Tyson Foods 2000 Annual Report Download - page 28

MANAGEMENT’S DISCUSSION AND ANALYSIS TYSON FOODS, INC. 2000 ANNUAL REPORT Interest Rate and Foreign Currency Risks The Company hedges exposure to changes in interest rates on certain of its finan- cial instruments. Under the terms of various leveraged equip- ment loans, the Company enters into interest rate swap agreements to effectively lock in a fixed interest rate for these borrowings. The maturity dates of these leveraged equipment loans range from 2005 to 2008 with interest rates ranging from 4.7% to 6%.
The Company also periodically enters into foreign exchange
forward contracts and option contracts to hedge some of its foreign currency exposure. At September 30, 2000, the Company did not have any outstanding instruments or trans- actions that are sensitive to foreign currency exchange rates. In 1999, the Company used such contracts to hedge exposure to changes in foreign currency exchange rates, primarily the Mexican peso, associated with debt denominated in U.S. dollars held by Tyson de Mexico. At October 2, 1999, the
notional amount of these forward exchange contracts to sell Mexican pesos for U.S. dollars was $7 million due in 2000, with a weighted average strike price of $10.13 and a negative fair value of $1 million. Gains and losses on these contracts are recognized as an adjustment of the subsequent transaction when it occurs. Forward and option contracts generally have maturities or expirations not exceeding 12 months.
The following tables provide information about the
Company’s derivative financial instruments and other finan- cial instruments that are sensitive to changes in interest rates. The tables present the Company’s debt obligations, principal cash flows and related weighted average interest rates by expected maturity dates and fair values. For interest rate swaps, the tables present notional amounts, weighted average interest rates or strike rates by contractual maturity dates and fair values. Notional amounts are used to calculate the contractual cash flows to be exchanged under the contract.
dollars in millions
Fair value
2001 2002 2003 2004 2005 Thereafter Total 9/30/00
As of September 30, 2000 Liabilities Long-term debt, including current portion
Fixed rate $123 $ 31 $178 $29 $180 $613 $1,154 $1,104 Average interest rate 8.23% 7.84% 6.18% 7.09% 6.80% 6.78% 6.88% Variable rate – $276 – – – $ 50 $ 326 $ 326 Average interest rate – 6.78% – – – 5.64% 6.61%
Interest rate derivative financial
instruments related to debt
Interest rate swaps
Pay fixed $ 18 $ 20 $ 22 $21 $ 16 $ 13 $ 110 – Average pay rate 6.72% 6.73% 6.73% 6.71% 6.44% 6.60% 6.66%
Average receive rate– USD 6 month LIBOR
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