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 2, 2010
[ ] 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
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)
Accelerated filer [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
On April 3, 2010, 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 $5,835,078,191 and $412,523,
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 30, 2010, there were 307,209,339 shares of Class A stock and 70,021,155 shares of 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 4, 2011,
are incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I
PAGE
3
7
12
12
13
14
15
17
18
37
39
85
85
85
86
86
86
87
87
87
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Removed and Reserved
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
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 one of the world’s largest
meat protein companies 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 grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, military commissaries, industrial
food processing companies, 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 produces renewable synthetic fuels targeting
the renewable diesel and jet fuel markets. Construction of production facilities was completed in late fiscal 2010, and initial
production began in October 2010.
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.
3
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.
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, which are slaughtered and
converted into finished products, then sent to distribution centers and delivered to customers.
We operate our own feed mills to produce scientifically-formulated feeds. In fiscal 2010, corn and soybean meal were major
production costs, representing roughly 42% 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
employ 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 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 our other 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 13.4% of our fiscal 2010 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 2010
consolidated sales.
4
COMPETITION
Our food products compete with those of other 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:
identifying target markets for value-added products;
concentrating production, sales and marketing efforts to appeal to and enhance demand from those markets; and
●
●
● utilizing our national distribution systems and customer support services.
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 product offerings, availability of products, customer service and credit terms.
INTERNATIONAL
We exported to more than 100 countries in fiscal 2010. 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, Japan, the Netherlands, Peru, the Philippines, Russia, 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 evaluate 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. Research and development costs totaled $38 million, $33 million and
$30 million in fiscal 2010, 2009 and 2008, respectively.
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 2, 2010, we employed approximately 115,000 employees. Approximately 97,000 employees were employed in the
United States and 18,000 employees were in foreign countries, primarily China, Mexico and Brazil. Approximately 29,000 employees
in the United States were subject to collective bargaining agreements with various labor unions, with approximately 19% of those
employees included under agreements expiring in fiscal 2011. 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
becoming part of regular eating routines. We utilize our national distribution system and customer support services to achieve a
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.
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 our outlook for fiscal 2011, other 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 purchasing 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, agricultural 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 for vertically-integrated poultry processors such as us, representing roughly 42% of our cost of growing a chicken in fiscal 2010.
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
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 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.
7
Market demand and the prices we receive for our products may fluctuate due to competition from other food producers and
processors.
We face competition from other 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 product offerings;
●
●
●
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 2010, we exported to more than 100 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 2010 totaled $3.2
billion. In addition, we had approximately $364 million of long-lived assets located in foreign countries, primarily Brazil, China,
Mexico and India, at the end of fiscal 2010.
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
importation 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.
8
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 115,000 employees, approximately 36,000 of whom 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 labor 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 and purchasing 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 E. coli. These organisms and pathogens are found generally in the environment; therefore, there is a risk that one or
more, as a result of food processing, could be present in our products. These organisms and 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
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.
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 interest 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.
9
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 carrying value of goodwill, we make estimates and assumptions about sales,
operating margins, growth rates and discount rates based on 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 and are believed to reflect market participant views which would exist in an exit transaction. Under the income
approach, we are required to make various judgmental assumptions about appropriate discount rates. 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, which could be substantial. As of October 2, 2010, we had $1.9 billion of goodwill, which
represented approximately 17.6% 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. Also, our livestock procurement and
poultry growout activities are regulated by the Grain Inspection, Packers and Stockyards Administration (GIPSA), which is part of
USDA's Marketing and Regulatory Programs. Loss of or failure to obtain necessary 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. 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 economic conditions, including inflation, interest rates, access to 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.
10
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 purchasing activities if we are required to record 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.
The loss of one or more of our largest customers could negatively impact our business.
Our business could suffer significant setbacks in sales and operating income if our customers’ plans and/or markets change
significantly or if we lost one or more of our largest customers, including, for example, Wal-Mart Stores, Inc., which accounted for
13.4% of our sales in fiscal 2010. Many of our agreements with our customers are 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 2.42% 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 rely on the “controlled company” exemption
from certain corporate governance requirements of the New York Stock Exchange.
11
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
We have production and distribution operations in the following states: Alabama, Arkansas, Georgia, Illinois, Indiana, Iowa, Kansas,
Kentucky, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, South
Carolina, Tennessee, Texas, Virginia, Washington and Wisconsin. We also have sales offices throughout the United States.
Additionally, we, either directly or through our subsidiaries, have sales offices, facilities or participate in joint venture operations in
Argentina, Brazil, China, the Dominican Republic, Hong Kong, India, Ireland, Japan, Mexico, the Netherlands, Peru, the Philippines,
Russia, South Korea, Spain, Sri Lanka, Taiwan, the United Arab Emirates, the United Kingdom and Venezuela.
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
15
2
42
62
493
834
12
9
22
14
65
1
-
-
1
5
744
816
-
-
1
5
13
Total
62
15
2
43
67
1,237
1,650
12
9
23
19
78
Capacity(1)
per week at
October 2, 2010
46 million head
171,000 head
443,000 head
45 million pounds
Fiscal 2010
Average Capacity
Utilization
92%
84%
88%
89%
(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.
Our Dynamic Fuels LLC joint venture produces renewable synthetic fuels targeting the renewable diesel and jet fuel markets.
Construction of production facilities was completed in late fiscal 2010, and initial production began in October 2010.
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.
We also consider the efficiencies of our operations and may from time to time consider changing the number or type of plants we
operate to align with our capacity needs.
12
ITEM 3. LEGAL PROCEEDINGS
Refer to the description of certain matters under Part II, Item 8, Notes to Consolidated Financial Statements, Note 23: Contingencies,
which is incorporated herein by reference. Listed below are certain additional legal proceedings involving the Company and/or its
subsidiaries.
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
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. The defendants have requested a trial date, but the
court has not yet scheduled the matter for trial.
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 was
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 into escrow towards the settlement of the matter. In
furtherance of finalizing the settlement, the U.S. Department of Justice filed a complaint styled United States of America, et al. v.
Albert Investment Co., Inc. et al., and includes the “potentially responsible parties.” A proposed Consent Decree addressing all alleged
liability of the Tyson entities for the site was lodged on June 27, 2008. On October 10, 2008, Union Pacific initiated litigation to
challenge the proposed Consent Decree by filing a motion to intervene, which the District 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. On November 10, 2009, the Tenth Circuit Court of
Appeals reversed the District Court’s decision, and Union Pacific was permitted to intervene in the litigation. After negotiations
amongst the interested parties, an Amended Consent Decree was lodged with the Court on October 8, 2010. The Amended Consent
Decree includes a reopener for certain future response costs. A notice will be published in the Federal Register inviting public
comment on the Amended Consent Decree. On October 14, 2010, Union Pacific filed a Notice of Dismissal of Intervention. Assuming
the Court approves and enters the Amended Consent Decree, Tyson will be required to make an additional principal payment of
$50,669 plus interest. Upon such payment, the matter will be concluded.
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 us 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 us and the other poultry company defendants was held, and on May 14, 2009, the jury returned a verdict in favor of the
defendants. The plaintiffs appealed this verdict to the Arkansas Supreme Court. The parties have submitted briefs in this matter and
are awaiting the Arkansas Supreme Court's ruling.
13
Other Matters: We have approximately 115,000 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. REMOVED AND RESERVED
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
Craig J. Hart
Kenneth J. Kimbro
Donnie King
Dennis Leatherby
James V. Lochner
Donnie Smith
David L. Van Bebber
Jeffrey D. Webster
Noel White
Title
Senior Vice President, Controller and Chief Accounting Officer
Senior Vice President, Chief Human Resources Officer
Senior Group Vice President, Poultry and Prepared Foods
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 Division
Senior Group Vice President, Fresh Meats
Age
54
57
48
50
58
51
54
49
52
Year Elected
Executive Officer
2004
2009
2009
1994
2005
2008
2008
2008
2009
Craig J. Hart was appointed Senior Vice President, Controller and Chief Accounting Officer in 2004. Mr. Hart was initially
employed by IBP in 1978.
Kenneth J. Kimbro was appointed Senior Vice President, Chief Human Resources Officer in 2007, after serving as Senior
Vice President, Human Resources since 2001. Mr. Kimbro was initially employed by IBP in 1995.
Donnie King was appointed Senior Group Vice President, Poultry and Prepared Foods in December 2009, after serving as
Group Vice President, Refrigerated and Deli since 2008, Group Vice President, Operations since 2007, Senior Vice President,
Consumer Products Operations since 2006 and Senior Vice President, Poultry Operations since 2003. Mr. King was initially employed
by Valmac Industries, Inc. in 1982. Valmac Industries, Inc. was acquired by the Company in 1984.
Dennis Leatherby was appointed Executive Vice President and Chief Financial Officer in 2008 after serving as Senior Vice
President, Finance and Treasurer since 1998. He also served as Interim Chief Financial Officer from 2004 to 2006. Mr. Leatherby was
initially employed by the Company in 1990.
James V. Lochner was appointed Chief Operating Officer in November 2009, after serving as Senior Group Vice President,
Fresh Meats since 2007, Senior Group Vice President, Fresh Meats and Margin Optimization since 2006 and Senior Group Vice
President, Margin Optimization, Purchasing and Logistics since 2005. Mr. Lochner was initially employed by IBP in 1983.
Donnie Smith was appointed President and Chief Executive Officer in November 2009, after serving as Senior Group Vice
President, Poultry and Prepared Foods since January 2009, Group Vice President of Consumer Products since 2008, Group Vice
President of Logistics and Operations Services since 2007, Group Vice President Information Systems, Purchasing and Distribution
since 2006 and Senior Vice President and Chief Information Officer since 2005. Mr. Smith was initially employed by the Company in
1980.
David L. Van Bebber was appointed Executive Vice President and General Counsel in 2008, after serving as Senior Vice
President and Deputy General Counsel since 2004. 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 Division in 2008, after serving as Senior Vice
President, Renewable Products Division since 2007, Senior Vice President, Corporate Strategy Development and Renewable Energy
since 2006 and Senior Vice President, Strategy and Development since 2005. Mr. Webster was initially employed by the Company in
2004.
Noel White was appointed Senior Group Vice President, Fresh Meats in December 2009, after serving as Senior Vice
President, Pork Margin Management since 2007 and Group Vice President, Fresh Meats Operations/Commodity Sales since 2005. Mr.
White was initially employed by IBP in 1983.
14
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 30, 2010, there were
approximately 30,000 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 2011. In both fiscal 2010 and 2009, 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 2010 and 2009 are represented
in the table below.
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2010
High
$13.19
19.50
20.40
18.06
Low
$12.02
12.24
16.25
15.22
Fiscal 2009
High
$12.87
9.93
13.88
13.23
Low
$4.40
7.59
9.33
10.95
ISSUER PURCHASES OF EQUITY SECURITIES
The table below provides information regarding our purchases of Class A stock during the periods indicated.
Period
July 4 to July 31, 2010
Aug. 1 to Sept. 4, 2010
Sept. 5 to Oct. 2, 2010
Total
Total
Number of
Shares
Purchased
112,095
134,160
87,986
344,241
Average
Price Paid
per Share
$17.27
16.12
17.61
$16.91
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
(2)
(1)
(2)
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.
We purchased 344,241 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 319,643 shares purchased in open market transactions and 24,598 shares withheld to cover required tax
withholdings on the vesting of restricted stock.
15
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for our Class A stock, the Standard & Poor’s (S&P) 500
Index and a group of peer companies described below.
Tyson Foods, Inc.
S&P 500 Index
Peer Group
Years Ending
Base Period
10/1/05
100
100
100
9/30/06
88.90
110.79
111.25
9/29/07
100.77
129.01
118.91
9/27/08
72.38
100.66
120.14
10/3/09
71.48
93.70
109.23
10/2/10
95.31
103.22
129.53
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 2005, 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.
16
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
Loss from discontinued operation
Cumulative effect of change in accounting principle
Net income (loss)
Net income (loss) attributable to Tyson
Diluted earnings (loss) per share attributable to Tyson:
Income (loss) from continuing operations
Loss from discontinued operation
Cumulative effect of change in accounting principle
Net income (loss)
Dividends per share:
Class A
Class B
Balance Sheet Data
Cash and cash equivalents
Total assets
Total debt
Shareholders' equity
Other Key Financial Measures
Depreciation and amortization
Capital expenditures
Return on invested capital
Effective tax rate
Book value per share
Closing stock price high
Closing stock price low
2010
$28,430
29
1,556
333
765
-
-
765
780
2.06
-
-
2.06
0.160
0.144
$978
10,752
2,536
5,201
$497
550
22.8%
36.4%
$13.78
20.40
12.02
in millions, except per share and ratio data
2006
2009
2008
2007
$26,704
560
(215)
310
(550)
(1)
-
(551)
(547)
(1.47)
-
-
(1.47)
0.160
0.144
$1,004
10,595
3,477
4,431
$513
368
(3.0)%
(1.5)%
$11.77
13.88
4.40
$26,862
-
331
206
86
-
-
86
86
0.24
-
-
0.24
$25,729
-
613
224
268
-
-
268
268
0.75
-
-
0.75
0.160
0.144
0.160
0.144
$250
10,850
2,804
5,099
$493
425
4.4%
44.6%
$13.51
19.44
12.14
$42
10,227
2,779
4,735
$514
285
7.7%
34.6%
$13.32
24.08
14.20
$24,589
-
(50)
238
(174)
(17)
(5)
(196)
(196)
(0.51)
(0.05)
(0.02)
(0.58)
0.160
0.144
$28
11,121
3,979
4,444
$517
531
(0.6)%
35.0%
$12.52
18.70
12.92
Notes to Five-Year Financial Summary
a.
b.
c.
d.
Fiscal 2010 included $61 million related to losses on notes repurchased/redeemed during fiscal 2010, a $29 million non-tax deductible charge related to a full
goodwill impairment related to an immaterial Chicken segment reporting unit and a $12 million charge related to the partial impairment of an equity method
investment. Additionally, fiscal 2010 included insurance proceeds received of $38 million related to Hurricane Katrina.
Fiscal 2009 was a 53-week year, while the other years presented were 52-week years.
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.
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.
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.
Fiscal 2006 included $63 million of pretax charges primarily related to closing one poultry plant, two beef plants and two prepared foods plants.
e.
f.
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’
h.
equity less cash and cash equivalents.
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.
17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DESCRIPTION OF THE COMPANY
We are one of the world’s largest meat protein companies 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
● General – We had improved operating results in fiscal 2010 as compared to fiscal 2009, as a result of improved
internal performance and a better market environment. The following are a few of the key drivers:
● We achieved margin management gains and operational efficiency improvements, which were the key drivers
that led to the nearly $1.2 billion improvement in operating income, excluding the impact of the $560 million
Beef segment goodwill impairment charge recorded in fiscal 2009. Margin management improvements occurred
in the areas of mix, export sales, price optimization and value-added products initiatives. The operational
efficiencies occurred in the areas of yields, cost reduction, labor management, logistics cost optimization,
capacity and live bird operations (including livability, feed conversion, and net to processing improvements).
● Tyson and the meat industry in general have benefitted from improving domestic market conditions. For the first
time in 40 years, industry forecasters predict a reduction in available protein in two consecutive years for
2009/2010. This is a factor of reduced protein production, fewer imports, increased exports and reduced freezer
inventories. Poor industry results for 2008 and 2009 led to a reduction in industry capacity and a better balance
between overall meat products’ supply and demand. While the recent economic conditions have caused decreased
demand at foodservice establishments, most of the lost demand has shifted to retailers as consumers are choosing
to eat at home.
