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the main course
Tyson Foods, Inc. 2003 Annual Report

Table of contents

  • Page 1
    the main course Ty s o n F o o d s , I n c . 2 0 0 3 A n n u a l R e p o r t

  • Page 2
    ...founded in 1935 with headquarters in Springdale, Arkansas, is the world's largest processor and marketer of chicken, beef and pork and the second largest food company in the Fortune 500. Tyson Foods produces a wide variety of brand name protein-based and prepared food products marketed in the United...

  • Page 3
    ... was named America's Most Admired Food Production Company by Fortune magazine. Reported diluted earnings per share (EPS) were $0.96 compared to $1.08 last year. Reported sales were $24.5 billion in 2003 compared to $23.4 billion in 2002. Our strong cash flows have allowed us to pay down debt by...

  • Page 4
    ... and private label products to manage the category for better overall growth. Account Teams Our brand is about giving our customers quality foods they can trust as well as providing the service and expertise to back them up. Our customers remain our first priority, and we strive to give them "value...

  • Page 5
    ... partners. We ranked number one in several areas that focus on our ability to meet our customers' needs. Throughout the year our company has received awards too numerous to list from customers for quality, service and innovation. Corporate Governance During the year we reduced the size of our Board...

  • Page 6
    ... we still have work to do. Our goals for the coming year: • Penetrate and execute the Tyson master brand initiative • Continue expanding our "one face to the customer" approach • Create more value-added products toward our goal of 35 to 50 percent in three to five years • Develop our people...

  • Page 7
    ... share, product categories, distribution channels, size and scale. No other company can do what we do. And we have the strategies in place to grow shareholder value and strengthen Tyson Foods' position as the world's premier branded protein company. It is very exciting for me as I see our vision...

  • Page 8
    ... increase efficiency, transferred former Food Brands companies acquired with IBP to Tyson information systems. Announced plans to close or consolidate poultry operations in Stilwell, Oklahoma, Jacksonville, Florida, Berlin, Maryland, and Pine Bluff, Arkansas. Acquired a bacon processing facility and...

  • Page 9
    ... to promote the Tyson brand. Rolled out account team initiative for Consumer Products and Food Service customers. Met second year goals of 50 percent debt to capital and synergies of $100 million. Tyson stock outperformed the S&P 500 Index over two years. Fortune magazine ranked Tyson Foods as...

  • Page 10
    From left: Elmer Vazquez, retail sales; Richard Irvin, prepared foods; Virawan Yawapongsiri, commodity and trading risk management; Jon Kathol, refrigerated processed meats; Wendy Davidson, food service sales. Facing page: Hamilton Okoroafor, production. 8 Ty s o n F o o d s , I n c .

  • Page 11
    ... Team members have had new opportunities for advancement and even new career paths they never thought possible. One of Tyson Foods' core values is "Invest in Our People." To help team members develop in their work, Tyson Foods offers training for professional and personal growth. A Little TLC In the...

  • Page 12
    10 Ty s o n F o o d s , I n c .

  • Page 13
    ... chicken products is now using Tyson value-added beef and pork. A deli customer is testing pizza with Tyson toppings and a pot roast sandwich. By doing business with the second largest food company in the Fortune 500, customers can create endless menu combinations and retail sales opportunities. Ty...

  • Page 14
    ... food service Tyson Foods Food Service was ranked #1 in the Cannondale Benchmarking Study, 2003 FoodservicElite Manufacturer Rankings. • Best sales force and broker teams • Best business partners • Clearest company strategy • Most innovative marketing • Best products or brand names...

  • Page 15
    ...both first and second place in new products receiving the most mentions from foodservice operators. Tyson Foods is the leading marketer of: • Value-added chicken, beef and pork to national fast food and full service restaurant chains • Value-added chicken, beef and pork to broadline foodservice...

  • Page 16
    consumer products The Tyson brand has a 95 percent recognition among consumers. It's even more visible with nearly 100 new retail products introduced in 2003 under the Tyson brand. 14 Ty s o n F o o d s , I n c .

