arise. Our goodwill is
allocated by reporting unit, and we follow a two-step process to evaluate if a potential impairment exists. The first step is to identify if
a potential impairment exists by comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair
value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to have a potential impairment
and the second step of the impairment test is not necessary. However, if the carrying amount of a reporting unit exceeds its fair value,
the second step is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any.
The second step compares the implied fair value of goodwill with the carrying amount of goodwill. If the implied fair value of
goodwill exceeds the carrying amount, then goodwill is not considered impaired. However, if the carrying amount of goodwill
exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill
is determined in the same manner as the amount of goodwill recognized in a business combination (i.e., the fair value of the reporting
unit is allocated to all the assets and liabilities, including any unrecognized intangible assets, as if the reporting unit had been acquired
in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit). We have
elected to make the first day of the fourth quarter the annual impairment assessment date for goodwill and other indefinite life
intangible assets.
We have estimated the fair value of our reporting units using a discounted cash flow analysis. This analysis requires us to make
various judgmental estimates and assumptions about sales, operating margins, growth rates and discount factors. The recent
disruptions in global credit and other financial markets and deterioration of economic conditions led to an increase in our discount
rate used in the 2009 annual goodwill impairment analysis. There were no significant changes in the other key assumptions and
estimates. As a result of the increased discount rate, we failed the first step of the 2009 goodwill impairment analysis for our Beef
reporting unit and performed the second step. The second step resulted in a $560 million non-cash partial impairment of the Beef
reporting unit's goodwill. During fiscal 2009, 2008 and 2007, all of our reporting units passed the first step of the goodwill
impairment analysis, with the exception of the Beef reporting unit during fiscal 2009.
While estimating the fair value of our Beef and Chicken reporting units, we assumed operating margins in future years in excess of
the annual margins realized in the most recent year. The fair value estimates for these reporting units assume normalized operating
margin assumptions and improved operating efficiencies based on long-term expectations and operating margins historically realized
in the beef and chicken industries. Some of the inherent estimates and assumptions used in determining fair value of the reporting
units are outside the control of management, including interest rates, cost of capital, tax rates, and our credit ratings. While we believe
we have made reasonable estimates and assumptions to calculate the fair value of the reporting units, it is possible a material change
could occur. If our actual results are not consistent with our estimates and assumptions used to calculate fair value, we may be
required to perform the second step in future years, which could result in additional material impairments of our goodwill.
For our other indefinite life intangible assets, if the carrying value of the intangible asset exceeds its fair value, an impairment loss is
recognized in an amount equal to that excess. The fair value of trademarks is determined using a royalty rate method based on
expected revenues by trademark.
Investments: We have investments in joint ventures and other entities. We use the cost method of accounting where our voting
interests are less than 20 percent and the equity method of accounting where our voting interests are in excess of 20 percent, but we
do not have a controlling interest or a variable interest in which we are the primary beneficiary. Investments in joint ventures and
other entities are reported in the Consolidated Balance Sheets in Other Assets.
We have investments in marketable debt securities. As of October 3, 2009, and September 27, 2008, $81 million and $94 million,
respectively, were classified in Other Assets in the Consolidated Balance Sheets, with maturities ranging up to 47 years. We have
determined all our marketable debt securities are available-for-sale investments. These investments are reported at fair value based on
quoted market prices as of the balance sheet date, with unrealized gains and losses, net of tax, recorded in other comprehensive
income. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such
43
amortization is recorded in interest income. The cost of securities sold is based on the specific identification method. Realized gains
and losses on the sale of debt securities and declines in value judged to be other than temporary are recorded on a net basis in other
income. Interest and dividends on securities classified as available-for-sale are recorded in interest income.
Accrued Self Insurance: We use a combination of insurance and self-insurance mechanisms in an effort to mitigate the potential
liabilities for health and welfare, workers’ compensation, auto liability and general liability risks. Liabilities associated with our risks
retained are estimated, in part, by considering claims experience, demographic factors, severity factors and other actuarial
assumptions.
Capital Stock: We have two classes of capital stock, Class A Common Stock, $0.10 par value (Class A stock) and Class B Common
Stock, $0.10 par value (Class B stock). Holders of Class B stock may convert such stock into Class A stock on a share-for-share basis.
Holders of Class B stock are entitled to 10 votes per share, while holders of Class A stock are entitled to one vote per share on matters
submitted to shareholders for approval. As of October 3, 2009, members of the Tyson family beneficially own, in the aggregate,
99.97% of the outstanding shares of Class B stock and 2.36% of the outstanding shares of Class A stock, giving the Tyson family
control of approximately 70% of the total voting power of the outstanding voting stock. Cash dividends cannot be paid to holders of
Class B stock unless they are simultaneously paid to holders of Class A stock. The per share amount of the cash dividend paid to
holders of Class B stock cannot exceed 90% of the cash dividend simultaneously paid to holders of Class A stock. We pay quarterly
cash dividends to Class A and Class B shareholders. We paid Class A dividends per share of $0.16 and Class B dividends per share of
$0.144 in each of fiscal years 2009, 2008 and 2007.
The Class B stock is considered a participating security requiring the use of the two-class method for the computation of basic
earnings per share. The two-class computation method for each period reflects the cash dividends paid for each class of stock, plus the
amount of allocated undistributed earnings (losses) computed using the participation percentage, which reflects the dividend rights of
each class of stock. Basic earnings per share were computed using the two-class method for all periods presented. The shares of Class
B stock are considered to be participating convertible securities since the shares of Class B stock are convertible on a share-for-share
basis into shares of Class A stock. Diluted earnings per share were computed assuming the conversion of the Class B shares into
Class A shares as of the beginning of each period.
Financial Instruments: We purchase certain commodities, such as grains and livestock in the course of normal operations. As part of
our commodity risk management activities, we use derivative financial instruments, primarily futures and options, to reduce our
exposure to various market risks related to these purchases, as well as to changes in foreign currency exchange rates. Contract terms
of a financial instrument qualifying as a hedge instrument closely mirror those of the hedged item, providing a high degree of risk
reduction and correlation. Contracts designated and highly effective at meeting risk reduction and correlation criteria are recorded
using hedge accounting. If a derivative instrument is accounted for as a hedge, changes in the fair value of the instrument will be
offset either against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in
other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change
in fair value is immediately recognized in earnings as a component of cost of sales. Instruments we hold as part of our risk
management activities that do not meet the criteria for hedge accounting are marked to fair value with unrealized gains or losses
reported currently in earnings. Changes in market value of derivatives used in our risk management activities relating to forward sales
contracts are recorded in sales. Changes in market value of derivatives used in our risk management activities surrounding inventories
on hand or anticipated purchases of inventories or supplies are recorded in cost of sales. We generally do not hedge anticipated
transactions beyond 18 months.
Revenue Recognition: We recognize revenue when title and risk of loss are transferred to customers, which is generally on delivery
based on terms of sale. Revenue is recognized as the net amount estimated to be received after deducting estimated amounts for
discounts, trade allowances and product terms.
Litigation Reserves: There are a variety of legal proceedings pending or threatened against us. Accruals are recorded when it is
probable a liability has been incurred and the amount of the liability can be reasonably estimated based on current law, progress of
each case, opinions and views of legal counsel and other advisers, our experience in similar matters and intended response to the
litigation. These amounts, which are not discounted and are exclusive of claims against third parties, are adjusted periodically as
assessment efforts progress or additional information becomes available. We expense amounts for administering or litigating claims
as incurred. Accruals for legal proceedings are included in Other current liabilities in the Consolidated Balance Sheets.
Freight Expense: Freight expense associated with products shipped to customers is recognized in cost of sales.
Advertising and Promotion Expenses: Advertising and promotion expenses are charged to operations in the period incurred.
Customer incentive and trade promotion activities are recorded as a reduction to sales based on amounts estimated as being due to
customers, based primarily on historical utilization and redemption rates, while other advertising and promotional activities are
recorded as selling, general and administrative expenses. Advertising and promotion expenses for fiscal years 2009, 2008 and 2007
were $491 million, $495 million and $467 million, respectively.
44
Use of Estimates: The consolidated financial statements are prepared in conformity with accounting principles generally accepted in
the United States, which require us to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements: In December 2007, the Financial Accounting Standards Board (FASB) issued
guidance to establish accounting and reporting standards for a noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This guidance clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity and
may be reported as equity in the consolidated financial statements, rather than in the liability or mezzanine section between liabilities
and equity. This guidance also requires consolidated net income be reported at amounts that include the amounts attributable to both
the parent and the noncontrolling interest. This statement is not expected to have a material impact on our consolidated financial
statements; however, certain financial statement presentation changes and additional required disclosures will be made. The guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008; therefore, we will
adopt at the beginning of fiscal 2010.
In December 2007, the FASB issued guidance establishing principles and requirements for how an acquirer in a business
combination: 1) recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree; 2) recognizes and measures goodwill acquired in a business combination or a gain from a
bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of a business combination. This guidance is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or after December 15, 2008; therefore, we will adopt this
guidance for any business combinations entered into beginning in fiscal 2010.
In May 2008, the FASB issued guidance which specifies issuers of convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) should separately account for the liability and equity components in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The amount allocated
to the equity component represents a discount to the debt, which is amortized into interest expense using the effective interest method
over the life of the debt. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is not permitted. We will adopt the provisions of this guidance beginning
in the first quarter of fiscal 2010. The provisions are required to be applied retrospectively to all periods presented. Upon retrospective
adoption, our effective interest rate on our 3.25% Convertible Senior Notes due 2013 will be 8.26%, which would result in the
recognition of a $92 million discount to these notes with the offsetting after tax amount of $56 million recorded to capital in excess of
par value. This discount will be accreted over the five-year term of the convertible notes at the effective interest rate, which will not
materially impact fiscal 2008 interest expense, but will result in an estimated $17 million non-cash increase to our reported fiscal year
2009 interest expense.
In December 2008, the FASB issued guidance requiring additional disclosures about assets held in an employer’s defined benefit
pension or other postretirement plan. This guidance is effective for fiscal years ending after December 15, 2009, with early adoption
permitted. We will adopt the disclosure requirements beginning with our fiscal 2010 annual report.
In June 2009, the FASB issued guidance removing the concept of a qualifying special-purpose entity (QSPE). This guidance also
clarifies the requirements for isolation and limitations on portions of financial assets eligible for sale accounting. This guidance is
effective for fiscal years beginning after November 15, 2009. Accordingly, we will adopt this guidance in fiscal year 2011. We are in
process of evaluating the potential impacts.
In June 2009, the FASB issued guidance requiring an analysis to determine whether a variable interest gives the entity a controlling
financial interest in a variable interest entity. This guidance requires an ongoing reassessment and eliminates the quantitative
approach previously required for determining whether an entity is the primary beneficiary. This guidance is effective for fiscal years
beginning after November 15, 2009. Accordingly, we will adopt this guidance in fiscal year 2011. We are in process of evaluating the
potential impacts.
Subsequent Events: We have evaluated subsequent events through the time of filing on November 23, 2009, which represents the
date the Consolidated Financial Statements were issued.
NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES
In September 2006, the FASB issued guidance for using fair value to measure assets and liabilities. This guidance also requires
expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to
measure fair value and the effect of fair value measurements on earnings. This guidance applies whenever other standards require (or
permit)
45
assets or liabilities to be measured at fair value. At the beginning of fiscal 2009, we partially adopted this standard, as allowed, which
delayed the effective date for nonfinancial assets and liabilities. As of the beginning of fiscal 2009, we applied these provisions to our
financial instruments and the impact was not material. We will be required to apply fair value measurements to our nonfinancial
assets and liabilities at the beginning of fiscal 2010. The adoption did not have a significant impact on our consolidated financial
statements.
In February 2007, the FASB issued guidance providing companies with an option to report selected financial assets and liabilities,
firm commitments, and nonfinancial warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in
fair value recognized in earnings each reporting period. When adopted at the beginning of fiscal 2009, we did not elect this fair value
option and, therefore, there was no impact to our consolidated financial statements.
In April 2007, the FASB issued guidance which requires entities that offset the fair value amounts recognized for derivative
receivables and payables to also offset the fair value amounts recognized for the right to reclaim cash collateral with the same
counterparty under a master netting agreement. We applied the provisions of this guidance to our consolidated financial statements
beginning in fiscal 2009. We did not restate prior periods as the impact was not material.
In March 2008, the FASB issued guidance for disclosures about derivative instruments and hedging activities. This guidance
establishes enhanced disclosure requirements about: 1) how and why an entity uses derivative instruments; 2) how derivative
instruments and related hedged items are accounted for; and 3) how derivative instruments and related hedged items affect an entity’s
financial position, financial performance and cash flows. This guidance was effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008; therefore, we adopted in fiscal 2009. See Note 6: Derivative Financial
Instruments for required disclosures.
In April 2009, the FASB issued guidance regarding the recognition and presentation of other-than-temporary impairments. This
standard provides new guidance on the recognition and presentation of an other-than-temporary impairment for debt securities
classified as available-for-sale and held-to-maturity and provides certain new disclosure requirements for both debt and equity
securities. This standard was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. We adopted in fiscal 2009. The adoption did not have a significant impact on our consolidated
financial statements.
In April 2009, the FASB issued additional guidance for estimating the fair value of assets and liabilities in markets that have
experienced a significant reduction in volume and activity in relation to normal activity. This guidance was effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We adopted in
fiscal 2009. The adoption did not have a significant impact on our consolidated financial statements.
In April 2009, the FASB issued guidance to require disclosures about fair value of financial instruments in interim financial
statements. This guidance was effective for interim periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. We adopted this guidance during fiscal 2009 and made the required disclosures during our applicable
interim reports.
In May 2009, the FASB issued guidance establishing general standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. This standard was effective for interim and annual periods ending after
June 15, 2009. We adopted this guidance in fiscal 2009. See “Subsequent Events” in Note 1: Business and Summary of Significant
Accounting Policies for required disclosures.
NOTE 3: ACQUISITIONS
In August 2009, we completed the establishment of related joint ventures in China referred to as Shandong Tyson Xinchang Foods.
The aggregate purchase price for our 60% equity interest was $21 million, which excludes $93 million of cash transferred to the joint
venture for future capital needs. The preliminary purchase price included $29 million allocated to Intangible Assets and $19 million
allocated to Goodwill, as well as the assumption of $76 million of Current and Long-Term Debt.
In October 2008, we acquired three vertically integrated poultry companies in southern Brazil: Macedo Agroindustrial, Avicola
Itaiopolis and Frangobras. The aggregate purchase price was $67 million, including $4 million of mandatory deferred payments to be
made through fiscal 2011. In addition, we have $15 million of contingent purchase price based on production volumes payable
through fiscal 2011. The purchase price included $23 million allocated to Goodwill and $19 million allocated to Intangible Assets.
46
NOTE 4: DISCONTINUED OPERATION
In June 2008, we executed a letter of intent with XL Foods to sell the beef processing, cattle feed yard and fertilizer assets of three of
our Alberta, Canada subsidiaries (collectively, Lakeside), which were part of our Beef segment. On March 13, 2009, we completed
the sale and sold these assets and related inventories for total consideration of $145 million, based on exchange rates then in effect.
This included (a) cash received at closing of $43 million, (b) $78 million of collateralized notes receivable from either XL Foods or
an affiliated entity to be collected throughout the two years following closing, and (c) $24 million of XL Foods Preferred Stock to be
redeemed over the next five years.
We recorded a pretax loss on sale of Lakeside of $10 million in fiscal 2009, which included an allocation of beef reporting unit
goodwill of $59 million and cumulative currency translation adjustment gains of $41 million.
The following is a summary of Lakeside’s operating results (in millions):
Sales
Pretax income from discontinued operation
Loss on sale of discontinued operation
Income tax expense
Loss from discontinued operation
2009
461 $
2008
1,268 $
2007
1,171
20 $
(10 )
11
(1 ) $
- $
-
-
- $
-
-
-
-
$
$
$
The carrying amounts of Lakeside’s assets held for sale included the following (in millions):
Assets of discontinued operation held for sale:
Inventories
Net property, plant and equipment
Total assets of discontinued operation held for sale
NOTE 5: DISPOSITIONS AND OTHER CHARGES
September 27, 2008
$
$
82
77
159
In March 2009, we announced the decision to close our Ponca City, Oklahoma, processed meats plant. The plant ceased operations in
August 2009. The closing resulted in the elimination of approximately 600 jobs. During fiscal 2009, we recorded charges of $15
million, which included $14 million for impairment charges and $1 million of employee termination benefits. The charges are
reflected in the Prepared Foods segment’s Operating Income and included in the Consolidated Statements of Income in Other
Charges. No material adjustments to the accrual are anticipated.
In fiscal 2008, we recorded charges of $10 million related to intangible asset impairments. Of this amount, $8 million is reflected in
the Beef segment’s Operating Income and $2 million in the Prepared Foods segment’s Operating Income, and both are recorded in the
Consolidated Statements of Income in Cost of Sales. We recorded charges of $7 million related to flood damage at our Jefferson,
Wisconsin, plant. This amount is reflected in the Prepared Foods segment’s Operating Income and included in the Consolidated
Statements of Income in Cost of Sales. We also recorded a charge of $6 million related to the impairment of unimproved real property
in Memphis, Tennessee. This amount is reflected in the Chicken segment’s Operating Income (Loss) and included in the Consolidated
Statements of Income in Cost of Sales. Additionally, we recorded an $18 million non-operating gain as the result of a private equity
firm’s purchase of a technology company in which we held a minority interest. This gain was recorded in Other Income in the
Consolidated Statements of Income.
