Tyson Foods 2008 Annual Report Download

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Table of contents

  • Page 1
    ORLD OF DIFF W A ER R EN O V CE SA Ty s o n rt Fo o d s , I n c . 2 0 0 8 A n n u a l R e p o

  • Page 2
    ABOUT TYSON 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
    ... as possible. I believe we are in a good position, because we have the right strategy, a solid management team and a strong balance sheet. I don't think there is another protein company better positioned than Tyson Foods. Richard L. Bond President and Chief Executive Officer 1 2008 Annual Report

  • Page 4
    ... spending related to our Brazil and China operations and $75-$80 million for the Dynamic Fuels plant. It will be a transition year for us as we integrate our international acquisitions, get our renewable products initiatives rolling and turn our chicken segment around. 2 Tyson Foods, Inc...

  • Page 5
    ... Tyson Discovery Center, and how is it contributing to the bottom line? A: The Discovery Center is our state-of-the-art research and development facility, and it plays a vital role in our strategy to create innovative and insight-driven food solutions. It is the place where our team members develop...

  • Page 6
    ... - renewable energy, pet products, nutraceuticals and biotech. Renewable Energy In October 2008, Dynamic Fuels, a joint venture between Tyson Foods and Syntroleum Corporation, broke ground on a plant that will produce renewable diesel. The facility is currently scheduled to begin production in 2010...

  • Page 7
    5 2008 Annual Report

  • Page 8
    6 Tyson Foods, Inc.

  • Page 9
    ... has had a presence in China with Tyson Da Long, a small chicken further processing joint venture. With a population of 1.3 billion and chain restaurants opening at a rate of one every 18 hours, the Chinese market needs more poultry production. Annual per capita meat consumption in China is about 20...

  • Page 10
    ... its annual growth rate of more than 10% is among the highest in the world. In June 2008, Tyson acquired majority ownership of one of India's leading branded chicken companies. In addition to serving the foodservice market, Godrej Tyson Foods produces retail fresh chicken under the Real Good Chicken...

  • Page 11
    ... Financial Statements Report of Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Report of Management Five-Year Financial Summary Company Performance Corporate Information Corporate Officers and Executives Board of Directors 9 2008 Annual Report

  • Page 12
    ... Canadian beef operation, to XL Foods, Inc., a Canadian-owned beef processing business. Under the terms of the letter of intent, Tyson will sell Lakeside for $104 million and retain the finished product inventory, accounts receivable and accounts payable of Lakeside as of the closing date. XL Foods...

  • Page 13
    ... million charge related to the cumulative effect of a change in accounting principle due to adoption of Financial Accounting Standards Board Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations," an interpretation of FASB Statement No. 143 (FIN 47). 11 2008 Annual Report

  • Page 14
    ... million. • Decrease due to sales volume included lower Beef and Chicken sales volume, partially offset by higher Pork sales volume. • Decrease due to net gains of $173 million from our commodity risk management activities related to forward futures contracts for live cattle and hog purchases as...

  • Page 15
    ... related to our Cost Management Initiative announced in July 2006. 2008 vs. 2007 • Increase of $29 million related to unfavorable investment returns on company-owned life insurance, which is used to fund non-qualified retirement plans. • Increase of $16 million related to advertising and sales...

  • Page 16
    ... Average borrowing rate Change in average weekly debt • Increased the effective tax rate 3.8% due to net negative returns on company-owned life insurance policies, which is not deductible for federal income tax purposes. • Reduced the effective tax rate 3.8% due to general business credits...

  • Page 17
    ... is a summary of sales and operating income (loss), which is how we measure segment income (loss). In the fourth quarter fiscal 2008, we began to manage and report the operating results and identifiable assets of our logistics operations in the segment in which the product being moved relates. As...

  • Page 18
    ...commodity risk management activities related to forward futures contracts for live cattle, excluding the related impact from the physical sale and purchase transactions, compared to realized and unrealized net losses of $40 million recorded in fiscal 2006. Pork Segment Results Change 2008 vs. 2007...

  • Page 19
    ... risk management activities related to forward futures contracts for live hogs, excluding the related impact from the physical sale and purchase transactions, compared to realized and unrealized net losses of $15 million recorded in fiscal 2006. Prepared Foods Segment Results Change 2008 vs...

  • Page 20
    ... accounts payable and interest payable balances, partially offset by a lower income taxes payable/ receivable balance. Cash Flows from Investing Activities in millions Opportunity Zone tax-exempt bonds issued in October 2008, along with equity contributions made by Tyson and Syntroleum Corporation...

