TYSON FOODS INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 29, 2003

( ) 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 29, 2003

Class	Outstanding Shares
Class A Common Stock, $0.10 Par Value	249,127,440
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 and Six Months Ended March 29, 2003 and March 30, 2002	3

	Consolidated Condensed Balance Sheets March 29, 2003 and September 28, 2002	4

	Consolidated Condensed Statements of Cash Flows for the Three Months and Six Months Ended March 29, 2003 and March 30, 2002	5

	Notes to Consolidated Condensed Financial Statements	6-25

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		26-30

Item 3. Quantitative and Qualitative Disclosure About Market Risks		31

Item 4. Controls and Procedures		31

	PART II. OTHER INFORMATION

Item 1. Legal Proceedings		32-34

Item 2. Changes in Securities and Use of Proceeds		34

Item 3. Defaults Upon Senior Securities		34

Item 4. Submission of Matters to a Vote of Security Holders		34

Item 5. Other Information		35

Item 6. Exhibits and Reports on Form 8-K		35

EXHIBIT INDEX		35

SIGNATURES		36

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

	Three Months Ended				Six Months Ended

	March 29, 2003		March 30, 2002		March 29, 2003		March 30, 2002

Sales	$	5,845	$	5,839	$	11,647	$	11,704
Cost of Sales	5,465		5,442		10,867		10,797

	380		397		780		907
Selling, General and Administrative	197		218		405		455
Other Charges	-		-		47		-

Operating Income	183		179		328		452
Other Expense:
Interest	71		76		150		155
Other	1		-		6		-

	72		76		156		155

Income before Income Taxes	111		103		172		297
Provision for Income Taxes	39		38		61		105

Net Income	$	72	$	65	$	111	$	192

Weighted Average Shares Outstanding:
Basic	346		348		346		348
Diluted	352		355		353		355
Earnings Per Share:
Basic	$	0.21	$	0.19	$	0.32	$	0.55
Diluted	$	0.20	$	0.18	$	0.31	$	0.54

Cash Dividends Per Share:
Class A	$	0.040	$	0.040	$	0.080	$	0.080
Class B	$	0.036	$	0.036	$	0.072	$	0.072

See accompanying notes.

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

	(Unaudited)

	March 29, 2003		September 28, 2002

Assets
Current Assets:
Cash and cash equivalents	$	71	$	51
Accounts receivable, net	1,178		1,101
Inventories	1,866		1,885
Other current assets	111		107

Total Current Assets	3,226		3,144
Net Property, Plant and Equipment	3,993		4,038
Goodwill	2,634		2,633
Intangible Assets	186		190
Other Assets	324		367

Total Assets	$	10,363	$	10,372

Liabilities and Shareholders' Equity
Current Liabilities:
Current debt	$	137	$	254
Trade accounts payable	749		755
Other current liabilities	1,084		1,084

Total Current Liabilities	1,970		2,093
Long-Term Debt	3,769		3,733
Deferred Income Taxes	646		643
Other Liabilities	240		241
Shareholders' Equity:
Common stock ($0.10 par value):
Class A-authorized 900 million shares: issued 267 million shares at March 29, 2003 and September 28, 2002	27		27
Class B-authorized 900 million shares: issued 102 million shares at March 29, 2003 and September 28, 2002	10		10
Capital in excess of par value	1,876		1,879
Retained earnings	2,181		2,097
Accumulated other comprehensive loss	(36)		(49)

	4,058		3,964
Less treasury stock, at cost- 18 million shares at March 29, 2003 and 16 million shares at September 28, 2002	287		265
Less unamortized deferred compensation	33		37

Total Shareholders' Equity	3,738		3,662

Total Liabilities and Shareholders' Equity	$	10,363	$	10,372

See accompanying notes.

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

	Three Months Ended					Six Months Ended

	March 29,			March 30,		March 29,		March 30,
	2003			2002		2003		2002

Cash Flows From Operating Activities:
Net income	$		72	$	65	$	111	$		192
Depreciation and amortization	112			115		228		232
Plant closing-related charges	(23)			-		22		-
Deferred income taxes and other	31			(2)		-		58
Net changes in working capital	53			4		(71)		207

Cash Provided by Operating Activities	245			182		290		689

Cash Flows From Investing Activities:
Additions to property, plant and equipment	(82)			(132)		(182)		(240)
Proceeds from sale of assets	4			2		11		2
Net change in investment in commercial paper	-			-		-		94
Net changes in other assets and liabilities	26			(30)		37		(53)

Cash Used for Investing Activities	(52)			(160)		(134)		(197)

Cash Flows From Financing Activities:
Net change in debt	(167)			(47)		(81)		(475)
Purchases of treasury shares	(14)			(4)		(29)		(10)
Dividends and other	(14)			(16)		(29)		(29)

Cash Used for Financing Activities	(195)			(67)		(139)		(514)

Effect of Exchange Rate Change on Cash	(3)			3		3		2

Increase (Decrease) in Cash and Cash Equivalents	(5)			(42)		20		(20)

Cash and Cash Equivalents at Beginning of Period	76			92		51		70

Cash and Cash Equivalents at End of Period	$	71		$	50	$	71	$	50

See accompanying notes.

