Tyson Foods 2006 Annual Report Download

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TYSON FOODS, INC. 2006 ANNUAL REPORT
Opportunities on the Table

Table of contents

  • Page 1
    Opportunities on the Table TYSON FOODS, INC. 2006 ANNUAL REPORT

  • Page 2
    ... Contents 9 Tyson Foods, Inc. (NYSE: TSN), founded in 1935 with headquarters in Springdale, Arkansas, is the world's largest processor and marketer of chicken, beef and pork, the second-largest food production company in the Fortune 500 and a member of the S&P 500. The Company produces a wide...

  • Page 3
    ...Tyson Team, we are better positioned to achieve our goals. We continued investing for the long term in our operations as well. We added our third case-ready beef and pork plant in Sherman, Texas. We also created the most modern, efficient production floor in the industry at our Dakota City, Nebraska...

  • Page 4
    ... President and Chief Executive Officer Dick Bond, a 37-year veteran of the food business and one of the most respected people in the industry, became the president and chief executive officer of Tyson Foods in May. A member of Tyson's Board of Directors since 2001, Bond served as Tyson's president...

  • Page 5
    ...there are more fed cattle in the upper Midwest, it will benefit us because that's where many of our beef processing plants are. Q: Where do you see Tyson Foods going beyond 2007? A: I am really excited about where the Company is headed. We faced unparalleled obstacles in 2006, but we're a stronger...

  • Page 6
    ... As fiscal 2006 drew to a close, Tyson Foods was focused on returning to profitability as soon as possible. Thanks to hard work from our Team Members, we've made tremendous progress toward that goal. Now, as we turn our attention to 2007 and beyond, we will transform Tyson while raising the bar...

  • Page 7
    Ty s o n F o o d s , I n c . 2 0 0 6 A n n u a l R e p o r t 5

  • Page 8
    6 Ty s o n F o o d s , I n c . 2 0 0 6 A n n u a l R e p o r t

  • Page 9
    ... to work hand-in-hand with our customers to take consumer insights and turn them into food concepts, and then take those concepts into production. The new Discovery Center at Tyson Foods World Headquarters in Springdale, Arkansas, will help us do this better than ever. The Discovery Center will open...

  • Page 10
    ... other proteins in China as well. Our international expansion plans include establishing a foothold in the poultry sector in Brazil, which could serve as an export platform for other markets around the world, and becoming the first fully-integrated, export-oriented beef company in Argentina. 8 Ty...

  • Page 11
    ... to Consolidated Financial Statements 57 Report of Independent Registered Public Accounting Firm 58 Report of Independent Registered Public Accounting Firm 59 Report of Management 60 Eleven-Year Financial Summary 62 Corporate Information 64 Corporate Officers and Executives Board of Directors Ty...

  • Page 12
    ...the Dakota City, Nebraska, location. The Company realized certain operational efficiencies in fiscal 2006 related to its rationalization and expansion efforts and expects continued efficiencies in fiscal 2007. In November 2006, the Company announced a new business unit, Tyson Renewable Energy, which...

  • Page 13
    ..., Nebraska, beef processing plant and its West Point, Nebraska, beef slaughter plant. These facilities closed in February 2006. Production from these facilities shifted primarily to the Company's beef complex in Dakota City, Nebraska. In January 2006, the Company announced its decision to close two...

  • Page 14
    ..., the military and other food processors, as well as to international markets throughout the world. The Chicken segment also includes sales from allied products and the chicken breeding stock subsidiary. • Beef segment is involved primarily in processing live fed cattle and fabricating dressed...

  • Page 15
    ... of $40 million from the Company's commodity risk management activities related to its fixed forward boxed beef sales and forward live cattle purchases, compared to realized and unrealized net gains of $13 million recorded in fiscal 2005. • Pork segment sales decreased 5.8% and operating results...

  • Page 16
    ... its Portland, Maine, facility. The plant ceased operations February 4, 2005, and the production from this facility was transferred to other locations. Other charges in fiscal 2004 include $40 million in plant closing costs, primarily related to the closings of the Company's Jackson, Mississippi...