  • Page 21
    ... • In fiscal 2008, we issued 22.4 million shares of Class A stock in a public offering. Net proceeds were used toward repayment of our borrowings under the accounts receivable securitization facility and for other general corporate purposes. Liquidity Outstanding Letters of Credit (no draw downs...

  • Page 22
    ...scal 2008 and all of the banks in the syndicate performed their obligations to fund these borrowings. Current market conditions have also resulted in higher credit spreads on long-term borrowings and significantly reduced demand for new corporate debt issuances. Equity - Class A Common Stock Equity...

  • Page 23
    ... interest payment due October 1, 2008. On November 13, 2008, Moody's downgraded the credit rating from "Ba1" to "Ba3." This downgrade increased the interest rate on the 2016 Notes from 7.35% to 7.85%, effective beginning with the six month interest payment due April 1, 2009. 21 2008 Annual Report

  • Page 24
    ... a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted FIN 48 at the beginning of fiscal 2008. The adoption of FIN 48 resulted in a change to the opening Consolidated Balance Sheet...

  • Page 25
    ... the provisions of FSP APB 14-1 beginning in the first quarter of fiscal 2010. The provisions of FSP APB 14-1 are required to be applied retrospectively to all periods presented. Upon retrospective adoption, we anticipate our effective interest rate on our 3.25% Convertible 23 2008 Annual Report

  • Page 26
    .... The following is a summary of certain accounting estimates we consider critical. Description Contingent liabilities We are subject to lawsuits, investigations and other claims related to wage and hour/ labor, livestock procurement, securities, environmental, product, taxing authorities and other...

  • Page 27
    ... in the estimates or assumptions used to calculate impairments of long-lived assets. However, if actual results are not consistent with our estimates and assumptions used to calculate estimated future cash ï¬,ows, we may be exposed to impairment losses that could be material. 25 2008 Annual Report

  • Page 28
    ... We have not made any material changes in the accounting methodology used to evaluate impairment of goodwill and other intangible assets during the last three years. As a result of the first step of the 2008 goodwill impairment analysis, the fair value of each reporting unit exceeded its carrying...

  • Page 29
    ... tax rate in the period of resolution. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK MARKET RISK Market risk relating to our operations results primarily from changes in commodity prices, interest rates and foreign exchange rates, as well as credit risk concentrations. To address...

  • Page 30
    ... 29, 2007, 12.2% and 12.1%, respectively, of our net accounts receivable balance was due from Wal-Mart Stores, Inc. No other single customer or customer group represents greater than 10% of net accounts receivable. 2008 2007 Livestock: Cattle Hogs Grain $78 31 88 $33 64 9 28 Tyson Foods, Inc.

  • Page 31
    ..., return on invested capital, value-added product growth, capital expenditures, tax rates, access to foreign markets and dividend policy. These forward-looking statements are subject to a number of factors and uncertainties that could cause our actual results and experiences to differ materially...

  • Page 32
    ... Share Class A Basic Class B Basic Diluted See accompanying notes. $ $ $ 281 70 356 0.25 0.22 0.24 0.25 0.22 0.24 273 75 355 0.79 0.70 0.75 0.79 0.70 0.75 249 96 345 $ (0.51) $ (0.47) $ (0.51) $ (0.05) $ (0.05) $ (0.05) $ (0.02) $ (0.01) $ (0.02) $ (0.58) $ (0.53) $ (0.58) 30 Tyson Foods...

  • Page 33
    ... 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 322 million shares in 2008 and 300 million shares in 2007 Convertible Class...

  • Page 34
    ...158 Adjustment to initially apply SFAS No. 158 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 Balance at end of year Unamortized Deferred Compensation: Balance at beginning of...

  • Page 35
    ...proceeds from Class A stock offering Convertible note hedge transactions Warrant transactions Purchase of treasury shares Dividends Stock options exercised Increase (decrease) in negative book cash balances Other, net Cash Provided by (Used for) Financing Activities Effect of Exchange Rate Change on...

  • Page 36
    ... this change. Discontinued Operation: On June 25, 2008, we executed a letter of intent with XL Foods Inc. to sell the beef processing, cattle feed yard and fertilizer assets of Lakeside Farm Industries Ltd. (Lakeside), our wholly-owned Canadian subsidiary. The financial statements report Lakeside...

  • Page 37
    ... of Class A stock. We pay quarterly cash dividends to Class A and Class B shareholders. We paid Class A dividends per share of $0.16 and Class B dividends per share of $0.144 in each of fiscal years 2008, 2007 and 2006. The Class B stock is considered a participating security requiring the use of...

  • Page 38
    ... our risk management activities relating to forward sales contracts are recorded in sales. Changes in market value of derivatives used in our risk management activities surrounding inventories on hand or anticipated purchases of inventories or supplies are recorded in cost of sales. We generally do...

