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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 28, 2002

        OR

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

For the transition period from _________to________

0-3400
(Commission File Number)

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

Delaware

71-0225165

(State or other jurisdiction
of incorporation or organization)

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

2210 West Oaklawn Drive, Springdale, Arkansas

72762-6999

(Address of principal executive offices)

(Zip Code)
   

(479) 290-4000

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.             Yes [X]      No [  ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of 
December 28, 2002.

Class 

Outstanding Shares

Class A Common Stock, $0.10 Par Value

250,006,502

Class B Common Stock, $0.10 Par Value

101,636,348

 

TYSON FOODS, INC.

INDEX

     
 

PART I. FINANCIAL INFORMATION

  
     

Item 1.  Financial Statements

PAGE
     
 

Consolidated Condensed Statements of Income
for the Three Months Ended
December 28, 2002 and December 29, 2001



3
     
 

Consolidated Condensed Balance Sheets
December 28, 2002 and September 28, 2002


4
     
 

Consolidated Condensed Statements of Cash Flows
for the Three Months Ended
December 28, 2002 and December 29, 2001



5
     
 

Notes to Consolidated Condensed Financial Statements

6-22
     

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

23-25
     

Item 3.  Quantitative and Qualitative Disclosure About Market Risks

26
     

Item 4.  Controls and Procedures

26
     
 

PART II. OTHER INFORMATION

  
     

Item 1.  Legal Proceedings

27
     

Item 2.  Changes in Securities and Use of Proceeds

27
     

Item 3.  Defaults Upon Senior Securities

27
     

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

27
     

Item 5.  Other Information

27
     

Item 6.  Exhibits and Reports on Form 8-K

27
     

EXHIBIT INDEX

28
     

SIGNATURES

29

 

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

Three Months Ended

December 28,
2002

December 29,
2001

Sales

$

5,802

$

5,865

Cost of Sales

5,402

5,355

400

510

Selling, General and Administrative

208

237

Other Charges

47

-

Operating Income

145

273

Other Expense:

    Interest

79

79

    Other

5

-

84

79

Income Before Income Taxes

61

194

Provision for Income Taxes

22

67

Net Income

$

39

$

127

Weighted Average Shares Outstanding:

Basic

347

348

Diluted

354

355

Earnings Per Share:

Basic

$

0.11

$

0.36

Diluted

$

0.11

$

0.36

Cash Dividends Per Share:

Class A

$

0.040

$

0.040

Class B

$

0.036

$

0.036

See accompanying notes.

 

3

TYSON FOODS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions, except per share data)

 

(Unaudited)

    

December 28,
2002

September 28,
2002

Assets

Current Assets:

    Cash and cash equivalents

$

76 

$

51 

    Accounts receivable, net

1,257 

1,101 

    Inventories

1,876 

1,885 

    Other current assets

137 

107 

Total Current Assets

3,346 

3,144 

Net Property, Plant and Equipment

4,020 

4,038 

Goodwill

2,633 

2,633 

Other Assets

544 

557 

Total Assets

$

10,543 

$

10,372 

Liabilities and Shareholders' Equity

Current Liabilities:

    Current debt

$

276 

$

254 

    Trade accounts payable

806 

755 

    Other current liabilities

1,100 

1,084 

Total Current Liabilities

2,182 

2,093 

Long-Term Debt

3,797 

3,733 

Deferred Income Taxes

641 

643 

Other Liabilities

246 

241 

Shareholders' Equity:

    Common stock ($0.10 par value):

        Class A-authorized 900 million shares:
          issued 267 million shares at December 28, 2002
          and September 28, 2002

27 

27 

        Class B-authorized 900 million shares:
          issued 102 million shares at December 28, 2002
          and September 28, 2002

10 

10 

    Capital in excess of par value

1,878 

1,879 

    Retained earnings

2,123 

2,097 

    Accumulated other comprehensive loss

(48)

(49)

3,990 

3,964 

    Less treasury stock, at cost-
      18 million shares at December 28, 2002
      and 16 million shares at September 28, 2002

279 

265 

    Less unamortized deferred compensation

34 

37 

Total Shareholders' Equity

3,677 

3,662 

Total Liabilities and Shareholders' Equity

$

10,543 

$

10,372 

See accompanying notes.