In February 2008, we announced discontinuation of an existing product line and closing of one of our three poultry plants in
Wilkesboro, North Carolina. The Wilkesboro cooked products plant ceased operations in April 2008. The closure resulted in
elimination of approximately 400 jobs. In fiscal 2008, we recorded charges of $13 million for impairment charges. This amount is
reflected in the Chicken segment’s Operating Income (Loss) and included in the Consolidated Statements of Income in Other
Charges.
In January 2008, we announced the decision to restructure operations at our Emporia, Kansas, beef plant. Beef slaughter operations
ceased during the second quarter of fiscal 2008. However, the facility is still used to process certain commodity, specialty cuts and
ground beef, as well as a cold storage and distribution warehouse. This restructuring resulted in elimination of approximately 1,700
jobs at the Emporia plant. In fiscal 2008, we recorded charges of $10 million for impairment charges and $7 million of other closing
costs, consisting of $6 million for employee termination benefits and $1 million in other plant-closing related liabilities. These
amounts were reflected in the Beef segment’s Operating Income (Loss) and included in the Consolidated Statements of Income in
Other Charges. We have fully paid employee termination benefits and other plant-closing related liabilities.
47
In fiscal 2008, management approved plans for implementation of certain recommendations resulting from the previously announced
FAST initiative, which was focused on process improvement and efficiency creation. As a result, in fiscal 2008, we recorded charges
of $6 million related to employee termination benefits resulting from termination of approximately 200 employees. Of these charges,
$2 million, $2 million, $1 million and $1 million, respectively, were recorded in the Chicken, Beef, Pork and Prepared Foods
segments’ Operating Income (Loss) and included in the Consolidated Statements of Income in Other Charges. We have fully paid the
employee termination benefits.
In May 2007, we announced the completion of the sale of two of our Alabama poultry plants and related support facilities. As part of
strategic efforts to reduce the production of commodity chicken, we sold our processing plants in Ashland and Gadsden, which also
included a nearby feed mill and two hatcheries. These facilities employed approximately 1,200 employees, of which approximately
800 were hired by the acquiring company, while the remaining employees were offered the opportunity to transfer to our other
operations in Alabama. We recorded a gain of $10 million on the sale in fiscal 2007. The gain was recorded in the Chicken segment’s
Operating Income (Loss) and included in the Consolidated Statements of Income in Cost of Sales.
NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS
Our business operations give rise to certain market risk exposures mostly due to changes in commodity prices, foreign currency
exchange rates and interest rates. We manage a portion of these risks through the use of derivative financial instruments, primarily
futures and options, to reduce our exposure to commodity price risk, foreign currency risk and interest rate risk. Forward contracts on
various commodities, including grains, livestock and energy, are primarily entered into to manage the price risk associated with
forecasted purchases of these inputs used in our production processes. Foreign exchange forward contracts are entered into to manage
the fluctuations in foreign currency exchange rates, primarily as a result of certain receivable and payable balances. We also
periodically utilize interest rate swaps to manage interest rate risk associated with our variable-rate borrowings.
Our risk management programs are reviewed by our Board of Directors’ Audit Committee. These programs are monitored by senior
management and may be revised as market conditions dictate. Our current risk management programs utilize industry-standard
models that take into account the implicit cost of hedging. Risks associated with our market risks and those created by derivative
instruments and the fair values are strictly monitored at all times, using value-at-risk and stress tests. Credit risks associated with our
derivative contracts are not significant as we minimize counterparty concentrations, utilize margin accounts or letters of credit, and
primarily deal with counterparties with solid credit. Additionally, our derivative contracts are mostly short-term in duration and we do
not make use of credit-risk-related contingent features. No significant concentrations of credit risk existed at October 3, 2009.
We recognize all derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets, with the
exception of normal purchases and normal sales expected to result in physical delivery. The accounting for changes in the fair value
(i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging
relationship and the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging
instruments, we designate the hedging instrument based upon the exposure being hedged (i.e., fair value hedge, cash flow hedge, or
hedge of a net investment in a foreign operation). We qualify, or designate, a derivative financial instrument as a hedge when contract
terms closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. If a derivative instrument is
accounted for as a hedge, depending on the nature of the hedge, changes in the fair value of the instrument either will be offset against
the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or be recognized in other
comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair
value is recognized in earnings immediately. We designate certain forward contracts as follows:
● Cash Flow Hedges – include certain commodity forward contracts of forecasted purchases (i.e., grains) and certain foreign
exchange forward contracts.
● Fair Value Hedges – include certain commodity forward contracts of forecasted purchases (i.e., livestock).
● Net Investment Hedges – include certain foreign currency forward contracts of permanently invested capital in certain
foreign subsidiaries.
Cash flow hedges
Derivative instruments, such as futures and options, are designated as hedges against changes in the amount of future cash flows
related to procurement of certain commodities utilized in our production processes. We do not purchase forward commodity contracts
in excess of our physical consumption requirements and generally do not hedge forecasted transactions beyond 12 months. The
objective of these hedges is to reduce the variability of cash flows associated with the forecasted purchase of those commodities. For
the derivative instruments we designate and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is
reported as a component of other comprehensive income (OCI) and reclassified into earnings in the same period or periods during
which the hedged transaction affects earnings. Gains and losses representing hedge ineffectiveness are recognized in earnings in the
current period. Ineffectiveness related to our cash flow hedges was not significant during fiscal 2009, 2008 and 2007.
48
As of October 3, 2009, we had the following aggregated notionals of outstanding forward contracts accounted for as cash flow
hedges:
Commodity:
Corn
Soy meal
Notional Volume
4 million bushels
16,900 tons
The net amount of pretax losses in accumulated OCI as of October 3, 2009, expected to be reclassified into earnings within the next
12 months was $3 million. During fiscal 2009, 2008 and 2007, we did not reclassify any pretax gains/losses into earnings as a result
of the discontinuance of cash flow hedges due to the probability the original forecasted transaction would not occur by the end of the
originally specified time period or within the additional period of time allowed by generally accepted accounting principles.
The following table sets forth the pretax impact of cash flow hedge derivative instruments on the Consolidated Statements of Income
(in millions):
Gain/(Loss)
Consolidated
Recognized in OCI Statements of Income
Classification
on Derivatives
2009
2008
2007
2009
Gain/(Loss)
Reclassified from
OCI to Earnings
2007
2008
Cash Flow Hedge - Derivatives
designated as hedging instruments:
Commodity contracts
Foreign exchange contracts
Total
$
$
(61 ) $
8
(53 ) $
39 $
(2 )
37 $
33
Cost of Sales $
- Other Income/Expense
$
33
(67) $
6
(61) $
42 $
-
42 $
34
-
34
Fair value hedges
We designate certain futures contracts as fair value hedges of firm commitments to purchase livestock for slaughter. Our objective of
these hedges is to minimize the risk of changes in fair value created by fluctuations in commodity prices associated with fixed price
livestock firm commitments. As of October 3, 2009, we had the following aggregated notionals of outstanding forward contracts
entered into to hedge forecasted commodity purchases which are accounted for as a fair value hedge:
Commodity:
Live Cattle
Lean Hogs
Notional Volume
133 million pounds
171 million pounds
For these derivative instruments we designate and qualify as a fair value hedge, the gain or loss on the derivative, as well as the
offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in earnings in the current period. We include
the gain or loss on the hedged items (i.e., livestock purchase firm commitments) in the same line item, cost of sales, as the offsetting
gain or loss on the related livestock forward position.
in millions
Consolidated
Statements of Income
Classification
Cost of Sales $
Cost of Sales
2009
2008
152 $
(152 )
65 $
(65 )
2007
(13 )
13
Gain/(loss) on forwards
Gain/(loss) on purchase contract
Ineffectiveness related to our fair value hedges was not significant during fiscal 2009, 2008 and 2007.
Foreign net investment hedges
We utilize forward foreign exchange contracts to protect the value of our net investments in certain foreign subsidiaries. For
derivative instruments that are designated and qualify as a hedge of a net investment in a foreign currency, the gain or loss is reported
in OCI as part of the cumulative translation adjustment to the extent it is effective, with the related amounts due to or from
counterparties included in other liabilities or other assets. We utilize the forward-rate method of assessing hedge effectiveness. Any
ineffective portions of net investment hedges are recognized in the Consolidated Statements of Income during the period of change.
Ineffectiveness related to our foreign net investment hedges was not significant during fiscal 2009, 2008 and 2007. As of October 3,
2009, we had no forward foreign currency contracts accounted for as foreign net investment hedges.
49
The following table sets forth the pretax impact of these derivative instruments on the Consolidated Statements of Income (in
millions):
Gain/(Loss)
Recognized in OCI
on Derivatives
2009 2008 2007
Consolidated
Gain/(Loss)
Statements of Income Reclassified from
OCI to Earnings
2009 2008 2007
Classification
Net Investment Hedge - Derivatives
designated as hedging instruments:
Foreign exchange contracts
$(5)
$-
$-
Other Income/Expense $(2)
$-
$-
1. Amounts reclassified from OCI relate to the sale of our Lakeside discontinued operation; amounts related to hedge ineffectiveness
were not significant.
Undesignated positions
In addition to our designated positions, we also hold forward and option contracts for which we do not apply hedge accounting. These
include certain derivative instruments related to commodities price risk, including grains, livestock and energy, foreign currency risk
and interest rate risk. We mark these positions to fair value through earnings at each reporting date. We generally do not enter into
undesignated positions beyond 18 months. Our undesignated positions primarily include grains, energy, livestock and foreign
currency forwards and options.
The objective of our undesignated grains, energy and livestock commodity positions is to reduce the variability of cash flows
associated with the forecasted purchase of certain grains, energy and livestock inputs to our production processes. We also enter into
certain forward sales of boxed beef and boxed pork and forward purchases of cattle and hogs at fixed prices. The fixed price sales
contracts lock in the proceeds from a sale in the future and the fixed cattle and hog purchases lock in the cost. However, the cost of
the livestock and the related boxed beef and boxed pork market prices at the time of the sale or purchase could vary from this fixed
price. As we enter into fixed forward sales of boxed beef and boxed pork and forward purchases of cattle and hogs, we also enter into
the appropriate number of livestock futures positions to mitigate a portion of this risk. Changes in market value of the open livestock
futures positions are marked to market and reported in earnings at each reporting date, even though the economic impact of our fixed
prices being above or below the market price is only realized at the time of sale or purchase. These positions generally do not qualify
for hedge treatment due to location basis differences between the commodity exchanges and the actual locations when we purchase
the commodities.
We have a foreign currency cash flow hedging program to hedge portions of forecasted transactions denominated in foreign
currencies, primarily with forward contracts, to protect against the reduction in value of forecasted foreign currency cash flows. Our
undesignated foreign currency positions generally would qualify for cash flow hedge accounting. However, to reduce earnings
volatility, we normally will not elect hedge accounting treatment when the position provides an offset to the underlying related
transaction.
The objective of our undesignated interest rate swap is to manage interest rate risk exposure on a floating-rate bond. Our interest rate
swap agreement effectively modifies our exposure to interest rate risk by converting a portion of the floating-rate bond to a fixed rate
basis for the first five years, thus reducing the impact of the interest-rate changes on future interest expense. This interest rate swap
does not qualify for hedge treatment due to differences in the underlying bond and swap contract interest-rate indices.
As of October 3, 2009, we had the following aggregate outstanding notionals related to our undesignated positions:
Commodity:
Corn
Soy meal
Live Cattle
Lean Hogs
Natural Gas
Foreign Currency
Interest Rate
Notional Volume
11 million bushels
73,000 tons
82 million pounds
11 million pounds
850 billion British Thermal Units
$124 million United States dollars
$64 million average monthly notional debt
50
Included in our undesignated positions are certain commodity grain positions (which do not qualify for hedge treatment) we enter into
to manage the risk of costs associated with forward sales to certain customers for which sales prices are determined under cost-plus
arrangements. These unrealized positions totaled losses of $17 million and $24 million at October 3, 2009, and September 27, 2008,
respectively. When these positions are liquidated, we expect any realized gains or losses will be reflected in the prices of the poultry
products sold. Since these derivative positions do not qualify for hedge treatment, they initially create volatility in our earnings
associated with changes in fair value. However, once the positions are liquidated and included in the sales price to the customer, there
is ultimately no earnings impact as any previous fair value gains or losses are included in the prices of the poultry products.
The following table sets forth the pretax impact of the undesignated derivative instruments on the Consolidated Statements of Income
(in millions):
Derivatives not designated
as hedging instruments:
Commodity contracts
Commodity contracts
Foreign exchange contracts
Interest rate contracts
Total
Consolidated
Statements of Income
Classification
Gain/(Loss)
Recognized
in Earnings
2007
2008
2009
Sales $
Cost of Sales
Other Income/Expense
Interest Expense
$
(34 ) $
(151 )
-
(4 )
(189 ) $
(12 ) $
259
1
-
248 $
14
40
1
-
55
The following table sets forth the fair value of all derivative instruments outstanding in the Consolidated Balance Sheets (in millions):
Derivative Assets:
Derivatives designated as hedging instruments:
Commodity contracts
Derivatives not designated as hedging instruments:
Commodity contracts
Total derivative assets
Derivative Liabilities:
Derivatives designated as hedging instruments:
Commodity contracts
Foreign exchange contracts
Total derivative liabilities – designated
Fair Value
Balance Sheet
Classification
2009
2008
Other current assets $
12 $
29
Other current assets
9
-
$
21 $
29
Other current liabilities $
Other current liabilities
2 $
-
2
13
1
4
18
34
2
36
7
2
-
9
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign exchange contracts
Interest rate contracts
Total derivative liabilities – not designated
Other current liabilities
Other current liabilities
Other current liabilities
Total derivative liabilities
$
20 $
45
1. Beginning in fiscal 2009, our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net
derivative assets and liabilities, including cash collateral when a legally enforceable master netting arrangement exists between the
counterparty to a derivative contract and us. See Note 12: Fair Value Measurements for a reconciliation to amounts reported in the
Consolidated Balance Sheet. We did not restate fiscal 2008 balances as the impact was not material.
51
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
Major categories of property, plant and equipment and accumulated depreciation at October 3, 2009, and September 27, 2008:
Land
Building and leasehold improvements
Machinery and equipment
Land improvements and other
Buildings and equipment under construction
Less accumulated depreciation
Net property, plant and equipment
$
$
in millions
2008
89
2,440
4,382
210
352
7,473
3,954
3,519
2009
96 $
2,570
4,640
227
297
7,830
4,254
3,576 $
Approximately $278 million will be required to complete buildings and equipment under construction at October 3, 2009.
NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill by segment, net of $286 million of accumulated amortization at October 3, 2009, and September 27, 2008:
Chicken
Beef
Pork
Prepared Foods
Total Goodwill
Other intangible assets by type at October 3, 2009, and September 27, 2008:
Gross Carrying Value:
Trademarks
Patents and intellectual property
Land use rights
Less Accumulated Amortization
Total Intangible Assets
$
$
$
$
in millions
2008
945
1,185
317
64
2,511
2009
973 $
563
317
64
1,917 $
in millions
2008
2009
57 $
145
23
38
187 $
62
94
-
28
128
Amortization expense of $10 million, $3 million and $3 million was recognized during fiscal 2009, 2008 and 2007, respectively. We
estimate amortization expense on intangible assets for the next five fiscal years subsequent to October 3, 2009 will be: 2010 - $14
million; 2011 - $14 million; 2012 - $13 million; 2013 - $13 million; 2014 - $12 million. Beginning with the date benefits are realized,
patents and intellectual property and land use rights are amortized using the straight-line method over their estimated period of benefit
of 5-30 years and 10-30 years, respectively.
NOTE 9: OTHER CURRENT LIABILITIES
Other current liabilities at October 3, 2009, and September 27, 2008, include:
Accrued salaries, wages and benefits
Self-insurance reserves
Other
Total other current liabilities
$
$
52
in millions
2008
259
236
383
878
2009
187 $
230
344
761 $
NOTE 10: COMMITMENTS
We lease equipment, properties and certain farms for which total rentals approximated $175 million, $163 million and $133 million,
respectively, in fiscal 2009, 2008 and 2007. Most leases have terms up to six years with varying renewal periods. The most significant
obligations assumed under the terms of the leases are the upkeep of the facilities and payments of insurance and property taxes.
Minimum lease commitments under non-cancelable leases at October 3, 2009, were:
2010
2011
2012
2013
2014
2015 and beyond
Total
in millions
79
$
67
53
34
21
22
276
$
We guarantee debt of outside third parties, which consist of a lease and grower loans, all of which are substantially collateralized by
the underlying assets. Terms of the underlying debt cover periods up to nine years, and the maximum potential amount of future
payments as of October 3, 2009, was $59 million. We also maintain operating leases for various types of equipment, some of which
contain residual value guarantees for the market value of the underlying leased assets at the end of the term of the lease. The terms of
the lease maturities cover periods up to six years. The maximum potential amount of the residual value guarantees is $55 million, of
which $23 million would be recoverable through various recourse provisions and an additional undeterminable recoverable amount
based on the fair market value of the underlying leased assets. The likelihood of material payments under these guarantees is not
considered probable. At October 3, 2009, and September 27, 2008, no material liabilities for guarantees were recorded.