  • Page 39
    ... a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted FIN 48 at the beginning of fiscal 2008. The adoption of FIN 48 resulted in a change to the opening Consolidated Balance Sheet...

  • Page 40
    ...activity, we are legally obligated under various federal, state and local laws to properly retire the related wastewater treatment facility. NOTE 3: DISCONTINUED OPERATION On June 25, 2008, we executed a letter of intent with XL Foods Inc. to sell the beef processing, cattle feed yard and fertilizer...

  • Page 41
    ... We have fully paid the estimated employee termination benefits. No material adjustments to the accrual are anticipated. In August 2006, we announced our decision to close the Boise, Idaho, beef slaughter plant and to scale back processing operations at our Pasco, Washington, complex. This decision...

  • Page 42
    ... into foreign currency forward contracts to manage the risk from changes in the fair value or future cash ï¬,ows of receivables, payables and purchase commitments arising from changes in the exchange rates of foreign currencies. We have not applied hedge accounting to these contracts. The fair value...

  • Page 43
    .... Minimum lease commitments under non-cancelable leases at September 27, 2008: in millions 2008 $ 945 1,185 317 64 $2,511 2007 $ 921 1,182 317 65 $2,485 Chicken Beef Pork Prepared Foods Total Goodwill 2009 2010 2011 2012 2013 2014 and beyond Total $ 80 61 41 30 18 23 $253 41 2008 Annual Report

  • Page 44
    ... Notes due 2013 In September 2008, we issued $458 million principal amount 3.25% convertible senior unsecured notes due October 15, 2013 (Convertible Notes), with interest paid semi-annually in arrears on April 15 and October 15. The conversion rate initially is 59.1935 shares of Class A stock per...

  • Page 45
    ...than 98% of the product of the last reported sale price of our Class A stock and the applicable conversion rate on each such day; or • upon the occurrence of specified corporate events as defined in the supplemental indenture. On and after July 15, 2013, until the close of business on the second...

  • Page 46
    ... 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 from Continuing Operations before Income Taxes Income Tax Expense (Benefit) Income from Continuing...

  • Page 47
    ... (5) (196) Net Sales Cost of Sales Operating Expenses: Selling, general and administrative Other charges Operating...Change in Accounting Principle Cumulative Effect of Change in Accounting Principle, Net of Tax Net Income (Loss) $ $ $ Condensed Consolidating Balance Sheet as of September 27, 2008...

  • Page 48
    ... shares Dividends Other, net Net change in intercompany balances Cash Provided by (Used for) Financing Activities Effect of Exchange Rate Change on Cash Increase in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year 46 Tyson Foods...

  • Page 49
    ...from sale of marketable securities, net Other, net Cash Provided by (Used for) Investing Activities Cash Flows From Financing Activities: Net change in debt Purchase of treasury shares Dividends Other, net Net change in intercompany balances Cash Used for Financing Activities Effect of Exchange Rate...

  • Page 50
    ... COMPENSATION We issue shares under our 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 24,823,940 at September 27, 2008. STOCK OPTIONS Shareholders...

  • Page 51
    ...We issue restricted stock at the market value as of the date of grant, with restrictions expiring over periods through July 1, 2020. Unearned compensation is recognized over the vesting period for the particular grant using a straight-line method. Weighted Average Grant-Date Fair Value Per Share $14...

  • Page 52
    ...benefit rate. Effective January 1, 2004, we implemented a non-qualified defined benefit plan for certain contracted officers that uses a formula based on years of service and final average salary. We also have other postretirement benefit plans for which substantially all of our employees may...

  • Page 53
    ... at beginning of year Service cost Interest cost Plan participants' contributions Amendments Actuarial (gain) loss Benefits paid Settlement Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions...

  • Page 54
    ...various asset classes. We then determined a long-term projected rate-of-return based on expected returns over the next five to 10 years. We have three postretirement health plans. Two of these consist of fixed, annual payments and account for $33 million of the postretirement medical obligation at...

  • Page 55
    ... in which these parties had an ownership interest. In 2008, a lawsuit captioned In re Tyson Foods, Inc. Consolidated Shareholder's Litigation was settled. Pursuant to the settlement, Don Tyson and the Tyson Limited Partnership paid us $4.5 million. NOTE 16: INCOME TAXES Detail of the provision (bene...

  • Page 56
    ... income tax reserves management deemed were no longer required. The net reduction to current income tax expense of approximately $20 million related to Internal Revenue Service examinations, appeals and United States Tax Court settlement activity, as well as state income tax examination settlements...

