Tyson Foods 2004 Annual Report Download - page 25

23
MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)
In September 2003, the Company purchased Choctaw Maid Farms,
Inc. (Choctaw), an integrated poultry processor. Since 1992, Tyson had
been purchasing all of Choctaw’s production under a “cost plus”
supply agreement, which was scheduled to expire in 2007. The
Company had previously negotiated a purchase option with Choctaw’s
owners, which initially became exercisable in 2002. The Company
decided to exercise its purchase option rather than continue under
the “cost plus” arrangement of the supply agreement. The acquisition
was recorded as a purchase in accordance with Statement of Financial
Accounting Standards No. 141, “Business Combinations” (SFAS No. 141).
Accordingly, the assets and liabilities were adjusted for fair values
with the remainder of the purchase price, $18 million, recorded as
goodwill. The purchase price consisted of $1 million cash to exercise
the purchase option in Tyson’s supply agreement with Choctaw and
the settlement of $85 million owed to Tyson by Choctaw. In addi-
tion, the Company assumed approximately $4 million of Choctaw’s
debt to a third party. In June 2003, the Company exercised 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 Company’s actual results of operations.
In May 2002, the Company acquired the assets of Millard Processing
Services, a bacon processing operation, for approximately $73 million
in cash. The acquisition was accounted for as a purchase, and goodwill
of approximately $14 million was recorded.
In September 2002, the Company completed the sale of its Specialty
Brands, Inc. subsidiary. The subsidiary had been acquired with the
TFM acquisition, and its results of operations were included in the
Company’s Prepared Foods segment. The Company received cash
proceeds of approximately $131 million, which were used to reduce
indebtedness, and recognized a pretax gain of $22 million. Specialty
Brands, Inc.’s sales and operating income for the year ended
September 28, 2002, were $244 million and $2 million, respectively.
Cash provided by operations continues to be the Company’s primary
source of funds to finance operating requirements and capital
expenditures. In 2004, net cash of $932 million was provided by
operating activities, up $112 million from 2003. The increase from
fiscal 2003 primarily is due to the increase of $98 million from net
income, excluding the non-cash effect of depreciation and amorti-
zation. The Company’s foreseeable cash needs for operations growth
and capital expenditures are expected to continue to be met through
cash flows provided by operating activities. Additionally, at October 2,
2004, the Company had borrowing capacity of $1.1 billion consisting
of $640 million available under its $1 billion unsecured revolving
credit facilities and $450 million under its accounts receivable secu-
ritization. At October 2, 2004, the Company had construction projects
in progress that will require approximately $492 million to complete.
Capital spending for fiscal 2005 is expected to be in the range of
$600 to $680 million, which reflects additional spending for a third
fully dedicated case-ready plant, a new Corporate Center and a
variety of projects that will increase automation and support value-
added product growth. The Company continues to evaluate potential
international and domestic growth opportunities.
CASH
PROVIDED
BY OPERATING
ACTIVITIES
DOLLARS IN MILLIONS
1,174
820
932
2004 2003 2002