  • Page 17
    ... to pay dividends of $55 million on the Company's Class A and Class B stock and to repurchase $42 million of the Company's Class A stock in the open market, which purchases were made to satisfy the Company's stock compensation programs. The expenditures for property, plant and equipment were related...

  • Page 18
    ... of the Company. Moody's and S&P did not change the July 2006 credit ratings applicable to the 2016 Notes. However, Moody's issued a new credit rating of "Ba2," and S&P issued a new credit rating of "BB+" related to the other unsecured senior notes not guaranteed by TFM. These new ratings did not...

  • Page 19
    ... management. The Company recognized compensation expense (net of tax) of $9 million and $15 million in fiscal 2006 related to stock options and restricted stock, respectively. As of September 30, 2006, the Company had $38 million of total unrecognized compensation cost related to stock option plans...

  • Page 20
    ... critical by the Company. • Financial instruments: The Company is a purchaser of certain commodities, such as grains, livestock and natural gas in the course of normal operations. The Company uses derivative financial instruments to reduce its exposure to various market risks. Generally, contract...

  • Page 21
    ... and retired employees, including pensions and postretirement healthcare benefits. The Company records annual amounts related to these plans based on calculations specified by generally accepted accounting principles, which include various actuarial assumptions, such as discount rates, assumed rates...

  • Page 22
    ...sales contracts are recorded in sales. The sensitivity analyses presented below are the measures of potential losses of fair value resulting from hypothetical changes in market prices related to commodities. Sensitivity analyses do not consider the actions management may take to mitigate the Company...

  • Page 23
    ...cattle, live swine, feed grains (including corn and soybean meal) and energy; (ii) the Company's ability to realize anticipated savings from its cost reduction initiatives; (iii) market conditions for finished products, including competition from other global and domestic food processors, the supply...

  • Page 24
    ... 232 403 - 403 Sales Cost of Sales Operating Expenses: Selling, general and administrative Other charges Operating Income (Loss) Other (Income) Expense: Interest income Interest expense Other, net Income (Loss) before Income Taxes Income Tax Expense (Benefit) Income (Loss) before Cumulative Effect...

  • Page 25
    ...-Term Debt Deferred Income Taxes Other Liabilities Shareholders' Equity: Common stock ($0.10 par value): Class A - authorized 900 million shares: issued 284 million shares in 2006 and 268 million shares in 2005 Class B - authorized 900 million shares: issued 86 million shares in 2006 and 102 million...

  • Page 26
    ... Additional pension liability Balance at end of year Treasury Stock: Balance at beginning of year Purchase of treasury shares Stock options exercised Restricted shares issued Restricted shares canceled Reclassification and other Balance at end of year Unamortized Deferred Compensation: Balance...

  • Page 27
    ... 30, 2006 in millions 2006 2005 2004 Cash Flows From Operating Activities: Net income (loss) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation Amortization Plant closing related charges Impairment and write-down of assets Deferred taxes Cumulative...

  • Page 28
    ... world headquarters in Springdale, Arkansas, is the world's largest processor and marketer of chicken, beef and pork and the second largest food production company in the Fortune 500. Tyson produces a wide variety of brand name protein-based and prepared food products marketed in the United States...

  • Page 29
    ... years. The Company has determined all its marketable debt securities are available-for-sale investments. These investments are reported at fair value based on quoted market prices as of the balance sheet date, with unrealized gains and losses, net of tax, recorded in other comprehensive income. The...

  • Page 30
    ... the cash dividend simultaneously paid to holders of Class A stock. The Company pays quarterly cash dividends to Class A and Class B shareholders. The Company paid Class A dividends per share of $0.16 and Class B dividends per share of $0.144 in fiscal years 2006, 2005 and 2004. The Class B stock is...

  • Page 31
    ... of fiscal 2009. The Company is currently in the process of evaluating the potential impact of SFAS No. 157. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB...

  • Page 32
    .... 123R, the Company applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" 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...

  • Page 33
    ..., beef processing plant and its West Point, Nebraska, beef slaughter plant. These facilities closed in February 2006. Production from these facilities was shifted primarily to the Company's beef complex in Dakota City, Nebraska. Combined, these two facilities employed approximately 1,665 employees...