 

4

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

Three Months Ended

December 28,
2002

December 29,
2001

Cash Flows From Operating Activities:

    Net income

$

39 

$

127 

    Depreciation and amortization

116 

117 

    Plant closing-related charges

45 

- 

    Deferred income taxes and other

(31)

60 

    Net changes in working capital

(124)

203 

Cash Provided by Operating Activities

45 

507 

Cash Flows From Investing Activities:

    Additions to property, plant and equipment

(100)

(108)

    Proceeds from sale of assets

7 

- 

    Net change in investment in commercial paper

- 

94 

    Net change in other assets and liabilities

11 

(23)

Cash Used for Investing Activities

(82)

(37)

Cash Flows From Financing Activities:

    Net change in debt

86 

(428)

    Purchase of treasury shares

(15)

(6)

    Dividends and other

(15)

(13)

Cash Provided by (Used for) Financing Activities

56 

(447)

Effect of Exchange Rate Change on Cash

6 

(1)

Increase in Cash and Cash Equivalents

25 

22 

Cash and Cash Equivalents at Beginning of Period

51 

70 

Cash and Cash Equivalents at End of Period

$

76 

$

$

92 

See accompanying notes.

 

5

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

 

Note 1:   ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated condensed financial statements have been prepared by Tyson Foods, Inc. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. Although the management of the Company believes that the disclosures are adequate to make the information presented not misleading, these consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report for the fiscal year ended September 28, 2002. The preparation of consolidated condensed financial statements requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Management believes the accompanying consolidated condensed financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position as of December 28, 2002 and September 28, 2002, and the results of operations and cash flows for the three months ended December 28, 2002 and December 29, 2001. The results of operations and cash flows for the three months ended December 28, 2002 and December 29, 2001 are not necessarily indicative of the results to be expected for the full year.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation." Although it does not require use of fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of Statement 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS 148's amendment of the transition and annual disclosure requirements are effective for fiscal years ending after December 15, 2002. The amendment of disclosure requireme nts of Opinion No. 28 are effective for interim periods beginning after December 15, 2002. The Company will adopt this standard for its second quarter of fiscal year 2003. Unless the company elects to adopt the fair value recognition provisions of SFAS 123, adoption of SAS 148 will only require expanded disclosure to include the effect of stock-based compensation in interim reporting.

RECLASSIFICATIONS

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

 

6

Note 2: OTHER CHARGES

In December 2002, the Company announced its intentions to close two poultry operations as part of its on-going plant rationalization efforts. Included in Other Charges on the consolidated condensed statement of income is an accrual of $47 million, reflecting estimated costs associated with this decision.

Note 3:   INVENTORIES

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

 

December 28,
2002

  

September 28,
2002

Processed products

$

1,067

  

$

1,112

Livestock

525

  

505

Supplies and other

284

  

268

Total inventory

$

1,876

  

$

1,885

Note 4:   PROPERTY, PLANT AND EQUIPMENT

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

 

December 28,
2002

  

September 28,
2002

Land

$

112

  

$

111

Buildings and leasehold improvements

2,187

  

2,154

Machinery and equipment

3,552

  

3,419

Land improvements and other

187

  

185

Buildings and equipment under construction

330

  

414
 

6,368

  

6,283

Less accumulated depreciation

2,348

  

2,245

Net property, plant and equipment

$

4,020

  

$

4,038

Note 5:   OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):

 

December 28,
2002

  

September 28,
2002

Accrued salaries, wages and benefits

$

266

  

$

308

Self insurance reserves

228

  

225

Income taxes payable

234

  

202

Property and other taxes

69

  

52

Other

303

  

297

Total other current liabilities

$

1,100

  

$

1,084

 

7

Note 6:   LONG-TERM DEBT

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

Maturity

December 28,
2002

September 28,
2002

Commercial paper (2.00% effective rate at 12/28/02 and 2.17% effective rate at 9/28/02)

2002

$

179

$

24

Revolver

2003, 2005,
2006

-

-

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

2002-2028

3,509

3,607

Accounts Receivable Securitization Debt (2.20% effective rate at 12/28/02 and 2.35% effective rate at 9/28/02)

2002

135

75

Institutional notes
    (10.84% effective rate at 12/28/02 and 9/28/02)

2002-2006

40

50

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

2005-2008

119

124

Other

Various

91

107

Total debt

4,073

3,987

Less current debt

276

254

Total long-term debt

$

3,797

$

3,733

The revolving credit agreements, senior notes, notes and accounts receivable securitization debt contain various covenants, the more restrictive of which contain a maximum allowed leverage ratio and a minimum required interest coverage ratio. The Company is in compliance with these covenants at December 28, 2002.