● As a result of improving domestic market conditions and our own operational efficiency and margin management
improvements, our operating margins were 5.5% in fiscal 2010 (5.4% after removing $38 million of insurance
proceeds received during the year and $29 million related to the goodwill impairment). This is the first time since the
acquisition of IBP, inc. in 2001 that annual operating margins have exceeded 5.0%. The following is a summary of
operating margins by segment:
● Chicken – 5.2% (or 5.1% excluding $38 million of insurance proceeds received and $29 million related to a
goodwill impairment)
● Beef – 4.6%
● Pork – 8.4%
● Prepared Foods – 4.1%
● Debt and Liquidity – During fiscal 2010, we generated $1.4 billion of operating cash flows. We used these cash flows,
as well as restricted cash, to repurchase, retire or redeem $956 million of senior notes. As a result, our total debt is
$2.5 billion, the lowest level since the acquisition of IBP, inc. At October 2, 2010, we had $1.8 billion of liquidity,
which includes the availability under our credit facility and $978 million of cash and cash equivalents.
● Our accounting cycle resulted in a 52-week year for both fiscal 2010 and 2008 and a 53-week year for fiscal 2009.
18
Net income (loss) attributable to Tyson
Net income (loss) attributable to Tyson – per diluted share
2010 – Net income included the following items:
2010
$780
2.06
in millions, except per share data
2008
$86
0.24
2009
$(547)
(1.47)
● $61 million in charges related to losses on notes repurchased during fiscal 2010;
● $29 million non-cash, non-tax deductible charge related to a full goodwill impairment in an immaterial Chicken segment
reporting unit;
● $12 million non-cash, non-tax deductible charge related to the impairment of an equity method investment; and
● $38 million gain from insurance proceeds.
2009 – Net loss included 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 included 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.
FISCAL 2011 OUTLOOK
In 2011, overall protein (chicken, beef, pork and turkey) production is expected to increase. Because exports are likely to grow as
well, we forecast that total domestic availability of protein should be relatively flat compared to 2010. The following is a summary
of the fiscal 2011 outlook for each of our segments, as well as an outlook on capital expenditures, net interest expense and debt:
● Chicken – While we expect chicken production to increase, domestic availability will depend on export volumes. Because of
the less than expected yields in global feed grain crop production, current futures prices indicate higher grain costs in fiscal
2011 compared to fiscal 2010. We expect to offset the impact of increased grain costs with operational and pricing
improvements.
● Beef – We expect to see a gradual reduction in cattle supplies of 1-2% in fiscal 2011; however, we do not expect a significant
change in the fundamentals of our Beef business as it relates to the previous few quarters. We expect adequate supplies in the
regions we operate our plants. We expect beef exports to remain strong in fiscal 2011.
● Pork – We expect hog supplies in fiscal 2011 will be comparable to fiscal 2010 and we believe we will have adequate supplies
in the regions in which we operate. We expect pork exports to remain strong in fiscal 2011.
● Prepared Foods – We expect operational improvements and increased pricing will more than offset the likely increase in raw
material costs in fiscal 2011. While many of our sales contracts are formula based or shorter-term in nature, we are typically
able to absorb rising input costs. However, there is a lag time for price increases to take effect, so it is more difficult to absorb
rapidly rising raw material costs.
● Capital Expenditures – Our preliminary capital expenditures plan for fiscal 2011 is approximately $700 million.
● Net Interest Expense – We expect fiscal 2011 net interest expense will be approximately $245 million, down nearly $90
million compared to fiscal 2010.
● Debt – We will continue to use our available cash to repurchase notes when available at attractive rates. We do not have any
significant maturities of debt coming due over the next three fiscal years, as our 8.25% Notes due October 1, 2011 (2011
Notes) balance was $315 million at October 2, 2010. We plan to retire these notes with current cash on hand and/or cash flows
from operations.
19
SUMMARY OF RESULTS – CONTINUING OPERATIONS
Sales
Sales
Change in sales volume
Change in average sales price
Sales growth (decline)
2010 vs. 2009 –
2010
$28,430
(0.6)%
7.1%
6.5%
2009
$26,704
4.4%
(4.8)%
(0.6)%
in millions
2008
$26,862
● Average Sales Price – The increase in sales was largely due to an increase in average sales prices, which accounted for
an increase of approximately $1.9 billion. While all segments had an increase in average sales prices, the majority of the
increase was driven by the Beef and Pork segments.
● Sales Volume – Sales were negatively impacted by a decrease in sales volume, which accounted for a decrease of
approximately $150 million. This was primarily due to an extra week in fiscal 2009 and the decrease in Pork segment
sales volume, partially offset by an increase from a fiscal 2009 acquisition in the Chicken segment.
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.
Cost of Sales
Cost of sales
Gross margin
Cost of sales as a percentage of sales
2010
$25,916
$2,514
91.2%
2009
$25,501
$1,203
95.5%
in millions
2008
$25,616
$1,246
95.4%
2010 vs. 2009 –
● Cost of sales increased $415 million. Higher cost per pound increased cost of sales by $558 million, partially offset by
lower sales volume which decreased cost of sales by $143 million.
● Increase in average live cattle and hog costs of approximately $1.0 billion.
● Increase due to net losses of $78 million in fiscal 2010, as compared to net gains of $191 million in fiscal 2009, from
our commodity risk management activities related to forward futures contracts for live cattle and hogs, and excludes
the impact from related physical purchase transactions which impact current and future period operating results.
● Increase in raw material costs of approximately $218 million in our Prepared Foods segment.
● Increase in incentive-based compensation of approximately $97 million.
● Decrease due to net losses of $6 million in fiscal 2010, as compared to net losses of $257 million in fiscal 2009, from
our commodity risk management activities related to grain and energy purchases, and excludes the impact from related
physical purchase transactions which impact current and future period operating results.
● Decrease in grain costs in the Chicken segment of approximately $158 million.
● Decrease in the Chicken segment costs resulting from operational improvements.
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.
20
Selling, General and Administrative
Selling, general and administrative
As a percentage of sales
2010
$929
3.3%
2009
$841
3.1%
in millions
2008
$879
3.3%
2010 vs. 2009 –
● Increase of $118 million related to incentive-based compensation.
● Reductions include decreases resulting from one less week in fiscal 2010 compared to fiscal 2009, as well a $16 million
reduction in professional fees, advertising and sales promotions.
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.
Goodwill Impairment
2010
$29
2009
$560
in millions
2008
$-
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.
2010 – Includes the full impairment of an immaterial Chicken segment reporting unit.
2009 –The disruptions in global credit and other financial markets and deterioration of economic conditions led to an increase
in our discount rate in fiscal 2009 as compared to fiscal 2008. 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
2010
$-
2009
$17
in millions
2008
$36
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
2010
$14
2009
$17
in millions
2008
$9
2010/2009 – Fiscal 2010 and fiscal 2009 increased as compared to fiscal 2008 due primarily to the increase in our cash
balance.
21
Interest Expense
Cash interest expense
Losses on notes repurchased
Non-cash interest expense
Total Interest Expense
2010
$245
61
41
$347
2009
$270
3
54
$327
in millions
2008
$214
-
1
$215
2010 vs. 2009 –
● Cash interest expense includes interest expense related to the coupon rates for senior notes and commitment/letter of credit
fees incurred on our revolving credit facilities. The decrease is due to lower average weekly indebtedness of
approximately 11%, partially offset by an increase in the overall average borrowing rates.
● Losses on notes repurchased during fiscal 2010 includes the amount paid exceeding the carrying value of the notes
repurchased, which primarily includes the repurchases of the 2011 Notes and the 7.35% Senior notes due April 2016
(2016 Notes).
● Non-cash interest expense primarily includes interest related to the amortization of debt issuance costs and
discounts/premiums on note issuances. This includes debt issuance costs incurred on the new credit facility in March 2009
and the 10.50% Senior Notes due 2014 (2014 Notes) issued in March 2009, as well as the accretion of the debt discount
on the 3.25% Convertible Senior Notes due 2013 (2013 Notes) and 2014 Notes. Fiscal 2009 also includes expenses related
to amendment fees paid in December 2008 on our then existing credit agreements.
2009 vs. 2008 –
● Cash interest expense includes interest expense related to the coupon rates for senior notes and commitment/letter of credit
fees incurred on our revolving credit facilities. 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 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 2013 Notes and
2014 Notes. Non-cash interest expense also includes an unrealized loss on our interest rate swap.
Other (Income) Expense, net
2010
$20
2009
$18
in millions
2008
$(29)
2010 – Included $12 million charge related to the impairment of an equity method investment.
2009 – Included $24 million in foreign currency exchange loss.
2008 – Included $18 million non-operating gain related to the sale of an investment.
22
Effective Tax Rate
2010
36.4%
2009
(1.5)%
2008
44.6%
The effective tax rate on continuing operations was impacted by a number of items which result in a difference between our effective
tax rate and the U.S. statutory rate of 35%. The table below reflects significant items impacting the rate as indicated.
Impairment of goodwill, which is not deductible for income tax purposes, increased the rate 0.9%.
2010 –
● Domestic production activity deduction reduced the rate 2.0%.
● Decrease in unrecognized tax benefits reduced the rate 1.4%.
● Decrease in state valuation allowances reduced the rate 1.0%.
● State income taxes, excluding unrecognized tax benefits, increased the rate 3.4%.
●
2009 –
●
●
● General business credits increased the rate 2.2%.
● Tax planning in foreign jurisdictions increased the rate 1.7%.
2008 –
●
●
● Net negative return on company-owned life insurance policies, which is not deductible for federal income tax purposes,
Impairment of goodwill, which is not deductible for income tax purposes, reduced the rate 36.1%.
Increase in foreign valuation allowances reduced the rate 3.8%.
Increase in state valuation allowances increased the rate 5.0%.
Increase in unrecognized tax benefits increased the rate 4.4%.
increased the rate 3.8%.
● General business credits reduced the rate 3.8%.
SEGMENT RESULTS
We operate in four segments: Chicken, Beef, Pork and Prepared Foods. Beginning in the third quarter of fiscal 2010, we modified the
presentation of our segment sales to include the impact of intersegment sales. All periods presented below include this impact. 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
Intersegment Sales
Total
2010
$10,062
11,707
4,552
2,999
-
(890)
$28,430
Sales
2009
$9,660
10,937
3,875
2,836
-
(604)
$26,704
Operating Income (Loss)
in millions
2008
$8,900
11,806
4,104
2,711
-
(659)
$26,862
2010
$519
542
381
124
(10)
-
$1,556
2009
$(157)
(346)
160
133
(5)
-
$(215)
2008
$(118)
106
280
63
-
-
$331
23
Chicken Segment Results
Sales
Sales Volume Change
Average Sales Price Change
2010
$10,062
2009
$9,660
Operating Income (Loss)
Operating Margin
$519
5.2%
$(157)
(1.6)%
Change 2010
vs. 2009
$402
2.0%
2.1%
$676
in millions
Change 2009
vs. 2008
$760
8.8%
(0.2)%
$(39)
2008
$8,900
$(118)
(1.3)%
2010 – Operating income included a $38 million gain from insurance proceeds and a $29 million non-cash, non-tax deductible
charge related to a full goodwill impairment of an immaterial Chicken segment reporting unit.
2008 – Operating loss included $26 million of charges related to: plant closings; impairments of unimproved real property and
software; and severance.
2010 vs. 2009 –
● Sales Volume – The increase in sales volume for fiscal 2010 was due to sales volume related to a fiscal 2009 acquisition,
partially offset by a decrease due to the extra week in fiscal 2009.
● Average Sales Price – The increase in average sales prices is primarily due to sales mix changes associated with the
reduced sales volume of lower price per pound rendered products.
● Operating Income (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.
2010 – Loss
2009 – Loss
Improvement in operating results
$(6) million
(257) million
$251 million
● Grain Costs – Operating results were positively impacted in fiscal 2010 by a decrease in grain costs of $158 million.
● Operating results included an increase in incentive-based compensation.
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.
24
Beef Segment Results
Sales
Sales Volume Change
Average Sales Price Change
2010
$11,707
2009
$10,937
Operating Income (Loss)
Operating Margin
$542
4.6%
$(346)
(3.2)%
Change 2010
vs. 2009
$770
(1.9)%
9.1%
$888
in millions
Change 2009
vs. 2008
$(869)
0.8%
(8.1)%
$(452)
2008
$11,806
$106
0.9%
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.
2010 vs. 2009 –
● Sales and Operating Income (Loss) –
● We increased our operating margins by maximizing our revenues relative to the rising live cattle markets, as well as
improved our operating costs. In addition, we had an improvement in our export sales. Operating results included an
increase in incentive-based compensation.
● 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.
2010 – Loss
2009 – Income
Decline in operating results
$(15) million
102 million
$(117) million
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
25
Pork Segment Results
Sales
Sales Volume Change
Average Sales Price Change
2010
$4,552
2009
$3,875
Operating Income
Operating Margin
$381
8.4%
$160
4.1%
Change 2010
vs. 2009
$677
(3.3)%
21.4%
$221
in millions
Change 2009
vs. 2008
$(229)
1.7%
(7.2)%
$(120)
2008
$4,104
$280
6.8%
2008 – Operating income included $5 million of charges related to impairment of packaging equipment and severance.
2010 vs. 2009 –
● Sales and Operating Income –
● We increased our operating margins by maximizing our revenues relative to the rising live hog markets. In addition,
we had an improvement in our export sales. Operating results included an increase in incentive-based compensation.
● 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.
2010 – Loss
2009 – Income
Decline in operating results
$(36) million
55 million
($91) million
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
26
Prepared Foods Segment Results
Sales
Sales Volume Change
Average Sales Price Change
2010
$2,999
2009
$2,836
Operating Income
Operating Margin
$124
4.1%
$133
4.7%
Change 2010
vs. 2009
$163
0.3%
5.5%
$(9)
in millions
Change 2009
vs. 2008
$125
5.2%
(0.6)%
$70
2008
$2,711
$63
2.3%
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.
2010 vs. 2009 –
● Sales and Operating Income – Despite the increase in average sales prices and sales volume, operating income declined
in fiscal 2010 as compared to fiscal 2009 due to an increase in raw material costs. However, we made several operational
improvements in late fiscal 2009 that allow us to run our plants more efficiently. We also received $8 million in insurance
proceeds in fiscal 2010 related to the flood damage at our Jefferson, Wisconsin, plant. Operating results included an
increase in incentive-based compensation.
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.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs for working capital, capital expenditures, growth opportunities and the repurchase/redemption of our 2011 Notes 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 existing debt 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 of assets
Other, net
Changes in working capital
Net cash provided by operating activities
2010
$765
497
18
29
36
76
11
$1,432
2009
$(551)
513
(33)
560
32
72
367
$960
in millions
2008
$86
493
35
-
57
26
(342)
$355
Cash flows associated with changes in working capital:
● 2010 – Increased due to the increase in accrued salaries, wages and benefits and accounts payable balances, almost entirely
offset by the increase in inventory and accounts receivable balances. The increase in accrued salaries, wages and benefits
is primarily due to the accruals for incentive-based compensation.
● 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.
27
Cash Flows from Investing Activities
Additions to property, plant and equipment
Proceeds from sale (purchase) of marketable securities, net
Change in restricted cash to be used for investing activities
Proceeds from sale of discontinued operation
Acquisitions, net of cash acquired
Other, net
Net cash used for investing activities
2010
$(550)
(4)
43
-
-
11
$(500)
2009
$(368)
19
(43)
75
(93)
(17)
$(427)
in millions
2008
$(425)
(3)
-
-
(17)
46
$(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 2010, our capital spending included: production
efficiencies in our operations; Dynamic Fuels LLC’s (Dynamic Fuels) facility; and foreign operations. In fiscal 2009, our
capital spending included: improvements made in our prepared foods operations to increase efficiencies; Dynamic Fuels’
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.