  • Page 17
    ... in the Company's history and is flanked by strong regional brands such as Weaver chicken in the Northeast and Wright bacon in the Southwest. Want More? Tyson Foods took an already unbeatable portfolio of products that included fully-cooked dinner meats and roasted chicken, and added individually...

  • Page 18
    ... Tyson Foods International is marketing Tyson chicken, beef, pork and prepared foods across the globe in a two-tiered strategy of exports and in-country production. In the past two years Tyson International has developed a product-based sales training program and developed a team selling...

  • Page 19
    ... a new joint venture arrangement, Tyson Foods will have a value-added chicken facility in Canada that will begin operating in late 2004. Tyson's Mexican subsidiary, Tyson de Mexico, is the largest producer of value-added chicken for both retail and foodservice in Mexico. The Company's Canadian...

  • Page 20
    ... Bluffs, Iowa (from left), Sylvia Gonzalez of Emporia, Kansas and Randall Dickinson of Berryville, Arkansas are Tyson Heroes - team members who exemplify the Tyson spirit of community service, volunteerism and helping those in need. core values We are a company of people engaged in the production...

  • Page 21
    ... in the SOS Great American Bake Sale to end childhood hunger in America, and Tyson's FoodWise program promotes food safety to customers and consumers. Tyson also is a national sponsor of Watchdogs Across America, a nonprofit organization encouraging fathers to spend time in schools and serve as...

  • Page 22
    ... neighbor. Each year at the annual shareholders meeting, the Company recognizes a group of special people called Tyson Heroes. These are people who give of themselves - their time, their resources, their understanding - to make the world a better place. Their actions range from lending a hand to...

  • Page 23
    ... of Shareholders' Equity 34 Consolidated Statements of Cash Flows 35 Notes to Consolidated Financial Statements 62 Report of Independent Auditors 63 Report of Management 64 Eleven-Year Financial Summary 66 Corporate Information 67 Board of Directors 68 Corporate and Executive Officers Ty...

  • Page 24
    ... ongoing integration of Tyson and IBP, inc. (IBP) corporate functions. Additional decreases were due to favorable investment returns of approximately $18 million on Company owned life insurance, actuarial gains of $13 million related to changes in certain retiree medical benefit plans and decreased...

  • Page 25
    ...-primal meat cuts and case-ready products. This segment also represents the Company's live swine group and related allied product processing activities. The Pork segment markets its products to food retailers, distributors, wholesalers, restaurants, hotel chains and other food processors in domestic...

  • Page 26
    management's discussion and analysis TYSON FOODS, INC. 2003 ANNUAL REPORT Pork segment sales decreased $33 million or 1.3%, with a 2.9% increase in average sales prices and a 4.1% decrease in volume. Case-ready pork sales were $221 million and increased 52.3%, domestic fresh meat pork sales ...

  • Page 27
    management's discussion and analysis TYSON FOODS, INC. 2003 ANNUAL REPORT Cost of sales increased $12 billion or 123.1%, primarily due to the inclusion of IBP's cost of sales in fiscal 2002. As a percent of sales, cost of sales was 92.2% for 2002 compared to 91.5% for 2001. Selling, general and ...

  • Page 28
    ... and analysis TYSON FOODS, INC. 2003 ANNUAL REPORT Beef segment sales were $10.5 billion, including beef case-ready sales of $795 million and international beef sales of $1.4 billion. Beef segment operating income totaled $220 million. The Beef segment resulted from the acquisition of IBP in the...

  • Page 29
    ... and analysis TYSON FOODS, INC. 2003 ANNUAL REPORT progress that will require approximately $175 million to complete. Capital spending for fiscal 2004 is expected to be in the range of $450 to $500 million, which includes spending on plant automation as well as information systems technology...

  • Page 30
    ... The Company is subject to lawsuits, investigations and other claims related to wage and hour/labor, cattle procurement, securities, environmental, product and other matters, and is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of...