  • Page 57
    ... a 1 to 0.9 ratio per share of Class A stock and Class B stock, respectively. We allocate undistributed earnings (losses) based on this ratio due to historical dividend patterns, voting control of Class B shareholders and contractual limitations of dividends to Class B stock. 55 2008 Annual Report

  • Page 58
    ... include breeding and raising chickens, as well as processing live chickens into fresh, frozen and value-added chicken products and logistics operations to move products through the supply chain. Products are marketed domestically to food retailers, foodservice distributors, restaurant operators and...

  • Page 59
    ... property, plant and equipment were located in foreign countries, primarily Mexico, at fiscal years ended 2008, 2007 and 2006, respectively. We sell certain products in foreign markets, primarily Canada, Central America, China, the European Union, Japan, Mexico, the Middle East, Russia, South Korea...

  • Page 60
    ...indicated in discovery the case seeks to require us 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...

  • Page 61
    ... transferred to the U.S. District Court in the Middle District of Georgia, In re: Tyson Foods, Inc., Fair Labor Standards Act Litigation ("MDL Proceedings"). On January 2, 2008, the Judge in the MDL Proceedings issued a Joint Scheduling and Case Management Order. The Order granted Conditional Class...

  • Page 62
    ... of Nebraska, February 29, 2008), Perry and Waterloo, Iowa (Edwards, et al. v. Tyson Foods, Inc. d.b.a. Tyson Fresh Meats, Inc., S.D. Iowa, March 20, 2008); Council Bluffs, Iowa (Salazar, et al. v. Tyson Foods, Inc. d.b.a. Tyson Fresh Meats, Inc., S.D. Iowa, April 29, 2008); and Logansport, Indiana...

  • Page 63
    ... of Independent Registered Public Accounting Firm THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TYSON FOODS, INC. We have audited the accompanying consolidated balance sheets of Tyson Foods, Inc. as of September 27, 2008 and September 29, 2007, and the related consolidated statements of operations...

  • Page 64
    ... Independent Registered Public Accounting Firm THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TYSON FOODS, INC. We have audited Tyson Foods, Inc.'s internal control over financial reporting as of September 27, 2008, based on criteria established in Internal Control - Integrated Framework issued by the...

  • Page 65
    ... the Board of Directors meets regularly with the Company's financial management and counsel, with the Company's internal auditors and with the independent auditors engaged by the Company. These meetings include discussions of internal accounting controls and the quality of financial reporting. The...

  • Page 66
    ..., the debt to capitalization ratio was 42.1%. i. In June 2008, we executed a letter of intent to sell the beef processing, cattle feed yard and fertilizer assets of Lakeside Farm Industries Ltd. We are reporting Lakeside as a discontinued operation for all periods presented. 64 Tyson Foods, Inc.

  • Page 67
    ... 164.90 149.07 9/27/08 95.10 128.66 152.22 Tyson Foods, Inc. S&P 500 Index Peer Group 100 100 100 The total cumulative return on investment (change in the year-end stock price plus reinvested dividends), which is based on the stock price or composite index at the end of fiscal 2003, is presented...

  • Page 68
    ... and, if possible, the numbers and issue dates of the certificates. STOCK EXCHANGE LISTINGS The Class A common stock of the Company is traded on the New York Stock Exchange under the symbol TSN. CORPORATE HEADQUARTERS 2200 Don Tyson Parkway Springdale, Arkansas 72762 Telephone (479) 290-4000...

  • Page 69
    ...information about Tyson Foods should contact: Gary Mickelson Director of Media Relations Tyson Foods, Inc. 2200 Don Tyson Parkway Springdale, AR 72762 Telephone: (479) 290-6111 Fax: (479) 757-7984 E-mail: [email protected] TYSON FOODS ON THE INTERNET Information about Tyson Foods is available...

  • Page 70
    ... Executive Vice President and General Counsel Jeff Webster Group Vice President, Renewable Products Group Ruth Ann Wisener Vice President, Investor Relations and Assistant Secretary 10% Post-Consumer Fiber The paper used in the Tyson Foods 2008 Annual Report is FSC certified. 68 Tyson Foods...

  • Page 71
    ..., President and Managing Director of 3M Korea and New Business Development Director of the Commercial Graphics Division. Mr. Sauer has been a member of the Board since September 2008. 1, 2 Don Tyson John Tyson Barbara A. Tyson Lloyd V. Hackley Jim Kever Richard L. Bond Jo Ann R. Smith Albert...

  • Page 72
    Tys on F o ods, Inc. 2 2 00 m n.co .tyso w w Don Tys 762 w on Parkway, Springdale, Arkansas 72