● Capital spending for fiscal 2011 is expected to be approximately $700 million, and includes spending on our
operations for production and labor efficiencies, yield improvements and sales channel flexibility, as well as
expansion of our foreign operations.
● Acquisitions – In October 2008, we acquired three vertically integrated poultry companies in southern Brazil. The
aggregate purchase price was $67 million. In addition, we had $15 million of contingent purchase price based on
production volumes. 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.
● 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 was restricted and could only be used towards the
construction of the Dynamic Fuels’ facility.
28
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
Debt issuance costs
Change in restricted cash to be used for financing activities
Other, net
Net cash provided by (used for) financing activities
2010
$-
(1,034)
-
-
-
-
(48)
(59)
-
140
42
$(959)
2009
$15
(380)
852
-
-
-
(19)
(60)
(59)
(140)
6
$215
in millions
2008
$(213)
(147)
449
274
(94)
44
(30)
(56)
-
-
27
$254
● 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 –
● 2010 – $524 million of 2011 Notes; $222 million of 2016 Notes; $140 million of 7.95% Notes due February 2010
(2010 Notes) (using the restricted cash held in a blocked cash collateral account for the retirement of these notes); $52
million of 7.0% Notes due May 2018; and $61 million related to the premiums on notes repurchased during the year.
● 2009 – $161 million of 2011 Notes; $94 million of 2010 Notes (using the restricted cash held in a blocked cash
collateral account for the repurchase of these notes); and $38 million 2016 Notes.
● 2008 – $40 million 2016 Notes and repaid the remaining $25 million outstanding Lakeside term loan.
● 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 Hurricanes 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.
● 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.
29
Liquidity
Cash and cash equivalents
Revolving credit facility
Total liquidity
Commitments
Expiration
Date
Facility
Amount
Borrowing
Base
Adjustment
Outstanding Letters of
Credit under Revolving
Credit Facility (no
draw downs)
Amount
Borrowed
March 2012
$1,000
$-
$175
$-
in millions
Amount
Available
$978
$825
$1,803
● 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.
● Borrowing Base Adjustment – Availability under this facility, up to $1.0 billion, is based on a percentage of certain
eligible accounts receivable and eligible inventory and is reduced by certain reserves. At October 2, 2010, the entire
$1.0 billion was eligible for borrowing and issuing letters of credit.
● Our 2013 Notes may be converted early during any fiscal quarter in the event our Class A stock trades at or above $21.96
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. In this event, the note holders may require us to pay outstanding principal in cash, which totaled $458
million at October 2, 2010. Any conversion premium would be paid in shares of Class A stock. The conditions for early
conversion were not met in our fourth fiscal quarter of fiscal 2010, and thus, the notes may not be converted in our first
quarter fiscal 2011. Should the conditions for early conversion be satisfied in future quarters, and the holders exercised
their early conversion option, we would use current cash on hand and cash flow from operations for principal payments.
● At October 2, 2010, we had $315 million of 2011 Notes outstanding. We plan presently to use current cash on hand and
cash flows from operations for payment on the remaining 2011 Notes due on October 1, 2011.
● Our current ratio was 1.81 to 1 and 2.20 to 1 at October 2, 2010, and October 3, 2009, respectively.
Deterioration of Credit and Capital Markets
Credit market conditions deteriorated rapidly during our fourth quarter of fiscal 2008 and although they have improved, they have not
returned to pre-2008 levels. 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 source of liquidity for funding debt service and capital
expenditures. We also have a revolving credit facility, with a committed maximum 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 2, 2010, we
had outstanding letters of credit totaling $175 million, none of which were drawn upon, which left $825 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. The syndicate includes bank holding companies that are required to be adequately capitalized under federal bank
regulatory agency requirements. If any of the banks in the syndicate are 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 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 terminate their production, our
livestock supply for processing could be significantly impacted.
30
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
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 2, 2010, was approximately $215 million. The total receivables under these
programs were $51 million and $72 million at October 2, 2010 and October 3, 2009, 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 $15 million and $20 million at
October 2, 2010, and October 3, 2009, 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, are impacted by market volatility. These instruments were recorded at fair value as
of October 2, 2010. We did not have a significant change in fair value of these instruments during fiscal 2010.
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 2010 actuarial
valuation, we anticipate contributions of $5 million to these plans for fiscal 2011. We also have one domestic unfunded defined
benefit plan. Based on our 2010 actuarial valuation, we anticipate contributions of $2 million to this plan in fiscal 2011.
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 few years. Grain and some energy prices remain volatile after reaching 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 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.
31
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.
On August 19, 2010, S&P upgraded the credit rating from “BB” to “BB+.” On September 2, 2010, Moody’s upgraded the credit rating
from “Ba3” to “Ba2.” These upgrades decreased the interest rate on the 2016 Notes from 7.85% to 7.35%, effective beginning with
the six-month interest payment due October 1, 2010.
A further one-notch upgrade by either ratings agency would decrease the interest rates on the 2016 Notes by 0.25%, while a one-notch
downgrade by either ratings agency would increase the interest rates on the 2016 Notes by 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 “Ba2.” If
Moody’s were to upgrade our credit rating to “Ba1” or higher, while our S&P credit rating remained at “BB+” or higher, our letter of
credit fees would decrease by 0.25%.
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 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 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 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.
We were in compliance with all covenants at October 2, 2010.
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.
32
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of October 2, 2010:
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
Payments Due by Period
2011
2012-2013
2014-2015
$401
209
18
91
829
371
12
$1,931
$15
305
40
122
55
17
5
$559
$1,277
199
44
49
24
0
4
$1,597
in millions
Total
$2,641
785
114
317
944
388
49
$5,238
2016 and
thereafter
$948
72
12
55
36
0
28
$1,151
(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 2, 2010, 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.
(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 2, 2010.
(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 $184 million and related interest and
penalties of $64 million at October 2, 2010, recorded as liabilities. During fiscal 2011, tax audit resolutions could potentially reduce
these amounts by approximately $20 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 2, 2010, based on the estimated
fair values of the livestock supplier’s net tangible assets on that date, aggregated to approximately $215 million, or approximately
$164 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 its 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 April 2011. At October 2, 2010, the put options, if they had been exercisable, would have resulted in a purchase price of
approximately $67 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.
33
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
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.
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.
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.
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.
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 2, 2010, would
impact pretax earnings by
approximately $11 million.
34
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.
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.
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.
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 $19
million, $25 million, and $52 million,
respectively, in fiscal years 2010, 2009,
and 2008.
Our self-insurance liability contains
uncertainties due to assumptions
required and judgment used.
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.
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.
We have not made any material
changes in the accounting methodology
used to establish our self-insurance
liability 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 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.
A 10% increase in the actuarial range at
October 2, 2010, would result in an
increase in the amount we recorded for
our self-insurance liability of
approximately $24 million. A 10%
decrease in the actuarial range at
October 2, 2010, would not result in a
material change in the amount we
recorded for our self-insurance liability.
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. Additionally, we
continue to evaluate our future
international business strategies, which
may expose us to future impairment
losses.
35
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, which uses significant
unobservable inputs, or Level 3 inputs, as
defined by the fair value hierarchy. A
discounted cash flow analysis requires us to
make various judgmental assumptions about
sales, operating margins, growth rates and
discount rates.
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, among
other things, 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.
Generally, we utilize normalized operating
margin assumptions based on long-term
expectations and operating margins
historically realized in the reporting units’
industries. We include assumptions about
sales, operating margins and growth rates
which consider our budgets, business plans
and economic projections, and are believed
to reflect market participant views which
would exist in an exit transaction. For our
fiscal 2010 impairment test, none of our
material reporting units operating margin
assumptions were in excess of the annual
margins realized in the most recent year.
Assumptions are also made for varying
perpetual growth rates for periods beyond
the long-term business plan period.
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.
36
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 discount rate used in our annual
goodwill impairment test decreased to an
average of 8.4% in fiscal 2010 from 10.1%
in fiscal 2009. There were no significant
changes in the other key estimates and
assumptions.
Other than the Beef reporting unit in 2009,
no other material reporting units failed the
first step of the annual goodwill impairment
analysis in fiscal 2010, 2009 and 2008 and
therefore, the second step was not
necessary. In fiscal 2009, we recorded a
$560 million partial impairment of our Beef
reporting unit’s goodwill, which was driven
by an increase in our discount rate used in
the 2009 annual goodwill impairment
analysis as a result of disruptions in global
credit and other financial markets and
deterioration of economic conditions. In
fiscal 2010, we recorded a non-cash $29
million full impairment of an immaterial
Chicken segment reporting unit’s goodwill.
All material reporting units’ estimated fair
value exceeded their carrying value by more
than 20%. Consequently, we currently do
not consider any of our material reporting
units at significant risk of failing the first
step of the annual goodwill impairment test.
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 2010 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
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.
We do not believe there is a reasonable
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 benefit
liabilities have been established, or are
required to pay amounts in excess of
our recorded unrecognized tax benefit
liabilities, 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.
37
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 2, 2010, and October 3, 2009, 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
in millions
2009
$20
12
1
2010
$39
42
10
Interest Rate Risk: At October 2, 2010, we had variable rate debt of $212 million with a weighted average interest rate of 4.5%. A
hypothetical 10% increase in interest rates effective at October 2, 2010, and October 3, 2009, would have a minimal effect on interest
expense.
Additionally, changes in interest rates impact the fair value of our fixed-rate debt. At October 2, 2010, we had fixed-rate debt of $2.3
billion with a weighted average interest rate of 9.2%. 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 $9 million at October 2, 2010, and $32 million at October 3, 2009. The fair values
of our debt were estimated based on quoted market prices and/or published interest rates.
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 2, 2010, and October 3, 2009, related to the foreign exchange forward
contracts would have a $17 million and $15 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 2, 2010, and October 3, 2009, 15.3% and 13.0%, 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.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
Sales
Cost of Sales
Gross Profit
Operating Expenses:
Selling, general and administrative
Goodwill impairment
Other charges
Operating Income (Loss)
Other (Income) Expense:
Interest income
Interest expense
Other, net
Total Other (Income) Expense
Income (Loss) from Continuing Operations before Income Taxes
Income Tax Expense
Income (Loss) from Continuing Operations
Loss from Discontinued Operation, Net of Tax
Net Income (Loss)
Less: Net Loss Attributable to Noncontrolling Interest
Net Income (Loss) Attributable to Tyson
Weighted Average Shares Outstanding:
Class A Basic
Class B Basic
Diluted
Earnings (Loss) Per Share from Continuing Operations Attributable to Tyson:
Class A Basic
Class B Basic
Diluted
Loss Per Share from Discontinued Operation Attributable to Tyson:
Class A Basic
Class B Basic
Diluted
Net Earnings (Loss) per Share Attributable to Tyson:
Class A Basic
Class B Basic
Diluted
See accompanying notes.
Three years ended October 2, 2010
in millions, except per share data
2010
$28,430
25,916
2,514
2009
$26,704
25,501
1,203
2008
$26,862
25,616
1,246
929
29
0
1,556
(14)
347
20
353
1,203
438
765
0
765
(15)
$780
303
70
379
$2.13
$1.91
$2.06
$0.00
$0.00
$0.00
$2.13
$1.91
$2.06
841
560
17
(215)
(17)
327
18
328
(543)
7
(550)
(1)
(551)
(4)
$(547)
302
70
372
$(1.49)
$(1.35)
$(1.47)
$0.00
$0.00
$0.00
$(1.49)
$(1.35)
$(1.47)
879
0
36
331
(9)
215
(29)
177
154
68
86
0
86
0
$86
281
70
356
$0.25
$0.22
$0.24
$0.00
$0.00
$0.00
$0.25
$0.22
$0.24
39
CONSOLIDATED BALANCE SHEETS
October 2, 2010, and October 3, 2009
in millions, except share and per share data
2010
2009
$978
0
1,198
2,274
168
4,618
0
3,674
1,893
166
401
$10,752
$401
1,110
1,034
2,545
2,135
321
486
64
32
7
2,243
3,113
0
(229)
5,166
35
5,201
$10,752
$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
3,258
309
539
65
32
7
2,236
2,399
(34)
(242)
4,398
33
4,431
$10,595
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
Total Assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Current debt
Accounts payable
Other current liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Liabilities
Redeemable Noncontrolling Interest
Shareholders’ Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares:
issued 322 million shares in both 2010 and 2009
Convertible Class B-authorized 900 million shares:
issued 70 million shares in both 2010 and 2009
Capital in excess of par value
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost-
15 million shares in 2010 and 16 million shares in 2009
Total Tyson Shareholders’ Equity
Noncontrolling Interest
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See accompanying notes.
40
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three years ended October 2, 2010
in millions
October 2, 2010
Shares
Amount
October 3, 2009
Shares
Amount
September 27, 2008
Shares
Amount
Class A Common Stock:
Balance at beginning of year
Issuance of Class A Common Stock
Balance at end of year
Class B Common Stock:
Balance at beginning and 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
Issuance of convertible debt
Stock-based compensation
Other
Balance at end of year
Retained Earnings:
Balance at beginning of year
Cumulative effect for adoption of new accounting guidance for
uncertainty in income taxes
Net income (loss) attributable to Tyson
Dividends paid
Redeemable noncontrolling interest accretion
Balance at end of year
Accumulated Other Comprehensive Income (Loss), Net of Tax:
Balance at beginning of year
Hedge accounting
Investment accounting
Currency translation adjustments
Net change in postretirement liabilities
Balance at end of year
Treasury Stock:
Balance at beginning of year
Purchase of treasury shares
Stock-based compensation
Balance at end of year
Total Shareholders’ Equity Attributable to Tyson
Equity Attributable to Noncontrolling Interests
Balance at beginning of year
Net income (loss) attributable to noncontrolling interests (1)
Contributions by (distributions to) noncontrolling interest
Net foreign currency translation adjustment and other
Total Equity Attributable to Noncontrolling Interests
322
0
322
70
16
3
(4)
15
$32
0
32
322
0
322
$32
0
32
300
22
322
$30
2
32
7
70
7
70
7
2,236
0
0
0
0
7
0
2,243
2,399
0
780
(59)
(7)
3,113
(34)
12
0
27
(5)
0
(242)
(48)
61
(229)
$5,166
$33
(6)
10
(2)
$35
2,217
0
0
0
0
19
0
2,236
3,006
0
(547)
(60)
0
2,399
41
6
10
(81)
(10)
(34)
(233)
(19)
10
(242)
$4,398
$29
(4)
9
(1)
$33
1,877
272
(58)
44
56
21
5
2,217
2,993
(17)
86
(56)
0
3,006
50
(2)
(1)
(2)
(4)
41
(226)
(30)
23
(233)
$5,070
$4
0
25
0
$29
14
2
(1)
15
15
2
(1)
16
Total Shareholders’ Equity
$5,201
$4,431
$5,099
Comprehensive Income (Loss):
Net income (loss)
Other comprehensive income (loss), net of tax
Total Comprehensive Income (Loss)
Comprehensive Income (Loss) attributable to noncontrolling interest
Total Comprehensive Income (Loss) attributable to Tyson
See accompanying notes.