  • Page 31
    ... and availability of raw materials, such as live cattle, live swine or feed grain costs; (ii) changes in the availability and relative costs of labor and contract growers; (iii) operating efficiencies of facilities; (iv) market conditions for finished products, including the supply and pricing of...

  • Page 32
    management's discussion and analysis TYSON FOODS, INC. 2003 ANNUAL REPORT Commodities Risk The Company is a purchaser of certain commodities, such as corn, soybeans, livestock and natural gas in the course of normal operations. The Company uses commodity futures and options for hedging purposes to ...

  • Page 33
    consolidated statements of income TYSON FOODS, INC. 2003 ANNUAL REPORT in millions, except per share data Three years ended September 27, 2003 2003 2002 2001 Sales Cost of Sales Operating Expenses: Selling, general and administrative Other charges Operating Income Other Expense (Income): ...

  • Page 34
    ... accounts payable Other current liabilities Total Current Liabilities Long-Term Debt Deferred Income Taxes Other Liabilities Shareholders' Equity: Common stock ($0.10 par value): Class A-authorized 900 million shares: Issued 267 million shares in 2003 and 2002 Class B-authorized 900 million shares...

  • Page 35
    ... statements of shareholders' equity TYSON FOODS, INC. 2003 ANNUAL REPORT Three years ended September 27, 2003, in millions Common Stock Class A Class B Shares Amount Shares Amount Capital In Excess Of Par Value Accumulated Unamortized Other Deferred CompreTreasury Stock Retained Compenhensive...

  • Page 36
    ... accounts payable Net change in other current assets and liabilities Cash Provided by Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Proceeds from sale of assets Proceeds from sale of subsidiary Net cash paid for IBP acquisition Acquisitions...

  • Page 37
    ... in 1935 with world headquarters in Springdale, Arkansas, is the world's largest processor and marketer of chicken, beef and pork and the second largest food company in the Fortune 500. Tyson Foods produces a wide variety of brand name protein-based and prepared food products marketed in the United...

  • Page 38
    ... Insurance: Insurance expense for casualty claims and employee-related health care benefits are estimated using historical experience and actuarial estimates. Capital Stock: Holders of Class B common stock (Class B stock) may convert such stock into Class A common stock (Class A stock) on a share...

  • Page 39
    ... statements TYSON FOODS, INC. 2003 ANNUAL REPORT determined based on the fair value method of accounting for the Company's stock option plans, the tax-effected impact would be as follows: in millions, except per share data 2003 2002 2001 Net income as reported Stock-based employee compensation...

  • Page 40
    ... TYSON FOODS, INC. 2003 ANNUAL REPORT Minority Interest: The results of operations of IBP for the nine weeks ended September 29, 2001, are included in the Company's consolidated results of operations. Minority interest in fiscal 2001 primarily consisted of the 49.9% of IBP that was acquired...

  • Page 41
    ... consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT a $74 million purchase option to acquire assets leased from a third party which the Company had subleased to Choctaw. Pro forma operating results reflecting the acquisition of Choctaw would not be materially different from the...

  • Page 42
    ... under grower contracts and $4 million of other related costs had been paid. No material adjustments to the total accrual are anticipated at this time. In August 2002, the Company made the decision to capitalize on the strong recognition of the Tyson brand by expanding the Tyson brand to beef and...

  • Page 43
    ... hedge cash flows related to commodities beyond 12 months. Fair Value Hedges: The Company designates certain futures contracts as fair value hedges of firm commitments to purchase livestock for slaughter and natural gas for the operation of its plants. From time to time, the Company also enters into...

  • Page 44
    ... is not considered probable. The Company enters into various future purchase commitments for finished live cattle and hogs at a market-derived price. These future purchase commitments include risk sharing and procurement arrangements with certain producers that help secure a supply of livestock. The...