We have cash flow assistance programs in which certain livestock suppliers participate. Under these programs, we pay an amount for
livestock equivalent to a standard cost to grow such livestock during periods of low market sales prices. The amounts of such
payments that are in excess of the market sales price are recorded as receivables and accrue interest. Participating suppliers are
obligated to repay these receivables balances when market sales prices exceed this standard cost, or upon termination of the
agreement. Our maximum obligation associated with these programs is limited to the fair value of each participating livestock
supplier’s net tangible assets. The potential maximum obligation as of October 3, 2009, is approximately $250 million. The total
receivables under these programs were $72 million and $7 million at October 3, 2009, and September 27, 2008, respectively, and are
included, net of allowance for uncollectible amounts, in Other Assets in our Consolidated Balance Sheets. Even though these
programs are limited to the net tangible assets of the participating livestock suppliers, we also manage a portion of our credit risk
associated with these programs by obtaining security interests in livestock suppliers' assets. After analyzing residual credit risks and
general market conditions, we have recorded an allowance for these programs' estimated uncollectible receivables of $20 million and
$2 million at October 3, 2009 and September 27, 2008, respectively.
The minority partner in our Shandong Tyson Xinchang Foods joint ventures in China has the right to exercise put options to require
us to purchase their entire 40% equity interest at a price equal to the minority partner’s contributed capital plus (minus) its pro-rata
share of the joint venture's accumulated and undistributed net earnings (losses). The put options are exercisable for a five-year term
commencing the later of (i) April 2011 or (ii) the date upon which a shareholder of the minority partner is no longer general manager
of the joint venture operations. At October 3, 2009, the put options, if they had been exercisable, would have resulted in a purchase
price of approximately $74 million for the minority partner’s entire equity interest. We do not believe the exercise of the put options
would materially impact our results of operations or financial condition.
Additionally, we enter into future purchase commitments for various items, such as grains, livestock contracts and fixed grower fees.
At October 3, 2009, these commitments totaled:
2010
2011
2012
2013
2014
2015 and beyond
Total
in millions
423
36
19
11
8
22
519
$
$
53
NOTE 11: LONG-TERM DEBT
The major components of long-term debt are as follows (in millions):
Revolving credit facility – expires March 2012
Senior notes:
7.95% Notes due February 2010 (2010 Notes)
8.25% Notes due October 2011 (2011 Notes)
3.25% Convertible senior notes due October 2013 (2013 Notes)
10.50% Senior notes due March 2014 (2014 Notes)
7.85% Senior notes due April 2016 (2016 Notes)
7.00% Notes due May 2018
7.125% Senior notes due February 2026
7.00% Notes due January 2028
GO Zone tax-exempt bonds due October 2033 (0.10% at 10/03/09)
Other
Total debt
Less current debt
Total long-term debt
2009
2008
$
- $
-
140
839
458
756
922
172
9
27
100
129
3,552
219
3,333 $
234
998
458
-
960
172
9
27
-
38
2,896
8
2,888
$
Annual maturities of long-term debt for the five fiscal years subsequent to October 3, 2009, are: 2010-$219 million; 2011-$855
million; 2012-$11 million; 2013-$6 million; 2014-$1.2 billion.
Revolving Credit Facility
We entered into a new revolving credit facility in March 2009 totaling $1.0 billion that supports short-term funding needs and letters
of credit, which replaced our revolving credit facility scheduled to expire in September 2010. Loans made under this facility will
mature and the commitments thereunder will terminate in March 2012. However, if our 2011 Notes are not refinanced, purchased or
defeased prior to July 3, 2011, the outstanding loans under this facility will mature on and commitments thereunder will terminate on
July 3, 2011. We incurred approximately $30 million in transaction fees which will be amortized over the three-year life of this
facility.
Availability under this facility, up to $1.0 billion, is based on a percentage of certain eligible receivables and eligible inventory and is
reduced by certain reserves. After reducing the amount available by outstanding letters of credit issued under this facility, the amount
available for borrowing under this facility at October 3, 2009, was $733 million. At October 3, 2009, we had outstanding letters of
credit issued under this facility totaling approximately $267 million and an additional $51 million of bilateral letters of credit not
issued under this facility, none of which were drawn upon. Our letters of credit are issued primarily in support of workers’
compensation insurance programs, derivative activities and Dynamic Fuels’ GO Zone tax-exempt bonds.
This facility is fully and unconditionally guaranteed on a senior secured basis by substantially all of our domestic subsidiaries. The
guarantors’ cash, accounts receivable, inventory and proceeds received related to these items secure our obligations under this facility.
2013 Notes
In September 2008, we issued $458 million principal amount 3.25% convertible senior unsecured notes due October 15, 2013, with
interest payable semi-annually in arrears on April 15 and October 15. The conversion rate initially is 59.1935 shares of Class A stock
per $1,000 principal amount of notes, which is equivalent to an initial conversion price of $16.89 per share of Class A stock. The
2013 Notes may be converted before the close of business on July 12, 2013, only under the following circumstances:
54
● during any fiscal quarter after December 27, 2008, if the last reported sale price of our Class A stock for at least 20 trading
days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is at least
130% of the applicable conversion price on each applicable trading day (which would currently require our shares to trade at
or above $21.96); or
● during the five business days after any 10 consecutive trading days (measurement period) in which the trading price per
$1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last
reported sale price of our Class A stock and the applicable conversion rate on each such day; or
● upon the occurrence of specified corporate events as defined in the supplemental indenture.
On and after July 15, 2013, until the close of business on the second scheduled trading day immediately preceding the maturity date,
holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion, we will deliver cash up to
the aggregate principal amount of the 2013 Notes to be converted and shares of our Class A stock in respect of the remainder, if any,
of our conversion obligation in excess of the aggregate principal amount of the 2013 Notes being converted. As of October 3, 2009,
none of the conditions permitting conversion of the 2013 Notes had been satisfied.
The 2013 Notes were accounted for as a combined instrument. Accordingly, we accounted for the entire agreement as one debt
instrument because the conversion feature does not meet the requirements to be accounted for separately as a derivative financial
instrument.
In connection with the issuance of the 2013 Notes, we entered into separate convertible note hedge transactions with respect to our
common stock to minimize the potential economic dilution upon conversion of the 2013 Notes. We also entered into separate warrant
transactions. We recorded the purchase of the note hedge transactions as a reduction to capital in excess of par value, net of $36
million pertaining to the related deferred tax asset, and we recorded the proceeds of the warrant transactions as an increase to capital
in excess of par value. Subsequent changes in fair value of these instruments are not recognized in the financial statements as long as
the instruments continue to meet the criteria for equity classification.
We purchased call options in private transactions for $94 million that permit us to acquire up to approximately 27 million shares of
our Class A stock at an initial strike price of $16.89 per share, subject to adjustment. The call options allow us to acquire a number of
shares of our Class A stock initially equal to the number of shares of Class A stock issuable to the holders of the 2013 Notes upon
conversion. These call options will terminate upon the maturity of the 2013 Notes.
We sold warrants in private transactions for total proceeds of $44 million. The warrants permit the purchasers to acquire up to
approximately 27 million shares of our Class A stock at an initial exercise price of $22.31 per share, subject to adjustment. The
warrants are exercisable on various dates from January 2014 through March 2014.
The maximum amount of shares that may be issued to satisfy the conversion of the 2013 Notes is limited to 35.9 million
shares. However, the convertible note hedge and warrant transactions, in effect, increase the initial conversion price of the 2013
Notes from $16.89 per share to $22.31 per share, thus reducing the potential future economic dilution associated with conversion of
the 2013 Notes. If our share price is below $22.31 upon conversion of the 2013 Notes, there is no economic net share impact. Upon
conversion, a 10% increase in our share price above the $22.31 conversion price would result in the issuance of 2.5 million
incremental shares. The 2013 Notes and the warrants could have a dilutive effect on our earnings per share to the extent the price of
our Class A stock during a given measurement period exceeds the respective exercise prices of those instruments. The call options are
excluded from the calculation of diluted earnings per share as their impact is anti-dilutive.
2014 Notes
In March 2009, we issued $810 million of senior unsecured notes, which will mature in March 2014. The 2014 Notes carry a 10.50%
interest rate, with interest payments due semi-annually on March 1 and September 1. After the original issue discount of $59 million,
based on an issue price of 92.756% of face value, we received net proceeds of $751 million. In addition, we incurred offering
expenses of $18 million. We used the net proceeds towards the repayment of our borrowings under our former accounts receivable
securitization facility and for other general corporate purposes. We also placed $234 million of the net proceeds in a blocked cash
collateral account which is used for the payment, prepayment, repurchase or defeasance of the 2010 Notes. At October 3, 2009, we
had $140 million remaining in the blocked cash collateral account. The remaining proceeds are recorded in Current Assets as
Restricted Cash in the Consolidated Condensed Balance Sheets. The 2014 Notes are fully and unconditionally guaranteed by
substantially all of our domestic subsidiaries.
55
2016 Notes
The 2016 Notes carried an interest rate at issuance of 6.60%, with an interest step up feature dependent on their credit rating. On
November 13, 2008, Moody’s Investor Services, Inc. downgraded the credit rating from “Ba1” to “Ba3.” This downgrade increased
the interest rate from 7.35% to 7.85%, effective beginning with the six-month interest payment due April 1, 2009.
GO Zone Tax-Exempt Bonds
In October 2008, Dynamic Fuels received $100 million in proceeds from the sale of Gulf Opportunity Zone tax-exempt bonds made
available by the federal government to the regions affected by Hurricanes Katrina and Rita in 2005. These floating rate bonds are due
October 1, 2033. In November 2008, we entered into an interest rate swap related to these bonds to mitigate our interest rate risk on a
portion of the bonds for five years. We also issued a letter of credit as a guarantee for the entire bond issuance. The proceeds from the
bond issuance can only be used towards the construction of the Dynamic Fuels’ facility. Accordingly, the unused proceeds are
recorded as non-current Restricted Cash in the Consolidated Balance Sheets. We expect the majority of the unused proceeds will be
used by our second quarter of fiscal 2010.
Debt Covenants
Our revolving credit facility contains affirmative and negative covenants that, among other things, may limit or restrict our ability to:
create liens and encumbrances; incur debt; merge, dissolve, liquidate or consolidate; make acquisitions and investments; dispose of or
transfer assets; pay dividends or make other payments in respect to our capital stock; amend material documents; change the nature of
our business; make certain payments of debt; engage in certain transactions with affiliates; and enter into sale/leaseback or hedging
transactions, in each case, subject to certain qualifications and exceptions. If availability under this facility is less than the greater of
15% of the commitments and $150 million, we will be required to maintain a minimum fixed charge coverage ratio.
Our 2014 Notes also contain affirmative and negative covenants that, among other things, may limit or restrict our ability to: incur
additional debt and issue preferred stock; make certain investments and restricted payments; create liens; create restrictions on
distributions from restricted subsidiaries; engage in specified sales of assets and subsidiary stock; enter into transactions with
affiliates; enter new lines of business; engage in consolidation, mergers and acquisitions; and engage in certain sale/leaseback
transactions.
Condensed Consolidating Financial Statements
Tyson Fresh Meats, Inc. (TFM), our wholly-owned subsidiary, has fully and unconditionally guaranteed the 2016 Notes. TFM and
substantially all of our wholly-owned domestic subsidiaries have fully and unconditionally guaranteed the 2014 Notes. The following
financial information presents condensed consolidating financial statements, which include Tyson Foods, Inc. (TFI Parent); Tyson
Fresh Meats, Inc. (TFM Parent); the other 2014 Notes' guarantor subsidiaries (Guarantors) on a combined basis; the elimination
entries necessary to reflect TFM Parent and the Guarantors, which collectively represent the 2014 Notes' total guarantor subsidiaries
(2014 Guarantors), on a combined basis; the 2014 Notes' non-guarantor subsidiaries (Non-Guarantors) on a combined basis; the
elimination entries necessary to consolidate TFI Parent, the 2014 Guarantors and the Non-Guarantors; and Tyson Foods, Inc. on a
consolidated basis, and is provided as an alternative to providing separate financial statements for the guarantor(s). Certain prior
period amounts have been recast to conform with current year presentation and to reflect the legal subsidiary ownership structure as
of October 3, 2009.
56
Condensed Consolidating Statement of Income for the year ended October 3, 2009
in millions
2014 Guarantors
Net Sales
Cost of Sales
$
Operating Expenses:
Selling, general and administrative
Goodwill impairment
Other charges
Operating Income (Loss)
Other (Income) Expense:
Interest expense, net
Other, net
Equity in net earnings of subsidiaries
Income (Loss) from Continuing Operations
before Income Taxes and Minority
Interest
Income Tax Expense (Benefit)
Income (Loss) from Continuing Operations
before Minority Interest
Minority Interest
Income (Loss) from Continuing Operations
Income (Loss) from Discontinued Operation
$
Net Income (Loss)
TFI
Parent
TFM
Parent
Guar-
antors
11 $ 14,504 $ 12,245 $
132 13,970 11,526
719
534
(121)
Elimin-
ations Subtotal
(725 ) $ 26,024 $
(725 ) 24,771
1,253
-
Non-
Guar-
antors
709 $
638
71
Elimin-
ations
Total
(40 ) $ 26,704
(40 ) 25,501
1,203
-
132
-
-
(253)
187
560
-
(213 )
450
-
17
252
-
-
-
-
637
560
17
39
72
-
-
(1 )
-
-
-
-
268
11
157
436
13
(3 )
(32 )
(22 )
20
(6 )
44
58
-
-
13
13
33
(9)
25
49
(8 )
16
(17 )
(9 )
-
-
(165 )
(165 )
(689)
(131)
(191 )
111
194
34
(13 )
-
(10)
145
8
-
165
-
(558)
-
(558)
21
(537) $
(302 )
-
(302 )
5
(297 ) $
160
-
160
-
160 $
(13 )
-
(13 )
-
(13 ) $
(155)
-
(155)
5
(150) $
8
(4 )
12
(27 )
(15 ) $
165
-
165
-
165 $
841
560
17
(215)
293
18
-
311
(526)
14
(540)
(4)
(536)
(1)
(537)
Condensed Consolidating Statement of Income for the year ended September 27, 2008
in millions
2014 Guarantors
Net Sales
Cost of Sales
$
Operating Expenses:
Selling, general and administrative
Other charges
Operating Income (Loss)
Other (Income) Expense:
Interest expense, net
Other, net
Equity in net earnings of subsidiaries
TFI
Parent
TFM
Parent
Guar-
antors
19 $ 15,638 $ 11,463 $
74 15,105 10,796
667
533
(55)
Elimin-
ations Subtotal
(811 ) $ 26,290 $
(811 ) 25,090
1,200
-
Non-
Guar-
antors
580 $
479
101
Elimin-
ations
Total
(27 ) $ 26,862
(27 ) 25,616
1,246
-
83
1
(139)
208
18
307
533
17
117
-
-
-
741
35
424
55
-
46
-
-
-
181
(13)
(285)
(117)
17
(5 )
(27 )
(15 )
16
(11 )
5
10
-
-
18
18
33
(16)
(4)
13
(8 )
-
(9 )
(17 )
-
-
298
298
Income (Loss) from Continuing Operations
before Income Taxes
Income Tax Expense (Benefit)
Income from Continuing Operations
Income from Discontinued Operation
Net Income
(22)
(108)
86
-
86 $
322
116
206
-
206 $
107
37
70
-
70 $
(18 )
-
(18 )
-
(18 ) $
411
153
258
-
258 $
63
23
40
-
40 $
(298 )
-
(298 )
-
(298 ) $
$
57
879
36
331
206
(29)
-
177
154
68
86
-
86
Condensed Consolidating Statement of Income for the year ended September 29, 2007
in millions
2014 Guarantors
Net Sales
Cost of Sales
$
Operating Expenses:
Selling, general and administrative
Other charges
Operating Income
Other (Income) Expense:
Interest expense, net
Other, net
Equity in net earnings of subsidiaries
TFI
Parent
TFM
Parent
Guar-
antors
154 $ 15,189 $ 10,793 $
(90) 14,849 10,040
753
340
244
Elimin-
ations Subtotal
(736 ) $ 25,246 $
(736 ) 24,153
1,093
-
Non-
Guar-
antors
482 $
390
92
Elimin-
ations
Total
(153 ) $ 25,729
(153 ) 24,300
1,429
-
104
1
139
176
1
163
483
-
270
-
-
-
659
1
433
51
-
41
-
-
-
186
(1)
(285)
(100)
29
(24 )
(94 )
(89 )
18
(8 )
(9 )
1
-
-
77
77
47
(32)
(26)
(11)
(9 )
12
(18 )
(15 )
-
-
329
329
Income from Continuing Operations before
Income Taxes
Income Tax Expense (Benefit)
Income from Continuing Operations
Income from Discontinued Operation
Net Income
$
239
(29)
268
-
268 $
252
53
199
-
199 $
269
110
159
-
159 $
(77 )
-
(77 )
-
(77 ) $
444
163
281
-
281 $
56
8
48
-
48 $
(329 )
-
(329 )
-
(329 ) $
814
2
613
224
(21)
-
203
410
142
268
-
268
Condensed Consolidating Balance Sheet as of October 3, 2009
in millions
2014 Guarantors
TFI
Parent
TFM
Parent
Guar-
antors
Elimin-
ations Subtotal
Non-
Guar-
antors
Elimin-
ations
Total
Assets
Current Assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Other current assets
Total Current Assets
Restricted cash
Net Property, Plant and Equipment
Goodwill
Intangible Assets
Other Assets
Investment in Subsidiaries
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt
Trade accounts payable
Other current liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Liabilities
Minority Interest
Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
$
- $
-
2
1
198
201
-
40
-
-
211
10,038
$ 10,490 $
$
3 $
15
2,790
2,808
3,187
-
143
-
4,352
$ 10,490 $
- $
-
418
586
89
1,093
-
883
881
42
120
1,763
4,782 $