$765
34
799
(6)
$805
$(551)
(75)
(626)
(4)
$(622)
$86
(9)
77
0
$77
(1) Excludes income (loss) related to redeemable noncontrolling interest of $(9) million, $0 and $0, for fiscal 2010, 2009 and 2008, respectively.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three years ended October 2, 2010
in millions
Cash Flows From Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation
Amortization
Deferred income taxes
Impairment of goodwill
Impairment of assets
Other, net
(Increase) decrease in accounts receivable
(Increase) decrease in inventories
Increase (decrease) in 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
Purchases of marketable securities
Proceeds from sale of marketable securities
Change in restricted cash to be used for investing activities
Proceeds from sale of discontinued operation
Acquisitions, net of cash acquired
Other, net
Cash 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
Other, net
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
See accompanying notes.
2010
$765
416
81
18
29
36
76
(79)
(239)
101
(53)
(4)
285
1,432
(550)
(53)
49
43
0
0
11
(500)
0
(1,034)
0
0
0
0
(48)
(59)
0
140
42
(959)
1
(26)
1,004
$978
2009
$(551)
445
68
(33)
560
32
72
137
493
(216)
33
(60)
(20)
960
(368)
(37)
56
(43)
75
(93)
(17)
(427)
15
(380)
852
0
0
0
(19)
(60)
(59)
(140)
6
215
6
754
250
$1,004
2008
$86
468
25
35
0
57
26
(59)
(376)
165
(22)
0
(50)
355
(425)
(115)
112
0
0
(17)
46
(399)
(213)
(147)
449
274
(94)
44
(30)
(56)
0
0
27
254
(2)
208
42
$250
42
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 meat protein companies 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 100 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. At October 2, 2010, Dynamic Fuels had $154 million of total assets, of which $145 million was property, plant
and equipment, and $107 million of total liabilities, of which $100 million was long-term debt. At October 3, 2009, Dynamic Fuels
had $144 million of total assets, of which $64 million was property, plant and equipment, and $108 million of total liabilities, of which
$100 million was long-term debt.
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 52-week year for fiscal years 2010 and 2008 and a 53-week year for fiscal year 2009.
Reclassification: In the fiscal 2010 Consolidated Statements of Cash Flows, we reclassified ($65 million) and $67 million,
respectively, for fiscal 2009 and fiscal 2008, of changes in negative book cash balances from Financing Activities to Operating
Activities (included in Increase (decrease) in accounts payable) to conform with the current period presentation.
Discontinued Operation: On March 13, 2009, we completed the sale of 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, 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 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
accounts payable and other current liabilities. At October 2, 2010, and October 3, 2009, checks outstanding in excess of related book
cash balances totaled approximately $267 million and $254 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 2, 2010, and October 3, 2009, our allowance for uncollectible accounts was $32
million and $33 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
43
2010
$721
462
759
332
$2,274
in millions
2009
$629
414
631
335
$2,009
Property, Plant and Equipment: Property, plant and equipment are stated at cost and 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 including market participant assumptions of future operating results and discount rates.
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, which uses significant unobservable
inputs, or Level 3 inputs, as defined by the fair value hierarchy. This analysis requires us to make various judgmental estimates and
assumptions about sales, operating margins, growth rates and discount factors and are believed to reflect market participant views
which would exist in an exit transaction. Generally, we utilize normalized operating margin assumptions based on long-term
expectations and operating margins historically realized in the reporting units’ industries. For our fiscal 2010 impairment test, none of
our material reporting units’ operating margin assumptions were in excess of the annual margins realized in the most recent year.
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 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 material impairments of our goodwill.
During fiscal 2010, 2009 and 2008, all of our reporting units passed the first step of the goodwill impairment analysis, with the
exception of an immaterial Chicken segment reporting unit in fiscal 2010 and the Beef reporting unit in fiscal 2009. In fiscal 2010, we
recorded a non-cash $29 million full impairment of an immaterial Chicken segment reporting unit’s goodwill. In fiscal 2009, we
recorded a $560 million partial impairment of our Beef reporting unit’s goodwill, which was driven by an increase in our discount rate
used in the 2009 annual goodwill impairment analysis as a result of disruptions in global credit and other financial markets and
deterioration of economic conditions.
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 when our voting
interests are less than 20 percent. We use the equity method of accounting when our voting interests are in excess of 20 percent and
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 also have investments in marketable debt securities. We have determined all of 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 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.
44
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 2, 2010, members of the Tyson family beneficially own, in the aggregate,
99.97% of the outstanding shares of Class B stock and 2.42% 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 2010, 2009 and 2008.
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, while changes 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 2010, 2009 and 2008
were $505 million, $491 million and $495 million, respectively.
Research and Development: Research and development costs are expensed as incurred. Research and development costs totaled $38
million, $33 million and $30 million in fiscal 2010, 2009 and 2008, respectively.
45
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 June 2009, the Financial Accounting Standards Board (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 at the beginning of fiscal year 2011 and do not expect the adoption will
have a material impact.
In June 2009 and December 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 assessment 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 at the beginning of fiscal year 2011 and do
not expect the adoption will have a material impact.
NOTE 2: CHANGE IN ACCOUNTING PRINCIPLES
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 adopted this guidance at the beginning of
fiscal 2010. The initial adoption did not have a significant impact on our consolidated financial statements.
In December 2007, the 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 net income attributable to both Tyson (the parent) and the noncontrolling interest. We adopted the
presentation and disclosure requirements retrospectively at the beginning of fiscal 2010. Accordingly, “attributable to Tyson” refers to
operating results exclusive of any noncontrolling interest. In conjunction with this adoption, we also adopted guidance applicable for
all noncontrolling interests in which we are or may be required to repurchase an interest in a consolidated subsidiary from the
noncontrolling interest holder under a put option or other contractual redemption requirement. Because we have certain redeemable
noncontrolling interests, noncontrolling interests are presented in both the equity section and the mezzanine section of the balance
sheet between liabilities and equity.
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. We adopted this guidance in the first quarter of fiscal 2010 and applied it retrospectively. Upon retrospective
adoption, our effective interest rate on our 3.25% Convertible Senior Notes due 2013 issued in September 2008 was determined to be
8.26%, which resulted 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. The impact to our previously reported fiscal 2008 interest expense was not significant, while the impact
increased fiscal 2009 non-cash interest expense by $17 million.
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 adopted the disclosure requirements in fiscal 2010. See Note 15: Pensions and Other Postretirement Benefits for
required disclosures.
46
The following table presents the effects of the retrospective application of new accounting guidance on our consolidated financial
statements (in millions, except per share data):
Adjustments: Adjustments:
Previously Convertible Noncontrolling
Reported
Interest
Debt
September 27, 2008 – Income Statement:
Interest Expense
Income (Loss) from Continuing Operations before Income Taxes
Income Tax Expense
Income (Loss) from Continuing Operations
Minority Interest
Net Income (Loss)
Less: Net Loss Attributable to Noncontrolling Interest
Net Income (Loss) Attributable to Tyson
Earnings (Loss) Per Share from Continuing Operations Attributable
to Tyson:
Class A Basic
Class B Basic
Diluted
Net Income (Loss) Per Share Attributable to Tyson:
Class A Basic
Class B Basic
Diluted
October 3, 2009 – Income Statement:
Interest Expense
Income (Loss) from Continuing Operations before Income Taxes
Income Tax Expense
Income (Loss) from Continuing Operations
Minority Interest
Net Income (Loss)
Less: Net Loss Attributable to Noncontrolling Interest
Net Income (Loss) Attributable to Tyson
Earnings (Loss) Per Share from Continuing Operations Attributable
to Tyson:
Class A Basic
Class B Basic
Diluted
Net Income (Loss) Per Share Attributable to Tyson:
Class A Basic
Class B Basic
Diluted
October 3, 2009 – Balance Sheet:
Long-Term Debt
Deferred Income Taxes
Minority Interest
Redeemable Noncontrolling Interest
Capital in Excess of Par Value
Retained Earnings
Total Tyson Shareholders’ Equity
Noncontrolling Interest
Total Shareholders’ Equity
$215
154
68
86
0
86
0
0
$0.25
$0.22
$0.24
$0.25
$0.22
$0.24
$310
(526)
14
(540)
(4)
(537)
0
0
$(1.47)
$(1.32)
$(1.44)
$(1.47)
$(1.32)
$(1.44)
$3,333
280
98
0
2,180
2,409
4,352
0
4,352
$0
0
0
0
0
0
0
0
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$17
(17)
(7)
(10)
0
(10)
0
0
$(0.02)
$(0.03)
$(0.03)
$(0.02)
$(0.03)
$(0.03)
$(75)
29
0
0
56
(10)
46
0
46
$0
0
0
0
0
0
0
0
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0
0
0
0
4
(4)
(4)
0
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0
0
(98)
65
0
0
0
33
33
47
As
Adjusted
$215
154
68
86
0
86
0
86
$0.25
$0.22
$0.24
$0.25
$0.22
$0.24
$327
(543)
7
(550)
0
(551)
(4)
(547)
$(1.49)
$(1.35)
$(1.47)
$(1.49)
$(1.35)
$(1.47)
$3,258
309
0
65
2,236
2,399
4,398
33
4,431
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 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. In addition, we had $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.
NOTE 4: DISCONTINUED OPERATION
On March 13, 2009, we completed the sale of 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, 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 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
NOTE 5: OTHER INCOME AND CHARGES
2010
$0
$0
0
0
$0
2009
$461
$20
(10)
11
$(1)
2008
$1,268
$0
0
0
$0
During fiscal 2010, we recognized $38 million of insurance proceeds received related to losses incurred from Hurricane Katrina in
2005. These proceeds are reflected in the Chicken segment’s Operating Income and included in the Consolidated Statements of
Income in Cost of Sales. Also in fiscal 2010, we recorded a $12 million impairment charge related to an equity method investment.
This charge is included in the Consolidated Statements of Income in Other, net.
On March 27, 2009, we announced the decision to close our Ponca City, Oklahoma, processed meats plant. The plant ceased operation
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 estimated 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.
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.
48
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.
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.
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 periodically 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 deal with credit-worthy counterparties. Additionally, our derivative contracts are mostly short-term in duration
and we generally do not make use of credit-risk-related contingent features. No significant concentrations of credit risk existed at
October 2, 2010.
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) (OCI) 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 and option 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.
49
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 and option commodity contracts
in excess of our physical consumption requirements and generally do not hedge forecasted transactions beyond 18 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 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 2010, 2009 and 2008.
We had the following aggregated notionals of outstanding forward and option contracts accounted for as cash flow hedges:
Commodity:
Corn
Soy meal
Metric
October 2, 2010
October 3, 2009
Bushels
Tons
16 million
101,500
4 million
16,900
The net amount of pretax gains in accumulated OCI as of October 2, 2010, expected to be reclassified into earnings within the next 12
months was $10 million. During fiscal 2010, 2009 and 2008, we did not reclassify significant 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)
Recognized in OCI
on Derivatives
2008
2009
2010
Consolidated
Statements of Income
Classification
Gain/(Loss)
Reclassified from
OCI to Earnings
2008
2009
2010
Cash Flow Hedge – Derivatives designated
as hedging instruments:
Commodity contracts
Foreign exchange contracts
Total
$6
1
$7
$(61)
8
$(53)
$39
(2)
$37
Cost of Sales
Other Income/Expense
$(6)
1
$(5)
$(67)
6
$(61)
$42
0
$42
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. 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
Metric
October 2, 2010
October 3, 2009
Pounds
Pounds
361 million
508 million
133 million
171 million
50
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.
Gain/(Loss) on forwards
Gain/(Loss) on purchase contract
Consolidated
Statements of Income
Classification
Cost of Sales
Cost of Sales
in millions
2010
$(58)
58
2009
$152
(152)
2008
$65
(65)
Ineffectiveness related to our fair value hedges was not significant during fiscal 2010, 2009 and 2008.
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 2010, 2009 and 2008. At October 2, 2010 and October 3, 2009, we had
approximately $49 million and $0 aggregate outstanding notionals related to our forward foreign currency contracts accounted for as
foreign net investment hedges.
The following table sets forth the pretax impact of these derivative instruments on the Consolidated Statements of Income (in
millions):
Net Investment Hedge – Derivatives
designated as hedging instruments:
Foreign exchange contracts
Gain/(Loss)
Recognized in OCI
on Derivatives
2008
2009
2010
Consolidated
Statements of Income
Classification
Gain/(Loss)
Reclassified from
OCI to Earnings
2008
2010 2009
$(1)
$(5)
$0
Other Income/Expense
$0
$(2)
$0
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.
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 that currently impacts earnings.
51
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.
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
Metric
October 2, 2010
October 3, 2009
Bushels
Tons
Pounds
Pounds
British thermal units
United States dollars
Average monthly notional debt
38 million
367,000
73 million
134 million
450 billion
$146 million
$53 million
11 million
73,000
82 million
11 million
850 billion
$124 million
$64 million
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 gains of $2 million and losses of $17 million at October 2, 2010, and October 3,
2009, 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 did not qualify for hedge treatment, they initially created volatility in our
earnings associated with changes in fair value. However, once the positions were liquidated and included in the sales price to the
customer, there was ultimately no earnings impact as any previous fair value gains or losses were 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
2008
2009
2010
Sales
Cost of Sales
Other Income/Expense
Interest Expense
$27
(20)
(5)
1
$(34)
(151)
0
(4)
$3 $(189)
$(12)
259
1
0
$248
52
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
Foreign exchange contracts
Total derivative assets – not designated
Total derivative assets
Derivative Liabilities:
Derivatives designated as hedging instruments:
Commodity contracts
Derivatives not designated as hedging instruments:
Commodity contracts
Foreign exchange contracts
Interest rate contracts
Total derivative liabilities – not designated
Fair Value
2010
2009
$20
$12
10
1
11
$31
$16
34
6
3
43
9
0
9
$21
$2
13
1
4
18
Total derivative liabilities
$59
$20
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 Sheets in Other current assets and Other current liabilities.
NOTE 7: PROPERTY, PLANT AND EQUIPMENT
Major categories of property, plant and equipment and accumulated depreciation at October 2, 2010, and October 3, 2009:
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
2010
$97
2,617
4,694
232
513
8,153
4,479
$3,674
in millions
2009
$96
2,570
4,640
227
297
7,830
4,254
$3,576
Approximately $388 million will be required to complete buildings and equipment under construction at October 2, 2010.
53
NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table reflects goodwill activity for fiscal years 2010 and 2009:
Balances at September 27, 2008:
Goodwill
Accumulated impairment losses
Fiscal 2009 Activity:
Acquisitions
Disposal of goodwill related to discontinued operation
Impairment losses
Currency translation and other
Balances at October 3, 2009:
Goodwill
Accumulated impairment losses
Fiscal 2010 Activity:
Impairment losses
Currency translation and other
Balances at October 2, 2010:
Goodwill
Accumulated impairment losses
Chicken
Beef
Pork
Foods Consolidated
in millions
Prepared
$945
0
945
42
0
0
(14)
973
0
$973
(29)
6
979
(29)
$950
$1,185
0
1,185
0
(59)
(560)
(3)
1,123
(560)
$563
0
0
1,123
(560)
$563
$317
0
317
0
0
0
0
317
0
$317
0
0
317
0
$317
$64
0
64
0
0
0
0
64
0
$64
0
(1)
63
0
$63
$2,511
0
2,511
42
(59)
(560)
(17)
2,477
(560)
$1,917
(29)
5
2,482
(589)
$1,893
Other intangible assets by type at October 2, 2010, and October 3, 2009:
Gross Carrying Value:
Trademarks
Patents, intellectual property and other
Land use rights
Less Accumulated Amortization
Total Intangible Assets
2010
$56
144
23
57
$166
in millions
2009
$57
145
23
38
$187
Amortization expense of $19 million, $10 million and $3 million was recognized during fiscal 2010, 2009 and 2008, respectively. We
estimate amortization expense on intangible assets for the next five fiscal years subsequent to October 2, 2010 will be: 2011 - $17
million; 2012 - $16 million; 2013 - $16 million; 2014 - $15 million; 2015 - $15 million. Beginning with the date benefits are realized,
other intangible assets are amortized using the straight-line method over their estimated period of benefit of 10-30 years.