  • Page 45
    notes to consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT 10 note 10: long-term debt The Company has unsecured revolving credit facilities totaling $1 billion that support the Company's commercial paper program, letters of credit and other short-term funding needs. These ...

  • Page 46
    ... 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. Financial results of the live swine operations, as well as interest expense related to the IBP acquisition are included in the Tyson...

  • Page 47
    notes to consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT Condensed Consolidating Statement of Income for the year ended September 27, 2003 in millions Tyson IBP Adjustments Consolidated Sales Cost of Sales Operating Expenses: Selling, general and administrative Other ...

  • Page 48
    notes to consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT Condensed Consolidating Statement of Income for the year ended September 29, 2001 in millions Tyson IBP Adjustments Consolidated Sales Cost of Sales $ 7,520 6,764 756 510 246 135 111 40 1 $ 70 $ 3,048 2,901 147 ...

  • Page 49
    notes to consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT Condensed Consolidating Balance Sheet as of September 28, 2002 in millions Tyson IBP Adjustments Consolidated Assets Current Assets: Cash and cash equivalents Accounts receivable, net Inventories Other current ...

  • Page 50
    ... statements TYSON FOODS, INC. 2003 ANNUAL REPORT Condensed Consolidating Statement of Cash Flows for year ended September 27, 2003 in millions Tyson IBP Adjustments Consolidated Cash Flows From Operating Activities: Net income Depreciation and amortization Plant closing related charges...

  • Page 51
    ... TYSON FOODS, INC. 2003 ANNUAL REPORT Condensed Consolidating Statement of Cash Flows for year ended September 28, 2002 in millions Tyson IBP Adjustments Consolidated Cash Flows From Operating Activities: Net income Depreciation and amortization Write-down of intangible asset Gain on sale...

  • Page 52
    ... taxes Other Net changes in working capital Cash Provided by Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Proceeds from sale of assets Net cash paid for IBP acquisition Purchase of Tyson de Mexico minority interest Net change in other assets...

  • Page 53
    ... the Company cancelled approximately four million option shares and granted approximately one million restricted shares of Class A stock. The restriction expires over periods through December 1, 2003. At Outstanding, September 30, 2000 Exercised Canceled Granted Options assumed with IBP acquisition...

  • Page 54
    notes to consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT The following table summarizes information about stock options outstanding at September 27, 2003: Options outstanding Range of exercise prices Shares outstanding Weighted average remaining contractual life (in years) ...

  • Page 55
    ...TYSON FOODS, INC. 2003 ANNUAL REPORT The reasons for the difference between the effective income tax rate and the statutory U.S. federal income tax rate are as follows: 2003...for 2003 and 2002 and foreign sales corporation benefit for 2001. The Company follows the liability method in accounting for ...

  • Page 56
    ... sub-primal cuts and case-ready products. This segment also represents the Company's live swine group and related allied product processing activities. The Pork segment markets its products to food retailers, distributors, wholesalers, restaurants, hotel chains and other food processors in domestic...

  • Page 57
    notes to consolidated financial statements TYSON FOODS, INC. 2003 ANNUAL REPORT in millions Chicken Beef Pork Prepared Foods Other Consolidated Fiscal year ended September 27, 2003 Sales Operating income Other expense Income before income taxes and minority interest Depreciation Total assets...

  • Page 58
    ..., primarily Mexico and Canada, at fiscal years ended 2003, 2002 and 2001, respectively. The Company sells certain of its products in foreign markets, primarily Canada, China, European Union, Japan, Mexico, Puerto Rico, Russia, Taiwan and South Korea. The Company's export sales for 2003, 2002...

  • Page 59
    ...former employees of the Company filed the case of M.H. Fox, et al. v. Tyson Foods, Inc. (Fox v. Tyson) in the U.S. District Court for the Northern District of Alabama claiming the Company violated requirements of the FLSA. The suit alleges the Company failed to pay employees for all hours worked and...