140 $
375
251
766
15
108
161
-
3,732
4,782 $
- $
788 $
-
140
(7 )
3,309
-
1,239
(17 )
29
(24 )
5,505
-
-
-
2,256
-
977
-
59
37
-
674 (1,597 )
788 $
140
3,720
1,825
101
6,574
-
3,139
1,858
101
157
840
9,508 $ (1,621 ) $ 12,669 $
- $
216 $
-
-
(2,738)
116
-
183
(213)
36
(2,951)
551
-
43
-
397
-
59
-
86
346
(217)
296 (11,174)
1,004
140
1,100
2,009
122
4,375
43
3,576
1,917
187
497
-
1,778 $ (14,342) $ 10,595
- $
-
(24 )
(24 )
-
-
-
-
- $
550
296
846
180
182
202
-
140 $
925
523
1,588
195
290
363
-
8,098 (1,597 ) 10,233
9,508 $ (1,621 ) $ 12,669 $
- $
76 $
-
73
(2,951)
399
(2,951)
548
(180)
131
(37)
27
-
33
98
-
941 (11,174)
219
1,013
761
1,993
3,333
280
539
98
4,352
1,778 $ (14,342) $ 10,595
58
Condensed Consolidating Balance Sheet as of September 27, 2008
in millions
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Other current assets
Assets of discontinued operation held
$
2014 Guarantors
TFI
Parent
TFM
Parent
Guar-
antors
Elimin-
ations Subtotal
Non-
Guar-
antors
Elimin-
ations
Total
140 $
1
1
123
- $
122
724
55
35 $
3,614
1,640
24
- $
-
-
(12 )
35 $
3,736
2,364
67
75 $
113
173
72
- $
(2,579 )
-
(119 )
250
1,271
2,538
143
for sale
Total Current Assets
Net Property, Plant and Equipment
Goodwill
Intangible Assets
Other Assets
Investment in Subsidiaries
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt
Trade accounts payable
Other current liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Liabilities
Minority Interest
Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
-
265
43
-
-
132
10,293
$ 10,733 $
-
901
960
1,502
47
91
1,789
5,290 $
-
-
(12 )
5,313
-
2,371
-
965
-
64
55
-
654 (1,639 )
-
6,202
3,331
2,467
111
146
804
9,422 $ (1,651 ) $ 13,061 $
-
159
(2,698 )
592
-
145
-
44
-
17
284
(231 )
282 (11,379 )
159
4,361
3,519
2,511
128
331
-
1,364 $ (14,308 ) $ 10,850
$
8 $
108
2,804
2,920
2,632
-
167
-
5,014
$ 10,733 $
- $
486
201
687
249
129
137
-
4,088
5,290 $
- $
-
(12 )
(12 )
-
-
-
-
- $
559
282
841
180
190
190
-
- $
1,045
471
1,516
429
319
327
-
8,021 (1,639 ) 10,470
9,422 $ (1,651 ) $ 13,061 $
- $
- $
-
64
(2,698 )
301
(2,698 )
365
(180 )
7
(51 )
23
-
31
-
29
909 (11,379 )
8
1,217
878
2,103
2,888
291
525
29
5,014
1,364 $ (14,308 ) $ 10,850
Condensed Consolidating Statement of Cash Flows for the year ended October 3, 2009
in millions
2014 Guarantors
Cash Provided by (Used for) Operating Activities
Cash Flows From Investing Activities:
Additions to property, plant and equipment
Change in restricted cash-investing
Proceeds from sale of marketable securities,
net
Proceeds from sale of discontinued operation
Acquisitions, net of cash acquired
Other, net
Cash Used for Investing Activities
Cash Flows from Financing Activities:
Net change in debt
Debt issuance costs
Change in restricted cash-financing
Purchase of treasury shares
Dividends
Other, net
Net change in intercompany balances
Cash Provided by (Used for) Financing Activities
Effect of Exchange Rate Change on Cash
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
TFI
Parent
(617) $
$
TFM
Parent
Guar-
antors
507 $ 1,034 $
Elimin-
ations Subtotal
- $ 1,541 $
Non-
Guar-
antors
126 $
Elimin-
ations
Total
(25 ) $ 1,025
-
-
(56 )
-
(211 )
-
-
-
(267 )
-
(101 )
(43 )
-
-
(13 )
12
(212 )
-
-
(140 )
-
-
(52 )
123
(69 )
-
753
35
788 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
-
-
(13 )
13
(267 )
(94 )
-
(140 )
-
-
(52 )
(235 )
(521 )
-
753
35
788 $
19
75
(80 )
7
(123 )
36
(1 )
-
-
(25 )
(7 )
129
132
6
141
75
216 $
-
-
-
(37)
(37)
545
(58)
-
(19)
(60)
-
106
514
-
(140)
140
- $
$
-
-
-
1
(55 )
(94 )
-
-
-
-
-
(358 )
(452 )
-
-
-
- $
59
-
-
-
-
-
-
-
(368 )
(43 )
19
75
(93 )
(17 )
(427 )
487
-
(59 )
-
(140 )
-
(19 )
-
(60 )
25
(59 )
-
-
-
150
25
6
-
754
-
-
250
- $ 1,004
Condensed Consolidating Statement of Cash Flows for the year ended September 27, 2008
in millions
2014 Guarantors
Cash Provided by (Used for) Operating Activities
Cash Flows From Investing Activities:
Additions to property, plant and equipment
Proceeds from sale of investments
Purchases of marketable securities, net
Other, net
Cash Provided by (Used for) Investing Activities
Cash Flows from Financing Activities:
Net change in debt
Net proceeds from Class A stock offering
Convertible note hedge transactions
Warrant transactions
Purchase of treasury shares
Dividends
Other, net
Net change in intercompany balances
Cash Provided by (Used for) Financing Activities
Effect of Exchange Rate Change on Cash
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
TFI
Parent
(223) $
TFM
Parent
276 $
$
Guar-
antors
256 $
Elimin-
ations Subtotal
532 $
- $
Non-
Guar-
antors
(6 ) $
Elimin-
ations
(15 ) $
Total
288
(2)
14
(1)
13
24
145
274
(94)
44
(30)
(56)
72
(19)
336
-
137
3
140 $
(104 )
7
-
4
(93 )
(5 )
-
-
-
-
-
2
(180 )
(183 )
-
-
-
- $
(302 )
1
-
15
(286 )
-
-
-
-
-
-
-
62
62
-
32
3
35 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
(406 )
8
-
19
(379 )
(5 )
-
-
-
-
-
2
(118 )
(121 )
-
32
3
35 $
(17 )
-
(2 )
(25 )
(44 )
(51 )
-
-
-
-
(15 )
20
137
91
(2 )
39
36
75 $
-
-
-
-
-
-
-
-
-
-
15
-
-
15
-
-
-
- $
(425 )
22
(3 )
7
(399 )
89
274
(94 )
44
(30 )
(56 )
94
-
321
(2 )
208
42
250
$
Condensed Consolidating Statement of Cash Flows for the year ended September 29, 2007
in millions
2014 Guarantors
TFI
Parent
177 $
TFM
Parent
283 $
Guar-
antors
261 $
Elimin-
ations Subtotal
544 $
- $
Non-
Guar-
antors
(18 ) $
Elimin-
ations
(25 ) $
Total
678
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- $
(244 )
-
(27 )
-
-
(3 )
(247 )
16
-
(11 )
(15 )
-
-
(7 )
(279 )
(301 )
-
(4 )
7
3 $
(448 )
-
(25 )
2
508
37
9
17
19
36 $
-
-
-
-
-
(285 )
770
16
78
579
-
-
25
-
-
25
-
-
-
- $
(1,210 )
(61 )
(56 )
75
-
(1,252 )
9
14
28
42
Cash Provided by (Used for) Operating Activities
Cash Flows From Investing Activities:
$
Additions to property, plant and equipment
Proceeds from sale of short-term investment
Proceeds from sale of marketable securities,
net
Other, net
Cash Provided by (Used for) Investing Activities
Cash Flows from Financing Activities:
Net change in debt
Purchase of treasury shares
Dividends
Other, net
Net change in intercompany balances
Cash Provided by (Used for) Financing Activities
Effect of Exchange Rate Change on Cash
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
(14 )
770
(40 )
-
(204 )
-
-
81
837
-
(12 )
(52 )
-
9
(195 )
(747 )
(61 )
(56 )
80
(229 )
(1,013 )
-
1
2
3 $
(4 )
-
-
(7 )
(221 )
(232 )
-
(1 )
1
- $
$
(11 )
-
-
-
(58 )
(69 )
-
(3 )
6
3 $
60
NOTE 12: FAIR VALUE MEASUREMENTS
As described in Note 2: Change in Accounting Principles, we adopted fair value measurement accounting guidance at the beginning
of the first quarter fiscal 2009. This guidance defines fair value, establishes a framework for measuring fair value and expands
disclosure requirements about fair value measurements. This guidance also defines fair value as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The fair value hierarchy prescribed by this standard
contains three levels as follows:
Level 1 — Unadjusted quoted prices available in active markets for the identical assets or liabilities at the measurement date.
Level 2 — Other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or
indirectly, including:
● Quoted prices for similar assets or liabilities in active markets;
● Quoted prices for identical or similar assets in non-active markets;
● Inputs other than quoted prices that are observable for the asset or liability; and
● Inputs derived principally from or corroborated by other observable market data.
Level 3 — Unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management
judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of
market participant assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair
value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level
input significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value
measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following
table sets forth by level within the fair value hierarchy, our financial assets and liabilities accounted for at fair value on a recurring
basis at October 3, 2009, according to the valuation techniques we used to determine their fair values (in millions):
Assets:
Commodity Derivatives
Available for Sale Securities:
Debt securities
Equity securities
Deferred Compensation Assets
Total Assets
Liabilities:
Commodity Derivatives
Foreign Exchange Forward Contracts
Interest Rate Swap
Total Liabilities
Level 1
Level 2
Level 3
Netting (a) Total
$
- $
21 $
- $
(17 ) $
4
-
20
2
22 $
- $
-
-
- $
33
-
84
138 $
15 $
1
4
20 $
72
-
-
72 $
- $
-
-
- $
-
-
-
(17 ) $
(11 ) $
-
(2 )
(13 ) $
105
20
86
215
4
1
2
7
$
$
$
(a) Our derivative assets and liabilities are presented in our Consolidated Balance Sheets on a net basis. We net derivative assets and
liabilities, including cash collateral, when a legally enforceable master netting arrangement exists between the counterparty to a
derivative contract and us. At October 3, 2009, we had posted $4 million of cash collateral and held no cash collateral with various
counterparties.
61
The following table provides a reconciliation between the beginning and ending balance of debt securities measured at fair value on a
recurring basis in the table above that used significant unobservable inputs (Level 3) (in millions):
Balance at September 27, 2008
Total realized and unrealized gains (losses):
Included in earnings
Included in other comprehensive income (loss)
Purchases, issuances and settlements, net
Balance at October 3, 2009
Total gains (losses) for the period included in earnings
attributable to the change in unrealized gains (losses) relating to
assets and liabilities still held as of October 3, 2009
Debt
Securities
54
$
(4 )
4
18
72
(4 )
$
$
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Derivative Assets and Liabilities: Our derivatives, including commodities, foreign exchange forward contracts and interest rate
swap, primarily include exchange-traded and over-the-counter contracts which are further described in Note 6: Derivative Financial
Instruments. We record our commodity derivatives at fair value using quoted market prices adjusted for credit and non-performance
risk and internal models that use as their basis readily observable market inputs including current and forward commodity market
prices. Our foreign exchange forward contracts are recorded at fair value based on quoted prices and spot and forward currency prices
adjusted for credit and non-performance risk. Our interest rate swap is recorded at fair value based on quoted LIBOR swap rates
adjusted for credit and non-performance risk. We classify these instruments in Level 2 when quoted market prices can be
corroborated utilizing observable current and forward commodity market prices on active exchanges, observable market transactions
of spot currency rates and forward currency prices or observable benchmark market rates at commonly quoted intervals.
Available for Sale Securities: Our investments in marketable debt securities are classified as available-for-sale and are included in
Other Assets in the Consolidated Balance Sheets. These investments, which are generally long-term in nature with maturities ranging
up to 47 years, are reported at fair value based on pricing models and quoted market prices adjusted for credit and non-performance
risk. We classify our investments in U.S. government and agency debt securities as Level 2 as fair value is generally estimated using
discounted cash flow models that are primarily industry-standard models that consider various assumptions, including time value and
yield curve as well as other readily available relevant economic measures. We classify certain corporate, asset-backed and other debt
securities as Level 3 as there is limited activity or less observable inputs into proprietary valuation models, including estimated
prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle.
In October 2008, we received eight million warrants to purchase an equivalent amount of Syntroleum Corporation common stock for
one cent each in return for our entering into a letter of credit to guarantee all of the Dynamic Fuels’ Gulf Opportunity Zone
tax-exempt bonds (see Note 11: Long-Term Debt) including Syntroleum Corporation’s 50 percent ownership portion. In April 2009,
we exercised these warrants for eight million shares of Syntroleum Corporation. We record the shares in Other Assets in the
Consolidated Balance Sheets at fair value based on quoted market prices. We classify the shares as Level 1 as the fair value is based
on unadjusted quoted prices available in active markets.
The following balances are as of October 3, 2009:
Available for Sale Securities:
Debt Securities:
U.S. Treasury and Agency
Corporate and Asset-Backed (a)
Redeemable Preferred Stock
Amortized
Cost Basis
Fair
Value
in millions
Unrealized
Gain (Loss)
$
33 $
46
24
33 $
48
24
-
2
-
Equity Securities – Common Stock
9
20
11
(a) Amortized cost basis for Corporate and Asset-Backed debt securities have been reduced by
accumulated other than temporary impairments of $4 million.
62
Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in other comprehensive income until the
security is settled or sold. On a quarterly basis, we evaluate whether losses related to our available-for-sale securities are temporary in
nature. If losses are determined to be other than temporary, the loss would be recognized in earnings if we intend, or more likely than
not will be required, to sell the security prior to recovery. For securities in which we have the intent and ability to hold until maturity,
losses determined to be other than temporary would remain in other comprehensive income, other than expected credit losses which
are recognized in earnings. We consider many factors in determining whether a loss is temporary, including the length of time and
extent to which the fair value has been below cost, the financial condition and near-term prospects of the issuer and our ability and
intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. During fiscal 2009, we recognized
$4 million of other than temporary impairments in earnings, while no amounts were recognized during fiscal 2008 and 2007. No other
than temporary losses have been deferred in other comprehensive income as of October 3, 2009.
Deferred Compensation Assets: We maintain two non-qualified deferred compensation plans for certain executives and other highly
compensated employees. Investments are maintained within a trust and include money market funds, mutual funds and life insurance
policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The investments are recorded at
fair value based on quoted market prices adjusted for credit and non-performance risk and are included in Other Assets in the
Consolidated Balance Sheets. We classify the investments which have observable market prices in active markets in Level 1 as these
are generally publicly-traded mutual funds. The remaining deferred compensation assets are classified in Level 2, as fair value can be
corroborated based on observable market data. Realized and unrealized gains (losses) on deferred compensation are included in
earnings.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During fiscal 2009, we had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their
initial recognition. As indicated in Note 2: Change in Accounting Principles, the effective date was deferred for the aspects of fair
value measurements related to nonfinancial assets and liabilities measured at fair value, but recognized or disclosed at fair value on a
nonrecurring basis. This deferral applies to such items as nonfinancial assets and liabilities initially measured at fair value in a
business combination (but not measured at fair value in subsequent periods) or nonfinancial long-lived asset groups measured at fair
value for an impairment assessment.
Other Financial Instruments
Fair values for debt are based on quoted market prices or published forward interest rate curves. Fair value and carrying value for our
debt were as follows (in millions):
Total Debt
October 3, 2009
Fair
Value
3,724 $
$
September 27, 2008
Carrying
Value
2,896
Fair
Value
2,659 $
Value
3,552 $
Carrying
For all of our other financial instruments, the estimated fair value approximated the carrying value at October 3, 2009, and September
27, 2008. The carrying value of our other financial instrument, not otherwise disclosed herein, included notes receivable, which
approximated fair value at October 3, 2009. Notes receivable are recorded in Other Assets in the Consolidated Balance Sheets and
totaled $45 million and $0 at October 3, 2009, and September 27, 2008, respectively. The fair values were determined using pricing
models for which the assumptions utilize management’s estimates of market participant assumptions.
Concentrations of Credit Risk
Our financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents and accounts
receivable. Our cash equivalents are in high quality securities placed with major banks and financial institutions. Concentrations of
credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas.
We perform periodic credit evaluations of our customers’ financial condition and generally do not require collateral. At October 3,
2009, and September 27, 2008, 13.0% and 12.2%, respectively, of our net accounts receivable balance was due from Wal-Mart
Stores, Inc. No other single customer or customer group represents greater than 10% of net accounts receivable.
63
NOTE 13: COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income are as follows:
Accumulated other comprehensive income:
Currency translation adjustment
Unrealized net hedging losses, net of taxes
Unrealized net gain (loss) on investments, net of taxes
Postretirement benefits reserve adjustments
Total accumulated other comprehensive income (loss)
The components of other comprehensive income (loss) are as follows:
in millions
2008
2009
(21 ) $
(2 )
9
(20 )
(34 ) $
60
(8 )
(1 )
(10 )
41
$
$
in millions
Before Tax Income Tax After Tax
Fiscal 2009:
Currency translation adjustment
Currency translation adjustment gain reclassified to loss from
$
(43 ) $
3 $
discontinued operation
Unrealized gain on investments
Loss on investments reclassified to other income
Net change in postretirement liabilities
Net hedging unrealized loss
Net hedging loss reclassified to earnings
Other comprehensive loss – 2009
Fiscal 2008:
Currency translation adjustment
Net change in postretirement liabilities
Investments unrealized loss
Net hedging unrealized gain
Net hedging gain reclassified to earnings
Other comprehensive loss – 2008
Fiscal 2007:
Currency translation adjustment
Net change in pension liability, prior to adoption of new accounting
guidance (1)
Net hedging unrealized gain
Net hedging gain reclassified to earnings
Other comprehensive income – 2007
(41 )
12
4
(11 )
(53 )
61
(71 ) $
(2 ) $
(10 )
(1 )
37
(41 )
(17 ) $
24 $
9
33
(33 )
33 $
-
(5 )
(1 )
1
23
(25 )
(4 ) $
- $
6
-
(14 )
16
8 $
- $
(3 )
(13 )
13
(3 ) $
$
$
$
$
$
(40 )
(41 )
7
3
(10 )
(30 )
36
(75 )
(2 )
(4 )
(1 )
23
(25 )
(9 )
24
6
20
(20 )
30
(1) We adopted new accounting guidance in fiscal 2007 related to defined benefit and post retirement plans.
