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TYSON FOODS, INC.
2005 ANNUAL REPORT
Tyson. Powered by...

Table of contents

  • Page 1
    ... Tyson. Powered by... >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> TYSON FOODS , INC. 2 0 0 5 A N N U ...

  • Page 2
    ... average shares outstanding CONTENTS >> 12 >> >> 02 Letter to Shareholders 06 Our Core Values Tyson Core Values are our guiding principles. They reflect who we are and our responsibilities beyond the business of producing food. Value-Added Products In 2005, Tyson Foods focused on market share...

  • Page 3
    >> A Focused Strategy Tyson powers the world with protein their lives and achieve their dreams. What powers Tyson? Our people, our Core Values and a focused strategy. products, giving people energy to live Tyson Foods, Inc. >> 01

  • Page 4
    ... overall stock market performance, and we believe we are a strong representative of the food industry. Tyson Foods is the world's largest protein company. We power America by producing nearly one out of every four pounds of the chicken, beef and pork Americans eat. Tyson is the only company selling...

  • Page 5
    ... or increased capacity and market share while closing or consolidating seven plants. Our on-going improvement programs make our processing * Chicken market share is based on average weekly slaughter. Beef and pork market share is based on reported processing numbers. Tyson Foods, Inc. >> 03

  • Page 6
    ... increased sales and by expanding our export customer base for chicken products. By developing market-specific products, we increased domestic sales in China. We increased processing capacity at Tyson de Mexico and will boost live production in fiscal 2006. We also plan to increase our in-country...

  • Page 7
    ...have new or expanded responsibilities. This is part of our plan to create opportunities for Team Members while we develop the people who will someday lead the Company. We modified the structure of some of the senior management teams reporting to Dick Bond, president and chief operating officer, Greg...

  • Page 8
    .... We strive to be a faith-friendly company. What We Do: We feed our families, the nation and the world with trusted food products. We serve as stewards of the animals, land and environment entrusted to us. We strive to provide a safe work environment for our Team Members. How We Do It: We strive to...

  • Page 9
    ... beyond the business of producing food. We live the Core Values each day as we work, make decisions and interact with each other. We Invest in Our People Tyson Foods wants all Tyson Team Members to reach their potential. Through on-going training and leadership development classes, we offer...

  • Page 10
    ... assurance, and thousands of other dedicated Tyson Team Members ensure Tyson products meet our stringent food safety and quality standards to feed our families, the nation and the world with trusted food products. A practical application of Tyson's Core Values is the Team Member Bill of Rights...

  • Page 11
    ... in times of need and reinforce Tyson's goal to be a faith-friendly company. Shareholder value, food safety, Team Member safety, customer service, animal welfare, environmental responsibility, diversity, integrity, trust and respect drive everything we do at Tyson Foods. Tyson Foods, Inc...

  • Page 12
    .... As the world's largest marketer of chicken, beef and pork products, we rely on animals for our livelihood; therefore, we have a moral and ethical obligation to treat them with care. Animal welfare is a long-standing practice at Tyson Foods. We strive to continue our role as the industry leader in...

  • Page 13
    >> >> >> Value-Added Products Operational Efficiencies International Growth Tys o n . Powe re d by... Tyson Foods, Inc. >> 11

  • Page 14
    >> Value-Added Products Tys o n . Powe re d by... Tyson Foods, Inc. >> 12

  • Page 15
    ... foodservice operators and consumers turn to Tyson to feed their customers and their families. Strengthening our position as the world's premier branded protein company, in 2005 Tyson Foods focused on market share growth, execution and market penetration of value-added food products. The Powered...

  • Page 16
    >> Operational Efficiencies Tyson Foods' strategy is to increase capacity to manufacture cost-effective, value-added chicken, beef and pork products and to deliver them to our customers as efficiently and safely as possible. With 116 processing plants, finding innovative ways to be efficient, ...

  • Page 17
    Tyson Foods' strategy is to increase capacity to manufacture cost-effective, value-added chicken, beef and pork products and to deliver them to our customers as efficiently as possible. Kelly Lasse (left), an industrial designer, and James Ruff, senior engineer for prototype development, are ...