  • Page 60
    ..., et al. vs. IBP, Lasso Acquisition Corporation and Tyson Foods, Inc. (Chavez) was filed in the U.S. District Court for the Eastern District of Washington against IBP, inc. (IBP; now known as Tyson Fresh Meats, Inc.) and the Company by several employees of IBP's Pasco, Washington, beef slaughter and...

  • Page 61
    ...TYSON FOODS, INC. 2003 ANNUAL REPORT On November 21, 2002, a lawsuit entitled Emily D. Jordan, et al. v. IBP, Inc. and Tyson Foods, Inc., was filed in the U.S. District Court for the Middle District of Tennessee. Ten current and former hourly employees of IBP's case-ready facility in Goodlettsville...

  • Page 62
    ... statements TYSON FOODS, INC. 2003 ANNUAL REPORT Securities Matters Between January and March 2001, a number of lawsuits were filed by certain stockholders in the U.S. District Court for the District of South Dakota and one suit filed in the U.S. District Court for the Southern District of New York...

  • Page 63
    ... al. vs. IBP, inc. in the U.S. District Court, Middle District of Alabama, seeking certification of a class of all cattle producers. The complaint alleged that IBP used its market power and alleged "captive supply" agreements to reduce the prices paid by IBP on purchases of cattle in the cash market...

  • Page 64
    ... accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Little Rock, Arkansas November 19, 2003 62 Ty...

  • Page 65
    ... system of internal accounting controls is continually reviewed and modified in response to changing business conditions and operations and to recommendations made by the independent auditors and the internal auditors. The Company has a code of conduct and an experienced full-time compliance officer...

  • Page 66
    ... IBP acquisition, loss on sale of swine assets, and product recall losses. 4. The results for 2000 include a $24 million pretax charge for bad debt writeoff related to the January 2000 bankruptcy filing of AmeriServe Food Distribution, Inc. and a $9 million pretax charge related to Tyson de Mexico...

  • Page 67
    eleven-year financial summary TYSON FOODS, INC. 2003 ANNUAL REPORT 1999 1998 1997 1996 1995 1994 1993 $7,621 6,470 1,151 487 124 129 $ 230 229 231 $ 1.00 1.00 0.115 0.104 $ 291 $ 7,414 6,260 1,154 204 139 46 $ 25 231 228 $ 0.11 0.11 0.100 0.090 $ 276 $6,356 5,318 1,038 400 110 144 $ 186 ...

  • Page 68
    ... President of Investor Relations Tyson Foods, Inc. P.O. Box 2020 Springdale, Arkansas 72765-2020 Telephone (479) 290-4826 Fax (479) 757-6577 E-mail: [email protected] If your Tyson stock is registered in your own name(s), send change of address information to the Company's transfer agent, EquiServe...

  • Page 69
    boa boar r d of dir di r e ct ctors ors TYSON FOODS, INC. 2003 ANNUAL REPORT 1 2 3 4 5 6 7 8 9 1. Do Don n Tys Tyson on, , 73, r reti etir red as Senior Ch Chair irman man of the the Boar oard d in Octob Octobe er 2001. 2001. He ser served ...

  • Page 70
    ... executive officers TYSON FOODS, INC. 2003 ANNUAL REPORT Mike Baker Group Vice President, Technical Services Les R. Baledge Executive Vice President and General Counsel Jean Mrha Beach Senior Vice President, Commodity and Trading Risk Management Richard L. Bond President and Chief Operating Officer...

  • Page 71
    ... Tyson currently pays dividends four times a year on March 15, June 15, September 15 and December 15. The dividend is paid to everyone who holds shares on the record date. Independent Auditors Ernst & Young LLP 1701 Centerview Drive Suite 301 Little Rock, AR 72211 Telephone (501) 370-3000 Transfer...

  • Page 72
    Ty s o n F o o d s , I n c . 2210 West Oaklawn Drive Springdale, Arkansas 72762-6999 w w w. t y s o n f o o d s i n c . c o m