NOTE 14: STOCK-BASED COMPENSATION
We issue shares under our stock-based compensation plans by issuing Class A stock from treasury. The total number of shares
available for future grant under the Tyson Foods, Inc. 2000 Stock Incentive Plan (Incentive Plan) was 22,320,132 at October 3, 2009.
Stock Options
Shareholders approved the Incentive Plan in January 2001. The Incentive Plan is administered by the Compensation Committee of the
Board of Directors (Compensation Committee). The Incentive Plan includes provisions for granting incentive stock options for shares
of Class A stock at a price not less than the fair market value at the date of grant. Nonqualified stock options may be granted at a price
equal to, less than or more than the fair market value of Class A stock on the date the option is granted. Stock options under the
Incentive Plan generally become exercisable ratably over two to five years from the date of grant and must be exercised within 10
years from the date of grant. Our policy is to recognize compensation expense on a straight-line basis over the requisite service period
for the entire award.
64
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
Shares Under
Aggregate
Intrinsic Value
(in millions)
(in Years)
Outstanding, September 27, 2008
Exercised
Canceled
Granted
Outstanding, October 3, 2009
Option
16,906,014 $
(72,590 )
(1,495,506 )
3,255,926
18,593,844
Per Share
14.38
8.63
14.47
4.90
12.73
Exercisable, October 3, 2009
10,050,940 $
13.75
6.2 $
4.5 $
237
138
We grant stock options once a year. The grant-date fair value of options granted in fiscal 2009, 2008 and 2007 was $1.29, $5.22 and
$5.85, respectively. The fair value of each option grant is established on the date of grant using a binomial lattice method for grants
awarded after October 1, 2005, and the Black-Scholes option-pricing model for grants awarded before October 1, 2005. The change
to the binomial lattice method was made to better reflect the exercise behavior of top management. We use historical volatility for a
period of time comparable to the expected life of the option to determine volatility assumptions. Expected life is calculated based on
the contractual term of each grant and takes into account the historical exercise and termination behavior of participants. Risk-free
interest rates are based on the five-year Treasury bond rate. Assumptions as of the grant date used in the fair value calculation of each
year’s grants are outlined in the following table.
Expected life
Risk-free interest rate
Expected volatility
Expected dividend yield
2009
2008
5.3 years 5.8 years
2.3 %
34.6 %
3.3 %
3.7 %
30.9 %
1.1 %
2007
5.4 years
4.6 %
33.7 %
1.0 %
We recognized stock-based compensation expense related to stock options, net of income taxes, of $9 million, $12 million and $11
million, respectively, during fiscal years 2009, 2008 and 2007, with a $6 million, $7 million and $6 million related tax benefit. We
had 2.4 million, 2.5 million and 1.9 million options vest in fiscal years 2009, 2008 and 2007, respectively, with a fair value of $15
million, $15 million and $9 million, respectively.
In fiscal years 2009, 2008 and 2007, we received cash of $1 million, $9 million and $59 million, respectively, for the exercise of stock
options. Shares are issued from treasury for stock option exercises. The related tax benefit realized from stock options exercised
during fiscal years 2009, 2008 and 2007, was $0, $1 million and $12 million, respectively. The total intrinsic value of options
exercised in fiscal years 2009, 2008 and 2007, was $0, $3 million and $31 million, respectively. Cash flows resulting from tax
deductions in excess of the compensation cost of those options (excess tax deductions) are classified as financing cash flows. We
realized $0, $0 and $9 million, respectively, in excess tax deductions during fiscal years 2009, 2008 and 2007, respectively. As of
October 3, 2009, we had $29 million of total unrecognized compensation cost related to stock option plans that will be recognized
over a weighted average period of 2.7 years.
65
Restricted Stock
We issue restricted stock at the market value as of the date of grant, with restrictions expiring over periods through 2013. Unearned
compensation is recognized over the vesting period for the particular grant using a straight-line method.
Nonvested, September 27, 2008
Granted
Dividends
Vested
Forfeited
Nonvested, October 3, 2009
Weighted
Average Grant-
Date Fair Value
Per Share
Weighted
Average
Remaining
Contractual Life
(in Years)
Aggregate
Intrinsic Value
(in millions)
16.16
9.94
9.78
16.64
13.79
15.20
1.8 $ 57
Number of
Shares
4,765,724 $
726,238
78,192
(716,542)
(196,702)
4,656,910 $
As of October 3, 2009, we had $25 million of total unrecognized compensation cost related to restricted stock awards that will be
recognized over a weighted average period of 1.8 years.
We recognized stock-based compensation expense related to restricted stock, net of income taxes, of $10 million, $11 million and $14
million for years 2009, 2008 and 2007, respectively. The related tax benefit for fiscal years 2009, 2008 and 2007 was $7 million, $6
million and $9 million, respectively. We had 0.7 million, 2.0 million and 3.4 million, respectively, restricted stock awards vest in
fiscal years 2009, 2008 and 2007, with a grant date fair value of $11 million, $24 million and $37 million.
Performance-based Shares
In July 2003, our Compensation Committee began authorizing us to award performance-based shares of our Class A stock to certain
senior executives. These awards are typically granted on the first business day of our fiscal year. The vesting of the
performance-based shares is generally over three years and each award is subject to the attainment of goals determined by the
Compensation Committee prior to the date of the award. We review progress toward the attainment of goals each quarter during the
vesting period. However, the attainment of goals can be determined only at the end of the vesting period. If the shares vest, the
ultimate cost will be equal to the Class A stock price on the date the shares vest multiplied by the number of shares awarded for all
performance grants with other than market criteria. For grants with market performance criteria, the ultimate expense will be the fair
value of the probable shares to vest regardless if the shares actually vest. Total expense recorded related to performance-based shares
was not material for fiscal 2009, 2008 and 2007.
NOTE 15: PENSIONS AND OTHER POSTRETIREMENT BENEFITS
At October 3, 2009, we had four noncontributory defined benefit pension plans consisting of three funded qualified plans and one
unfunded non-qualified plan. All three of our qualified plans are frozen and provide benefits based on a formula using years of
service and a specified benefit rate. Effective January 1, 2004, we implemented a non-qualified defined benefit plan for certain
contracted officers that uses a formula based on years of service and final average salary. We also have other postretirement benefit
plans for which substantially all of our employees may receive benefits if they satisfy applicable eligibility criteria. The
postretirement healthcare plans are contributory with participants’ contributions adjusted when deemed necessary.
We have defined contribution retirement and incentive benefit programs for various groups of employees. We recognized expenses of
$49 million, $48 million and $46 million in fiscal 2009, 2008 and 2007, respectively.
We use a fiscal year end measurement date for our defined benefit plans and other postretirement plans. We generally recognize the
effect of actuarial gains and losses into earnings immediately for other postretirement plans rather than amortizing the effect over
future periods.
Other postretirement benefits include postretirement medical costs and life insurance.
66
Benefit obligations and funded status
The following table provides a reconciliation of the changes in the plans’ benefit obligations, assets and funded status at October 3,
2009, and September 27, 2008:
Pension Benefits
Non-Qualified
2009
2008
in millions
Other Postretirement
Benefits
Change in benefit obligation
Benefit obligation at beginning of year
$
Service cost
Interest cost
Plan participants’ contributions
Actuarial (gain) loss
Benefits paid
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Fair value of plan assets at end of year
Qualified
2009
2008
90 $
-
6
-
-
(7 )
89
79
(5 )
1
-
(7 )
68
98 $
-
6
-
(6 )
(8 )
90
97
(11 )
1
-
(8 )
79
32 $
4
2
-
2
(2 )
38
-
-
2
-
(2 )
-
30 $
3
2
-
(2 )
(1 )
32
-
-
1
-
(1 )
-
2009
2008
47 $
-
3
2
1
(7 )
46
-
-
5
2
(7 )
-
49
1
3
2
1
(9 )
47
-
-
7
1
(8 )
-
Funded status
$
(21 ) $
(11 ) $
(38 ) $
(32 ) $
(46 ) $
(47 )
Amounts recognized in the Consolidated Balance Sheets consist of:
Pension Benefits
Qualified
2009
2008
Non-Qualified
2009
2008
2009
in millions
Other Postretirement
Benefits
Accrued benefit liability
Accumulated other comprehensive (income)/loss:
Unrecognized actuarial loss
Unrecognized prior service (cost)/credit
Net amount recognized
$
(21 ) $
(11 ) $
(38 ) $
(32 ) $
(46 ) $
35
-
14 $
24
-
13 $
1
4
(33 ) $
-
4
(28 ) $
-
(8 )
(54 ) $
$
2008
(47 )
-
(9 )
(56 )
The increase (decrease) in the pretax minimum liability related to our pension plans included in other comprehensive income (loss)
was $12 million, $9 million and $(9) million in fiscal 2009, 2008 and 2007, respectively.
At October 3, 2009, and September 27, 2008, all pension plans had an accumulated benefit obligation in excess of plan assets. The
accumulated benefit obligation for all qualified pension plans was $89 million and $90 million at October 3, 2009, and September 27,
2008, respectively. Plans with accumulated benefit obligations in excess of plan assets are as follows:
in millions
Pension Benefits
Qualified
2009
Non-Qualified
2009
2008
2008
32
31
-
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
89 $
89
68
90 $
90
79
38 $
37
-
67
68 Net Periodic Benefit Cost Components of net periodic benefit cost for pension and postretirement benefit plans recognized in the Consolidated Statements of Income are as follows: in millions Pension Benefits Other Postretirement Qualified Non-Qualified Benefits 2009 2008 2007 2009 2008 2007 2009 2008 2007 Service cost $- $ - $ - $ 4 $ 3 $ 6 $ - $ 1 $ 1 Interest cost 6 6 5 2 2 2 3 3 4 Expected return on plan assets (7 ) (7 ) (7 ) - - - - - - Amortization of prior service cost - - - 1 1 1 - (1) (2) Recognized actuarial loss, net 1 1 1 - - - 1 1 12 Curtailment and settlement gain - - - - - - - - (27) Net periodic benefit cost $- $ - $ (1 ) $ 7 $ 6 $ 9 $ 4 $ 4 $ (12) Assumptions Weighted average assumptions are as follows: Pension Benefits Other Postretirement Qualified Non-Qualified Benefits 2009 2008 2007 2009 2008 2007 2009 2008 2007 Discount rate to determine net periodic benefit cost 6.36 % 6.33 % 5.93 % 6.50 % 6.25 % 6.00 % 6.50 % 6.25 % 6.00 % Discount rate to determine benefit obligations 6.00 % 5.88 % 5.39 % 6.00 % 6.50 % 6.25 % 5.71 % 6.50 % 6.25 % Rate of compensation increase N/A N/A N/A 3.50 % 3.50 % 3.50 % N/A N/A N/A Expected return on plan assets 8.00 % 8.02 % 7.89 % N/A N/A N/A N/A N/A N/A To determine the rate-of-return on assets assumption, we first examined historical rates of return for the various asset classes. We then determined a long-term projected rate-of-return based on expected returns over the next five to 10 years. We have three postretirement health plans. Two of these consist of fixed, annual payments and account for $33 million of the postretirement medical obligation at October 3, 2009. A healthcare cost trend is not required to determine this obligation. The remaining plan accounts for $13 million of the postretirement medical obligation at October 3, 2009. The plan covers retirees who do not yet qualify for Medicare and uses a healthcare cost trend of 9% in the current year, grading down to 6% in fiscal 2012. A one-percentage point change in assumed healthcare cost trend rate would have an immaterial impact on the postretirement benefit obligation and total service and interest cost. Plan Assets The fair value of plan assets for domestic pension benefit plans was $54 million and $64 million as of October 3, 2009, and September 27, 2008, respectively. The following table sets forth the actual and target asset allocation for pension plan assets: Target Asset 2009 2008 Allocation Cash 0.2 % 0.9 % 1.0 % Fixed income securities 19.7 31.1 19.0 US Stock Funds 43.2 44.1 45.0 International Stock Funds 20.2 18.8 20.0 Real Estate 4.7 5.1 5.0 Alternatives 12.0 - 10.0 Total 100.0 % 100.0 % 100.0 % A foreign subsidiary pension plan had $14 million and $15 million in plan assets at October 3, 2009, and September 27, 2008, respectively. All of this plan’s assets are held in annuity contracts consistent with its target asset allocation. The Plan Trustees have established a set of investment objectives related to the assets of the pension plans and regularly monitor the
performance of the funds and portfolio managers. Objectives for the pension assets are (1) to provide growth of capital and income,
(2) to achieve a target weighted average annual rate of return competitive with other funds with similar investment objectives and (3)
to diversify to reduce risk. The investment objectives and target asset allocation were adopted in January 2004 and amended in
November 2008. Alternative investments may include, but not limited to, hedge funds, private equity funds and fixed income funds.
Contributions
Our policy is to fund at least the minimum contribution required to meet applicable federal employee benefit and local tax laws. In
our sole discretion, we may from time to time fund additional amounts. Expected contributions to pension plans for fiscal 2010 are
approximately $4 million. For fiscal 2009, 2008 and 2007, we funded $2 million, $2 million and $5 million, respectively, to defined
benefit plans.
Estimated Future Benefit Payments
The following benefit payments are expected to be paid:
2010
2011
2012
2013
2014
2015-2019
$
Pension Benefits
Qualified Non-Qualified
6 $
9
8
7
7
31
2 $
2
2
2
2
17
in millions
Other
Postretirement
Benefits
6
5
5
5
5
20
The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in 2010
or thereafter.
NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION
The following table summarizes cash payments for interest and income taxes:
Interest
Income taxes, net of refunds
$
2009
333 $
35
in millions
2007
262
97
2008
211 $
51
NOTE 17: TRANSACTIONS WITH RELATED PARTIES
We have operating leases for farms, equipment and other facilities with Don Tyson, a director of the Company, John Tyson,
Chairman of the Company, certain members of their families and the Randal W. Tyson Testamentary Trust. Total payments of $3
million in fiscal 2009, $3 million in fiscal 2008, and $5 million in fiscal 2007, were paid to entities in which these parties had an
ownership interest.
In 2008, a lawsuit captioned In re Tyson Foods, Inc. Consolidated Shareholder’s Litigation was settled. Pursuant to the settlement,
Don Tyson and the Tyson Limited Partnership paid us $4.5 million.
69
NOTE 18: INCOME TAXES
Detail of the provision for income taxes from continuing operations consists of the following:
Federal
State
Foreign
Current
Deferred
2009
12 $
(2)
4
14 $
40 $
(26)
14 $
$
$
$
$
2008
in millions
2007
129
16
(3 )
142
56 $
8
4
68 $
33 $
35
68 $
137
5
142
The reasons for the difference between the statutory federal income tax rate and our effective income tax rate from continuing
operations are as follows:
Federal income tax rate
State income taxes, excluding unrecognized tax benefits
Extraterritorial income exclusion
Unrecognized tax benefits, net
Medicare Part D
Goodwill impairment
General business credits
Domestic production deduction
Fixed asset tax cost correction
Officers life insurance
Change in state valuation allowance
Change in foreign valuation allowance
Tax planning in foreign jurisdictions
Other
2009
35.0 %
(0.1 )
-
(0.3 )
-
(37.2 )
2.3
0.5
-
(0.3 )
-
(3.9 )
1.8
(0.5 )
(2.7 )%
2008
35.0 %
2.0
-
4.4
(0.8 )
-
(3.8 )
(2.2 )
-
3.8
5.0
-
-
1.2
44.6 %
2007
35.0 %
2.3
(1.1 )
(4.6 )
3.2
-
(2.6 )
(1.0 )
4.2
(1.4 )
-
-
-
0.6
34.6 %
The fiscal 2009 goodwill impairment is non-deductible for income tax purposes and negatively impacted our effective income tax rate
by 37.2%. During fiscal 2009, our tax expense was impacted by an increase in foreign valuation allowance which increased tax
expense by $21 million, estimated general business credits which decreased tax expense by $12 million, and tax planning in foreign
jurisdictions which decreased tax expense by $9 million.
During fiscal 2008, an increase in the state valuation allowance increased tax expense by $8 million, while non-deductible activity
relating to company-owned life insurance increased tax expense by $6 million. The addition of unrecognized tax benefits in fiscal
2008 caused a net increase to income tax expense of $7 million. Additionally, estimated general business credits decreased fiscal
2008 tax expense by $6 million.
During fiscal 2007, we discovered a certain population of our tax cost and accumulated depreciation values were not accurately
recorded, primarily related to a property, plant and equipment system conversion in 1999. This system conversion did not impact the
recorded book value of the property, plant and equipment. As a result, the net tax basis of property, plant and equipment was
overstated, which caused the deferred tax liability in our financial statements to be understated. In fiscal 2007, we increased our
deferred tax liabilities $17 million and recognized additional tax expense of $17 million. Additionally, the fiscal 2007 effective tax
rate was reduced by 4.6% due to the reduction of income tax reserves management deemed were no longer required. The net
reduction to current income tax expense of approximately $20 million related to Internal Revenue Service examinations, appeals and
United States Tax Court settlement activity, as well as state income tax examination settlements. Additional related adjustments
resulted in a $28 million reduction of goodwill.