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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 March 29, 2003, and September 28, 2002, and the results of operations and cash flows for the three months and six months ended March 29, 2003, and March 30, 2002. The results of operations and cash flows for the three months and six months ended March 29, 2003, and March 30, 2002 are not necessarily indicative of the results to be expected for the full year.

STOCK OPTIONS

On December 29, 2002, the Company adopted Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). SFAS 148, which amended FASB Statement No. 123, "Accounting for Stock-Based Compensation," does not require use of the fair value method of accounting for stock-based employee compensation. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock option plans. Accordingly, no compensation expense was recognized for its stock option plans. Had compensation cost for the employee stock option plans been determined based on the fair value method of accounting for the Company's stock option plans, the tax-effected impact would be as follows:

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	Three Months Ended				Six Months Ended
	March 29,		March 30,		March 29,		March 30,
	2003		2002		2003		2002

Net Income
As reported	$	72	$	65	$	111	$	192
Pro forma	71		65		109		191
Earnings per share
As reported
Basic	0.21		0.19		0.32		0.55
Diluted	0.20		0.18		0.31		0.54
Pro forma
Basic	0.20		0.19		0.31		0.55
Diluted	0.20		0.18		0.31		0.54

Pro forma net income reflects only options granted after fiscal 1995. Additionally, the pro forma disclosures are not likely to be representative of the effects on net income for the full year or future years.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" (the Interpretation). The Interpretation requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. The interpretation is immediately effective for variable interest entities created after January 31, 2003, and effective in the fourth quarter of fiscal 2003 for those created prior to February 1, 2003. The Company believes the adoption of the Interpretation will not have a material impact on its financial position or results of operations.

RECLASSIFICATIONS

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

Note 2: OTHER CHARGES

In December 2002, the Company began the closing of two poultry operations as part of its ongoing plant rationalization efforts. The closed poultry operations were located in Stilwell, Oklahoma and Jacksonville, Florida. The Stilwell poultry processing facility employed approximately 400 people and produced deboned leg meat targeted primarily to international markets. The Jacksonville poultry operation employed approximately 550 people and included a hatchery, a feed mill, live production and a processing facility. Both the Stilwell and Jacksonville operations ceased operating in January 2003, however miscellaneous closing costs and resolution of the Company's obligations under grower contracts are continuing. In the first quarter of fiscal 2003, the Company recorded $47 million of costs related to the closing of the plants which included estimated impairment charges for assets to be disposed of and estimated liabilities for the resolution of the Company's obligations under grower contracts, employee terminations benefits and other related costs associated with the closing of the plants. The costs are included in Other Charges on the consolidated condensed statements of income.

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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. Livestock includes live cattle, live chicken and live swine. Cost includes purchased raw materials, live costs, growout costs, labor, and manufacturing and production overhead which are related to the purchase and production of inventories. Live chicken consists of broilers and breeders. Breeders are stated at cost less amortization. The costs associated with breeders, including breeder chicks, feed, and medicine, are accumulated up to the production stage and amortized over the life of the flock using a standard unit of production. Total inventory consists of the following (in millions):

	March 29, 2003		September 28, 2002

Processed products	$	1,069	$	1,112
Livestock	515		505
Supplies and other	282		268

Total inventory	$	1,866	$	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):

	March 29, 2003		September 28, 2002

Land	$	112	$	111
Buildings and leasehold improvements	2,211		2,154
Machinery and equipment	3,624		3,419
Land improvements and other	181		185
Buildings and equipment under construction	305		414

	6,433		6,283
Less accumulated depreciation	2,440		2,245

Net property, plant and equipment	$	3,993	$	4,038

Note 5: OTHER CURRENT LIABILITIES

Other current liabilities are as follows (in millions):

	March 29, 2003		September 28, 2002

Accrued salaries, wages and benefits	$	250	$	308
Self insurance reserves	229		225
Income taxes payable	250		202
Property and other taxes	55		52
Other	300		297

Total other current liabilities	$	1,084	$	1,084

Note 6: LONG-TERM DEBT

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

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	Maturity	March 29, 2003		September 28, 2002

Commercial paper (1.66% effective rate at 3/29/03 and 2.17% effective rate at 9/28/02)	2003	$	133	$	24
Revolving Credit Facilities	2003, 2005, 2006	-		-
Senior notes and Notes (rates ranging from 6% to 8.25%)	2004-2028	3,360		3,607
Accounts Receivable Securitization Debt (2.09% effective rate at 3/29/03 and 2.35% effective rate at 9/28/02)	2003	180		75
Institutional notes (10.84% effective rate at 3/29/03 and 9/28/02)	2003-2006	40		50
Leveraged equipment loans (rates ranging from 4.7% to 6.0%)	2005-2008	115		124
Other	Various	78		107

Total debt		3,906

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)