  • Page 18
    >> International Growth Tys o n . Powe re d by... Tyson Foods, Inc. >> 16

  • Page 19
    ... in South America. Tyson Foods' international business represents 11 percent of 2005 sales revenue, although import bans on beef affected sales throughout the year. Tyson is the leading producer of value-added chicken in Mexico, supplying products to the foodservice industry and branded products to...

  • Page 20
    ... Public Accounting Firm 60 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting 61 Report of Management 62 Eleven-Year Financial Summary 64 Corporate Information 65 Board of Directors 66 Corporate Officers and Executives >> Tyson Foods, Inc...

  • Page 21
    ... E W Tyson Foods is the world's largest protein company and the second largest publicly traded food company in the Fortune 500 with one of the most recognized brand names in the food industry. Tyson produces, distributes and markets chicken, beef, pork and prepared foods and related allied products...

  • Page 22
    ... related to a legal settlement involving the Company's live swine operations and $14 million in plant closing costs, primarily related to the closings of the Company's Cleveland Street Forest, Mississippi, Portland, Maine, and Bentonville, Arkansas, operations. In July 2005, the Company announced...

  • Page 23
    ... 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 domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments...

  • Page 24
    ... from the Company's commodity risk management activities related to grain purchases, and in the Beef segment, higher live cattle prices and BSE-related charges. Also included in fiscal 2004 cost of sales was $18 million to reduce self-insurance reserves to the actuarially determined range. The...

  • Page 25
    ..., operating income was negatively impacted by increases in live cattle prices, production declines and decreased capacity utilization. These decreases were partially offset by higher average selling prices and increased volumes and margins at the Company's Lakeside operation in Canada. Tyson Foods...

  • Page 26
    ... $367 million, to fund $571 million of property, plant and equipment additions, to pay dividends of $55 million and to repurchase $45 million of the Company's Class A common stock in the open market. The Company's foreseeable cash needs for operations growth and capital expenditures are expected to...

  • Page 27
    ... included in operating lease obligations are minimum lease payments under lease agreements, as well as residual value guarantee amounts. (5) Amounts included in purchase obligations are agreements to purchase goods or services that are enforceable and legally binding on the Company that specifies...

  • Page 28
    ... or annual reporting period of the registrant's first fiscal year beginning on or after June 15, 2005. The Company estimates that compensation expense related to employee stock options for fiscal 2006 is expected to be in the range of $10-$15 million. SFAS No. 123R also requires the benefits of...

  • Page 29
    ... retirement health plan sponsors to help offset the costs of participant prescription drug benefits. In March 2004, the FASB issued Staff Position No. 106-2, "Accounting and Disclosure Requirements Related to the Act" (the Position). The Position was effective for interim or annual periods beginning...

  • Page 30
    ...to lawsuits, investigations and other claims related to wage and hour/labor, livestock procurement, securities, environmental, product, taxing authorities 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
    ... Company holds certain positions, primarily in grain and livestock futures, which do not meet the criteria for SFAS No. 133 hedge accounting. These positions are marked to fair value and the unrealized gains and losses are reported in earnings at each reporting date. The changes in market value of...

  • Page 32
    ....0%, respectively, of the Company's net accounts receivable balance was due from one customer. No other single customer or customer group represents greater than 10% of net accounts receivable. 2005 2004 Livestock: Cattle Hogs Grain Natural Gas $ 3 13 15 12 $12 18 5 13 Tyson Foods, Inc. >> 30

  • Page 33
    ... Income Taxes Provision for Income Taxes Net Income Weighted Average Shares Outstanding: Class A Basic Class B Basic Diluted Earnings Per Share: Class A Basic Class B Basic Diluted See accompanying notes. 928 47 765 227 10 237 528 175 $ 353 243 102 357 $ $ $ 1.05 0.95 0.99 Tyson Foods, Inc. >> 31

  • Page 34
    ... debt Trade 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 268 million shares in 2005 and 2004 Class B - authorized 900...

  • Page 35
    ... (net of $(1) million tax) Total Comprehensive Income Purchase of Treasury Shares Stock Options Exercised Restricted Shares Issued Restricted Shares Canceled Dividends Paid Dividends Accrued Amortization of Deferred Compensation Other Balance - October 1, 2005 See accompanying notes. (2) 11 1 21...