We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled.
70
The tax effects of major items recorded as deferred tax assets and liabilities are as follows:
Property, plant and equipment
Suspended taxes from conversion to accrual method
Intangible assets
Inventory
Accrued expenses
Net operating loss and other carryforwards
Note hedge transactions
Insurance reserves
Prepaids
Other
Valuation allowance
Net deferred tax liability
2009
Deferred Tax
Assets Liabilities
- $
-
-
19
151
103
30
22
-
114
439 $
(75)
$
339 $
91
34
76
-
-
-
-
20
54
614 $
$
250
$
$
$
in millions
2008
Deferred Tax
Assets Liabilities
365
96
30
89
-
-
-
-
23
48
651
- $
-
-
13
167
124
36
22
-
58
420 $
(49)
$
280
We record deferred tax amounts in Other Current Assets and in Deferred Income Taxes on the Consolidated Balance Sheets.
The deferred tax liability for suspended taxes from conversion to accrual method represents the 1987 change from the cash to accrual
method of accounting and will be recognized by 2027.
At October 3, 2009, our gross federal tax net operating loss carryforward approximated $45 million. This carryforward expires in
fiscal year 2024. Gross state tax net operating loss carryforwards approximated $803 million and expire in fiscal years 2010 through
2028. Gross foreign net operating loss carryforwards approximated $143 million, of which $87 million expire in fiscal years 2011
through 2019, and the remainder has no expiration.
We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $220 million and $219 million at
October 3, 2009 and September 27, 2008, respectively. These earnings are expected to be indefinitely reinvested outside of the United
States. If those earnings were distributed in the form of dividends or otherwise, we would be subject to federal income taxes (subject
to an adjustment for foreign tax credits), state income taxes and withholding taxes payable to the various foreign countries. It is not
currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings.
The following table summarizes the activity related to our gross unrecognized tax benefits at October 3, 2009, and September 27,
2008.
2009
in millions
2008
210
23
36
(28 )
(14 )
(7 )
220
220 $
7
60
(21)
(25)
(8)
233 $
Balance as of the beginning of the year
Increases related to current year tax positions
Increases related to prior year tax positions
Reductions related to prior year tax positions
Reductions related to settlements
Reductions related to expirations of statute of limitations
Balance as of the end of the year
$
$
71
The amount of unrecognized tax benefits, if recognized, that would affect our effective tax rate was $104 million and $73 million at
October 3, 2009 and at September 27, 2008, respectively. We classify interest and penalties on unrecognized tax benefits as income
tax expense. At October 3, 2009, and at September 27, 2008, before tax benefits, we had $71 million and $67 million, respectively, of
accrued interest and penalties on unrecognized tax benefits.
As of October 3, 2009, we are subject to income tax examinations for U.S. federal income taxes for fiscal years 1998 through 2008,
excluding 2001 and 2002, and for foreign, state and local income taxes for fiscal years 2001 through 2008. During fiscal 2010, tax
audit resolutions could potentially reduce our unrecognized tax benefits by approximately $19 million, either because tax positions
are sustained on audit or because we agree to their disallowance.
NOTE 19: EARNINGS (LOSS) PER SHARE
The earnings and weighted average common shares used in the computation of basic and diluted earnings (loss) per share are as
follows:
Numerator:
Income (loss) from continuing operations
Less Dividends:
Class A ($0.16/share)
Class B ($0.144/share)
Undistributed earnings (losses)
Class A undistributed earnings (losses)
Class B undistributed earnings (losses)
Total undistributed earnings (losses)
Denominator:
Denominator for basic earnings per share:
Class A weighted average shares
Class B weighted average shares, and shares under
if-converted method for diluted earnings per share
Effect of dilutive securities:
Stock options and restricted stock
Denominator for diluted earnings per share – adjusted
weighted average shares and assumed conversions
Earnings (Loss) Per Share from Continuing Operations:
Class A Basic
Class B Basic
Diluted
Net income (loss):
Class A Basic
Class B Basic
Diluted
in millions, except per share data
2007
2008
2009
$
(536 ) $
86 $
268
50
10
(596 )
(493 )
(103 )
(596 ) $
46
10
30
25
5
30 $
45
11
212
170
42
212
302
281
273
70
70
-
5
75
7
372
356
355
(1.47 ) $
(1.32 ) $
(1.44 ) $
0.25 $
0.22 $
0.24 $
(1.47 ) $
(1.32 ) $
(1.44 ) $
0.25 $
0.22 $
0.24 $
0.79
0.70
0.75
0.79
0.70
0.75
$
$
$
$
$
$
$
Approximately 24 million, 10 million and 4 million, respectively, in fiscal years 2009, 2008 and 2007, of our stock-based
compensation shares were antidilutive and were not included in the dilutive earnings per share calculation.
We have two classes of capital stock, Class A stock and Class B stock. Cash dividends cannot be paid to holders of Class B stock
unless they are simultaneously paid to holders of Class A stock. The per share amount of cash dividends paid to holders of Class B
stock cannot exceed 90% of the cash dividend paid to holders of Class A stock.
We allocate undistributed earnings (losses) based upon a 1 to 0.9 ratio per share of Class A stock and Class B stock, respectively. We
allocate undistributed earnings (losses) based on this ratio due to historical dividend patterns, voting control of Class B shareholders
and contractual limitations of dividends to Class B stock.
72
NOTE 20: SEGMENT REPORTING
We operate in four segments: Chicken, Beef, Pork and Prepared Foods. We measure segment profit as operating income (loss).
Chicken: Chicken operations include breeding and raising chickens, as well as processing live chickens into fresh, frozen and
value-added chicken products and logistics operations to move products through the supply chain. Products are marketed
domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments such as
schools, hotel chains, healthcare facilities, the military and other food processors, as well as to international markets. It also includes
sales from allied products and our chicken breeding stock subsidiary.
Beef: Beef operations include processing live fed cattle and fabricating dressed beef carcasses into primal and sub-primal meat cuts
and case-ready products. This segment also includes sales from allied products such as hides and variety meats, as well as logistics
operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors,
restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military
and other food processors, as well as to international markets. Allied products are marketed to manufacturers of pharmaceuticals and
technical products.
Pork: Pork operations include processing live market hogs and fabricating pork carcasses into primal and sub-primal cuts and
case-ready products. This segment also includes our live swine group, related allied product processing activities and logistics
operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors,
restaurant operators and noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military
and other food processors, as well as to international markets. We sell allied products to pharmaceutical and technical products
manufacturers, as well as a limited number of live swine to pork processors.
Prepared Foods: Prepared Foods operations include manufacturing and marketing frozen and refrigerated food products and
logistics operations to move products through the supply chain. Products include pepperoni, bacon, beef and pork pizza toppings,
pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and
processed meats. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and
noncommercial foodservice establishments such as schools, hotel chains, healthcare facilities, the military and other food processors,
as well as to international markets.
73
Fiscal year ended October 3, 2009
Sales
Operating income (loss)
Other expense
Loss from continuing operations
before income taxes and minority interest
Depreciation
Total assets
Additions to property, plant and equipment
Fiscal year ended September 27, 2008
Sales
Operating income (loss)
Other expense
Income from continuing operations
before income taxes and minority interest
Depreciation (a)
Total assets (b)
Additions to property, plant and equipment (c)
Fiscal year ended September 29, 2007
Sales
Operating income
Other expense
Income from continuing operations
before income taxes and minority interest
Depreciation (a)
Total assets (b)
Additions to property, plant and equipment (c)
Chicken
Beef
Pork
Prepared
Foods
Other Consolidated
in millions
$
9,660 $
(157 )
10,782 $
(346 )
3,426 $
160
2,836 $
133
- $
(5 )
252
4,927
174
103
2,277
39
36
840
18
54
905
58
-
1,646
79
$
8,900 $
(118 )
11,664 $
106
3,587 $
280
2,711 $
63
- $
-
244
4,990
258
117
3,169
83
31
898
21
67
971
46
$
8,210 $
325
11,540 $
51
3,314 $
145
2,665 $
92
-
663
15
- $
-
260
4,467
164
120
3,207
33
31
814
10
61
961
25
-
614
47
26,704
(215)
311
(526)
445
l0,595
368
26,862
331
177
154
459
10,691
423
25,729
613
203
410
472
10,063
279
a) Excludes depreciation related to discontinued operation of $9 million and $10 million for fiscal years 2008 and 2007, respectively.
b) Excludes assets held for sale related to discontinued operation of $159 million and $164 million for fiscal years 2008 and 2007, respectively.
c) Excludes additions to property, plant and equipment related to discontinued operation of $2 million and $6 million for fiscal years 2008 and
2007, respectively.
We allocate expenses related to corporate activities to the segments, while the related assets and additions to property, plant and
equipment remain in Other.
The Pork segment had sales of $449 million, $517 million and $515 million for fiscal years 2009, 2008 and 2007, respectively, from
transactions with other operating segments. The Beef segment had sales of $155 million, $142 million and $111 million for fiscal
years 2009, 2008 and 2007, respectively, from transactions with other operating segments. These sales from intersegment
transactions, which are sold at market prices, were excluded from the segment sales in the above table.
Our largest customer, Wal-Mart Stores, Inc., accounted for 13.8%, 13.3% and 13.4% of consolidated sales in fiscal years 2009, 2008
and 2007, respectively. Sales to Wal-Mart Stores, Inc. were included in the Chicken, Beef, Pork and Prepared Foods segments. Any
extended discontinuance of sales to this customer could, if not replaced, have a material impact on our operations.
The majority of our operations are domiciled in the United States. Approximately 97%, 98% and 98% of sales to external customers
for fiscal 2009, 2008 and 2007, respectively, were sourced from the United States. Approximately $3.2 billion, $3.4 billion and $3.5
billion, respectively, of property, plant and equipment were located in the United States at October 3, 2009, September 27, 2008, and
September 29, 2007. Approximately $329 million, $139 million and $125 million of property, plant and equipment were located in
foreign countries, primarily Brazil, China and Mexico, at fiscal years ended 2009, 2008 and 2007, respectively.
We sell certain products in foreign markets, primarily Canada, Central America, China, the European Union, Japan, Mexico, the
Middle East, Russia, South Korea, Taiwan and Vietnam. Our export sales totaled $2.7 billion, $3.2 billion and $2.5 billion for fiscal
2009, 2008 and 2007, respectively. Substantially all of our export sales are facilitated through unaffiliated brokers, marketing
associations and foreign sales staffs. Foreign sales, which are sales of products produced in a country other than the United
States, were less than 10% of consolidated sales for each of fiscal 2009, 2008 and 2007. Approximately 3%, 22% and 10% of income
(loss) from continuing operations before income taxes and minority interest for fiscal 2009, 2008 and 2007, respectively, was from
foreign operations.
74
NOTE 21: QUARTERLY FINANCIAL DATA (UNAUDITED)
2009
Sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Income (loss) from discontinued operation
Net income (loss)
Earnings (loss) from continuing operations:
Class A Basic
Class B Basic
Diluted
Earnings (loss) from discontinued operation:
Class A Basic
Class B Basic
Diluted
Net income (loss):
Class A Basic
Class B Basic
Diluted
2008
Sales
Gross profit
Operating income
Income (loss) from continuing operations
Income (loss) from discontinued operation
Net income (loss)
Earnings (loss) from continuing operations:
Class A Basic
Class B Basic
Diluted
Earnings (loss) from discontinued operation:
Class A Basic
Class B Basic
Diluted
Net income (loss):
Class A Basic
Class B Basic
Diluted
First
Quarter
in millions, except per share data
Fourth
Third
Quarter
Quarter
Second
Quarter
6,521 $
18
(198 )
(118 )
6
(112 )
6,307 $
253
29
(90 )
(14 )
(104 )
6,662 $
470
276
127
7
134
7,214
462
(322 )
(455 )
-
(455 )
(0.32 ) $
(0.29 ) $
(0.32 ) $
(0.25 ) $
(0.22 ) $
(0.24 ) $
0.35 $
0.31 $
0.33 $
(1.25 )
(1.12 )
(1.22 )
0.02 $
0.02 $
0.02 $
(0.04 ) $
(0.04 ) $
(0.04 ) $
0.02 $
0.02 $
0.02 $
0.00
0.00
0.00
(0.30 ) $
(0.27 ) $
(0.30 ) $
6,476 $
315
94
41
(7 )
34
(0.29 ) $
(0.26 ) $
(0.28 ) $
6,336 $
315
54
3
(8 )
(5 )
0.37 $
0.33 $
0.35 $
6,849 $
259
45
(3 )
12
9
0.12 $
0.11 $
0.12 $
0.01 $
0.01 $
0.01 $
(0.01 ) $
(0.01 ) $
(0.01 ) $
(0.02 ) $
(0.02 ) $
(0.02 ) $
(0.03 ) $
(0.02 ) $
(0.03 ) $
0.10 $
0.09 $
0.10 $
(0.02 ) $
(0.01 ) $
(0.02 ) $
0.04 $
0.03 $
0.04 $
0.03 $
0.02 $
0.03 $
(1.25 )
(1.12 )
(1.22 )
7,201
357
138
45
3
48
0.13
0.11
0.12
0.01
0.01
0.01
0.14
0.12
0.13
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
75
The fourth quarter of fiscal 2009 was a 14-week period, while the remaining quarters in the above table were 13-week periods.
Second quarter fiscal 2009 operating income included a $15 million charge related to the closing of a prepared foods processed meats
plant. Fourth quarter fiscal 2009 operating loss included a $560 million non-cash charge related to the partial impairment of the Beef
segment’s goodwill.
First quarter fiscal 2008 income from continuing operations before income taxes includes an $18 million non-operating gain related to
sale of an investment and a $6 million severance charge related to the FAST initiative. Second quarter fiscal 2008 income from
continuing operations before income taxes includes $47 million in charges related to restructuring a beef plant operation, closing a
poultry plant, impairment of packaging equipment and software impairments. Third quarter fiscal 2008 loss from continuing
operations before income taxes includes $13 million in charges related to flood damage and impairment of unimproved real property.
Fourth quarter fiscal 2008 income from continuing operations before income taxes includes a $10 million charge related to intangible
asset impairments.
NOTE 22: CAPITAL STRUCTURE
In September 2008, we issued 22.4 million shares of Class A stock as part of a public offering. The shares were offered at $12.75. Net
proceeds, after underwriting discounts and commissions, of approximately $274 million were used toward the repayment of our
borrowings under the accounts receivable securitization facility and for other general corporate purposes. An entity controlled by Don
Tyson purchased three million shares of Class A stock in this offering.
During fiscal 2007, Tyson Limited Partnership converted 15.9 million shares of Class B stock to Class A stock on a one-for-one basis.
NOTE 23: CONTINGENCIES
Listed below are certain claims made against the Company and our subsidiaries. In our opinion, we have made appropriate and
adequate reserves, accruals and disclosures where necessary, and believe the probability of a material loss beyond the amounts
accrued to be remote; however, the ultimate liability for these matters is uncertain, and if accruals and reserves are not adequate, an
adverse outcome could have a material effect on the consolidated financial condition or results of operations. We believe we have
substantial defenses to the claims made and intend to vigorously defend these cases.
In 2000, the Wage and Hour Division of the U.S. Department of Labor (DOL) conducted an industry-wide investigation of poultry
producers, including us, to ascertain compliance with various wage and hour issues. As part of this investigation, the DOL inspected
14 of our processing facilities. On May 9, 2002, the DOL filed a civil complaint styled Elaine L. Chao (now Hilda L. Solis), Secretary
of Labor, United States Department of Labor v. Tyson Foods, Inc. against us in the U.S. District Court for the Northern District of
Alabama. The plaintiffs allege in the complaint that we violated the overtime provisions of the federal Fair Labor Standards Act
("FLSA") at our chicken-processing facility in Blountsville, Alabama. Through discovery and trial, the Secretary of Labor sought to
require us to compensate all hourly chicken processing workers for pre- and post-shift clothes changing, washing and related
activities and for one of two unpaid 30-minute meal periods. The Secretary of Labor sought back wages for all employees at the
Blountsville facility for a period of two years prior to the date of the filing of the complaint and an injunction against future violations
at that facility and all other chicken processing facilities we operate. The District Court granted the Company’s motion for partial
summary judgment in part, ruling that the second meal period is appropriately characterized as non-compensable, and reserved the
remaining issues for trial. A jury trial began on February 2, 2009, and concluded with a mistrial on April 13, 2009, when the jury
failed to reach a unanimous verdict. A second jury trial was held, beginning on August 25, 2009. The jury reached a verdict on
November 4, 2009, and it determined that Blountsville team members performed work for which they were not compensated and
awarded $250,000 in damages for a nine-year period. The jury also determined that the Company’s recordkeeping for hours of work
did not violate the FLSA. The court has ordered the parties to mediation within the next sixty (60) days, and it has also set a February
15, 2010 trial date for the injunctive phase of trial.