NOTE 9: OTHER CURRENT LIABILITIES
Other current liabilities at October 2, 2010, and October 3, 2009, include:
Accrued salaries, wages and benefits
Self-insurance reserves
Other
Total other current liabilities
2010
$444
256
334
$1,034
in millions
2009
$187
230
344
$761
54
NOTE 10: COMMITMENTS
We lease equipment, properties and certain farms for which total rentals approximated $188 million, $175 million and $163 million,
respectively, in fiscal 2010, 2009 and 2008. Most leases have initial terms up to seven years, some 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 2, 2010, were:
2011
2012
2013
2014
2015
2016 and beyond
Total
in millions
$91
71
51
32
17
55
$317
We guarantee obligations of certain outside third parties, which consists 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 eight years, and the maximum potential
amount of future payments as of October 2, 2010, was $69 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 remaining terms of the lease maturities cover periods over the next seven years. The maximum potential amount of the
residual value guarantees is $45 million, of which $21 million would be recoverable through various recourse provisions and an
additional undeterminable recoverable amount based on the fair value of the underlying leased assets. The likelihood of material
payments under these guarantees is not considered probable. At October 2, 2010, and October 3, 2009, 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 2, 2010, was approximately $215 million. The total
receivables under these programs were $51 million and $72 million at October 2, 2010, and October 3, 2009, 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 $15 million and
$20 million at October 2, 2010 and October 3, 2009, 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 its 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 April 2011. At October 2, 2010, the put options, if they had been exercisable, would have resulted in a purchase price of
approximately $67 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 2, 2010, these commitments totaled:
2011
2012
2013
2014
2015
2016 and beyond
Total
in millions
$829
38
17
12
12
36
$944
55
NOTE 11: DEBT
The major components of 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)
7.35% 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
Discount on senior notes
GO Zone tax-exempt bonds due October 2033 (0.23% at 10/02/10)
Other
Total debt
Less current debt
Total long-term debt
2010
$0
0
315
458
810
701
122
0
18
(105)
100
117
2,536
401
$2,135
2009
$0
140
839
458
810
923
174
9
27
(132)
100
129
3,477
219
$3,258
Annual maturities of debt for the five fiscal years subsequent to October 2, 2010, are: 2011 - $401 million; 2012 - $10 million; 2013 -
$5 million; 2014 - $1,274 million; 2015 - $3 million.
Revolving Credit Facility
We have a $1.0 billion revolving credit facility that supports short-term funding needs and letters of credit. 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 eligible by outstanding letters of credit issued under this facility, the amount
available for borrowing under this facility at October 2, 2010, was $825 million. At October 2, 2010, we had outstanding letters of
credit issued under this facility totaling approximately $175 million, 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’ Gulf Opportunity Zone
tax-exempt bonds. We had an additional $66 million of bilateral letters of credit not issued under this facility, none of which were
drawn upon.
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.
56
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:
● 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 2, 2010,
none of the conditions permitting conversion of the 2013 Notes had been satisfied.
The 2013 Notes were originally accounted for as a combined instrument because the conversion feature did not meet the requirements
to be accounted for separately as a derivative financial instrument. However, we adopted new accounting guidance in the first quarter
of fiscal 2010 and applied it retrospectively to all periods presented. This new accounting guidance required us to separately account
for the liability and equity conversion features. Upon retrospective adoption, our effective interest rate on the 2013 Notes was
determined to be 8.26%, which resulted 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.
In connection with the issuance of the 2013 Notes, we entered into separate convertible note hedge transactions with respect to our
Class A 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.
57
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 was used for the payment and repurchase of the 2010 Notes. The 2014 Notes are fully and unconditionally
guaranteed by substantially all of our domestic subsidiaries.
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. (Moody’s) 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.
On August 19, 2010, Standard & Poor’s upgraded the credit rating from “BB” to “BB+.” On September 2, 2010, Moody’s upgraded
the credit rating from “Ba3” to “Ba2.” These upgrades decreased the interest rate on the 2016 Notes from 7.85% to 7.35%, effective
beginning with the six-month interest payment due October 1, 2010.
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 could only be used towards the construction of the Dynamic Fuels’ facility. Accordingly, the unused proceeds were
recorded as non-current Restricted Cash in the Consolidated Balance Sheets and were utilized prior to the end 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 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 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 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.
We were in compliance with all covenants at October 2, 2010.
Condensed Consolidating Financial Statements
Tyson Fresh Meats, Inc. (TFM Parent), our wholly-owned subsidiary, has fully and unconditionally guaranteed the 2016 Notes. TFM
Parent 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);
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).
58
Condensed Consolidating Statement of Income for the year ended October 2, 2010
in millions
Net Sales
Cost of Sales
Gross Profit
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
Total Other (Income) Expense
Income (Loss) from Continuing Operations before
Income Taxes
Income Tax Expense (Benefit)
Income (Loss) from Continuing Operations
Income (Loss) from Discontinued Operation, net of
tax
Net Income (Loss)
Less: Net Loss Attributable to Noncontrolling
Interest
Net Income (Loss) Attributable to Tyson
2014 Guarantors
TFM
Parent
$15,950
14,867
1,083
Guar-
antors
$12,248
11,343
905
Elimin-
ations
$(966)
(966)
0
199
0
0
884
2
1
(51)
(48)
932
304
628
0
628
550
0
0
355
17
(7)
25
35
320
116
204
0
204
0
$628
0
$204
0
0
0
0
0
0
37
37
(37)
0
(37)
0
(37)
0
$(37)
TFI
Parent
$454
16
438
93
0
0
345
328
25
(782)
(429)
774
(6)
780
0
780
0
$780
Subtotal
$27,232
25,244
1,988
749
0
0
1,239
19
(6)
11
24
1,215
420
795
0
795
0
$795
Condensed Consolidating Statement of Income for the year ended October 3, 2009
Net Sales
Cost of Sales
Gross Profit (Loss)
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
Total Other (Income) Expense
Income (Loss) from Continuing Operations before
Income Taxes
Income Tax Expense (Benefit)
Income (Loss) from Continuing Operations
Income (Loss) from Discontinued Operation, net of
tax
Net Income (Loss)
Less: Net Loss Attributable to Noncontrolling
Interest
Net Income (Loss) Attributable to Tyson
2014 Guarantors
TFM
Parent
$14,504
13,970
534
Guar-
antors
$12,245
11,526
719
Elimin-
ations
$(725)
(725)
0
Subtotal
$26,024
24,771
1,253
187
560
0
(213)
13
(3)
(32)
(22)
(191)
111
(302)
5
(297)
450
0
17
252
20
(6)
44
58
194
34
160
0
160
0
0
0
0
0
0
13
13
(13)
0
(13)
0
(13)
637
560
17
39
33
(9)
25
49
(10)
145
(155)
5
(150)
TFI
Parent
$11
132
(121)
132
0
0
(253)
285
11
157
453
(706)
(138)
(568)
21
(547)
0
$(547)
0
$(297)
0
$160
0
$(13)
0
$(150)
Non-
Guar-
antors
$1,167
1,079
88
Elimin-
ations
$(423)
(423)
0
87
29
0
(28)
(14)
1
(14)
(27)
(1)
24
(25)
0
(25)
0
0
0
0
0
0
785
785
(785)
0
(785)
0
(785)
(15)
$(10)
0
$(785)
Total
$28,430
25,916
2,514
929
29
0
1,556
333
20
0
353
1,203
438
765
0
765
(15)
$780
in millions
Elimin-
ations
$(40)
(40)
0
Total
$26,704
25,501
1,203
0
0
0
0
0
0
(165)
(165)
165
0
165
0
165
841
560
17
(215)
310
18
0
328
(543)
7
(550)
(1)
(551)
0
$165
(4)
$(547)
Non-
Guar-
antors
$709
638
71
72
0
0
(1)
(8)
16
(17)
(9)
8
0
8
(27)
(19)
(4)
$(15)
59
Condensed Consolidating Statement of Income for the year ended September 27, 2008
in millions
Net Sales
Cost of Sales
Gross Profit (Loss)
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
Total Other (Income) Expense
Income (Loss) from Continuing Operations before
Income Taxes
Income Tax Expense (Benefit)
Income (Loss) from Continuing Operations
Income from Discontinued Operation, net of tax
Net Income (Loss)
Less: Net Loss Attributable to Noncontrolling
Interest
Net Income (Loss) Attributable to Tyson
2014 Guarantors
TFM
Parent
$15,638
15,105
533
Guar-
antors
$11,463
10,796
667
Elimin-
ations
$(811)
(811)
0
Subtotal
$26,290
25,090
1,200
208
18
307
17
(5)
(27)
(15)
322
116
206
0
206
0
$206
533
17
117
16
(11)
5
10
107
37
70
0
70
0
$70
0
0
0
0
0
18
18
(18)
0
(18)
0
(18)
0
$(18)
741
35
424
33
(16)
(4)
13
411
153
258
0
258
0
$258
TFI
Parent
$19
74
(55)
83
1
(139)
181
(13)
(285)
(117)
(22)
(108)
86
0
86
0
$86
Condensed Consolidating Balance Sheet as of October 2, 2010
2014 Guarantors
TFI
Parent
TFM
Parent
Guar-
antors
Elimin-
ations
Subtotal
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
Accounts payable
Other current liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Liabilities
Redeemable Noncontrolling Interest
Total Tyson Shareholders’ Equity
Noncontrolling Interest
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
$2
0
0
0
43
45
0
39
0
0
2,804
10,776
$13,664
$317
16
6,044
6,377
2,011
0
110
0
5,166
0
5,166
$13,664
$2
0
2,389
734
49
3,174
0
870
880
37
101
1,785
$6,847
$0
421
168
589
1,638
105
148
0
4,367
0
4,367
$6,847
$731
0
4,670
1,361
27
6,789
0
2,257
967
53
61
631
$10,758
$0
608
335
943
1,228
204
179
0
$0
0
0
0
(9)
(9)
0
0
0
0
0
(1,607)
$(1,616)
$0
0
(9)
(9)
0
0
0
0
$733
0
7,059
2,095
67
9,954
0
3,127
1,847
90
162
809
$15,989
$0
1,029
494
1,523
2,866
309
327
0
Non-
Guar-
antors
$580
479
101
55
0
46
(8)
0
(9)
(17)
63
23
40
0
40
0
$40
Non-
Guar-
antors
$243
0
132
179
95
649
0
508
46
76
295
307
$1,881
$84
65
526
675
118
12
49
64
Elimin-
ations
$(27)
(27)
0
Total
$26,862
25,616
1,246
0
0
0
0
0
298
298
(298)
0
(298)
0
(298)
0
$(298)
879
36
331
206
(29)
0
177
154
68
86
0
86
0
$86
in millions
Elimin-
ations
Total
$0
0
(5,993)
0
(37)
(6,030)
0
0
0
0
(2,860)
(11,892)
$(20,782)
$0
0
(6,030)
(6,030)
(2,860)
0
0
0
$978
0
1,198
2,274
168
4,618
0
3,674
1,893
166
401
0
$10,752
$401
1,110
1,034
2,545
2,135
321
486
64
8,204
0
8,204
$10,758
(1,607)
0
(1,607)
$(1,616)
10,964
0
10,964
$15,989
928
35
963
$1,881
(11,892)
0
(11,892)
$(20,782)
5,166
35
5,201
$10,752
60
Condensed Consolidating Balance Sheet as of October 3, 2009
2014 Guarantors
TFI
Parent
TFM
Parent
Guar-
antors
Elimin-
ations
Subtotal
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
Accounts payable
Other current liabilities
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Other Liabilities
Redeemable Noncontrolling Interest
Total Tyson Shareholders’ Equity
Noncontrolling Interest
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
$0
0
2
1
198
201
0
40
0
0
211
10,038
$10,490
$3
15
2,790
2,808
3,112
29
143
0
4,398
0
4,398
$10,490
$0
0
418
586
89
1,093
0
883
881
42
120
1,763
$4,782
$140
375
251
766
15
108
161
0
3,732
0
3,732
$4,782
$788
140
3,309
1,239
29
5,505
0
2,256
977
59
37
674
$9,508
$0
550
296
846
180
182
202
0
$0
0
(7)
0
(17)
(24)
0
0
0
0
0
(1,597)
$(1,621)
$0
0
(24)
(24)
0
0
0
0
$788
140
3,720
1,825
101
6,574
0
3,139
1,858
101
157
840
$12,669
$140
925
523
1,588
195
290
363
0
in millions
Elimin-
ations
Total
$0
0
(2,738)
0
(213)
(2,951)
0
0
0
0
(217)
(11,174)
$(14,342)
$0
0
(2,951)
(2,951)
(180)
(37)
0
0
$1,004
140
1,100
2,009
122
4,375
43
3,576
1,917
187
497
0
$10,595
$219
1,013
761
1,993
3,258
309
539
65
Non-
Guar-
antors
$216
0
116
183
36
551
43
397
59
86
346
296
$1,778
$76
73
399
548
131
27
33
65
8,098
0
8,098
$9,508
(1,597)
0
(1,597)
$(1,621)
10,233
0
10,233
$12,669
941
33
974
$1,778
(11,174)
0
(11,174)
$(14,342)
4,398
33
4,431
$10,595
Condensed Consolidating Statement of Cash Flows for the year ended October 2, 2010
in millions
Cash Provided by Operating Activities
Cash Flows From Investing Activities:
Additions to property, plant and equipment
Change in restricted cash-investing
Purchases 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
2014 Guarantors
TFI
Parent
$386
TFM
Parent
$499
Guar-
antors
$462
Elimin-
ations
$0
Subtotal
$961
(3)
0
0
0
0
(1)
(4)
(874)
0
0
(48)
(59)
32
569
(380)
0
2
0
$2
(85)
0
0
0
0
(1)
(86)
(149)
0
0
0
0
0
(262)
(411)
0
2
0
$2
(323)
0
0
0
0
15
(308)
0
0
140
0
0
0
(351)
(211)
0
(57)
788
$731
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
(408)
0
0
0
0
14
(394)
(149)
0
140
0
0
0
(613)
(622)
0
(55)
788
$733
Non-
Guar-
antors
$85
(139)
43
(4)
0
0
(2)
(102)
(11)
0
0
0
0
10
44
43
1
27
216
$243
Elimin-
ations
$0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
Total
$1,432
(550)
43
(4)
0
0
11
(500)
(1,034)
0
140
(48)
(59)
42
0
(959)
1
(26)
1,004
$978
61
Condensed Consolidating Statement of Cash Flows for the year ended October 3, 2009
in millions
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
2014 Guarantors
TFI
Parent
$(617)
TFM
Parent
$507
Guar-
antors
$982
Elimin-
ations
$0
Subtotal
$1,489
0
0
0
0
0
(37)
(37)
545
(58)
0
(19)
(60)
0
106
514
0
(140)
140
$0
(56)
0
0
0
0
1
(55)
(94)
0
0
0
0
0
(358)
(452)
0
0
0
$0
(211)
0
0
0
(13)
12
(212)
0
0
(140)
0
0
0
123
(17)
0
753
35
$788
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
(267)
0
0
0
(13)
13
(267)
(94)
0
(140)
0
0
0
(235)
(469)
0
753
35
$788
Non-
Guar-
antors
$113
(101)
(43)
19
75
(80)
7
(123)
36
(1)
0
0
(25)
6
129
145
6
141
75
$216
Elimin-
ations
$(25)
0
0
0
0
0
0
0
0
0
0
0
25
0
0
25
0
0
0
$0
Total
$960
(368)
(43)
19
75
(93)
(17)
(427)
487
(59)
(140)
(19)
(60)
6
0
215
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
Purchases of marketable securities, net
Acquisitions, net of cash acquired
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
$(164)
TFM
Parent
$278
(2)
(1)
0
27
24
145
274
(94)
44
(30)
(56)
13
(19)
277
0
137
3
$140
(104)
0
0
11
(93)
(5)
0
0
0
0
0
0
(180)
(185)
0
0
0
$0
Guar-
antors
$256
(302)
0
0
16
(286)
0
0
0
0
0
0
0
62
62
0
32
3
$35
Elimin-
ations
$0
Subtotal
$534
Non-
Guar-
antors
$0
Elimin-
ations
$(15)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
(406)
0
0
27
(379)
(5)
0
0
0
0
0
0
(118)
(123)
0
32
3
$35
(17)
(2)
(17)
(8)
(44)
(51)
0
0
0
0
(15)
14
137
85
(2)
39
36
$75
0
0
0
0
0
0
0
0
0
0
15
0
0
15
0
0
0
$0
Total
$355
(425)
(3)
(17)
46
(399)
89
274
(94)
44
(30)
(56)
27
0
254
(2)
208
42
$250
62
NOTE 12: FAIR VALUE MEASUREMENTS
We adopted fair value measurement accounting guidance at the beginning of 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
tables set forth by level within the fair value hierarchy our financial assets and liabilities accounted for at fair value on a recurring
basis according to the valuation techniques we used to determine their fair values (in millions):
October 2, 2010
Assets:
Commodity Derivatives
Foreign Exchange Forward Contracts
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
October 3, 2009
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
$0
0
0
15
0
$15
$0
0
0
$0
$30
1
42
3
86
$162
$50
6
3
$59
$0
0
73
0
0
$73
$0
0
0
$0
$(18)
(1)
0
0
0
$(19)
$(50)
(1)
(1)
$(52)
$12
0
115
18
86
$231
$0
5
2
$7
Level 1
Level 2
Level 3
Netting (a)
Total
$21
33
0
84
$138
$15
1
4
$20
$0
0
20
2
$22
$0
0
0
$0
63
$0
72
0
0
$72
$0
0
0
$0
$(17)
0
0
0
$(17)
$(11)
0
(2)
$(13)
$4
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 2, 2010, and October 3, 2009, we had posted $35 million and $4 million of cash collateral and
held $3 million and $0 cash collateral with various counterparties, respectively.