  • Page 34
    ... facility. The Portland operation employed approximately 285 employees and produced sliced meats and cooked roast beef. The plant ceased operations February 4, 2005, and production from this facility was transferred to other locations. As a result of the decision, the Company recorded total costs of...

  • Page 35
    ... included in cost of sales and primarily related to the decline in value of finished product inventory destined for international markets, whether in-transit, located at the shipping ports or located within domestic storage, as well as live cattle inventory and open futures positions. No material...

  • Page 36
    ... of September 30, 2006. The Company generally does not 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 market hogs for slaughter and natural gas for the operation of...

  • Page 37
    ...070 Accrued salaries, wages and benefits Self-insurance reserves Income taxes payable Other Total other current liabilities NOTE 8 COMMITMENTS 6 PROPERTY, PLANT AND EQUIPMENT The major categories of property, plant and equipment and accumulated depreciation at cost, at September 30, 2006, and...

  • Page 38
    ... under the receivables purchase agreement. In the second quarter of fiscal 2006, the Company issued $1.0 billion of new senior unsecured notes, which will mature on April 1, 2016 (2016 Notes). The 2016 Notes carried an initial 6.60% interest rate, with interest payments due semi-annually on April...

  • Page 39
    ... of the Company. Moody's and S&P did not change the July 2006 credit ratings applicable to the 2016 Notes. However, Moody's issued a new credit rating of "Ba2," and S&P issued a new credit rating of "BB+" related to the other unsecured senior notes not guaranteed by TFM. These new ratings did not...

  • Page 40
    ...(196) Net Sales Cost of Sales Operating Expenses: Selling, general and administrative Other charges Operating Income (Loss) Other (Income) Expense: Interest expense, net Other, net Equity in net earnings of subsidiaries Income (Loss) before Income Taxes Income Tax Expense (Benefit) Net Income (Loss...

  • Page 41
    ...635 232 403 Net Sales Cost of Sales Operating Expenses: Selling, general and administrative Other charges Operating Income Other (Income) Expense: Interest expense, net Other, net Equity in net earnings of subsidiaries Income (Loss) before Income Taxes Income Tax Expense Net Income (Loss) 75 - 299...

  • Page 42
    ... Statements ...Plant and Equipment Goodwill Intangible Assets Other Assets Investment in subsidiaries Total Assets Liabilities and Shareholders' Equity Current Liabilities: Current debt Trade accounts payable Other current liabilities Total Current Liabilities Long-Term Debt Deferred Income Taxes...

  • Page 43
    ... Dividends received Cumulative effect of change in accounting principle, before tax Deferred taxes and other Net changes in working capital Cash Provided by Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Purchases of marketable securities...

  • Page 44
    ... related charges Impairment and write-down of assets Equity in net earnings of subsidiaries Deferred taxes and other, net Net changes in working capital Cash Provided by Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Purchases of marketable...

  • Page 45
    ... closing related charges Impairment and write-down of assets Equity in net earnings of subsidiaries Deferred taxes and other Net changes in working capital Cash Provided by Operating Activities Cash Flows From Investing Activities: Additions to property, plant and equipment Purchases of marketable...

  • Page 46
    .... 123R, the Company applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" 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...

  • Page 47
    ... Company issues shares under its stock-based compensation plans by issuing Class A stock from treasury. The total number of shares available for future grant under the Tyson Foods, Inc. 2000 Stock Incentive Plan (Incentive Plan) was 11,609,585 at September 30, 2006; however, the Board of Directors...

  • Page 48
    ...groups of employees. Two plans provide benefits based on a formula using years of service and a specified benefit rate. Effective January 1, 2004, the Company implemented a new defined benefit plan for certain contracted officers that uses a formula based on years of service and final average salary...

  • Page 49
    ... of plan assets are as follows: Pension Benefits in millions Pension Benefits in millions 2006 2005 Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Plan participants' contributions Addition of subsidiary plan Amendments Actuarial loss Benefits paid...