Several private lawsuits are pending against us alleging that we failed to compensate poultry plant employees for all hours worked,
including overtime compensation, in violation of the FLSA. These lawsuits include DeAsencio v. Tyson Foods, Inc. (DeAsencio),
filed on August 22, 2000, in the U.S. District Court for the Eastern District of Pennsylvania. This matter involves similar allegations
that employees should be paid for the time it takes to engage in pre- and post-shift activities such as changing into and out of
protective and sanitary clothing, obtaining clothing and walking to and from the changing area, work areas and break areas. They seek
back wages, liquidated damages, pre- and post-judgment interest, and attorneys’ fees. Plaintiffs appealed a jury verdict and final
judgment entered in our favor on June 22, 2006, in the District Court for the Eastern District of Pennsylvania. On September 7, 2007,
the U.S. Court of Appeals for the Third Circuit reversed the jury verdict and remanded the case to the District Court for further
proceedings. We sought rehearing en banc, which was denied by the Court of Appeals on October 5, 2007. The United States
Supreme Court denied our petition for a writ of certiorari on June 9, 2008. The new trial date has not been set.
76
In addition to DeAsencio, several additional private lawsuits were filed against us since the beginning of fiscal 2007 which allege we
failed to compensate poultry plant employees for all hours worked, including overtime compensation, in violation of the
FLSA. These lawsuits are Sheila Ackles, et al. v. Tyson Foods, Inc. (N. Dist. Alabama, October 23, 2006); McCluster, et al. v. Tyson
Foods, Inc. (M. Dist. Georgia, December 11, 2006); Dobbins, et al. v. Tyson Chicken, Inc., et al. (N. Dist. Alabama, December 21,
2006); Buchanan, et al. v. Tyson Chicken, Inc., et al. and Potter, et al. v. Tyson Chicken, Inc., et al. (N. Dist. Alabama, December 22,
2006); Jones, et al. v. Tyson Foods, Inc., et al., Walton, et al. v. Tyson Foods, Inc., et al. and Williams, et al. v. Tyson Foods, Inc., et
al. (S. Dist. Mississippi, February 9, 2007); Balch, et al. v. Tyson Foods, Inc. (E. Dist. Oklahoma, March 1, 2007); Adams, et al. v.
Tyson Foods, Inc. (W. Dist. Arkansas, March 2, 2007); Atkins, et al. v. Tyson Foods, Inc. (M. Dist. Georgia, March 5, 2007); and
Laney, et al. v. Tyson Foods, Inc. and Williams, et al. v. Tyson Foods, Inc. (M. Dist. Georgia, May 23, 2007). Similar to DeAsencio,
each of these matters involves allegations employees should be paid for the time it takes to engage in pre- and post-shift activities
such as changing into and out of protective and sanitary clothing, obtaining clothing and walking to and from the changing area, work
areas and break areas. The plaintiffs in each of these lawsuits seek or have sought to act as class representatives on behalf of all
current and former employees who were allegedly not paid for time worked and seek back wages, liquidated damages, pre- and
post-judgment interest, and attorneys’ fees. On April 6, 2007, we filed a motion for transfer of the above named actions for
coordinated pretrial proceedings before the Judicial Panel on Multidistrict Litigation. The motion for transfer was granted on August
17, 2007. The cases listed above and five other cases subsequently filed involving the same allegations, Armstrong, et al. v. Tyson
Foods, Inc. (W. Dist. Tennessee, January 30, 2008); Maldonado, et al. v. Tyson Foods, Inc. (E. Dist. Tennessee, January 31, 2008);
White, et al. v. Tyson Foods, Inc. (E. Dist. Texas, February 1, 2008); Meyer, et al. v. Tyson Foods, Inc. (W. Dist. Missouri, February
2, 2008); and Leak, et al. v. Tyson Foods, Inc. (W. Dist. North Carolina, February 6, 2008), were transferred to the U.S. District Court
in the Middle District of Georgia, In re: Tyson Foods, Inc., Fair Labor Standards Act Litigation (“MDL Proceedings”). On January 2,
2008, the Judge in the MDL Proceedings issued a Joint Scheduling and Case Management Order. The Order granted Conditional
Class Certification and called for notice to be given to potential putative class members via a third party administrator. The potential
class members had until April 18, 2008, to “opt–in” to the class. Approximately 13,800 employees and former employees filed their
consents to “opt-in” to the class. On October 15, 2008, the Judge in the MDL Proceedings denied the plaintiffs’ motion for equitable
tolling, which, if granted, would have extended the time period in which the plaintiffs could have sought damages. However, in
addition to the consents already obtained, the Court allowed plaintiffs to obtain corrected and reaffirmed opt-in consents that were
previously filed in the matter of M.H. Fox, et al. v. Tyson Foods, Inc. (N. Dist. Alabama, June 22, 1999). The deadline for filing these
consents was December 31, 2008, and according to the third party administrator, approximately 4,000 reaffirmed consents were filed,
some or all of which may be in addition to the approximately 13,800 consents filed previously. The parties have completed discovery
at eight of our facilities and our corporate headquarters in Springdale, Arkansas. Discovery may be conducted at additional facilities
in the future. We have filed class decertification motions for the eight facilities involved in discovery. We have also filed Motions for
Partial Summary Judgment for these eight facilities, and the parties have completed briefing. The parties have requested oral
arguments to further present their respective positions on these issues. If oral argument is granted, we anticipate that it will occur in
December 2009.
We have pending eleven separate wage and hour actions involving TFM’s plants located in Lexington, Nebraska (Lopez, et al. v.
Tyson Foods, Inc., District of Nebraska, June 30, 2006), Garden City and Emporia, Kansas (Garcia, et al. v. Tyson Foods, Inc., Tyson
Fresh Meats, Inc., District of Kansas, May 15, 2006), Storm Lake, Iowa (Bouaphakeo (f/k/a Sharp), et al. v. Tyson Foods, Inc., N.D.
Iowa, February 6, 2007), Columbus Junction, Iowa (Robinson, et al. v. Tyson Foods, Inc., d/b/a Tyson Fresh Meats, Inc., S.D. Iowa,
September 12, 2007) , Joslin, Illinois (Murray, et al. v. Tyson Foods, Inc., C.D. Illinois, January 2, 2008), Dakota City, Nebraska
(Gomez, et al. v. Tyson Foods, Inc., District of Nebraska, January 16, 2008), Madison, Nebraska (Acosta, et al. v Tyson Foods, Inc.
d.b.a Tyson Fresh Meats, Inc., District of Nebraska, February 29, 2008), Perry and Waterloo, Iowa (Edwards, et al. v. Tyson Foods,
Inc. d.b.a Tyson Fresh Meats, Inc., S.D. Iowa, March 20, 2008); Council Bluffs, Iowa (Maxwell (f/k/a Salazar), et al. v. Tyson Foods,
Inc. d.b.a. Tyson Fresh Meats, Inc., S.D. Iowa, April 29, 2008; Logansport, Indiana (Carter, et al. v. Tyson Foods, Inc. and Tyson
Fresh Meats, Inc., N.D. Indiana, April 29, 2008); and Goodlettsville, Tennessee (Abadeer v. Tyson Foods, Inc., and Tyson Fresh
Meats, Inc., M.D. Tennessee, February 6, 2009). The actions allege we failed to pay employees for all hours worked, including
overtime compensation for the time it takes to change into protective work uniforms, safety equipment and other sanitary and
protective clothing worn by employees, and for walking to and from the changing area, work areas and break areas in violation of the
FLSA and analogous state laws. The plaintiffs seek back wages, liquidated damages, pre- and post-judgment interest, attorneys’ fees
and costs. Each case is proceeding in its jurisdiction.
On June 19, 2005, the Attorney General and the Secretary of the Environment of the State of Oklahoma filed a complaint in the U.S.
District Court for the Northern District of Oklahoma against us, three of our subsidiaries and six other poultry integrators. This
complaint was subsequently amended. As amended, the complaint asserts a number of state and federal causes of action including,
but not limited to, counts under Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), Resource
Conservation and Recovery Act (“RCRA”), and state-law public nuisance theories. The amended complaint asserts that defendants
and certain contract growers who are not named in the amended complaint polluted the surface waters, groundwater and associated
drinking water supplies of the Illinois River Watershed (“IRW”) through the land application of poultry litter. Oklahoma asserts that
this alleged pollution has also caused extensive injury to the environment (including soils and sediments) of the IRW and that the
defendants have been unjustly enriched. Oklahoma's claims cover the entire IRW, which encompasses more than one million acres of
77
land and the natural resources (including lakes and waterways) contained therein. Oklahoma seeks wide-ranging relief, including
injunctive relief, compensatory damages in excess of $800 million, an unspecified amount in punitive damages and attorneys' fees.
We and the other defendants have denied liability, asserted various defenses, and filed a third-party complaint that asserts claims
against other persons and entities whose activities may have contributed to the pollution alleged in the amended complaint. The
district court has stayed proceedings on the third party complaint pending resolution of Oklahoma's claims against the defendants. On
October 31, 2008, the defendants filed a motion to dismiss for failure to join the Cherokee Nation as a required party or, in the
alternative, for judgment as a matter of law based on the plaintiffs' lack of standing. This motion was granted in part and denied in
part on July 22, 2009. In its ruling, the district court dismissed Oklahoma's claims for monetary damages but denied the motion with
respect to the claims for injunctive relief. On September 2, 2009, the Cherokee Nation filed a motion to intervene in the
lawsuit. Their motion to intervene was denied on September 15, 2009 and the Cherokee Nation filed a notice of appeal of that ruling
on September 17, 2009. A non-jury trial of the case began on September 24, 2009 and is ongoing.
In 2008, the following thirteen (13) separate lawsuits were filed, with the various plaintiffs alleging that Tyson falsely advertised
chicken products as “raised without antibiotics” in violation of various state consumer protection statutes: (Cutsail v. Tyson,
08CV01643 (D. Md.); Cohen v. Tyson, 4:08CV0366 (E.D. Ark.); Wright v. Tyson, 08CV3022 (D. N.J.); Wilson v. Tyson,
4:08CV0587 (E.D. Ark.); Gupton v. Tyson, 4:08CV0588 (E.D. Ark.); Kranish v. Tyson, 08CV01619 (D. Md.); Latimer v. Tyson,
4:08CV004051 (W.D. Ark.); Zukowosky v. Tyson, 4:08CV0584 (E,D, Ark.); Brickerd v. Tyson, 08CV1796 (D. Md.); Court v.
Tyson, 08CV03592 (W.D. Wash.); Epstein v. Tyson, 08CV2800 (N.D. Cal.); Johnson v. Tyson, 08CV291 (D. Idaho); and Mize v.
Tyson, 08CV4051 (W.D. Ark.)) Plaintiffs in each of these cases seek to pursue claims on behalf of themselves and proposed classes
of other similarly situated consumers. Plaintiffs in each of these cases seek compensatory and punitive damages in an unspecified
amount in excess of $5,000,000. Plaintiffs in two of these cases, Cutsail v. Tyson and Cohen v. Tyson, petitioned the Judicial Panel
on Multidistrict Litigation to transfer all of these actions to a single court for consolidated or coordinated pretrial proceedings
pursuant to 28 U.S.C. 1407. On October 17, 2008, the Judicial Panel granted the multidistrict litigation petitions and transferred the
pending cases to the District of Maryland. A trial date has not been set. On December 29, 2008, Plaintiff Gupton filed a voluntary
dismissal of all her claims. On December 30, 2008, Plaintiffs Latimer and Mize filed voluntary dismissals of their claims. These three
cases were subsequently dismissed. Discovery is ongoing in the case.
In September 2009, the National Water Commission (“CONAGUA”), an agency of the Mexican government's Ministry of the
Environment and Natural Resources, sent an observation letter to our Mexican subsidiary, Tyson de Mexico (“TdM”), with respect to
TdM's water usage at certain water wells that are part of its poultry production operations. This letter was in response to TdM's
previous submission to CONAGUA of requested information relating to water usage from these wells from 2004 to 2007. In the
observation letter, which contains an initial finding of facts, CONAGUA alleges that TdM may have failed to (i) report accurate water
volume usage, (ii) install measuring equipment, (iii) provide evidence of water use exemptions, (iv) pay for applicable usage, and (v)
properly measure water volume, all as required under water deeds held by TdM. On October 15, 2009, TdM responded to
CONAGUA, denying the allegations as presented.
78
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Tyson Foods, Inc.
We have audited the accompanying consolidated balance sheets of Tyson Foods, Inc. as of October 3, 2009 and September 27, 2008,
and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended
October 3, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Tyson Foods, Inc. at October 3, 2009 and September 27, 2008, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended October 3, 2009, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As reflected in the Consolidated Statements of Shareholders’ Equity, the Company adopted Statement of Financial Accounting
Standards Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (codified in FASB ASC Topic 740, Income Taxes) in
2008.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tyson
Foods, Inc.’s internal control over financial reporting as of October 3, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated November 23, 2009, expressed an unqualified opinion thereon.
Rogers, Arkansas
November 23, 2009
/s/ Ernst & Young LLP
79
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Tyson Foods, Inc.
We have audited Tyson Foods, Inc.’s internal control over financial reporting as of October 3, 2009, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the
COSO criteria). Tyson Foods, Inc.’s management is responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of
Management under the caption “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk a material weakness exists, testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk controls may become inadequate because of
changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Tyson Foods, Inc. maintained, in all material respects, effective internal control over financial reporting as of October
3, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Tyson Foods, Inc. as of October 3, 2009 and September 27, 2008, and the related consolidated
statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended October 3, 2009, and our
report dated November 23, 2009, expressed an unqualified opinion thereon.
Rogers, Arkansas
November 23, 2009
/s/ Ernst & Young LLP
80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performed, under the supervision and with the participation of management, including Leland E. Tollett, the
former Interim Chief Executive Officer, and the Chief Financial Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the 1934
Act)). Based on that evaluation, management, including Mr. Smith, our new Chief Executive Officer and our CFO, has concluded
that, as of October 3, 2009, our disclosure controls and procedures were effective to ensure that information required to be disclosed
in reports we file or submit under the 1934 Act has been recorded, processed, summarized and reported in accordance with the rules
and forms of the Securities and Exchange Commission.
Changes in Internal Control Over Financial Reporting
In the quarter ended October 3, 2009, there have been no changes in the Company’s internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a-15(f) of the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance to
management and the board of directors regarding the preparation and fair presentation of published financial statements. Because of
its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the
effectiveness of our internal control over financial reporting as of October 3, 2009. In making this assessment, we used criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on this evaluation under the framework in Internal Control – Integrated Framework issued by COSO, Management concluded
the Company’s internal control over financial reporting was effective as of October 3, 2009.
The Company's independent registered public accounting firm, Ernst & Young LLP, has audited the financial statements included in
this Form 10-K and has issued an attestation report on the Company's internal control over financial reporting. The attestation report
on the Company’s internal control over financial reporting appears in Part II, Item 8.
ITEM 9B. OTHER INFORMATION
On November 19, 2009, we announced the appointment of Donnie Smith as President and Chief Executive Officer. In connection
with Mr. Smith’s appointment, Leland E. Tollett stepped down as our Interim President and Chief Executive Officer and will continue
to provide consulting services.
Mr. Smith, age 50, was previously Senior Group Vice President, Poultry and Prepared Foods since January 2009, after serving as
Group Vice President of Consumer Products since January 2008, Group Vice President of Logistics and Operations Services since
April 2007, Senior Vice President Information Systems, Purchasing and Distribution since May 2006, Senior Vice President and
Chief Information Officer since November 2005, and Senior Vice President, Supply Chain Management since October 2001. Mr.
Smith has been employed by the Company since 1980.
Also on November 19, 2009, we announced the appointment of James V. Lochner as Chief Operating Officer. Mr. Lochner, age 57,
was previously Senior Group Vice President, Fresh Meats and Margin Optimization since May 2006, after serving as Senior Group
Vice President, Margin Optimization, Purchasing and Logistics since October 2005, Group Vice President, Purchasing, Travel, and
Aviation since November 2004 and Group Vice President, Fresh Meats since 2001. Mr. Lochner was initially employed by IBP in
1983.
81
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
See information set forth under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance”
in the registrant’s definitive Proxy Statement for the registrant’s Annual Meeting of Shareholders to be held February 5, 2010 (the
“Proxy Statement”), which information is incorporated herein by reference. Pursuant to general instruction G(3) of the instructions to
Annual Report on Form 10-K, certain information concerning our executive officers is included under the caption “Executive Officers
of the Company” in Part I of this Report.
We have a code of ethics as defined in Item 406 of Regulation S-K, which code applies to all of our directors and employees,
including our principal executive officers, principal financial officer, principal accounting officer or controller, and persons
performing similar functions. This code of ethics, titled “Tyson Foods, Inc. Code of Conduct,” is available, free of charge on our
website at http://ir.tyson.com.
ITEM 11. EXECUTIVE COMPENSATION
See the information set forth under the captions “Executive Compensation,” “Director Compensation” and “Compensation
Committee Interlocks and Insider Participation” in the Proxy Statement, which information is incorporated herein by reference.
However, pursuant to Instructions to Item 407(e)(5) of the Securities and Exchange Commission Regulation S-K, the material
appearing under the sub-heading “Compensation Committee Report” shall not be deemed to be “filed” with the Commission, other
than as provided in this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
See the information included under the captions “Security Ownership of Certain Beneficial Owners” and “Security Ownership of
Management” in the Proxy Statement, which information is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following information reflects certain information about our equity compensation plans as of October 3, 2009:
Equity Compensation Plan Information
(a)
(b)
(c)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
18,408,058 $
-
18,408,058 $
Number of
Securities to be
issued upon
exercise of
outstanding options
Number of Securities
remaining available for
future issuance under
equity compensation
plans (excluding
Securities reflected in
column (a))
39,498,102
-
39,498,102
Weighted average
exercise price of
outstanding options
12.78
-
12.78
This table does not include 185,786 options, with a weighted-average exercise price of $7.96, which were assumed in connection with
the acquisition of IBP, inc. in 2001.
a) Outstanding options granted by the Company
b) Weighted average price of outstanding options
c) Shares available for future issuance as of October 3, 2009, under the Stock Incentive Plan (22,320,132), the Employee
Stock Purchase Plan (9,386,382) and the Retirement Savings Plan (7,791,588)
82
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See the information included under the captions “Election of Directors” and “Certain Transactions” in the Proxy Statement, which
information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
See the information included under the captions “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and “All Other Fees” in the Proxy
Statement, which information is incorporated herein by reference.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as a part of this report:
PART IV
Consolidated Statements of Income
for the three years ended October 3, 2009
Consolidated Balance Sheets at
October 3, 2009, and September 27, 2008
Consolidated Statements of Shareholders’ Equity
for the three years ended October 3, 2009
Consolidated Statements of Cash Flows
for the three years ended October 3, 2009
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Financial Statement Schedule - Schedule II Valuation and Qualifying
Accounts for the three years ended October 3, 2009
All other schedules are omitted because they are neither applicable nor required.