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 beginning of year
Total realized and unrealized gains (losses):
Included in earnings
Included in other comprehensive income (loss)
Purchases, issuances and settlements, net
Balance at end of year
Total gains (losses) for the periods included in earnings
attributable to the change in unrealized gains (losses) relating to
assets and liabilities still held at end of year
October 2, 2010
$72
October 3, 2009
$54
1
1
(1)
$73
$0
(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 an 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 46 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: 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.
64
We also received 4.25 million warrants to purchases an equivalent amount of Syntroleum Corporation common stock at an average
price of $2.87. These warrants are classified as available for sale and expire in early fiscal 2013. We recorded the warrants in Other
Assets in the Consolidated Balance Sheets at fair value based on quoted market prices. We classify the warrants as Level 2 as fair
value can be corroborated based on observable market data. Unrealized gains (losses), net of tax, are recorded in OCI. Realized gains
or losses on the sale of the securities and declines in value judged to be other than temporary would be recorded in earnings.
(in millions)
October 2, 2010
October 3, 2009
Amortized
Cost Basis
Fair
Value
Unrealized
Gain
Amortized
Cost Basis
Fair
Value
Unrealized
Gain
Available for Sale Securities:
Debt Securities:
U.S. Treasury and Agency
Corporate and Asset-Backed (a)
Redeemable Preferred Stock
Equity Securities:
Common Stock
Stock Warrants
$41
43
27
9
0
$42
46
27
15
3
$1
3
0
6
3
$33
46
24
9
0
$33
48
24
20
0
$0
2
0
11
0
(a) At October 2, 2010, and October 3, 2009, the amortized cost basis for Corporate and Asset-Backed debt securities had been
reduced by accumulated other than temporary impairments of $3 million and $4 million, respectively.
Unrealized holding gains (losses), net of tax, are excluded from earnings and reported in OCI 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. Losses on equity
securities are recognized in earnings if the decline in value is judged to be other than temporary. If losses related to our debt securities
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 debt securities in which we have the intent and ability to hold until maturity, losses
determined to be other than temporary would remain in OCI, 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 2010 and 2008, we recognized no other than temporary
impairments in earnings, while we recognized $4 million of other than temporary impairments during fiscal 2009. No other than
temporary losses were deferred in OCI as of October 2, 2010, and 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 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
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a
nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. During fiscal
2010, we recorded a $29 million charge to fully impair an immaterial Chicken segment reporting unit’s goodwill. We utilized a
discounted cash flow analysis that incorporated unobservable Level 3 inputs. We did not have any other significant measurements of
assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
65
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 2, 2010
October 3, 2009
Fair
Value
$2,770
Carrying
Value
$2,536
Fair
Value
$3,724
Carrying
Value
$3,477
For all of our other financial instruments, the estimated fair value approximated the carrying value at October 2, 2010, and October 3,
2009. The carrying value of our other financial instruments, not otherwise disclosed herein, included notes receivable, which
approximated fair value at October 2, 2010, and October 3, 2009. Notes receivable were recorded in Other Current Assets in the
Consolidated Balance Sheets and totaled $49 million at October 2, 2010, and were recorded in Other Assets at October 3, 2009, and
totaled $45 million. 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 2,
2010, and October 3, 2009, 15.3% and 13.0%, 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.
66
NOTE 13: COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive income are as follows:
Accumulated other comprehensive income (loss):
Unrealized net hedging gains (losses), net of taxes
Unrealized net gain on investments, net of taxes
Currency translation adjustment
Postretirement benefits reserve adjustments
Total accumulated other comprehensive income (loss)
The components of other comprehensive income (loss) are as follows:
Fiscal 2010:
Net hedging loss reclassified to earnings
Net hedging unrealized gain
Unrealized gain on investments
Currency translation adjustment
Net change in postretirement liabilities
Other comprehensive income – 2010
Fiscal 2009:
Net hedging loss reclassified to earnings
Net hedging unrealized loss
Loss on investments reclassified to other income
Unrealized gain on investments
Currency translation adjustment gain reclassified to loss from discontinued
operation
Currency translation adjustment
Net change in postretirement liabilities
Other comprehensive loss – 2009
Fiscal 2008:
Net hedging gain reclassified to earnings
Net hedging unrealized gain
Investments unrealized loss
Currency translation adjustment
Net change in postretirement liabilities
Other comprehensive loss – 2008
NOTE 14: STOCK-BASED COMPENSATION
2010
$10
9
6
(25)
$0
in millions
2009
$(2)
9
(21)
(20)
$(34)
Before Tax
in millions
Income Tax After Tax
$7
7
0
27
(6)
$35
$61
(53)
4
12
(41)
(43)
(11)
$(71)
$(41)
37
(1)
(2)
(10)
$(17)
$(1)
(1)
0
0
1
$(1)
$(25)
23
(1)
(5)
0
3
1
$(4)
$16
(14)
0
0
6
$8
$6
6
0
27
(5)
$34
$36
(30)
3
7
(41)
(40)
(10)
$(75)
$(25)
23
(1)
(2)
(4)
$(9)
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 18,455,244 at October 2, 2010.
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 value at the date of grant. Nonqualified stock options may be granted at a price equal
to, less than or more than the fair 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.
67
Outstanding, October 3, 2009
Exercised
Canceled
Granted
Outstanding, October 2, 2010
Shares Under
Option
18,593,844
(2,395,069)
(690,036)
3,865,173
19,373,912
Weighted
Average Exercise
Price Per Share
$12.73
13.14
11.56
12.59
12.69
Exercisable, October 2, 2010
9,690,215
$14.24
Weighted Average
Remaining
Contractual Life
(in Years)
Aggregate
Intrinsic Value
(in millions)
6.1
4.2
$246
$138
We generally grant stock options once a year; however, we granted stock options twice during fiscal 2010. The weighted average
grant-date fair value of options granted in fiscal 2010, 2009 and 2008 was $4.76, $1.29 and $5.22, 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
2010
6.5 years
1.2%
40.4%
1.3%
2009
5.3 years
2.3%
34.6%
3.3%
2008
5.8 years
3.7%
30.9%
1.1%
We recognized stock-based compensation expense related to stock options, net of income taxes, of $11 million, $9 million and $12
million, respectively, during fiscal years 2010, 2009 and 2008, with a $7 million, $6 million and $7 million related tax benefit. We had
2.2 million, 2.4 million and 2.5 million options vest in fiscal years 2010, 2009 and 2008, respectively, with a fair value of $13 million,
$15 million and $15 million, respectively.
In fiscal years 2010, 2009 and 2008, we received cash of $36 million, $1 million and $9 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 2010, 2009 and 2008, was $5 million, $0 and $1 million, respectively. The total intrinsic value of options exercised
in fiscal years 2010, 2009 and 2008, was $12 million, $0 and $3 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 $3
million, $0 and $0, respectively, in excess tax deductions during fiscal years 2010, 2009 and 2008, respectively. As of October 2,
2010, we had $25 million of total unrecognized compensation cost related to stock option plans that will be recognized over a
weighted average period of 2.5 years.
68
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, October 3, 2009
Granted
Dividends
Vested
Forfeited
Nonvested, October 2, 2010
Weighted
Average Grant-
Date Fair Value
Per Share
$15.20
14.11
16.03
15.88
13.65
$14.55
Number of Shares
4,656,910
905,277
36,616
(1,751,772)
(245,417)
3,601,614
Weighted Average
Remaining
Contractual Life
(in Years)
Aggregate
Intrinsic Value
(in millions)
1.7
$59
As of October 2, 2010, we had $21 million of total unrecognized compensation cost related to restricted stock awards that will be
recognized over a weighted average period of 1.7 years.
We recognized stock-based compensation expense related to restricted stock, net of income taxes, of $8 million, $10 million and $11
million for years 2010, 2009 and 2008, respectively. The related tax benefit for fiscal years 2010, 2009 and 2008 was $5 million, $7
million and $6 million, respectively. We had 1.8 million, 0.7 million and 2.0 million, respectively, restricted stock awards vest in
fiscal years 2010, 2009 and 2008, with a grant date fair value of $30 million, $11 million and $24 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 2010,
2009 and 2008.
NOTE 15: PENSIONS AND OTHER POSTRETIREMENT BENEFITS
At October 2, 2010, 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
$48 million, $49 million and $48 million in fiscal 2010, 2009 and 2008, 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.
69
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 2,
2010, and October 3, 2009:
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Actuarial 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
Pension Benefits
Qualified
2010
2009
Non-Qualified
2010
2009
in millions
Other Postretirement
Benefits
2010
2009
$89
0
5
0
9
(6)
97
68
9
3
0
(6)
74
$90
0
6
0
0
(7)
89
79
(5)
1
0
(7)
68
$38
3
2
0
0
(1)
42
0
0
1
0
(1)
0
$32
4
2
0
2
(2)
38
0
0
2
0
(2)
0
$46
1
2
1
1
(6)
45
0
0
5
1
(6)
0
$47
0
3
2
1
(7)
46
0
0
5
2
(7)
0
Funded status
$(23)
$(21)
$(42)
$(38)
$(45)
$(46)
Amounts recognized in the Consolidated Balance Sheets consist of:
Accrued benefit liability
Accumulated other comprehensive
(income)/loss:
Unrecognized actuarial loss
Unrecognized prior service (cost)/credit
Net amount recognized
Pension Benefits
Qualified
2010
$(23)
2009
$(21)
Non-Qualified
2010
$(42)
2009
$(38)
40
0
$17
35
0
$14
1
3
$(38)
1
4
$(33)
in millions
Other Postretirement
Benefits
2010
$(45)
0
(6)
$(51)
2009
$(46)
0
(8)
$(54)
At October 2, 2010, and October 3, 2009, all pension plans had an accumulated benefit obligation in excess of plan assets. The
accumulated benefit obligation for all qualified pension plans was $97 million and $89 million at October 2, 2010, and October 3,
2009, respectively. Plans with accumulated benefit obligations in excess of plan assets are as follows:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
in millions
Pension Benefits
Qualified
2010
$97
97
74
2009
$89
89
68
Non-Qualified
2010
$42
41
0
2009
$38
37
0
70
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
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Recognized actuarial loss, net
Net periodic benefit cost
Pension Benefits
Qualified
2009
$0
6
(7)
0
1
$0
2010
$0
5
(6)
0
1
$0
2008
$0
6
(7)
0
1
$0
Non-Qualified
2009
$4
2
0
1
0
$7
2010
$3
2
0
1
0
$6
2008
$3
2
0
1
0
$6
Assumptions
Weighted average assumptions are as follows:
Pension Benefits
Qualified
2009
2010
2008
Non-Qualified
2009
2010
2008
Other Postretirement
Benefits
2009
$0
3
0
0
1
$4
2010
$1
2
0
(1)
0
$2
2008
$1
3
0
(1)
1
$4
Other Postretirement
Benefits
2009
2010
2008
Discount rate to determine net
periodic benefit cost
Discount rate to determine
benefit obligations
Rate of compensation increase
Expected return on plan assets
6.00%
6.33%
5.88%
6.00%
6.50%
6.25%
5.71%
6.50%
6.25%
5.06%
N/A
7.80%
6.00%
N/A
8.00%
6.33%
N/A
8.02%
5.50%
3.50%
N/A
6.00%
3.50%
N/A
6.50%
3.50%
N/A
4.50%
N/A
N/A
5.71%
N/A
N/A
6.50%
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.
Our discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit
obligations could be effectively settled. These were determined using a cash flow matching technique whereby the rates of a yield
curve, developed from high-quality debt securities, were applied to the benefit obligations to determine the appropriate discount rate.
We have three postretirement health plans. Two of these consist of fixed, annual payments and account for $31 million of the
postretirement medical obligation at October 2, 2010. A healthcare cost trend is not required to determine this obligation. The
remaining plan accounts for $14 million of the postretirement medical obligation at October 2, 2010. The plan covers retirees who do
not yet qualify for Medicare and uses a healthcare cost trend of 7% 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 $59 million and $54 million as of October 2, 2010, and October 3,
2009, respectively. The following table sets forth the actual and target asset allocation for pension plan assets:
Cash
Fixed income securities
US Stock Funds
International Stock Funds
Real Estate
Alternatives
Total
2009
0.2%
19.7
43.2
20.2
4.7
12.0
100.0%
Target Asset
Allocation
1.0%
19.0
45.0
20.0
5.0
10.0
100.0%
2010
0.3%
18.5
44.6
19.9
5.0
11.7
100.0%
71
A foreign subsidiary pension plan had $15 million and $14 million in plan assets at October 2, 2010, and October 3, 2009,
respectively. All of this plan’s assets are held in an insurance contract 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.
The following table shows the categories of pension plan assets and the level under which fair values were determined in the fair value
hierarchy, which is described in Note 12: Fair Value Measurements.
Cash and cash equivalents
Fixed Income Securities Bond Fund (a)
Equity Securities:
U.S. stock funds (a)
International stock funds (a)
Global real estate funds (a)
Total equity securities
Other Investments - Alternatives (b)
Total fair value
Insurance Contract at Contract Value
Total plan assets
Level 1
$0
11
October 2, 2010
Level 2
$0
0
Level 3
$0
0
26
12
3
41
0
52
0
$52
0
0
0
0
0
0
0
$0
0
0
0
0
7
7
15
$22
in millions
Total
$0
11
26
12
3
41
7
59
15
$74
(a) Valued using quoted market prices in active markets.