  • 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 Purchases of marketable securities Proceeds from marketable securities Net change...

  • Page 37
    ... ACCOUNTING POLICIES Description of Business: Tyson Foods, Inc. (collectively, "the Company" or "Tyson"), founded 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...

  • Page 38
    ... 20 percent but not greater than 50 percent. The Company's underlying share of each entity's equity is reported in the Consolidated Balance Sheets in the line item other assets. At October 1, 2005, the Company had $138 million of marketable debt securities. Of this amount, $5 million were due in one...

  • Page 39
    ... Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock compensation plans. Accordingly, no compensation expense was recognized for its stock option issuances as stock options are issued with an exercise price equal to the closing...

  • Page 40
    ... that do not meet the criteria for hedge accounting, as defined by SFAS No. 133, as amended, are marked to fair value with unrealized gains or losses reported currently in earnings. Changes in market value of derivatives used in the Company's risk management activities surrounding inventories...

  • Page 41
    ... retirement health plan sponsors to help offset the costs of participant prescription drug benefits. In March 2004, the FASB issued Staff Position No. 106-2, "Accounting and Disclosure Requirements Related to the Act" (the Position). The Position was effective for interim or annual periods beginning...

  • Page 42
    .... No other material adjustments to the total accrual are anticipated at this time. In July 2005, the Company announced its decision to make improvements to one of its Forest, Mississippi, facilities, which will include more product lines, enabling the plant to increase production of processed and...

  • Page 43
    ... plant closing related costs. The Company accounted for the closing of the Manchester and Augusta operations in accordance with SFAS No. 146 and SFAS No. 144. The Company has fully paid its employee termination benefits of $2 million and other plant closing related costs of $2 million. Tyson Foods...

  • Page 44
    ... contracts, and $9 million of other related costs associated with closing the plants, including plant clean-up costs and employee termination benefits. The Company accounted for closing the Stilwell, Oklahoma, and Jacksonville, Florida, operations in accordance with Emerging Issues Task Force No. 94...

  • Page 45
    ... the Company's open mark-to-market SFAS No. 133 hedge positions was not significant as of October 1, 2005. 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...

  • Page 46
    ... customer. No other single customer or customer group represents greater than 10% of net accounts receivable. Other current liabilities at October 1, 2005, and October 2, 2004, include: 2005 $ 269 252 183 366 $1,070 2004 $ 270 248 149 343 $1,010 Accrued salaries, wages and benefits Self-insurance...

  • Page 47
    ... now consists of $1.0 billion that expires in September 2010. At October 1, 2005, the Company had outstanding letters of credit totaling approximately $254 million issued primarily in support of workers' compensation insurance programs and derivative activities. There were no draw downs under these...

  • Page 48
    ... Shareholders approved the Tyson Foods, Inc. 2000 Stock Incentive Plan (Incentive Plan) in January 2001. The Incentive Plan is administered by the Compensation Committee of the Board of Directors and permits awards of shares of Class A stock, awards of derivative securities related to the value...

  • Page 49
    ... in shareholders' equity. Unearned compensation is amortized over the vesting period for the particular grant using a straight-line method. The Company issues restricted stock at the market value as of the date of grant. The total number of shares of restricted stock issued during fiscal years 2005...

  • Page 50
    ... 2004, the Company only had defined benefit plans which provided a retirement benefit based on the number of years of service multiplied by a benefit rate. During fiscal 2004, a plan was added with a 4% compensation increase inherent in its benefit obligation calculation. Tyson Foods, Inc. >> 48

  • Page 51
    ... The Company's policy is to fund at least the minimum contribution required to meet applicable federal employee benefit and local tax laws. In its sole discretion, the Company may from time to time fund additional amounts. Expected contributions to the Company's pension plans for fiscal...

  • Page 52
    ... purchased 1,028,577 shares of Class A stock in a private transaction with Don Tyson, a director and managing partner of the Tyson Limited Partnership, a principal shareholder of the Company. The purchase of those shares from Mr. Tyson, was based on the closing price of the Class A stock on the New...