The exhibits filed with this report are listed in the Exhibit Index at the end of Item 15.
83
EXHIBIT INDEX
Exhibit No.
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. 001-14704, and incorporated herein by
reference).
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Fourth Amended and Restated By-laws of the Company (previously filed as Exhibit 3.2 to the Company's Current Report
on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and incorporated herein by reference).
Indenture dated June 1, 1995 between the Company and The Chase Manhattan Bank, N.A., as Trustee (the “Company
Indenture”) (previously filed as Exhibit 4 to Registration Statement on Form S-3, filed with the Commission on December
18, 1997, Registration No. 333-42525, and incorporated herein by reference).
Form of 7.0% Note due January 15, 2028 issued under the Company Indenture (previously filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the period ended December 27, 1997, Commission File No. 001-14704, and
incorporated herein by reference).
Form of 7.0% Note due May 1, 2018 issued under the Company Indenture (previously filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 28, 1998, Commission File No. 001-14704, and incorporated
herein by reference).
Supplemental Indenture between the Company and The Chase Manhattan Bank, N.A., as Trustee, dated as of October 2,
2001, supplementing the Company Indenture, together with form of 8.250% Note (previously filed as Exhibit 4.14 to the
Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2001, Commission File No. 001-14704,
and incorporated herein by reference).
Form of 6.60% Senior Notes due April 1, 2016 issued under the Company Indenture (previously filed as Exhibit 4.1 to the
Company’s Current Report on Form 8-K filed March 22, 2006, Commission File No. 001-14704, and incorporated herein
by reference).
Supplemental Indenture among the Company, Tyson Fresh Meats, Inc. and JPMorgan Chase Bank, National Association,
dated as of September 18, 2006, supplementing the Company Indenture (previously filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed September 19, 2006, Commission File No. 001-14704, and incorporated herein by
reference).
Supplemental Indenture dated as of September 15, 2008, between the Company and The Bank of New York Mellon Trust
Company, National Association (as successor to JPMorgan Chase Bank, N.A. (formerly The Chase Manhattan Bank,
N.A.)), as Trustee (including the form of 3.25% Convertible Senior Notes due 2013), supplementing the Company
Indenture (previously filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed September 15, 2008,
Commission File No. 001-14704, and incorporated herein by reference).
Indenture, dated January 26, 1996, between IBP, inc. (“IBP”) and The Bank of New York (the “IBP Indenture”) (previously
filed as Exhibit 4 to IBP's Registration Statement on Form S-3, filed with the Commission on November 20, 1995,
Commission File No. 33-64459, and incorporated herein by reference).
Form of Senior Note issued under the IBP Indenture for the issuance of (a) 7.125% Senior Notes due February 1, 2026, and
(b) 7.95% Senior Notes due February 1, 2010 (previously filed as Exhibit 4.16 to the Company’s Annual Report on Form
10-K for the fiscal year ended September 29, 2001, Commission File No. 001-14704, and incorporated herein by reference).
4.10 First Supplemental Indenture, dated as of September 28, 2001, among the Company, Lasso Acquisition Corporation and
The Bank of New York, supplementing the IBP Indenture (previously filed as Exhibit 4.18 to the Company’s Annual
Report on Form 10-K for the fiscal year ended September 29, 2001, Commission File No. 001-14704, and incorporated
herein by reference).
4.11 Indenture, dated March 9, 2009, among the Company, the Subsidiary Guarantors (as defined therein) and The Bank of New
York Mellon Trust Company, N.A., as Trustee (previously filed as Exhibit 4.1 to the Company’s Current Report on Form
8-K filed March 10, 2009, Commission File No. 001-14704, and incorporated herein by reference).
84
4.12
Form of 10.50% Senior Note due 2014 (previously filed as Exhibit 4.2 and included in Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed March 10, 2009, Commission File No. 001-14704, and incorporated herein by
reference).
10.1 Credit Agreement, dated March 9, 2009, among the Company, JPMorgan Chase Bank, N.A., as the Administrative Agent,
J.P. Morgan Securities Inc., Banc of America Securities LLC, Barclays Capital, Wachovia Capital Markets, LLC and
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York Branch, as Joint Bookrunners
and Joint Lead Arrangers, Bank of America, N.A. and Barclays Capital, as Co-Syndication Agents and Wachovia Bank,
National Association and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank Nederland”, New York
Branch, as Co Documentation Agents and certain other lenders party thereto (previously filed as Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed March 10, 2009, Commission File No. 001-14704, and incorporated herein
by reference).
10.2 Convertible note hedge transaction confirmation, dated as of September 9, 2008, by and between JPMorgan Chase Bank,
National Association and the Company (previously filed as Exhibit 10.1 to the Company's Current Report on Form 8-K
filed September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference).
10.3 Warrant transaction confirmation, dated as of September 9, 2008, by and between JPMorgan Chase Bank, National
Association and the Company (previously filed as Exhibit 10.2 to the Company's Current Report on Form 8-K filed
September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference).
10.4 Letter Agreement, dated as of September 9, 2008, by and between JPMorgan Chase Bank, National Association and the
Company (previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 15, 2008,
Commission File No. 001-14704, and incorporated herein by reference).
10.5 Convertible note hedge transaction confirmation, dated as of September 9, 2008, by and between Merrill Lynch Financial
Markets, Inc. and the Company (previously filed as Exhibit 10.4 to the Company's Current Report on Form 8-K filed
September 15, 2008, Commission File No. 001-14704, and incorporated herein by reference).
10.6 Warrant transaction confirmation, dated as of September 9, 2008, by and between Merrill Lynch Financial Markets, Inc.
and the Company (previously filed as Exhibit 10.5 to the Company's Current Report on Form 8-K filed September 15,
2008, Commission File No. 001-14704, and incorporated herein by reference).
10.7 Letter Agreement, dated as September 9, 2008, by and between Merrill Lynch Financial Markets, Inc. and the Company
(previously filed as Exhibit 10.6 to the Company's Current Report on Form 8-K filed September 15, 2008, Commission
File No. 001-14704, and incorporated herein by reference).
10.8 Agreement, dated January 16, 2009, between Richard L. Bond and the Company (previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended December 27, 2008, Commission File No. 001-14704,
and incorporated herein by reference).
10.9
Second Amended and Restated Employment Agreement, dated as of December 19, 2006, by and between Richard L.
Bond and the Company (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December
22, 2006, Commission File No. 001-14704, and incorporated herein by reference).
10.10 Restricted Stock Unit Agreement, dated as of September 28, 2007, between the Company and Richard L. Bond
(previously filed as Exhibit 10.3 to the Company's Current Report on Form 8-K filed September 28, 2007, Commission
File No. 001-14704, and incorporated herein by reference).
10.11 Executive Employment Agreement, dated June 5, 2009, between the Company and Leland E. Tollett (previously filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K/A filed June 5, 2009, Commission File No. 001-14704, and
incorporated herein by reference).
10.12 Senior Executive Employment Agreement dated November 20, 1998 between the Company and Leland E. Tollett
(previously filed as Exhibit 10.20 to the Company’s Annual Report on Form 10K for the fiscal year ended October 3,
1998, Commission File No. 001-14704, and incorporated herein by reference).
85
10.13 Amendment to Senior Executive Employment Agreement dated February 4, 2005, by and between the Company and
Leland E. Tollett (previously filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended
January 1, 2005, Commission File No. 001-14704, and incorporated herein by reference).
10.14 Employment Agreement between the Company and Craig J. Hart, dated October 5, 2009.
10.15 Senior Advisor Agreement, dated July 30, 2004, by and between Don Tyson and the Company (previously filed as Exhibit
10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended October 2, 2004, Commission File No.
001-14704, and incorporated herein by reference).
10.16 Executive Employment Agreement between the Company and James V. Lochner, dated October 7, 2005 (previously filed
as Exhibit 10.2 to the Company's Current Report on Form 8-K filed October 12, 2005, Commission File No. 001-14704,
and incorporated herein by reference).
10.17 Employment Agreement between the Company and Donald J. Smith, dated August 10, 2009 (previously filed as Exhibit
10.1 to the Company's Current Report on Form 8-K filed August 14, 2009, Commission File No. 001-14704, and
incorporated herein by reference).
10.18 Executive Employment Agreement between the Company and David L. Van Bebber, dated May 21, 2008 (previously
filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended June 28, 2008, Commission
File No. 001-14704, and incorporated herein by reference).
10.19 Executive Employment Agreement between the Company and Dennis Leatherby, dated June 6, 2008 (previously filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 11, 2008, Commission File No. 001-14704, and
incorporated herein by reference).
10.20 Executive Employment Agreement between the Company and Richard A. Greubel, Jr, dated May 3, 2007 (previously
filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2007, Commission
File No. 001-14704, and incorporated herein by reference).
10.21 Executive Employment Agreement between the Company and Jeffrey D. Webster, dated December 1, 2008 (previously
filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 28, 2009, Commission
File No. 001-14704, and incorporated herein by reference).
10.22 Employment Agreement between the Company and Kenneth J. Kimbro, dated October 5, 2009.
10.23 Agreement, dated as of September 28, 2007, between the Company and John Tyson (previously filed as Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and incorporated
herein by reference).
10.24 Indemnity Agreement, dated as of September 28, 2007, between the Company and John Tyson (previously filed as Exhibit
10.2 to the Company’s Current Report on Form 8-K filed September 28, 2007, Commission File No. 001-14704, and
incorporated herein by reference).
10.25 Form of Indemnity Agreement between Tyson Foods, Inc. and its directors and certain executive officers (previously filed
as Exhibit 10(t) to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1995,
Commission File No. 0-3400, and incorporated herein by reference).
10.26 Form of IBP's Indemnification Agreement with officers and directors (previously filed as Exhibit 10.8 to IBP's
Registration Statement on Form S-1, dated August 19, 1987, File No. 1-6085 and incorporated hereby by reference).
10.27 Tyson Foods, Inc. Annual Incentive Compensation Plan for Senior Executives adopted February 4, 2005 (previously filed
as Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended October 1, 2005, Commission
File No. 001-14704, and incorporated herein by reference).
10.28 Tyson Foods, Inc. Restricted Stock Bonus Plan, effective August 21, 1989, as amended and restated on April 15, 1994;
and Amendment to Restricted Stock Bonus Plan effective November 18, 1994 (previously filed as Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1994, Commission File No. 0-3400, and
incorporated herein by reference).
86
10.29 Amended and Restated Tyson Foods, Inc. Employee Stock Purchase Plan, effective as of October 1, 2008 (previously
filed as Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008,
Commission File No. 001-14704, and incorporated herein by reference).
10.30 First Amendment to the Tyson Foods, Inc. Employee Stock Purchase Plans effective December 27, 2009.
10.31 Restated Executive Savings Plan of Tyson Foods, Inc. effective January 1, 2009 (previously filed as Exhibit 10.42 to the
Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704,
and incorporated herein by reference).
10.32 First Amendment to Executive Savings Plan of Tyson Foods, Inc. effective January 1, 2009.
10.33 Amended and Restated Tyson Foods, Inc. 2000 Stock Incentive Plan effective November 19, 2004, First Amendment to
the Amended and Restated Tyson Foods, Inc. 2000 Stock Incentive Plan effective February 2, 2007, and Second
Amendment to the Amended and Restated Tyson Foods, Inc. 2000 Stock Incentive Plan effective August 13, 2007
(previously filed as Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27,
2008, Commission File No. 001-14704, and incorporated herein by reference).
10.34 Third Amendment to the Tyson Foods, Inc. 2000 Stock Incentive Plan effective November 20, 2009.
10.35 IBP 1996 Stock Option Plan (previously filed as Exhibit 10.5.7 to IBP's Annual Report on Form 10-K for the fiscal year
ended December 28, 1996, File No. 1-6085 and incorporated herein by reference).
10.36 Amended and Restated Retirement Income Plan of IBP, inc. effective August 1, 2000, and Amendment to Freeze the
Retirement Income Plan of IBP, inc. effective December 31, 2002 (previously filed as Exhibit 10.46 to the Company's
Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704, and
incorporated herein by reference).
10.37 Amended and Restated Tyson Foods, Inc. Supplemental Executive Retirement and Life Insurance Premium Plan effective
March 1, 2007, First Amendment to the Amended and Restated Tyson Foods, Inc. Supplemental Executive Retirement
and Life Insurance Premium Plan effective September 24, 2007, and Second Amendment to the Amended and Restated
Tyson Foods, Inc. Supplemental Executive Retirement and Life Insurance Premium Plan effective January 1, 2008
(previously filed as Exhibit 10.47 to the Company's Annual Report on Form 10-K for the fiscal year ended September 27,
2008, Commission File No. 001-14704, and incorporated herein by reference).
10.38 Retirement Savings Plan of Tyson Foods, Inc. effective January 1, 2008 (previously filed as Exhibit 10.48 to the
Company's Annual Report on Form 10-K for the fiscal year ended September 27, 2008, Commission File No. 001-14704,
and incorporated herein by reference).
10.39 First Amendment to the Retirement Savings Plan of Tyson Foods, Inc. effective January 1, 2008.
10.40 Form of Restricted Stock Agreement pursuant to which restricted stock awards were granted under the Tyson Foods, Inc.
2000 Stock Incentive Plan prior to July 31, 2009 (previously filed as Exhibit 10.48 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 2, 2004, Commission File No. 001-14704, and incorporated herein by
reference).
10.41 Form of Restricted Stock Agreement pursuant to which restricted stock awards are granted under the Tyson Foods, Inc.
2000 Stock Incentive Plan effective July 31, 2009.
10.42 Form of Stock Option Grant Agreement pursuant to which stock option awards were granted under the Tyson Foods, Inc.
2000 Stock Incentive Plan prior to July 31, 2009 (previously filed as Exhibit 10.49 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 2, 2004, Commission File No. 001-14704, and incorporated herein by
reference).
10.43 Forms of Stock Option Grant Agreements pursuant to which stock option awards are granted under the Tyson Foods, Inc.
2000 Stock Incentive Plan effective July 31, 2009.
10.44 Form of Performance Stock Award Agreement pursuant to which performance stock awards are granted under the Tyson
Foods, Inc. 2000 Stock Incentive Plan effective September 29, 2009.
87
12.1 Calculation of Ratio of Earnings to Fixed Charges
14.1 Code of Conduct of the Company (previously filed as Exhibit 14.1 to the Company's Current Report on Form 8-K filed
January 18, 2007, Commission File No. 001-14704, and incorporated herein by reference).
16.1 Letter of Ernst & Young LLP dated June 12, 2009 (previously filed as Exhibit 16.1 to the Company's Current Report on
Form 8-K filed June 12, 2009, Commission File No. 001-14704, and incorporated herein by reference).
21
23
Subsidiaries of the Company
Consent of Ernst & Young LLP
31.1 Certification of Chief Executive Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to SEC Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
88
SIGNATURES
Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
TYSON FOODS, INC.
By:
/s/ Dennis Leatherby
Dennis Leatherby
Executive Vice President and Chief
Financial Officer
November 23, 2009
89
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
/s/ Lloyd V. Hackley
Lloyd V. Hackley
Director
/s/ Craig J. Hart
Craig J. Hart
/s/ Jim Kever
Jim Kever
/s/ Kevin M. McNamara
Kevin M. McNamara
/s/ Dennis Leatherby
Dennis Leatherby
/s/ Brad T. Sauer
Brad T. Sauer
/s/ Donnie Smith
Donnie Smith
/s/ Jo Ann R. Smith
Jo Ann R. Smith
/s/ Robert C. Thurber
Robert C. Thurber
/s/ Barbara A. Tyson
Barbara A. Tyson
/s/ Don Tyson
Don Tyson
/s/ John Tyson
John Tyson
Senior Vice President, Controller and
Chief Accounting Officer
Director
Director
November 23, 2009
November 23, 2009
November 23, 2009
November 23, 2009
Executive Vice President and Chief Financial Officer
November 23, 2009
Director
November 23, 2009
President and Chief Executive Officer
November 23, 2009
Director
Director
Director
Director
November 23, 2009
November 23, 2009
November 23, 2009
November 23, 2009
Chairman of the Board of Directors
November 23, 2009
/s/ Albert C. Zapanta
Albert C. Zapanta
Director
November 23, 2009
90
FINANCIAL STATEMENT SCHEDULE
TYSON FOODS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended October 3, 2009
Allowance for Doubtful Accounts:
2009
2008
2007
Inventory Lower of Cost or Market
Allowance:
2009
2008
2007
Additions
Balance at
Beginning of
Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts (Deductions)
in millions
Balance at
End of Period
$
$
12 $
8
8
13 $
4
1
22 $
5
1
57 $
29
12
- $
-
-
- $
-
-
(1 ) $
(1 )
(1 )
(48 ) $
(20 )
(9 )
33
12
8
22
13
4
91