(b) Valued using plan’s own assumptions about the assumptions market participants would use in pricing the assets based on
the best information available, such as investment manager pricing.
A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant
unobservable inputs (Level 3) is as follows (in millions):
Balance at October 3, 2009
Actual return on plan assets:
Assets still held at reporting date
Assets sold during the period
Purchases, sales and settlements, net
Transfers in and/or out of Level 3
Balance at October 2, 2010
Alternative funds
$7
Insurance contract
$14
0
0
0
0
$7
1
0
0
0
$15
Total
$21
1
0
0
0
$22
We believe there are no significant concentrations of risk within our plan assets as of October 2, 2010.
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 2011 are
approximately $7 million. For fiscal 2010, 2009 and 2008, we funded $4 million, $2 million and $2 million, respectively, to defined
benefit plans.
72
Estimated Future Benefit Payments
The following benefit payments are expected to be paid:
2011
2012
2013
2014
2015
2016-2020
Pension Benefits
Qualified
$9
8
7
7
7
29
Non-Qualified
$2
2
2
2
3
18
in millions
Other Postretirement
Benefits
$7
6
4
4
4
17
The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in 2011
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
NOTE 17: TRANSACTIONS WITH RELATED PARTIES
2010
$302
470
2009
$333
35
in millions
2008
$211
51
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 $2 million in
fiscal 2010, $3 million in fiscal 2009 and $3 million in fiscal 2008, 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.
NOTE 18: INCOME TAXES
Detail of the provision for income taxes from continuing operations consists of the following:
Federal
State
Foreign
Current
Deferred
2010
$374
44
20
$438
$420
18
$438
2009
$7
(4)
4
$7
$40
(33)
$7
in millions
2008
$56
8
4
$68
$33
35
$68
73
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
Unrecognized tax benefits, net
Goodwill impairment
General business credits
Domestic production deduction
Company-owned life insurance
Change in state valuation allowance
Change in foreign valuation allowance
Tax planning in foreign jurisdictions
Other
2010
35.0%
3.4
(1.4)
0.9
(0.7)
(2.0)
(0.2)
(1.0)
0.8
0.0
1.6
36.4%
2009
35.0%
0.1
(0.3)
(36.1)
2.2
0.5
(0.3)
0.0
(3.8)
1.7
(0.5)
(1.5)%
2008
35.0%
2.0
4.4
0.0
(3.8)
(2.2)
3.8
5.0
0.0
0.0
0.4
44.6%
During fiscal 2010, tax expense was impacted by the domestic production deduction, reduction in unrecognized tax benefits and
reduction in state valuation allowance, which decreased tax expense by $24 million, $16 million and $13 million, respectively. The
goodwill impairment is not deductible for income tax purposes and negatively impacted the effective income tax rate by 0.9%.
The fiscal 2009 goodwill impairment is not deductible for income tax purposes and negatively impacted our effective income tax rate
by 36.1%. 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.
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.
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 and convertible debt premium
Insurance reserves
Other
Valuation allowance
Net deferred tax liability
2010
Deferred Tax
in millions
2009
Deferred Tax
Assets
$0
0
0
9
202
97
24
20
84
$436
$(96)
Liabilities
$347
86
34
85
0
0
23
0
67
$642
$302
Assets
$0
0
0
19
197
103
30
22
68
$439
$(75)
Liabilities
$339
91
34
76
0
0
29
0
74
$643
$279
74
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 2, 2010, our gross state tax net operating loss carryforwards approximated $787 million and expire in fiscal years 2011
through 2029. Gross foreign net operating loss carryforwards approximated $144 million, of which $53 million expire in fiscal years
2011 through 2019, and the remainder has no expiration.
We have accumulated undistributed earnings of foreign subsidiaries aggregating approximately $260 million and $220 million at
October 2, 2010, and October 3, 2009, 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 2, 2010, October 3, 2009, and
September 27, 2008:
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
2010
$233
4
11
(35)
(25)
(4)
$184
2009
$220
7
60
(21)
(25)
(8)
$233
in millions
2008
$210
23
36
(28)
(14)
(7)
$220
The amount of unrecognized tax benefits, if recognized, that would impact our effective tax rate was $150 million and $104 million at
October 2, 2010, and October 3, 2009, respectively. This increase is primarily the result of the first quarter adoption of new accounting
guidance related to business combinations. We classify interest and penalties on unrecognized tax benefits as income tax expense. At
October 2, 2010, and October 3, 2009, before tax benefits, we had $64 million and $71 million, respectively, of accrued interest and
penalties on unrecognized tax benefits.
As of October 2, 2010, we are subject to income tax examinations for U.S. federal income taxes for fiscal years 1998 through 2009,
and for foreign, state and local income taxes for fiscal years 2001 through 2009. During fiscal 2011, tax audit resolutions could
potentially reduce our unrecognized tax benefits by approximately $15 million, either because tax positions are sustained on audit or
because we agree to their disallowance.
75
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: Net loss attributable to noncontrolling interest
Income (loss) from continuing operations attributable to Tyson
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 (loss) 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
Convertible 2013 Notes
Denominator for diluted earnings (loss) per share – adjusted
weighted average shares and assumed conversions
Earnings (Loss) Per Share from Continuing Operations Attributable to
Tyson:
Class A Basic
Class B Basic
Diluted
Net Earnings (Loss) Per Share Attributable to Tyson:
Class A Basic
Class B Basic
Diluted
2010
$765
(15)
780
49
10
721
597
124
$721
303
70
6
0
379
$2.13
$1.91
$2.06
$2.13
$1.91
$2.06
in millions, except per share data
2008
2009
$(550)
(4)
(546)
50
10
(606)
(501)
(105)
$(606)
302
70
0
0
372
$(1.49)
$(1.35)
$(1.47)
$(1.49)
$(1.35)
$(1.47)
$86
0
86
46
10
30
25
5
$30
281
70
5
0
356
$0.25
$0.22
$0.24
$0.25
$0.22
$0.24
Approximately 5 million, 24 million and 10 million, respectively, in fiscal years 2010, 2009 and 2008, 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.
76
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.
77
Chicken
Beef
Pork
Prepared
Foods
Intersegment
Other
Sales Consolidated
in millions
Fiscal year ended October 2, 2010
Sales
Operating Income (Loss)
Total Other (Income) Expense
Income (Loss) from Continuing Operations
before Income Taxes
Depreciation
Total Assets
Additions to property, plant and equipment
Fiscal year ended October 3, 2009
Sales
Operating Income (Loss)
Total Other (Income) Expense
Income (Loss) from Continuing Operations
before Income Taxes
Depreciation
Total Assets
Additions to property, plant and equipment
Fiscal year ended September 27, 2008
Sales
Operating Income (Loss)
Total Other (Income) Expense
Income (Loss) from Continuing Operations
before Income Taxes
$10,062
519
$11,707
542
$4,552
381
$2,999
124
$0
(10)
$(890)
251
5,031
320
82
2,468
61
27
845
27
56
940
42
$9,660
(157)
$10,937
(346)
$3,875
160
$2,836
133
0
1,468
100
$0
(5)
$(604)
252
4,927
174
103
2,277
39
36
840
18
54
905
58
0
1,646
79
$8,900
(118)
$11,806
106
$4,104
280
$2,711
63
$0
0
$(659)
Depreciation (a)
Total Assets (b)
Additions to property, plant and equipment (c)
244
4,990
258
117
3,169
83
31
898
21
67
971
46
0
663
15
a) Excludes depreciation related to discontinued operation of $9 million for fiscal year 2008.
b) Excludes assets held for sale related to discontinued operation of $159 million for fiscal year 2008.
c) Excludes additions to property, plant and equipment related to discontinued operation of $2 million for fiscal year 2008.
$28,430
1,556
353
1,203
416
l0,752
550
$26,704
(215)
328
(543)
445
l0,595
368
$26,862
331
177
154
459
10,691
423
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 $718 million, $449 million and $517 million for fiscal years 2010, 2009 and 2008, respectively, from
transactions with other operating segments. The Beef segment had sales of $172 million, $155 million and $142 million for fiscal
years 2010, 2009 and 2008, respectively, from transactions with other operating segments. Beginning in fiscal 2010, we modified the
presentation of our segment sales for all periods presented above to include the impact of intersegment sales, which were at market
prices.
Our largest customer, Wal-Mart Stores, Inc., accounted for 13.4%, 13.8% and 13.3% of consolidated sales in fiscal years 2010, 2009
and 2008, 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 96%, 97% and 98% of sales to external customers
for fiscal 2010, 2009 and 2008, respectively, were sourced from the United States. Approximately $3.3 billion, $3.2 billion and $3.4
billion, respectively, of property, plant and equipment were located in the United States at October 2, 2010, October 3, 2009, and
September 27, 2008. Approximately $364 million, $329 million and $139 million of property, plant and equipment were located in
foreign countries, primarily Brazil, China, Mexico and India, at fiscal years ended 2010, 2009 and 2008, 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 $3.2 billion, $2.7 billion and $3.2 billion for fiscal
2010, 2009 and 2008, 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 2010, 2009 and 2008. Approximately $55 million of loss, $14 million of
loss and $34 million of income from continuing operations before income taxes for fiscal 2010, 2009 and 2008, respectively, was from
foreign operations, all of which was included in the Chicken segment.
78
NOTE 21: QUARTERLY FINANCIAL DATA (UNAUDITED)
2010
Sales
Gross profit
Operating income
Net income
Net income attributable to Tyson
Net earnings per share attributable to Tyson:
Class A Basic
Class B Basic
Diluted
2009
Sales
Gross profit
Operating income (loss)
Income (loss) from continuing operations
Income (loss) from discontinued operation
Net income (loss)
Net income (loss) attributable to Tyson
Earnings (loss) per share from continuing operations
attributable to Tyson:
Class A Basic
Class B Basic
Diluted
Earnings (loss) per share from discontinued operation
attributable to Tyson:
Class A Basic
Class B Basic
Diluted
Net earnings (loss) per share attributable to Tyson:
Class A Basic
Class B Basic
Diluted
First
Quarter
$6,635
529
314
159
160
$0.44
$0.39
$0.42
$6,521
18
(198)
(110)
6
(104)
(102)
$(0.29)
$(0.27)
$(0.29)
$0.02
$0.02
$0.02
$(0.27)
$(0.25)
$(0.27)
in millions, except per share data
Fourth
Quarter
Third
Quarter
Second
Quarter
$6,916
564
344
156
159
$0.43
$0.39
$0.42
$6,307
253
29
(105)
(14)
(119)
(119)
$(0.29)
$(0.26)
$(0.28)
$(0.04)
$(0.04)
$(0.04)
$(0.33)
$(0.30)
$(0.32)
$7,438
752
507
242
248
$0.68
$0.61
$0.65
$6,662
470
276
123
7
130
131
$0.34
$0.30
$0.33
$0.02
$0.02
$0.02
$0.36
$0.32
$0.35
$7,441
669
391
208
213
$0.58
$0.52
$0.57
$7,214
462
(322)
(458)
0
(458)
(457)
$(1.25)
$(1.12)
$(1.23)
$0.00
$0.00
$0.00
$(1.25)
$(1.12)
$(1.23)
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 2010 net income includes $24 million of pretax charges related to losses on notes repurchased during the quarter.
Third quarter fiscal 2010 operating income includes $38 million of insurance proceeds received during the quarter and net income
includes $34 million of pretax charges related to losses on notes repurchased during the quarter and a $12 million charge related to an
equity method investment impairment. Fourth quarter fiscal 2010 operating income includes a $29 million non-cash charge related to
the full impairment of an immaterial Chicken segment reporting unit’s goodwill.
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.
79
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.
NOTE 23: CONTINGENCIES
We are involved in various claims and legal proceedings. We routinely assess the likelihood of adverse judgments or outcomes to
those matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. We record accruals for such matters
to the extent that we conclude a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable.
Such accruals are reflected in the Company’s Consolidated Financial Statements. In our opinion, we have made appropriate and
adequate accruals for these matters 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 are not adequate, an adverse outcome could have a material effect
on the consolidated financial condition or results of operations. Listed below are certain claims made against the Company and/or our
subsidiaries for which the potential exposure is considered material to the Company’s Consolidated Financial Statements. We believe
we have substantial defenses to the claims made and intend to vigorously defend these matters.
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 U.S. 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.
The other private lawsuits referred to above 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.D.
Alabama, December 21, 2006); Buchanan, et al. v. Tyson Chicken, Inc., et al. and Potter, et al. v. Tyson Chicken, Inc., et al. (N.D.
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.D. Mississippi, February 9, 2007); Balch, et al. v. Tyson Foods, Inc. (E.D. Oklahoma, March 1, 2007);
Adams, et al. v. Tyson Foods, Inc. (W.D. Arkansas, March 2, 2007); Atkins, et al. v. Tyson Foods, Inc. (M.D. Georgia, March 5,
2007); Laney, et al. v. Tyson Foods, Inc. and Williams, et al. v. Tyson Foods, Inc. (M.D. Georgia, May 23, 2007) (the "Williams
Case"). Similar to DeAsencio, each of these matters involves 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. 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, which was granted on August
17, 2007. These cases and five other cases subsequently filed involving the same allegations, Armstrong, et al. v. Tyson Foods, Inc.
(W.D. Tennessee, January 30, 2008); Maldonado, et al. v. Tyson Foods, Inc. (E.D. Tennessee, January 31, 2008); White, et al. v.
Tyson Foods, Inc. (E.D. Texas, February 1, 2008); Meyer, et al. v. Tyson Foods, Inc. (W.D. Missouri, February 2, 2008); and Leak, et
al. v. Tyson Foods, Inc. (W.D. 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 Court issued a
Joint Scheduling and Case Management Order. This order granted Conditional Class Certification and called for notice to be given to
80
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 Court 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 the 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.D.
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. In July 2009 we filed class decertification motions for the eight facilities involved in discovery. We also filed
Motions for Partial Summary Judgment for these eight facilities. Oral arguments for these motions occurred on February 3, 2010, and,
on March 16, 2010, the Court granted partial summary judgment with respect to two unionized facilities and denied the remaining
motions. The Court concluded that the activities at these two facilities met the definition of “clothes changing” under Section 203(o)
of the FLSA and that the time engaged in pre- and post-shift donning and doffing is not compensable. The Court did not rule on
whether Section 203(o) activity could begin the continuous work day, thereby making all walking, sanitizing and washing time after
that activity compensable. We then filed a motion for certification of a permissive appeal on whether Section 203(o) activity can start
the continuous workday and whether washing required clothing items is covered by Section 203(o). On April 23, 2010, the Court
granted us permission to appeal these issues to the Eleventh Circuit Court of Appeals. The Court also retained jurisdiction with respect
to the eight facilities while staying proceedings with respect to seven. It then scheduled trial in the Williams Case for October 12,
2010. On April 16, 2010, the Court lifted a previously entered stay of discovery with respect to our remaining 32 facilities subject to
the MDL Proceedings and ordered the parties to meet, confer, and report to the Court any discovery agreements and disputed issues
within 45 days. On June 7, 2010, the Court issued a scheduling order which set the close of discovery for the remaining 32 facilities
for May 31, 2012. On September 22, 2010, the Court granted the parties’ joint motion to stay further proceedings in the MDL
Proceedings, including the trial in the Williams case, in order to allow the parties an opportunity to explore settlement. The plaintiffs
subsequently filed a motion to lift the stay, and the Court granted this motion on November 15, 2010. The trial in the Williams Case is
now scheduled to begin on February 14, 2011.