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

The Company guarantees debt of outside third parties, which involve certain bank term loans, letters of credit, and grower loans, all of which are substantially collateralized by the underlying assets.  Terms of the underlying debt range from one to 12 years and the maximum potential amount of future payments as of December 28, 2002, was approximately $90 million.  The Company also maintains operating leases for various types of equipment, some of which contain residual value guarantees for the market value for assets at the end of the term of the lease.  The terms of the lease maturities range from one to six years.  The maximum potential amount of the residual value guarantee is approximately $96 million, of which, approximately $24 million would be recoverable through various recourse provisions and and undeterminable recoverable amount based on the fair marked value of the underlying leased assets.  The likelihood of payments under these guarantees is not considered to be probable and accordingly, no liabilities have been recorded.

The Company has fully and unconditionally guaranteed $542 million of senior notes issued by IBP, a wholly owned subsidiary of the Company.

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

 

8

Condensed Consolidating Statement of Income (unaudited) for the three months ended December 28, 2002

   
 

(in millions)

Tyson

IBP

Adjustments

Consolidated

Sales

$

1,977

$

3,840

$

(15)

$

5,802

Cost of Sales

1,759

3,658

(15)

5,402

218

182

400

Selling, General and Administrative

128

80

208

Other Charges

47

-

47

Operating Income

43

102

145

Interest and Other Expense

64

20

84

Income Before Income Taxes

(21)

82

61

Provision for Income Taxes

(8)

30

22

Net Income

$

(13)

$

52

$

- 

$

39

Condensed Consolidating Statement of Income (unaudited) for the three months ended December 29, 2001

   
 

(in millions)

Tyson

IBP

Adjustments

Consolidated

Sales

$

1,892

$

3,981

$

(8)

$

5,865

Cost of Sales

1,621

3,742

(8)

5,355

271

239

510

Selling, General and Administrative

131

106

237

Operating Income

140

133

273

Interest and Other Expense

58

21

79

Income Before Income Taxes

82

112

194

Provision for Income Taxes

25

42

67

Net Income

$

57

$

70

$

- 

$

127

 

 

 

 

 

 

9

Condensed Consolidating Balance Sheet (unaudited) as of December 28, 2002

  
   
 

(in millions)

Tyson

IBP

Adjustments

Consolidated

Assets

Current Assets:

    Cash and cash equivalents

$

59

$

17

$

- 

$

76

    Accounts receivable, net

953

690

(386)

1,257

    Inventories

1,056

820

1,876

    Other current assets

36

101

137

Total Current Assets

2,104

1,628

(386)

3,346

Net Property, Plant and Equipment

2,143

1,877

4,020

Goodwill

941

1,692

2,633

Other Assets

3,110

339

(2,905)

544

Total Assets

$

8,298

$

5,536

$

(3,291)

$

10,543

Liabilities and Shareholders' Equity

Current Liabilities:

    Current debt

$

275

$

1

$

- 

$

276

    Trade accounts payable

349

457

806

    Other current liabilities

661

2,517

(2,078)

1,100

Total Current Liabilities

1,285

2,975

(2,078)

2,182

Long-Term Debt

3,225

572

3,797

Deferred Income Taxes

369

272

641

Other Liabilities

66

180

246

Shareholders' Equity

3,353

1,537

(1,213)

3,677

Total Liabilities and Shareholders' Equity

$

8,298

$

5,536

$

(3,291)

$

10,543

 

 

 

 

 

 

 

10

Condensed Consolidating Balance Sheet (unaudited) as of September 28, 2002

  
   
 

(in millions)

Tyson

IBP

Adjustments

Consolidated

Assets

Current Assets:

    Cash and cash equivalents

$

42

$

9

$

- 

$

51

    Accounts receivable, net

896

610

(405)

1,101

    Inventories

1,078

807

1,885

    Other current assets

28

79

107

Total Current Assets

2,044

1,505

(405)

3,144

Net Property, Plant and Equipment

2,138

1,900

4,038

Goodwill

941

1,692

2,633

Other Assets

3,118

345

(2,906)

557

Total Assets

$

8,241

$

5,442

$

(3,311)

$

10,372

Liabilities and Shareholders' Equity

Current Liabilities:

    Current debt

$

253

$

1

$

- 

$

254

    Trade accounts payable

352

403

755

    Other current liabilities

635

2,546

(2,097)

1,084

Total Current Liabilities

1,240

2,950

(2,097)

2,093

Long-Term Debt

3,160

573

3,733

Deferred Income Taxes

378

265

643

Other Liabilities

70

171

241

Shareholders' Equity

3,393

1,483

(1,214)

3,662