  • Page 53
    ... due to ownership changes and may be utilized to offset future taxable income subject to limitations. During the fourth quarter of fiscal 2005, the Company repatriated $404 million of foreign earnings invested outside the United States under the provisions of the American Jobs Creations Act...

  • Page 54
    ... 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 domestically to food retailers, foodservice distributors, restaurant operators and noncommercial foodservice establishments...

  • Page 55
    ... pork pizza toppings, pizza crusts, flour and corn tortilla products, appetizers, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes and processed meats. The Prepared Foods segment markets its products domestically to food retailers, foodservice distributors, restaurant operators...

  • Page 56
    ... located in foreign countries, primarily Canada and Mexico, at fiscal years ended 2005, 2004 and 2003, 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...

  • Page 57
    ... and former employees of the Company filed the case of M.H. Fox, et al. v. Tyson Foods, Inc. (Fox) 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/or...

  • Page 58
    ... the case of De Asencio v. Tyson Foods, Inc. in the U.S. District Court for the Eastern District of Pennsylvania. This lawsuit is similar to Fox in that the employees claim violations of the FLSA for allegedly failing to pay for time taken to put on, take off and sanitize certain working supplies...

  • Page 59
    ... current and former employees at the Goodlettsville facility based upon clothes changing and washing activities and unpaid production work during meal periods, since the plant operations began in April 2001. Class Notices to approximately 4,500 prospective class members were mailed on January 21...

  • Page 60
    ... et al. v. IBP, inc. in the U.S. District Court, Middle District of Alabama, seeking certification of a class of all cattle producers. The complaint alleged TFM used its market power and alleged "captive supply" agreements to reduce the prices paid by TFM on purchases of cattle in the cash market in...

  • Page 61
    ... the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Tyson Foods, Inc.'s internal control over financial reporting as of October 1, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring...

  • Page 62
    ... of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that Tyson Foods, Inc. maintained effective internal control over financial reporting as of October 1, 2005, is fairly stated, in all material respects...

  • Page 63
    ... 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. The management of the Company believes that the accounting and control...

  • Page 64
    ..., plant and equipment Total debt Shareholders' equity Other Key Financial Measures Return on sales Annual sales growth (decline) Gross margin Return on beginning shareholders' equity Return on invested capital Effective tax rate Total debt to capitalization Book value per share Closing stock price...

  • Page 65
    ...the application of EITF 00-14 and EITF 00-25. 9. The results for fiscal 1999 include a $77 million pretax charge for loss on sale of assets and impairment write-downs. 10. Significant business combinations accounted for as purchases: TFM, Hudson Foods, Inc. and Arctic Alaska Fisheries Corporation in...

  • Page 66
    ...President of Investor Relations Tyson Foods, Inc. 2210 West Oaklawn Drive Springdale, Arkansas 72762-6999 Telephone: (479) 290-4235 Fax: (479) 757-6712 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...

  • Page 67
    ... May 2004. Scott T. Ford, 43, is President and Chief Executive Officer of Alltel Corporation. Previously, Mr. Ford was an investment banker with Stephens Inc. and Merrill Lynch. Mr. Ford has been a member of the Board since November 2005. Don Tyson, 75, retired as Senior Chairman of the Board in...

  • Page 68
    ... and Meat Procurement Richard L. Bond President and Chief Operating Officer Howell P. Carper Senior Vice President, Research and Development Bob Corscadden Senior Vice President and Chief Marketing Officer Wendy Davidson Group Vice President, Food Service Karen Gilbert Senior Vice President, Ethics...

  • Page 69
    ... attend the meeting are urged to exercise their right to vote by proxy on the Internet, by phone or by mail. DIVIDENDS Members of the news media seeking information about Tyson Foods should contact: Gary Mickelson Director of Media Relations Tyson Foods, Inc. 2210 West Oaklawn Drive Springdale, AR...

  • Page 70
    Powered by Tyson TYSON FOODS , INC. 2 2 1 0 W E ST OA K L AW N D R I V E >> S P R I N G DA L E , A R K A N S A S 7 2 762 - 69 9 9 w w w.t ys o n fo o d s i n c . co m