We have pending eleven separate wage and hour actions involving TFM’s plants located in Lexington, Nebraska (Lopez, et al. v.
Tyson Foods, Inc., D. Nebraska, June 30, 2006), Garden City and Emporia, Kansas (Garcia, et al. v. Tyson Foods, Inc., Tyson Fresh
Meats, Inc., D. 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., D. Nebraska, January 16, 2008), Madison, Nebraska (Acosta, et al. v Tyson Foods, Inc. d.b.a Tyson Fresh Meats,
Inc., D. 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. Trial in the Bouaphakeo case was originally set to begin on November 1, 2010 but was rescheduled for September 7,
2011.
We also have pending one wage and hour action involving our Tyson Prepared Foods plant located in Jefferson, Wisconsin
(Weissman, et al. v. Tyson Prepared Foods, Inc., (Jefferson County (Wisconsin) Circuit Court, October 20, 2010) The plaintiffs
allege 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 and the associated time it takes to walk to and from their workstations post-donning and pre-doffing of
protective and sanitary clothing. Six named plaintiffs seek to act as state law 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 and costs.
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
81
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 cost recovery and for natural resources damages
under CERCLA and for unjust enrichment under Oklahoma common law. This ruling also narrowed the scope of Oklahoma’s
remaining claims by dismissing all damage claims under its causes of action for Oklahoma common law nuisance, federal common
law nuisance, and Oklahoma common law trespass, leaving only its claims for injunctive relief for trial. On August 18, 2009, the
Court granted partial summary judgment in favor of the defendants on Oklahoma’s claims for violations of the Oklahoma Registered
Poultry Feeding Operations Act. Oklahoma later voluntarily dismissed the remainder of this claim. 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 in the Tenth Circuit Court of Appeals on September 17, 2009. A non-jury trial
of the case began on September 24, 2009. At the close of Oklahoma’s case-in-chief, the Court granted the defendants’ motions to
dismiss claims based on RCRA, nuisance per se, and health risks related to bacteria. The defense rested its case on January 13, 2010,
and closing arguments were held on February 11, 2010. On September 21, 2010, the Court of Appeals affirmed the district court’s
denial of the Cherokee Nation’s motion to intervene. On October 6, 2010 the Cherokee Nation and the State of Oklahoma filed a
petition for rehearing or en banc review seeking reconsideration of this ruling. The Court of Appeals denied this petition.
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. On April 13, 2010, the regional CONAGUA office delivered its final
determinations to TdM on this matter and claimed that TdM owed the agency approximately 55.9 million pesos (approximately
US$4.6 million) for certain water usage during the period in question. TdM has appealed the regional office’s final determinations to
the administrative courts of CONAGUA in Mexico City.
On May 8, 2008, a lawsuit was filed against the Company and two of our employees in the District Court of McCurtain County,
Oklahoma styled Armstrong, et al. v. Tyson Foods, Inc., et al. (the “Armstrong Case”). The lawsuit was brought by a group of 52
poultry growers who allege that certain of our live production practices in Oklahoma constitute fraudulent inducement, fraud, unjust
enrichment, negligence, gross negligence, unconscionability, violations of the Oklahoma Business Sales Act, Deceptive Trade
Practice violations, violations of the Consumer Protection Act, and conversion, as well as other theories of recovery. The plaintiffs
sought damages in an unspecified amount. On October 30, 2009, 20 additional growers represented by the same attorney filed a
lawsuit against us in the same court asserting the same or similar claims, which is styled Clardy, et al. v. Tyson Foods, Inc., et al. (the
“Clardy Case”). In both of these cases we have denied all allegations of wrongdoing. In June 2009, the plaintiffs in the Armstrong
case requested an expedited trial date for a smaller group of plaintiffs they claimed were facing imminent financial peril. The Court
ultimately severed a group of 10 plaintiffs from the Armstrong Case, and a trial began on March 15, 2010. There were numerous
irregularities and rulings during the trial which we believe to have been legally erroneous and highly prejudicial to our right to a fair
trial. On April 1, 2010, the jury returned a verdict against us and one of our employees, and on April 2, 2010, the jury returned a
punitive damages verdict against us. After a dispute caused by inconsistencies between the multiple verdict forms completed by the
jury and apparent confusion by the jury as to how to complete those verdict forms, the Court entered a final judgment in the amount of
$8,655,735. Subsequent to the trial, the presiding judge disqualified from the cases and the Oklahoma Supreme Court appointed a new
judge to the cases. The Company filed post-trial motions challenging the verdict. Those motions were denied. The Company intends to
appeal to overturn the verdict. We filed a motion with the trial court to change venue from McCurtain County on the grounds that the
numerous irregularities that occurred during the trial, coupled with the attendant publicity, resulted in community bias which would
prevent the Company from receiving a fair trial in McCurtain County. The trial court granted this motion and the case will be
transferred to Choctaw County, Oklahoma. We filed another motion, which the trial court also granted, to stay all future trials of the
claims of the plaintiffs in the Armstrong Case and the Clardy Case pending the outcome of the appeal of the first trial. We believe
numerous and substantial legal errors were made by the Court during the trial and that a review of and guidance on these issues by the
appellate court could have a substantial impact on the outcome of future trials in the Armstrong Case and the Clardy Case.
82
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Tyson Foods, Inc.
In our opinion, the accompanying consolidated balance sheet as of October 2, 2010 and the related consolidated statements of
income, shareholders' equity and cash flows for the fiscal year then ended present fairly, in all material respects, the financial position
of Tyson Foods, Inc. and its subsidiaries at October 2, 2010 and the results of their operations and their cash flows for the fiscal year
ended October 2, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule for the fiscal year ended October 2, 2010 listed in the index appearing under Item 15(a)
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated
financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of October 2, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in Management's Annual Report on Internal Control over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial
statement schedule, and on the Company's internal control over financial reporting based on our integrated audit. We conducted our
audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the
financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinions.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for
noncontrolling interests and the manner in which is accounts for convertible debt instruments that may be settled in cash upon
conversion (including partial cash settlement) in 2010.
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
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) 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 that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Fayetteville, AR
November 22, 2010
83
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Tyson Foods, Inc.
We have audited the accompanying consolidated balance sheet of Tyson Foods, Inc. as of October 3, 2009, and the related
consolidated statements of income, shareholders' equity, and cash flows for each of the two years in the period ended October 3, 2009.
Our audits also included the financial statement schedule for each of the two years ended October 3, 2009 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 the consolidated results of its operations and its cash flows for each of the two 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 for each of the two years in the period ended October 3, 2009, 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 described in Note 2 to the consolidated financial statements, the Company adopted guidance establishing accounting and reporting
standards for a noncontrolling interest in a subsidiary and for convertible debt instruments in 2010. As reflected in the consolidated
statements of shareholders’ equity, the Company changed its method of accounting for uncertainty in income taxes in 2008.
/s/ Ernst & Young LLP
Rogers, Arkansas
November 23, 2009, except for those matters
described in Note 2 “Change in Accounting
Principles” as it relates to the retrospective
application of accounting principles adopted in
2010, as to which the date is November 22, 2010
84
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 the Chief Executive Officer
(CEO) 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 the CEO and CFO, has concluded that, as of October 2, 2010, our disclosure controls and
procedures were effective.
Changes in Internal Control Over Financial Reporting
In the quarter ended October 2, 2010, 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 Rule 13a-
15(f) of the Securities Exchange Act of 1934. Our internal control over financial reporting was designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the United States of America. 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 2, 2010. 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 2, 2010.
The Company's independent registered public accounting firm, PricewaterhouseCoopers LLP, who has audited the fiscal 2010
financial statements included in this Form 10-K has also audited the Company's internal control over financial reporting. Their report
appears in Part II, Item 8.
ITEM 9B. OTHER INFORMATION
Not applicable.
85
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 4, 2011 (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 For Fiscal 2010” 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 “Report of the Compensation Committee” 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 2, 2010:
Equity Compensation Plan Information
(a)
Number of
Securities to be
issued upon
exercise of
outstanding
options
19,308,139
-
19,308,139
(b)
(c)
Weighted
average
exercise price
of outstanding
options
$12.71
-
$12.71
Number of Securities
remaining available for
future issuance under
equity compensation plans
(excluding Securities
reflected in column (a))
33,442,431
-
33,442,431
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
This table does not include 65,773 options, with a weighted-average exercise price of $10.56, 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 2, 2010, under the Stock Incentive Plan (18,455,244), the Employee
Stock Purchase Plan (7,332,331) and the Retirement Savings Plan (7,654,856)
86
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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as a part of this report:
Consolidated Statements of Income
for the three years ended October 2, 2010
Consolidated Balance Sheets at
October 2, 2010, and October 3, 2009
Consolidated Statements of Shareholders’ Equity
for the three years ended October 2, 2010
Consolidated Statements of Cash Flows
for the three years ended October 2, 2010
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
Financial Statement Schedule - Schedule II Valuation and Qualifying
Accounts for the three years ended October 2, 2010
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.
87
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
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).
4.8
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).
4.9
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).
88
10.2
10.3
Amendment, dated January 12, 2010, to the Credit Agreement dated March 9, 2009, among the Company, JPMorgan
Chase Bank, N.A., as the Administrative Agent, and certain other lenders party thereto (previously filed as Exhibit 10.5 to
the Company’s Quarterly Report on Form 10-Q for the period ended January 2, 2010, Commission File No. 001-14704,
and incorporated herein by reference).
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).
10.4 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).
10.5
10.6
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).
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).
10.7 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).
10.8
10.9
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).
Executive Employment Agreement, dated June 5, 2009, by and 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).
10.10 Employment Agreement, dated October 5, 2009, by and between the Company and Craig J. Hart (previously filed as
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission File
No. 001-14704, and incorporated herein by reference).
10.11
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).
10.12
First Amendment, dated October 3, 2010, to the Senior Advisor Agreement, dated July 30, 2004, by and between Don
Tyson and the Company.
10.13 Employment Agreement, dated December 16, 2009, by and between the Company and Donnie Smith (previously filed as
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 18, 2009, Commission File No. 001-14704,
and incorporated herein by reference).
10.14 Employment Agreement, dated December 16, 2009, by and between the Company and James V. Lochner (previously filed
as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 18, 2009, Commission File No. 001-14704,
and incorporated herein by reference).
10.15 Employment Agreement, dated August 10, 2009, by and between the Company and Donnie Smith (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).
10.16 Executive Employment Agreement, dated May 21, 2008, by and between the Company and David L. Van Bebber
(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).
89
10.17 Executive Employment Agreement, dated June 6, 2008, by and between the Company and Dennis Leatherby (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).
10.18 Executive Employment Agreement, dated December 1, 2008, by and between the Company and Jeffrey D. Webster
(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).
10.19 Employment Agreement, dated October 5, 2009, by and between the Company and Kenneth J. Kimbro (previously filed as
Exhibit 10.22 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission File
No. 001-14704, and incorporated herein by reference).
10.20 Employment Agreement, dated December 9, 2009, by and between the Company and Donnie King (previously filed as
Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended January 2, 2010, Commission File No.
001-14704, and incorporated herein by reference).
10.21 Employment Agreement, dated December 21, 2009, by and between the Company and Noel White (previously filed as
Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the period ended January 2, 2010, Commission File No.
001-14704, and incorporated herein by reference).
10.22 Agreement, dated as of October 3, 2010, between the Company and John Tyson.
10.23
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).
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).
10.25 Tyson Foods, Inc. Annual Incentive Compensation Plan for Senior Executives adopted February 4, 2005, and reapproved
February 5, 2010 (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).
10.26 Tyson Foods, Inc. Restricted Stock Bonus Plan, effective August 21, 1989, as amended and restated on April 15, 1994; and
Amendment to Restricted Stock Bonus Plan effective November 18, 1994 (previously filed as Exhibit 10(l) to the
Company's Annual Report on Form 10-K for the fiscal year ended October 1, 1994, Commission File No. 0-3400, and
incorporated herein by reference).
10.27 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).
10.28
First Amendment to the Tyson Foods, Inc. Employee Stock Purchase Plan, effective December 27, 2009 (previously filed
as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission
File No. 001-14704, and incorporated herein by reference).
10.29 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).
10.30
First Amendment to Executive Savings Plan of Tyson Foods, Inc. effective January 1, 2009 (previously filed as Exhibit
10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission File No. 001-
14704, and incorporated herein by reference).
90
10.31
Second Amendment to Executive Savings Plan of Tyson Foods, Inc. effective May 1, 2010.
10.32 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).
10.33 Third Amendment to the Tyson Foods, Inc. 2000 Stock Incentive Plan effective November 20, 2009 (previously filed as
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission File
No. 001-14704, and incorporated herein by reference).
10.34
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).
10.35 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).
10.36 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).
10.37 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).
10.38
10.39
10.40
First Amendment to the Retirement Savings Plan of Tyson Foods, Inc. effective January 1, 2008 (previously filed as
Exhibit 10.39 to the Company's Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission File
No. 001-14704, and incorporated herein by reference).
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).
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 (previously filed as Exhibit 10.41 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 3, 2009, 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 January 1, 2010.
91
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
Form of Stock Option Grant Agreement pursuant to which stock option awards are granted under the Tyson Foods, Inc.
2000 Stock Incentive Plan effective July 31, 2009 through February 3, 2010.
10.44
Form of Stock Option Grant Agreement pursuant to which stock option awards are granted under the Tyson Foods, Inc.
2000 Stock Incentive Plan effective February 4, 2010.
10.45
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 (previously filed as Exhibit 10.44 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 3, 2009, Commission File No. 001-14704, and
incorporated herein by reference).
12.1
Calculation of Ratio of Earnings to Fixed Charges
14.1
Code of Conduct of the Company
16.1
Letter of Ernst & Young LLP dated November 23, 2009 (previously filed as Exhibit 16.1 to the Company's Current Report
on Form 8-K/A filed November 23, 2009, Commission File No. 001-14704, and incorporated herein by reference).
21
Subsidiaries of the Company
23.1
Consent of PricewaterhouseCoopers, LLP
23.2
Consent of Ernst & Young, LLP
31.1
31.2
32.1
32.2
101
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.
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.
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.
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.
The following financial information from our Annual Report on Form 10-K for the year ended October 2, 2010, formatted
in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Income, (ii) Consolidated Balance
Sheets, (iii) Consolidated Statements of Shareholders’ Equity, (iv) Consolidated Statements of Cash Flows, (v) the Notes
to Consolidated Financial Statements, and (vi) Financial Statement Schedule.
92
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 22, 2010
93
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
November 22, 2010
/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/ 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
November 22, 2010
Chief Accounting Officer
Director
Director
November 22, 2010
November 22, 2010
Executive Vice President and Chief Financial Officer November 22, 2010
Director
November 22, 2010
President and Chief Executive Officer
November 22, 2010
Director
Director
Director
November 22, 2010
November 22, 2010
November 22, 2010
Chairman of the Board of Directors
November 22, 2010
/s/ Albert C. Zapanta
Albert C. Zapanta
Director
November 22, 2010
94
FINANCIAL STATEMENT SCHEDULE
TYSON FOODS, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended October 2, 2010
Allowance for Doubtful Accounts:
2010
2009
2008
Inventory Lower of Cost or Market Allowance:
2010
2009
2008
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other Accounts
(Deductions)
Balance at End
of Period
in millions
$33
12
8
$22
13
4
$0
22
5
$7
57
29
$0
0
0
$0
0
0
$(1)
(1)
(1)
$(27)
(48)
(20)
$32
33
12
$2
22
13
95