Tyson Foods 2013 Annual Report Download - page 50

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Revolving Credit Facility
We have a $1.0 billion revolving credit facility that supports short-term funding needs and letters of credit. The facility will mature
and the commitments thereunder will terminate in August 2017. After reducing the amount available by outstanding letters of credit
issued under this facility, the amount available for borrowing at September 28, 2013, was $958 million. At September 28, 2013, we
had outstanding letters of credit issued under this facility totaling $42 million, none of which were drawn upon. We had an additional
$146 million of bilateral letters of credit issued separately from the revolving credit facility, none of which were drawn upon. Our
letters of credit are issued primarily in support of workers’ compensation insurance programs, derivative activities and Dynamic Fuels’
Gulf Opportunity Zone tax-exempt bonds.
This facility is unsecured. However, if at any time (the Collateral Trigger Date) we shall fail to have (a) a corporate rating from
Moody's Investors Service, Inc. (Moody's) of "Ba1" or better, (b) a corporate rating from Standard & Poor's Ratings Services, a
Standard & Poor's Financial Services LLC business (S&P), of "BB+" or better, or (c) a corporate rating from Fitch Ratings, a wholly
owned subsidiary of Fimalac, S.A. (Fitch), of "BB+" or better, we, any subsidiary that has guaranteed any material indebtedness of the
Company, and substantially all of our other domestic subsidiaries shall be required to secure the obligations under the credit agreement
and related documents with a first-priority perfected security interest in our and such subsidiary's cash, deposit and securities accounts,
accounts receivable and related assets, inventory and proceeds of any of the foregoing (the Collateral Requirement).
If on any date prior to any Collateral Trigger Date we shall have (a) a corporate rating from Moody's of "Baa2" or better, (b) a
corporate rating from S&P of "BBB" or better and (c) a corporate rating from Fitch of "BBB" or better, in each case with stable or
better outlook, then the Collateral Requirement will no longer be effective.
This facility is fully guaranteed by Tyson Fresh Meats, Inc (TFM Parent), our wholly owned subsidiary, until such date TFM Parent is
released from all of its guarantees of other material indebtedness. If in the future any of our other subsidiaries shall guarantee any of
our material indebtedness, such subsidiary shall also be required to guarantee the indebtedness, obligations and liabilities under this
facility.
2013 Notes
In September 2008, we issued $458 million principal amount 3.25% convertible senior unsecured notes due October 15, 2013, with
interest payable semi-annually in arrears on April 15 and October 15. The 2013 Notes were originally accounted for as a combined
instrument because the conversion feature did not meet the requirements to be accounted for separately as a derivative financial
instrument. However, we adopted new accounting guidance in the first quarter of fiscal 2010 and applied it retrospectively to all
periods presented. This new accounting guidance required us to separately account for the liability and equity conversion features.
Upon retrospective adoption, our effective interest rate on the 2013 Notes was determined to be 8.26%, which resulted in the
recognition of a $92 million discount to these notes with the offsetting after tax amount of $56 million recorded to capital in excess of
par value. This discount is being accreted over the five-year term of the convertible notes at the effective interest rate.
In connection with the issuance of the 2013 Notes, we entered into separate convertible note hedge transactions with respect to our
Class A stock to minimize the potential economic dilution upon conversion of the 2013 Notes. We also entered into separate warrant
transactions. We recorded the purchase of the note hedge transactions as a reduction to capital in excess of par value, net of $36
million pertaining to the related deferred tax asset, and we recorded the proceeds of the warrant transactions as an increase to capital in
excess of par value. Subsequent changes in fair value of these instruments are not recognized in the financial statements as long as the
instruments continue to meet the criteria for equity classification.
We purchased call options in private transactions for $94 million that permit us to acquire up to approximately 27 million shares of our
Class A stock at the current strike price of $16.78 per share, subject to adjustment. The call options allow us to acquire a number of
shares of our Class A stock initially equal to the number of shares of Class A stock issuable to the holders of the 2013 Notes upon
conversion. These call options contractually expire upon the maturity of the 2013 Notes. We sold warrants in private transactions for
total proceeds of $44 million. The warrants permit the purchasers to acquire up to approximately 27 million shares of our Class A
stock at the current exercise price of $22.16 per share, subject to adjustment. The warrants are exercisable on various dates from
January 2014 through April 2014.
The convertible note hedge and warrant transactions, in effect, increased the conversion price of the 2013 Notes from $16.78 per share
to $22.16 per share, thus reducing the potential future economic dilution associated with conversion of the 2013 Notes. If our share
price is below $22.16 upon exercise of the warrants, there is no economic net share impact. A 10% increase in our share price above
the $22.16 warrant exercise price would result in the issuance of 2.5 million incremental shares. At $28.60, our closing share price on
September 28, 2013, the incremental shares we would be required to issue upon exercise of the warrants would have resulted in 6.1
million shares. The 2013 Notes and the warrants have a dilutive effect on our earnings per share to the extent the price of our Class A
stock during a given measurement period exceeds the respective exercise prices of those instruments. The call options are excluded
from the calculation of diluted earnings per share as their impact is anti-dilutive.
The 2013 Notes matured on October 15, 2013 at which time we paid the $458 million principal value with cash on hand, and settled
the conversion premium by issuing 11.7 million shares of our Class A stock from available treasury shares. Simultaneous to the
settlement of the conversion premium, we received 11.7 million shares of our Class A stock from the call options.