  • Page 50
    ... a retirement benefit based on the number of years of service multiplied by a benefit rate. During 2004, a plan was added with a 4% compensation increase inherent in its benefit obligation calculation. The Company has four postretirement health plans. Two of these consist of fixed, annual payments...

  • Page 51
    ... to the assets of the pension plans and regularly monitor the performance of the funds and portfolio managers. Objectives for the pension assets are (1) to provide growth of capital and income, (2) to achieve a target weighted average annual rate of return competitive with other funds with similar...

  • Page 52
    ... to be used for expansion of corporate offices. In fiscal 2004, the Company 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...

  • Page 53
    ... 30, 2006, which are expected to be indefinitely reinvested outside of the United States. If those earnings were distributed in the form of dividends or otherwise, the Company would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes and withholding...

  • Page 54
    ...military and other food processors, as well as to international markets throughout the world. The Chicken segment also includes sales from allied products and the Company's chicken breeding stock subsidiary. • Beef segment is involved primarily in processing live fed cattle and fabricating dressed...

  • Page 55
    ... processors, as well as to international markets throughout the world. • Other segment includes the logistics group and other miscellaneous operations. in millions Chicken Beef Pork Prepared Foods Other Consolidated Fiscal year ended September 30, 2006 Sales Operating income (loss) Other...

  • Page 56
    ... of long-lived assets were located in foreign countries, primarily Canada and Mexico, at fiscal years ended 2006, 2005 and 2004, respectively. The Company sells certain products in foreign markets, primarily Canada, Central America, China, the European Union, Japan, Mexico, Russia, South Korea, and...

  • Page 57
    ... case seeks to require the Company to compensate all hourly chicken processing workers for pre- and post-shift clothes changing, washing and related activities and for one of two unpaid 30-minute meal periods. The Secretary of Labor seeks unspecified back wages for all employees at the Blountsville...

  • Page 58
    ... Court for the Eastern District of Washington by employees of Tyson Fresh Meat's (TFM) Pasco, Washington, beef slaughter, processing and hides facilities, alleging violations of the FLSA, 29 U.S.C. Sections 201-219, as well as violations of the Washington State Minimum Wage Act, RCW chapter 49.46...

  • Page 59
    ... 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 September 30, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 60
    ... in conditions, or 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 September 30, 2006, is fairly stated, in all material respects, based on...

  • Page 61
    ..., Ernst & Young LLP has issued an attestation report on management's assessment of the Company's internal control over financial reporting. The report appears on page 58. Richard L. Bond President and Chief Executive Officer Wade D. Miquelon Executive Vice President and Chief Financial Officer Ty...

  • Page 62
    ..., 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 63
    ... gain from the sale of the beef division assets. 15. Return on beginning shareholders' equity is calculated by dividing net income (loss) by beginning shareholders' equity. 16. Return on invested capital is calculated by dividing operating income (loss) by the sum of the average of beginning and...

  • Page 64
    ... by Tyson shareholders by writing to: Vice 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...

  • Page 65
    ...information should contact: Ruth Ann Wisener Vice President of Investor Relations and Assistant Secretary Tyson Foods, Inc. 2210 West Oaklawn Drive Springdale, AR 72762-6999 Telephone: (479) 290-4235 Fax: (479) 757-6712 E-mail: [email protected] The terms "Tyson," "Tyson Foods," "the Company," "our...

  • Page 66
    Corporate Officers and Executives Mike Baker Group Vice President, Technical Services Jean Mrha Beach Senior Vice President, Commodity Trading and Risk Management, Price Optimization and Meat Procurement Richard L. Bond President and Chief Executive Officer Howell P. Carper Senior Vice President, ...

  • Page 67
    ...4 Leland E. Tollett, 69, a private investor, served as Chairman of the Board and CEO from 1995 to 1998 when he retired after employment with the Company since 1959. Mr. Tollett has been a member of the Board since 1984. 4 Richard L. Bond, 59, is President and Chief Executive Officer of the Company...

  • Page 68
    TYSON FOODS, INC. 2210 WEST OAKLAWN DRIVE, SPRINGDALE, ARKANSAS 72762-6999 www.tyson.com